|CMKM Diamonds players face stiff penalties in SEC suit|
2008-04-09 14:53 ET - Street Wire
Also Street Wire (C-*ASC) Alberta Securities Commission
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
by Lee M. Webb
CMKM Diamonds Inc.'s key players Urban Casavant and John Edwards, along with their nominees and other defendants, face the possibility of stiff penalties in a $64.2-million securities fraud lawsuit filed by the U.S. Securities and Exchange Commission (SEC) on April 7. (All amounts are in U.S. dollars.)
As previously reported, the SEC filed a 27-page complaint against 14 defendants including CMKM, Mr. Casavant and Mr. Edwards in the U.S. District Court for the District of Nevada.
None of the defendants has yet filed an answer to the SEC lawsuit and the allegations have not been tested in court.
According to the U.S. regulator, the defendants were involved in "a massive and complex scheme" to dump hundreds of billions of shares of CMKM on gullible investors during the fraudulent promotion of the Las Vegas-based pink sheet woofer from January of 2003 until May of 2005.
Other defendants include Mr. Casavant's nominees and general-purpose gofers Ginger Gutierrez and James Kinney, both of Las Vegas. In addition to serving a stint as CMKM's investor relations representatives, the SEC claims that the pair unloaded approximately 88 billion shares of CMKM and, after taking a cut, funelled the proceeds to Mr. Casavant and his family members.
Anthony and Kathleen Tomasso, a husband-and-wife team from the notorious paperhangers haven of Boca Raton, Fla., allegedly served as nominees for Mr. Edwards, a British citizen living in Las Vegas.
The SEC alleges that approximately 77.3 billion unrestricted shares of CMKM were issued to five entities controlled by the Tomassos, who promptly sold the stock and wired more than $2.2-million to Mr. Edwards and transferred substantial amounts of money to other of his associates. The Tomassos allegedly cut themselves in for approximately $648,500.
CMKM's accommodating Las Vegas transfer agent, 1st Global Stock Transfer, and its owner, Helen Bagley, are also named as defendants.
According to the SEC, Ms. Bagley received hundreds of thousands of dollars in suspicious payments from Mr. Edwards and the Tomassos and turned a blind eye to "obviously incomplete and suspicious and, in some cases, forged documentation" while issuing more than 589.7 billion shares of unrestricted stock to Mr. Edwards, Mr. Casavant, their nominees and others.
The now-defunct NevWest Securities Corp., a Las Vegas-headquartered three-monkeys brokerage firm used by Mr. Edwards, and three of its principals are also named as defendants.
The SEC claims that NevWest's chief executive officer Sergey Rumyantsev, a Russian citizen living in Las Vegas, its chief compliance officer and lawyer, Anthony Santos, and former broker Daryl Anderson, now living in Laguna Beach, Calif., saw no evil, heard no evil and definitely spoke no evil as Mr. Edwards opened 36 accounts and unloaded a staggering 259.9 billion shares of CMKM for proceeds of more than $53.3-million.
Over the entire period of the fraud, the approximately $2.58-million in commissions generated by Mr. Edwards's trades accounted for 35.7 per cent of NevWest's total revenue. Mr. Anderson earned approximately $2.3-million for handling the trades.
Rounding out the list of defendants is shady lawyer Brian Dvorak, who is currently living in Boulder, Colo., and who recently filed for bankruptcy protection.
According to the U.S. regulator, in return for at least $495,000, Mr. Dvorak held his nose and wrote hundreds of bogus opinion letters fraudulently authorizing the issuance of more than 606 billion unrestricted shares of the smelly promotion.
In conjunction with filing the lawsuit, the SEC issued an April 7 press release commenting on the subpenny promotion and the gatekeepers who allegedly facilitated the fraud.
"The allegations in this case highlight the significant investor harm that results from abuses in the penny stock market," the acting director of the SEC's Los Angeles office Rosalind Tyson remarked.
"Although CMKM's stock sold for well under a penny a share, the defendants were able to reap millions in profits by conspiring to flood the market with billions of unregistered shares while falsely promoting CMKM's value," Ms. Tyson added.
Indeed, Saskatchewan native Mr. Casavant, who honed his touting skills on a number of Canadian mining plays before moving his act to Las Vegas after getting the boot from former Alberta Stock Exchange company Petro Plus Inc., brought a whole new dimension to the world of pink sheet promotions.
Instead of trying to run up the price of his pink sheet dog, Mr. Casavant simply devoted his efforts to generating enough demand among gullible investors to sop up the flood of subpenny stock as he peeled off hundreds of billions of shares for himself, family members and associates.
In the process, Mr. Casavant issued more CMKM shares than previously issued by any company on the planet. By the time the SEC yanked CMKM's stock registration in October of 2005, a staggering 703.5 billion shares were outstanding.
The head of the SEC's enforcement division, Linda Chatman Thomsen, also had something to say about the lawsuit, issuing something of a warning to so-called "gatekeepers" of the securities markets.
"The perpetrators of this massive scheme include several securities professionals and an attorney," Ms. Thomsen commented. "Today's action demonstrates that we will aggressively pursue individuals who ignore their obligations as gatekeepers to our markets and instead collude with their clients to violate the federal securities laws."
