|CMKM Diamonds promo leaves legacy of 40,000 victims|
2008-04-11 15:23 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
by Lee M. Webb
CMKM Diamonds Inc., a revoked pink sheet promotion formerly headed by Saskatchewan native Urban Casavant, has left a legacy of more than 40,000 naive investors holding the better part of 703.5 billion worthless shares. Meanwhile, the U.S. Securities and Exchange Commission (SEC) says that key players made off with at least $64.2-million. (All amounts are in U.S. dollars.)
On April 7, more than 29 months after yanking the pink sheet woofer's stock registration, the SEC filed a civil suit against CMKM, Mr. Casavant and 12 other defendants in the U.S. District Court for the District of Nevada.
The U.S. regulator alleges that the 14 defendants participated in "a massive and complex scheme" to fraudulently issue as many as 622 billion purportedly unrestricted CMKM shares and dump them on gullible investors between January of 2003 and May of 2005.
Mr. Casavant, a principal architect of the scheme and the company's public face, allegedly pocketed $31.5-million during the fraudulent promotion. Shadowy penny stock player John Edwards, who allegedly helped mastermind the scam, raked in a more modest $26.4-million. Mr. Casavant's nominees made approximately $6.3-million.
SEC attorney Leslie A. Hakala, whose considerable knowledge of the pink sheet company traces back to her leading role in the administrative proceeding that led to CMKM's revocation in October of 2005, offers a summary of the fraudulent scheme in the first few pages of the regulator's April 7 complaint.
In a nutshell
According to the U.S. regulator, the scheme began when several Canadian companies controlled by Mr. Casavant entered into a reverse merger with a public shell controlled by Mr. Edwards.
As reported in previous Stockwatch articles, with the help of some Saskatchewan associates, Mr. Casavant assembled a package of mineral claims largely consisting of untested moose pasture that he dealt off to a failed OTC Bulletin Board outfit, Cyber Mark International Inc., in November of 2002.
Along with the virtually worthless moose pasture, Mr. Casavant brought several members of his family into the play. In fact, one of the company's few SEC filings before it stopped reporting in July of 2003 reveals that, in addition to the Saskatchewan promoter, 22 members of the Casavant clan had an early stake in CMKM.
After folding into the OTC-BB shell, CMKM went on to fraudulently issue approximately 622 billion shares of purportedly unrestricted stock based on phony written authorizations and attorney opinion letters.
Lawyer Brian Dvorak, who issued hundreds of bogus opinion letters for the company, is among the defendants in the lawsuit.
"These authorizations and opinion were often facially inadequate, suspect and inconsistent," the SEC claims. "Nonetheless, CMKM's transfer agent, which was owned and run by Helen Bagley, issued sheaves of unlegended stock certificates."
Ms. Bagley and her transfer agent company, 1st Global Stock Transfer, are also named in the lawsuit.
Mr. Edwards and others deposited the certificates with various broker-dealers, including NevWest Securities Corp., and then dumped them into the market.
NevWest, two of its officers and a broker are defendants in the suit, along with four nominees who unloaded shares for Mr. Casavant and Mr. Edwards.
"Promptly after selling CMKM stock, Edwards and the others wired the proceeds to a series of bank accounts, provided large sums to Casavant, and used the money for various purposes including paying gambling debts, investing in real estate, and generating more shareholder interest," the SEC says.
The regulator goes on to highlight some of the key elements of the promotion.
"Casavant generated investor interest in CMKM by using false press releases, Internet chat boards, and 'funny car' race events across the country," the SEC alleges.
"To divert attention from their own dumping of CMKM shares, Casavant persuaded CMKM's investors that the reported high trading volume in CMKM stock reflected extensive 'naked short selling' rather than ordinary stock dilution," the complaint continues.
"This promotion was extremely successful, and about 40,000 investors purchased CMKM stock during the period of the fraud," the regulator notes. "In reality, Casavant ran the company from his house in Las Vegas, and CMKM had no meaningful operations other than issuing and promoting its own stock."
The SEC says that CMKM's stock price varied from one-100th of a penny to one-10th of a penny during the fraudulent promotion, "with volume sometimes exceeding two billion shares per day."
Apart from a couple of trading sessions when the share price nudged marginally above a tenth of a penny, the regulator has the correct price range for the subpenny pinky. However, the SEC significantly understates the daily trading volume.
In fact, through much of the promotion CMKM registered daily volumes of more than five billion shares, exceeded 10 billion shares on many occasions and once notched a staggering volume of more than 39.6 billion shares in a single session.
As previously reported by Stockwatch, the phenomenal CMKM trading triggered a 32-bit signed integer glitch that evidently went undetected by all quote services except Stockwatch.
In simple terms, because of the undetected glitch, quote services such as Bloomberg, which the SEC relied upon for trading data in its earlier administrative proceeding against CMKM, could not accurately report volumes that exceeded 2,147,483,647 shares.
Stockwatch discovered the 32-bit integer issue early on, created a fix and accurately reported the daily trading volumes.
For most of the time that Mr. Casavant was shearing his flock of gullible investors, a trading volume of two billion shares or so indicated a relatively slow day.
