| To: Michael Bidder who wrote (273) | 12/10/1998 12:09:00 PM | | From: Adrian du Plessis | | | |
You must remember this...
"How can you close me up? On what grounds?" Humphrey Bogart (Rick Blaine)
"I'm shocked, SHOCKED, to find that gambling is going on in here!" Claude Rains (Capt. Renault)
"Your winnings, sir," Rick's croupier to Capt. Renault
"Oh, thank you very much. Everybody out at once!" Capt. Renault
from the script for Casablanca
Investors pointing fingers as YBM fades
Member of TSE 300
By SANDRA RUBIN
The Financial Post
Investors holding $635-million of stock in YBM Magnex International Inc. lashed out at regulators and auditors yesterday in the wake of the company's stunning admission it expects to be indicted in a U.S. organized crime probe and its shares are unlikely to ever trade again.
As details emerged about how far out of control the Philadelphia-area magnet maker's business really was, shareholders grappled with the fact they are now holding worthless stock.
As first reported in the National Post, YBM's key Eastern European subsidiary was involved in several troubling transactions "which have the indicia of money laundering."
"This is a writeoff for everybody," said one small shareholder. "I think there was a period where everyone hoped it wasn't as bad as it turned out to be. I guess it's clear now that we can't believe one statement this company ever made."
Bob Bertram, senior vice-president at Ontario Teachers Pension Plan Board, said he is upset that YBM made it on to the Toronto Stock Exchange's benchmark 300 index, usually reserved for bigger, stabler companies.
"I can only be disappointed in the sense that this stock was in the index," said Mr. Bertram. Teachers' bought the stock for its own index fund and is now stuck with 1.6 million shares.
"I would have thought that, because it's on the TSE index, that it should have had some substance."
He said the giant fund will look at taking part in any class-action suit filed in YBM's rubble.
One shareholder after another asked how Deloitte & Touche LLP could have performed the high-risk re-audit of YBM's 1996 business, and come up with a clean bill of health.
YBM admitted in Tuesday's statement that the U.S. Attorney's Office is believed to have marshalled "substantial credible evidence of criminal wrongdoing."
"Cases like YBM show there needs to be a better auditing, maybe auditors should take a little more responsibility for what they do," said one institutional investor holding more than 200,000 YBM shares.
"It's a difficult situation, there's a lot of stress involved, in terms of who did the analysis, or lack thereof."
Deloitte has not made any statement since resigning as YBM's auditor in June. It even refused requests to meet with YBM's new directors, installed in September after institutional shareholders led by shareholder adviser Wesley Voorheis seized control of the board
Mr. Voorheis, YBM's chairman until the board quit en masse Tuesday night, declined to comment yesterday on where things went wrong.
"Now that I have no ongoing role in this, I have been asked to maintain a low profile," he said.
Houston lawyer Paul Yetter, who has been watching YBM for shareholders, said it's time insiders started talking about what went wrong.
"Investors have waited seven months for the company to admit the truth," said Mr. Yetter.
"Now it's time for Deloitte, First Marathon and the other promoters of this company to accept responsibility for their part in this scandal."
First Marathon Securities Ltd., which was co-lead underwriter of a 1997 issue of YBM shares, said it was "dismayed" at YBM's statement.
"We're obviously dismayed that events have come to this pass," said Michael Walsh, senior vice-president. "If the information they've announced is correct, it appears management of the company and perhaps others were hiding things from their shareholders and their board, and other people.
"It's shocking, that's a good way of describing it."
Griffiths McBurney & Partners, the other co-lead underwriter, denied reports that Bay Street brokerages knew of allegations back in 1997 that YBM was somehow linked with the Russian mob, but dismissed them as unfounded rumour.
"The facts as disclosed in [YBM's] press release speak for themselves," said Eugene McBurney. "I don't think any investment dealer, if he had known of these facts, would have gotten involved at the time. There's no question about that.
Mr. McBurney added that he could not recall from memory details about what he knew at the time of the public offering without checking his due diligence notes, now stored with counsel, Fogler, Rubinoff.
In its 12-page report revealing it expects indictments, YBM said a forensic inquiry conducted by Miller Tate & Co. revealed deep problems in the company's Eastern European division.
The report, which was presented to the board on Friday, confirmed there were troubling goings-on at United Trade Ltd., the company's key Eastern European subsidiary.
