|From: StockDung||4/9/2008 5:02:13 PM|
|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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|From: CBurnett||6/9/2008 8:47:19 PM|
|CMKM Diamonds, Inc. Continues to Try and Identify Shareholders |
Last update: 5:42 p.m. EDT June 9, 2008
TYLER, Texas, Jun 09, 2008 (BUSINESS WIRE) -- In our efforts to continue to try to identify all of the shareholders of CMKM Diamonds, Inc. stock, current management of the Company would like to point investors that have been unable to procure physical stock certificates from their brokers to the UnShareholder.com website.
www.UnShareholder.com is launching today to help identify the magnitude of individual investors unable to obtain stock ownership certificates and who perhaps inadvertently purchased illegal "naked short" or "phantom" electronic "entitlements" instead of actual shares. The scope of settlement failures in general has become a hot debate.
Commonly referred to as the "naked short selling" problem, the real damage is caused by stock lending and settlement failures(a). Of course, the end result is the same: an investor makes a payment but has no actual investment. That investor is not a "shareholder" because they don't own shares. Instead, they are an UnShareholder.
According to the website: If you requested a stock certificate from your broker and have not received it, you are an UnShareholder. If your brokerage account was changed to delete the shares of a company that you didn't agree is "worthless", you are an UnShareholder. If you received a 1099 with "non-qualifying dividends" when you believed you owned regular shares, you are probably an UnShareholder too.
Attorney Al Hodges states, "The UnShareholder site has been developed and established by the Pasadena, California law firm of Hodges and Associates in an attempt to document the nature and depth of the UnShareholder problem as well as to identify individual investors whom have in good faith purchased publicly traded shares of stock but, for all the wrong and illegal reasons, are not entitled to receive them nor to enjoy all the indicia of ownership."
(a) Stock lending is closely associated with short selling and settlement failure refers to the problem of sellers not delivering shares on the settlement date. Naked short selling is when stock is sold short and not borrowed for delivery on the settlement date.
SOURCE: CMKM Diamonds Inc.
CMKM Diamonds Inc., Tyler
Kevin West 903-262-8397
Copyright Business Wire 2008
PR :CMKM Diamonds, Inc. Continues to Try and Identify Shareholders biz.yahoo.com
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|From: average joe||9/18/2009 12:12:45 AM|
|DOJ Issues Six Criminal Indictments in CMKM Diamonds Case|
September 17, 2009
Seven years after the saga of CMKM Diamonds, Inc (CMKX) officially began, over four years after the company was revoked by the SEC, and a year-and-a-half after the SEC filed civil charges against eleven individuals and three corporate entities, the Department of Justice unsealed criminal indictments against six individuals in the largest penny stock fraud in history.
Former CMKM CEO Urban Casavant and alleged mastermind John Edwards, along with cohort James Kinney, transfer agent Helen Bagley, attorney Brian Dvorak, and Urban’s secretary Ginger Gutierrez were charged with five counts of securities fraud in the massive and complex scam, which involved the selling of over 700 billion shares of CMKX stock to unsuspecting shareholders for an estimated $250 million.
The 40-page indictment, unsealed today in Las Vegas, included allegations of selling unregistered shares of company stock “by use of the mails, over-the-counter mediums of exchange (e.g, the Pink Sheets), and other means” in violation of federal laws. The indictment states that “JOHN M. EDWARDS, URBAN CASAVANT, HELEN BAGLEY, BRIAN DVORAK, GINGER GUTIERREZ, JAMED KINNEY, and others known and unknown, conspired to fraudulently issue and sell unregistered shares of CMKM stock for the purposes of enriching themselves.”
Casavant was also charged with income tax evasion for failing to report a “large part of the income tax due and owing by him to the United States of America for the calendar year 2004.” The charges allege that Casavant “concealed income from the stock and securities of CMKM Diamonds, Inc., by using nominees to conceal and disguise his interest in the shares and the proceeds, and by routing proceeds to accounts of nominees, corporate alter egos, and other entities” within his control.
The charges also included four “forfeiture allegations,” seeking either fines or property seizure on each count. Each forfeiture count states, “It is the intent of the United States of America to seek forfeiture of any properties of the defendants up to $60,000,000 in United States Currency.”
Timothy S. Vasquez, who was instrumental in the arrest and conviction of John Edwards’ wife Diana Lee Edwards (formerly Diana Lee Flaherty) in 2006, was brought on board to head the criminal task force investigating the CMKX scam earlier this year, helping to breathe new life into an investigation that many people (including this reporter) believed had been shelved for good. The multi-agency task force was comprised of representatives from the DOJ, FBI, IRS, and the SEC. The indictment will be available on the CMKM Diamonds website tomorrow at www.cmkmdiamondsinc.com
Defendants Bagley, Kinney, and Gutierrez, who were arrested in Las Vegas yesterday, and Brian Dvorak, who was apprehended in Colorado, were released on bond today. Defendant John Edwards was arrested on September 7 in England. Extradition proceedings are ongoing. Urban Casavant, believed to be in Canada, is still at large.