Canadian regulators, comprising a patchwork of provincial and territorial securities watchdogs with limited jurisdictional powers, have a remarkably dismal record when it comes to enforcing their nebulous gatekeeper rules and a similarly poor record in suing stock fraudsters and their accomplices.
The SEC, however, has been cracking down on companies and individuals for gate-keeping lapses and is much more aggressive, as well as more successful, in suing crooked market players, including Canadians. Indeed, many consider the SEC to be Canada's most respected securities regulator.
The U.S. regulator is seeking significant penalties against the defendants in the CMKM lawsuit, including Saskatchewan native Mr. Casavant.
Among other things, the SEC is seeking judgments against the defendants enjoining them from future violations of securities regulations. That, of course, is pretty standard fare in securities lawsuits.
The U.S. regulator is also seeking an order permanently banning Mr. Casavant from acting as an officer or director of any public company. That, too, is a standard request in such cases.
The SEC further seeks judgments permanently barring each of the 11 individual defendants "from participation in any offering of a penny stock, including engaging in activities with a broker, dealer, or issuer for purposes of issuing, trading, or inducing or attempting to induce the purchase of any penny stock." That would effectively boot the defendants out of the market.
With the exception of CMKM, which is penniless and a company in name only, the regulator is also asking for civil penalties to be assessed against the defendants.
Perhaps of most concern to the defendants, apart from CMKM, the SEC is seeking disgorgement of "all ill-gotten gains from their illegal conduct, together with prejudgment interest thereon."
The regulator claims that Mr. Casavant pocketed approximately $31.5-million, Mr. Edwards made off with $26.4-million and Mr. Casavant's nominees raked in approximately $6.3-million.
Ms. Bagley might be on the hook for several hundred thousand dollars, including $344,000 she allegedly received from the Tomassos, who might be looking at disgorgement of approximately $650,000.
NevWest, which had its registration yanked last year, allegedly made approximately $2.58-million for its participation in the scheme, with $2.3-million going to former broker Mr. Anderson.
Mr. Dvorak allegedly received $350 for each of the hundreds of opinion letters he wrote and received at least $495,000 from Mr. Casavant and his nominees during 2004.
It remains to be seen whether the SEC, if it prevails in the case and is successful in obtaining the disgorgement orders, will be able to collect any of that money.
Mr. Casavant, who allegedly pocketed the most money from the scheme, abandoned his "extravagant lifestyle" in Las Vegas and lit out for Saskatchewan after handing the company off to one of CMKM's biggest cheerleaders, Kevin West, last March.
Mr. West, who once touted CMKM as being conservatively valued at $64-billion and possibly worth as much as $1-trillion and praised Mr. Casavant as a godly man doing God's work in redistributing the wealth of the world, apparently had something of an epiphany after the Saskatchewan promoter took a powder.
Under Mr. West's direction and with the assistance of his Texas associate and lawyer Bill Frizzell, another former cheerleader and proponent of the ridiculous claim that the pink sheet company was the victim of naked short selling to the tune of two trillion shares, CMKM is suing Mr. Casavant for allegedly looting the company of $200-million.
Mr. Casavant, now living a less extravagant lifestyle and frequenting Saskatoon casinos rather than his favourite Las Vegas gambling dens, has not yet been served with the year-old CMKM lawsuit. He is also dodging other U.S. lawsuits and creditors.
Perhaps the SEC will be more successful in reeling the Saskatchewan promoter in.
Meanwhile, in an administrative action that points to the peculiarity, if not dysfunctional nature, of the Canadian regulatory system, the Alberta Securities Commission (ASC) has scheduled a hearing for April 9 to consider whether a cease trade order should be issued against CMKM.
The ASC action comes more than three years after the Saskatchewan Financial Services Commission issued a cease trade order against the company and almost 30 months after the SEC revoked CMKM's stock registration, ending any public trading of the shares.
Stockwatch will pick up its review of the SEC lawsuit and continue to follow developments in future articles.
The saga continues.
Comments regarding this article may be sent to firstname.lastname@example.org.
(Further information regarding CMKM Diamonds and associated companies can be found in Stockwatch articles dated Oct. 21, 2003; June 22; Sept. 16 and 24; Oct. 1, 15 and 20, 2004; Feb. 11, 14, 18, 22 and 23; March 1, 3, 4, 7, 14, 15, 16 and 21; June 6, 8, 9, 10, 13, 14, 15, 16, 17, 20, 21, 22, 29 and 30; July 1, 4, 6, 12 and 13; Aug. 2, 5 and 9; Sept. 7, 12, 27 and 30; Oct. 24, 26 and 31; Nov. 7, 11, 22 and 25; Dec. 1, 6, 9, 15 and 22, 2005; Jan. 3; Sept. 29; Oct. 4, 2006; Aug. 30, 2007; and April 7, 2008.)
Reader Comments - Comments are open and unmoderated, although libelous remarks may be deleted. Opinions expressed do not necessarily reflect the views of Stockwatch.
Will there be in bloody jail time for this wanker?
Posted by Gordon Ramsay @ 2008-04-09 15:34
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