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| To: Adrian du Plessis who wrote (278) | 12/11/1998 4:30:00 AM | | From: Adrian du Plessis | | | |
and it's not even April 1st!
Former YBM trio wants to buy company, take it public again
Friday, December 11, 1998
PAUL WALDIE and KAREN HOWLETT
The Globe and Mail
The former head of YBM Magnex International Inc. is part of a group that wants to buy the company and take it public again.
The group consists of Jacob Bogatin, YBM's former chief executive officer; Robert Ventresca, a business associate of Mr. Bogatin; and Ken Davies, a Vancouver investor and former YBM director.
Those three created YBM in 1995 on the Alberta Stock Exchange and moved it to the Toronto Stock Exchange in 1996. It was included in the TSE 300 in 1997.
The company went into receivership this week after allegations surfaced of direct links between YBM and Russian mob boss Semion Mogilevitch.
"The plan of attack is to buy the assets of the company and to put it back together again," Mr. Davies said yesterday. "The company itself, the actual operating company, is a beautiful little operation and it has a phenomenal potential. It really does."
Mr. Davies said the trio plans to hire former executives and take the company public again, this time on the American Stock Exchange.
The group plans to offer $2 a share, for about $88-million in total. YBM last traded at $14.35. Trading was halted in May after an FBI raid on YBM's Pennsylvania headquarters.
"I can assure you one thing, the money that is coming forth is so clean," Mr. Davies said.
The group is backed by Southern Assurance Co. of Sarasota, Fla. Jonathan Curshen, who owns Southern, said yesterday that he has lined up investors to finance the bid but would not name them. "The most money is always made in projects that have the biggest problems."
When asked whether he is concerned about YBM's alleged mob ties, Mr. Curshen replied: "Well, we are not sure on that and everything is going to be subject to lots and lots of due diligence." However, he said he had not seen a recent forensic accounting report by Miller Tate & Co., which details the mob links.
Bryce Stewart, a Vancouver lawyer representing the group, was furious that information about the offer was filed in court.
"I don't want to talk to anybody," he said yesterday. "We are very upset."
Mr. Davies said Mr. Stewart is involved because they are close friends.
Court documents filed this week show YBM, which makes magnets, was directly linked to Mr. Mogilevitch through a web of companies.
The documents, including the Miller Tate report, describe several suspicious money transfers worth tens of millions of dollars between banks in Buffalo, Lithuania, Hungary and Russia. Last month alone, documents show, nearly $10-million (U.S.) moved from YBM to companies linked to Mr. Mogilevitch.
Most transactions, the documents say, involved two Buffalo men -- Paul Fallon and Vadim Segal -- who also have direct links to Mr. Mogilevitch's operations.
Mr. Segal is a long-time friend of Igor Fisherman, a YBM executive who also has ties to Mr. Mogilevitch. Mr. Segal is also vice-chairman of Petroff Bank in Moscow, whose chairman is an associate of Mr. Mogilevitch.
Mr. Fallon has been subpoenaed to testify before a U.S. grand jury about his YBM and Russian mob connections.
Mr. Davies refused to say if he knows Mr. Fallon or Mr. Segal. He added that Mr. Bogatin is working out of an office with Mr. Ventresca. They were not available for comment. Mr. Ventresca heads Alpha Financial Group in Philadelphia. Mr. Bogatin is a part owner of Alpha.
When Mr. Bogatin and Mr. Ventresca created YBM in 1995, Mr. Mogilevitch and his associates owned one-third of YBM's shares.
Mr. Davies has denied any knowledge of Mr. Mogilevitch's mob ties. He also said YBM directors weren't told about the connections between Mr. Segal, Mr. Fallon and Mr. Mogilevitch.
Mr. Davies left the board in September after a shareholder group took control and replaced several executives. Mr. Bogatin resigned earlier this month.
Mr. Davies said he was interviewed by four FBI agents more than a year ago. The agents arrived at his boat in Indiantown, Fla., near Palm Beach. After showing him their badges, Mr. Davies says he told them: " 'Oh, I have a plastic one like that at home.' They didn't appreciate that."
He said the agents had a stack of material on himself and YBM. Mr. Davies told them he has bank accounts in the Cayman Islands. "After our talk we all had a beer. It was not like a big deal."
CLEANING MONEY
The three principal steps to money laundering:
Place the "dirty" money in a bank or other legitimate institution so it can be moved around easily.
Separate the money from its criminal origins by passing it through several financial transactions, thus preventing the money from being connected to its origins.