With over 300,000 pages of evidence scanned during the discovery process, the trials involving all six defendants could take years, but at least the criminal justice process has officially begun. After years of waiting and hoping, sometimes all but giving up hope, today’s criminal indictments will hopefully offer some degree of closure for the over 50,000 victims in the CMKX scandal.
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|To: StockDung who wrote (2581)||3/2/2010 3:10:58 PM|
|CMKM Diamonds Kelowna litigant has more theories |
2010-03-02 13:36 ET - Street Wire
Also Street Wire (U-CMKX) CMKM Diamonds Inc
by Janice Shell
There is another legal filing by David Nelson, the Canadian shareholder of CMKM Diamonds Inc., who late last year filed a lawsuit in Kelowna against the U.S. Securities and Exchange Commission.
Following the filing of his statement of claim, Mr. Nelson provided a number of "updates" to his cult-like followers on various Internet message boards, and has appeared at one court hearing.
About three weeks ago, he submitted a lengthy affidavit to the Kelowna court. Unlike a usual affidavit, a sworn statement of fact, this ramble reads more like an amended statement of claim, that is, full of allegations, many repeated again and again. He furnished a copy of his affidavit to his online fans, using his familiar alias "Gus Jarvis." We review it below.
The SEC's lawsuit against the CMKM Diamonds perpetrators has left the company's cult-like shareholders unsatisfied. They believe they are owed large sums, though not by the actual perpetrators of the scam. These shareholders have found a fatter goose to pluck, and now demand to be "paid" by the SEC. Their earnest pleas (and constant grumbling) have resulted in the filing of two legal actions against the commission and its commissioners. Both actions are brim-full of conspiracy theories, the likes of which were a staple of the CMKM promotion.
Mr. Nelson, a shareholder, self-filed his lawsuit on Nov. 6, 2009, at the Supreme Court of British Columbia in Kelowna. A. Clifton Hodges, a Pasadena lawyer, filed his, a class-action, on Jan. 8, 2010, in U.S. Federal Court.
In Mr. Nelson's affidavit, he swears that now he, not the CMKX Shareholders Coalition for Justice, is the plaintiff: "I am the Plaintiff in this proceeding and as such have personal knowledge of the matters and facts hereinafter deposed to, save where stated to be on information and belief and where so stated I verily believe the same to be true." It comprises a few facts and a great many beliefs.
Mr. Nelson appears to have to some extent changed his mind about why he is suing the SEC. In the statement of claim, he alleged that the SEC had, through negligence, failed to stop the CMKM fraud in a timely manner, and that they further "colluded" with unnamed perpetrators in the supposed naked shortselling of CMKM stock. In the affidavit, he mentions those claims only briefly before going on to incorporate many elements of the complaint filed by Mr. Hodges in California -- the sting operation, the "frozen trusts", and of course the $3.87 trillion monetary demand -- all of which he believes to be true and well founded.
According to Mr. Nelson, all of the above has been clearly proved by Mr. Hodges, whose case "confirms CMKX was used as a vehicle in a sting operation, and statements made in the case are now confirmed by talks taking place to release the money from the frozen trust accounts between Al Hodges and the SEC and other Government entities."
As evidence he cites talks with lawyer Mr. Hodges. "In preparation for my filing I have had discussion with Al Hodges and he has confirmed directly to me that these trusts are there and the funds have been collected. His lawsuit is only to force the release of the already collected funds. Several plaintiffs who hired Al Hodges in this case have confirmed on public forums [that is, Internet message boards] that talks and actions are ongoing to release these monies, but the U.S. Government has repeatedly lied about the release of those funds, sending codes to release the money that did not work, and that money was missing out of the trust fund when access codes worked."
There follows a lengthy recitation from Mr. Hodges's complaint, which includes a number of astonishing allegations: "To fulfill the plan to criminally trap such wrongdoers, the Securities and Exchange Commission, with assistance from the Departments of Justice and Homeland Security:
"Encouraged the company to expand its promotional activities, assisted in the setup of the "racing activities" [CMKM sponsored a NASCAR Funny Car] of the company, and underwrote a substantial portion of the cost of such activities;
"Consented to, facilitated, and supported the sale of certain company [mineral claims to several foreign corporations;
"Consented to, facilitated, and supported the conferences between Robert A. Maheu and his associates on the one hand, and the wrongdoing short sellers on the other, all for the purpose of settling the potential liability of said wrongdoers with consent of the U.S. Government."