As noted by the SEC, "the individuals behind the CMKM fraud continued to sell stock" even after the regulator instituted an administrative proceeding to revoke its registration in March of 2005.
In fact, the SEC claims that the busy paperhangers did not stop unloading shares until the day after an evidentiary hearing in the administrative proceeding, "at which point substantial negative information about CMKM became public."
As previously reported, Mr. Casavant asserted his Fifth Amendment right against self-incrimination and refused to answer any questions at the May 10, 2005, hearing.
Another witness held in high esteem by CMKM's shareholders, then 87-year-old Robert Maheu, widely touted as the former right-hand man for Howard Hughes, provided some rather disappointing testimony during the hearing.
Prior to the hearing, fanatical CMKM supporters hailed Mr. Maheu as the heroic greybeard who was going to put the SEC in its place and set the company back on its ordained path to fabulous riches.
It turned out that Mr. Maheu did not have a clue about CMKM's operations or, for that matter, much of anything else about the company.
In October of 2005, the SEC revoked CMKM's stock registration, effectively ending public trading in the pink sheet dog of dogs.
The U.S. regulator claims that CMKM issued "numerous false and misleading press releases" to prop up interest in the pink sheet promotion.
For example, the SEC notes that in December of 2002, CMKM issued a news release claiming that it was sponsoring a representative office in Antwerp, Belgium, to promote "the Casavant diamond brand," but did not disclose that it had not yet found a single diamond.
While CMKM never did open an office in Antwerp, it did manage to attract a number of Belgian investors. Even now, "the Belgiums," as they are called by many of CMKM's followers, claim that shareholders will soon receive a massive return on their investment.
In January of 2003, as part of its efforts to divert attention from the massive share dumping by Mr. Casavant and his cronies, CMKM issued a news release asking investors to hold their shares in certificate form to help the company combat purported naked short selling.
The idea of a vast naked short selling conspiracy against the company was embraced by CMKM's gullible shareholders, many of whom have yet to disabuse themselves of that silly notion.
The SEC points to a Feb. 7, 2002, news release regarding a purported $50-million "ancient Chinese jade collection" as another example of CMKM's false and misleading claims.
In that news release, the company claimed that the jade collection had been appraised by experts and a random sample of the pieces authenticated by Elizabeth Childs-Johnson. According to the U.S. regulator, however, the noted expert never had any involvement with CMKM and never appraised any such collection.
At the evidentiary hearing in the administrative proceeding against CMKM, nobody could explain the share issuances related to the touted ancient Chinese jade collection.
In early 2004, Mr. Casavant began ratcheting up the promotion, issuing a number of news releases regarding the company's exploration progress on the touted Saskatchewan mineral claims.
On March 29, 2004, CMKM announced that it had made "new kimberlite discovery" on its mineral property in the Smeaton area. Mr. Casavant proclaimed that he was naming purportedly new discovery "the Carolyn Pipe" after his wife, Carolyn Casavant.
As Stockwatch subsequently reported, however, another company had drilled the ballyhooed kimberlite discovery in 1996 and the supposedly new Carolyn pipe was actually the old Smeaton kimberlite.
The SEC only discusses a few of CMKM's news releases in its April 7 complaint and it is difficult to assess just how much of an impact those announcements had on investors.
Stockwatch's records indicate that the company issued approximately 150 news releases during the period covered by the SEC lawsuit. Many of those news releases are laughable.
For example, On Oct. 30, 2003, CMKM announced that its exploration program would be delayed because of "unexpected magnetic storms caused by 'sunspots' or explosions on the sun."
On Jan. 21, 2004, Mr. Casavant proudly announced that the company had "purchased its own Drill Rigg (sic) and all equipment necessary to drill for diamonds."
"Now that we have purchased our own Drill Rigg (sic), the company is in a position to drill numerous holes at a reduced cost," the Saskatchewan tout declared. "This gives us a tremendous advantage in speeding the process of finding diamonds."
Some news releases, like the June 21, 2004, announcement that the company had temporarily closed its Internet message board, dealt with insignificant matters.
Many other announcements, such as the June 10, 2004, news release that caused a tizzy among naive investors by excitedly declaring that the touted "Carolyn pipe" was "confirmed to be diamondiferous" were notable for their vagueness.
In fact, considered on their own, most of CMKM's news releases are so insignificant that they even fall short of promotional puffery.
However, while they may have been vacuous, CMKM's public announcements were not issued in a vacuum.
The company's news releases were eagerly swallowed up by CMKM's cultish Internet followers, who evidently read between the lines and around the edges as they connected imaginary dots and concocted wild fantasies that were repeated, further embellished and eventually accepted by many as the gospel truth.
Mr. Casavant may well have filled his pockets while fleecing investors and leaving 40,000 of them holding the bag, but many shareholders rushed willingly to the shearing sheds, herding others along with them.
In future articles, Stockwatch will continue to follow the legal developments and review the role of Internet chat boards and the promotional "funny car" race events in the multimillion-dollar pink sheet debacle.
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 and 9, 2008.)
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