Integrate the money with legitimately obtained funds to provide a plausible explanation for its ownership.
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| To: Mr Metals who wrote (271) | 12/11/1998 6:03:00 AM | | From: Adrian du Plessis | | | |
Jonathan Curshen: YBM's saviour, or a penny stock tout into bondage?
FWIW, there is a Jonathan R. Curshen of Sarasota, Florida who has openly declared his S&M kinks in cyberspace. This same "Master Jon" Curshen, with a group called Southern Assurance Group Inc., is a penny stock tout whose activities have been discussed extensively on-line -- a search right here on the Silicon Investor web-site turns up numerous references to Curshen and his associates in threads for such penny stocks as American International Industries Inc. and Cryogenic Solutions Inc.
What are the odds that this same individual is the Jonathan Curshen, owner of Southern Assurance Co. of Sarasota, Florida, who, as reported in today's Globe and Mail newspaper, is backing a bizarre bid by original YBM principals Ken Davies, Jacob Bogatin and Robert Ventresca to buy the company and take it public again?
Can this story get any more outrageous?
Should it prove to be the same person as the purported YBM financier, below are samples of items about the S&M penny stock tout, Jonathan Curshen (warning, explicit content):
Female Sub Needed 941, 813, 305, 954 more options
Author: Jonathan Curshen
Email: jonathan@sagi.com
Date: 1997/09/02
Forums: alt.personals.bondage
more headers
author profile
view thread
----------------------------------------------------------------------------
Female Sub Needed 941, 813, 305, 954
I want the following:
1) You must be 18-28 years of age.
2) You must be heterosexual, bi-sexual, or bi-curious.
3) You must be facially attractive, curvy and have great tits and a
great ass
4) You must be experienced orally and anally.
5) You must be severly obedient.
Hair color unimportant.
--
e-mail: jonathan@sagi.com
Talk : $5 and Under : American International Industries Inc. OTC BB Symbol
EDII
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To: jhild (2956 )
From: Janice Shell Wednesday, Oct 14 1998 11:28AM ET
Reply # of 3920
Guess what? It seems that EDII has a new promoter: Jimmy Ray Carter.
Veterans of CYGS will remember him: former broker banned for life by the NASD, works with "Master Jon" Curshen and Barry Ross.
I'm sure he'll make a GREAT addition to the EDII Family.
Talk : $5 and Under : Cryogenic Solutions Inc. (CYGS)
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To: Janice Shell (2340 )
From: Celeryroot Sunday, Aug 2 1998 7:54PM ET
Reply # of 3464
Hey Janice, ya ever heard of Southern Assurance Group down in little old Florida????? I bet Barry and the boys have
Talk : $5 and Under : Cryogenic Solutions Inc. (CYGS)
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To: Celeryroot (2341 )
From: Janice Shell Sunday, Aug 2 1998 8:05PM ET
Reply # of 3464
Gee, you mean THESE people?
8/02/98 OFFICER/DIRECTOR DETAIL SCREEN 8:05 PM
CORP NUMBER: S87636
CORP NAME: SOUTHERN ASSURANCE GROUP, INC.
TITLE: D NAME: CURSHEN, JONATHAN R.
P.O. BOX 2342 N/A
SARASOTA, FL 34230 US |
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| To: Adrian du Plessis who wrote (280) | 12/12/1998 12:39:00 PM | | From: RockyBalboa | | | |
YMB "News"
biz.yahoo.com
Disgraced YBM hit by investor lawsuit in U.S.
By Jeffrey Jones
CALGARY, Dec 11 (Reuters) - Investors in magnet and bicycle maker YBM Magnex International Inc. on Friday filed suit against the onetime Canadian stock market darling now collapsed amid allegations it was a front for an elaborate global money laundering operation.
The lawsuit, filed in U.S. District Court in Philadelphia, seeks unspecified damages from the Newtown, Pennsylvania,-based firm, former executives, directors and auditors, who the disgruntled shareholders believe were responsible for YBM's demise and its ties to a notorious Russian mob figure.
Among those named in the suit are former YBM Chief Executive Jacob Bogatin, former head of Eastern European operations Igor Fisherman, onetime auditors Deloitte & Touche and ex-director David Peterson, a former premier of Ontario.
YBM, which is incorporated in Alberta and was listed on the Toronto Stock Exchange until May when its offices were raided by U.S. organized crime authorities, is now in receivership and said it expects to be indicted by a U.S. grand jury.