In addition, the SEC supposedly "consented" to the hiring of D. Roger Glenn, at one time CMKM's lawyer, and to the payment of stock dividends in shares of several companies related to CMKM. Both Mr. Hodges and Mr. Nelson mistakenly believe that Roger Glenn was the "drafter of [the] Sarbanes-Oxley [Act]."
"NSS" once more
Having read Mr. Hodges's allegations into the record, so to speak, Mr. Nelson mounts his favourite hobbyhorse, naked shortselling. In a breathtaking excursus on "collusion between the hedge funds, Wall Street firms, the SEC, DTCC, SIFMA [Securities Industry and Financial Markets Association], and the Federal Reserve," he veers off into a discussion of Bernie Madoff's crimes: "Bernie Madoff is just a small example of collusion that takes place on wall street, one in which the criminals made all the rules, one in which you don't even have to sell the public real shares. Here is from the Wall Street Jounal's Ianthe Jeanne Dugan, Feb. 21 2009: 'The trustee liquidating Bernard Madoff's investment firm said there was no evidence that Mr. Madoff bought any securities for clients in at least 13 years.'"
It is difficult indeed to see what Mr. Madoff's Ponzi scheme, which did not involve the actual trading of any stock, "real" or otherwise, has to do with CMKM. Mr. Nelson appears to believe that Mr. Madoff was "counterfeiting" stock (and options), rather than simply accepting money and pretending to invest it.
Mr. Nelson's concerns about "NSS" are so great that he plans to extend his suit to much of the penny stock market, "introduc[ing] dozens of examples of victim companies and how the SEC followed the same modus operandi of protecting the perpetrators at the expense of the victim companies, their employees, and the unsuspecting public who bought counterfeit shares in those companies." One of these "victim companies" is Eagletech, which was successfully sued by the SEC in 2005; its registration was revoked (like CMKM's) in 2006.
He says that now he also "seeks a full public enquiry into Canadian regulatory agreements with the SEC and a public enquiry into all thirteen Canadian Securities Regulators and the SEC themselves." That, however, may not be enough: since the RCMP, the DOJ, the FBI, the IRS, Homeland Security, and Interpol have all worked together at times, and, Mr. Nelson believes, knew the "size and scope" of the "NSS" fraud, they too, "and others to be named," should be investigated.
On Feb. 8, Mr. Nelson made his first appearance in court. The purpose of this hearing is unclear, given that the defendants have yet to be properly served in the case.
His online account of what transpired at the hearing is, alas, an imprecise narrative, but he was pleased with the outcome: "I was nervous I must admit, but I nailed a speech that asked the judge for the release of 3.87 trillion dollars to fifty thousand shareholders who are on the victim identification list handed in by CMKM Diamonds, which I produced the update from their website showing this was true."
He further reported that "the judge looked proud of me and there was an emphasis that they had looked this over, this was no normal case my friends."
Quite so. It is a most unusual case, but judges can be inscrutable, often allowing litigants to believe their case has received a favourable hearing. Sometimes even a goggle-eyed stare and a dropped jaw can be interpreted as an expression of pride.
Mr. Nelson is now accepting donations to help with his legal costs. He claims to have received more than $3000 so far, and plans to hire a lawyer to explain how to execute proper service on the SEC, something he has so far neglected to do. He has also announced his intention to issue two press releases about the suit in the very near future.
With a flash of bravado, Mr. Nelson warns: "If we are not paid by next week the heat will be turned up one hundred percent".
The saga continues.
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|From: StockDung||3/12/2010 2:21:23 PM|
|Dealing With Fraud by Denial By FLOYD NORRIS|
March 11, 2010
Years after Charles Ponzi was imprisoned for a fraud that cost victims millions of dollars in 1920, the state of Massachusetts determined it had recovered all the assets it could, and began to distribute them to victims, who stood to receive less than 30 cents for each dollar they invested.
To get the money, the victims had to turn over the notes they had received from Ponzi. But many of them refused to do so when the cash was offered in 1931.
Those who refused, wrote Donald Dunn in his book, “Ponzi: The Incredible True Story of the King of Financial Cons,” were “holding onto the belief that Ponzi somehow would yet make good on his promise of 50 percent interest.”
He did not.
That was probably not the first, and certainly not the last, example of what might be called “buyer’s denial.” It is the belief that somehow a fraud was not what it seemed to be, and that there was still a way to avoid losing the money the victim had foolishly invested.
“One has to ignore a lot of data to come to that conclusion. But that may be better than having to admit to yourself that it is over and you’re never going to get your money back,” said Dean G. Kilpatrick, the director of the National Crime Victims Research and Treatment Center and a professor at the Medical University of South Carolina. “It stands to reason that some would prefer to believe something else.”
To conclude that, it may be necessary to believe that there is some large conspiracy involving the government. Otherwise, why would prosecutors have wrongly claimed there was a huge fraud?
Perhaps the largest case of “buyer’s denial,” at least in terms of alleged damages, is in the fraud involving a tiny company known as CMKM Diamonds, which purported to have valuable diamond mining claims. In reality, what it had was a publicity machine, including the sponsorship of a car at “funny car” races around the country.
Several shareholders in CMKM — some of whom kept buying shares after the government exposed the fraud — want 10 current and former commissioners of the Securities and Exchange Commission to pay them $3.87 trillion, an amount equal to about half the United States government debt in public hands. You might think that would be enough, but the suit claims those are merely compensatory damages. They also want punitive damages, but do not cite a figure.
That is an impressive amount for a company whose last published balance sheet showed total assets of $344. That is dollars, not millions.
The tale the shareholders tell, in a lawsuit filed in January in federal district court in Santa Ana, Calif., is of a conspiracy involving not just the S.E.C., but also the Justice Department and the Department of Homeland Security.
Before getting into their view of reality, we’ll look at the record as developed in court cases filed by the S.E.C. and the Justice Department.
By their account, CMKM Diamonds illegally issued hundreds of billions of shares of stock, which insiders proceeded to sell into the market while the company issued a series of false news releases and failed to file required financial statements with the S.E.C.
With volume in the stock reaching billions of shares a day, the company needed an explanation for where all those shares came from. Disclosure that the company was simply printing them might have alarmed even the least astute investor.
CMKM came up with an explanation that would also be used later by another “pump and dump” fraud named Universal Express. It blamed “naked” short-selling by criminals who had sold shares they had not borrowed beforehand.
Eventually, the S.E.C. ordered a temporary halt to the trading, citing the lack of public information on the company. The insiders kept selling shares, earning a total profit of at least $64 million, according to the government.
The case stands as a tribute to the ineffectiveness of civil remedies against determined crooks. The S.E.C. sued the insiders in federal court in Nevada. Most of them did not bother to reply. The S.E.C. got an order requiring John Edwards, a British citizen said to be the mastermind of the fraud, to pay $55 million in restitution, damages and interest. He left the country.
Urban Casavant, the company’s chief executive and the man who ran the publicity machine, was ordered to pay almost $69 million, but did not. He moved to Canada.
Both of those men, along with four other people said to have been involved in the fraud, were indicted by a federal grand jury in Nevada. Mr. Edwards is fighting extradition from Britain. Mr. Casavant is a fugitive.
The other view of CMKM is advanced by A. Clifton Hodges, a lawyer in Pasadena, Calif. In his class-action suit representing shareholders, and in an interview, he maintained that the government had set up a sting to catch the criminals who were doing the naked shorting.
The government had, the suit says, “evidence that short-sellers were utilizing their activities to illegally launder moneys, wrongfully export moneys, avoid payment of taxes and to support foreign terrorist operations.”
The government supposedly set up a sting using the services of Robert Maheu, a former F.B.I. agent and associate of Howard Hughes, who briefly served as a director of CMKM and complained that he was not paid. Mr. Maheu has since died.
The government now should distribute to shareholders the money it made on the scheme, the suit maintains. It does not explain how it arrived at a number in the trillions.
Mr. Hodges told me he had evidence to back up his case, but would not reveal it now.
He said the suit is allowed under a 1971 Supreme Court decision that allowed victims of ostensibly improper searches by federal narcotics agents to sue the agents as individuals, even though they could not sue the government. He thinks that justifies suing everyone who was an S.E.C. member from 2004 to the present.
Mr. Hodges told me that he could produce testimony from an unnamed witness who had heard Christopher Cox, then the S.E.C. chairman, direct that no enforcement action be taken against CMKM. Mr. Cox declined to comment, citing the pending litigation, but it is worth noting that the S.E.C. did file enforcement actions against the company while Mr. Cox was at the helm.
Mr. Hodges told me he has the phone number of Mr. Casavant, the fugitive former chief executive, in the Canadian province of Saskatchewan, and had spoken to him. He would not provide the number.
While pursuing his own theory of what happened at CMKM, Mr. Hodges does not seem to have done an especially thorough job of keeping up with the official version. The federal indictment of Mr. Casavant was unsealed in September, six months ago. But when I spoke to him this week, Mr. Hodges told me that Mr. Casavant had not been indicted.
Because I had written about CMKM several years ago, several shareholders brought this suit to my attention. When I told one I believed that the suit was unlikely to succeed, another called to ask me if the government was paying me off to suppress the news.
If the suit is dismissed, those shareholders are not likely to conclude that the claim is nonsense. Instead, they probably will see the dismissal as proof of an even larger conspiracy. Buyer’s denial can be a powerful thing.
Floyd Norris comments on finance and economics in his blog at nytimes.com/norris.
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