YBM this week admitted it had little defense against criminal allegations.
''To North American investors, YBM has exhibited the indicia of a legitimate business enterprise...,'' said the lawsuit, filed late on Friday by a Texas lawyer representing investors.
''These trappings of corporate legitimacy were in fact part of an elaborate scheme to defraud investors. Rather than profiting from selling magnets and bicycles, it is now clear that YBM's only successful business is the laundering of criminal proceeds...''
Documents filed this week in a Calgary court by shareholders who seized control of the firm in September in hopes of reviving it, allege a complex web of suspect Eastern European business deals by subsidiaries and related firms.
A forensic accounting report in the receivership documents draws a direct link between YBM and Russian mobster Semion Mogilevitch, capo of a major global syndicate with tentacles in arms dealing, drug smuggling, prostitution and murder. The link was previously denied by former YBM executives.
According to Canadian and U.S. media reports, British intelligence identified Mogilevitch as ''one of the world's top criminals.''
Accounting investigators alleged YBM was a front for an extensive money-laundering operation involving millions of dollars funneled through Russian, Hungarian, Lithuanian and U.S. bank accounts.
The report was a bitter pill for fleeced investors, who stand to lose as much as C$635 million in stock value.
Houston-based lawyer Paul Yetter, who represents the investors, told Reuters he believed the civil action could proceed during the expected criminal case.
The company's problems have also proved to be an embarrassment to the Toronto Stock Exchange.
Although Canadian securities regulators had been informed by British authorities of suspected criminal activity involving the Russian underworld, YBM was granted a listing on the Toronto exchange in 1996 and eventually earned a place on the prestigious TSE 300 Composite Index.
YBM's market capitalization ballooned to C$1 billion before its head office was raided on May 13 by the U.S. Organized Crime Strike Force after an investigation that included wire taps on phones and fax machines. Trading in its stock was halted and will likely never resume.
Efforts to reach former YBM officials for comment were unsuccessful on Friday.
($1 equals $1.54 Canadian)
C. |
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| To: RockyBalboa who wrote (281) | 12/18/1998 2:41:00 AM | | From: Adrian du Plessis | | | |
The Financial Times of London -
THURSDAY DECEMBER 10 1998
Americas
FBI PROBE: YBM is put in hands of receivers
By Edward Alden in Toronto
YBM Magnex International, the magnet maker, has been turned over to a receiver and the company's board of directors has resigned, saying there is no possibility the company's shares will resume trading.
The directors also warned late on Tuesday that they had been advised by the company's counsel that YBM was certain to be indicted on criminal charges by a US grand jury unless it entered into a guilty plea agreement.
For the first time since the US Federal Bureau of Investigation raided YBM's Pennsylvania headquarters in May, the company has acknowledged that the US criminal investigation "may involve or relate to the possible links between YBM and certain alleged organised crime members".
Ernst & Young, the accountants, have been appointed as YBM's receivers, with a recommendation from the directors that the company be sold off to reimburse some of the losses suffered by shareholders.
YBM, which manufactures high-performance magnets and bicycles, became a Canadian stock market darling earlier this year, reaching a market value of more than C$900m (US$600m). The shares were bought heavily by big institutional investors, including the Ontario teachers' pension fund.
Trading in the shares has been halted on the Toronto Stock Exchange since May following the company's failure to file audited financial statements.
The investigation by the US authorities is believed to involve allegations that YBM was used to launder proceeds of Russian organised crime. A company founder, Semion Mogilevitch, was barred from the UK in 1995 following a money laundering investigation.
YBM's institutional investors seized control of the company earlier this year, installing their own board of directors. But in a statement on Tuesday the new board said it remained unable to supervise YBM's ongoing business or to ensure that its affairs were conducted lawfully, particularly with respect to its east European operations.
The directors hired US forensic auditors Miller & Tate to examine a range of questionable transactions by the company.
In a report tabled with YBM's board of directors last week, the auditors said it remained impossible to verify a number of YBM transactions. "In most instances, significant transactions involving substantial sums of money are not supported by corroborative evidence."
Most of these transactions were carried out by United Trade, a YBM subsidiary based in the Cayman Islands. The auditors said that during their probe they became aware of substantial amounts of money being moved through accounts controlled by United Trade.
The YBM saga has led to questions about why Canadian regulators approved the stock for listing.
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| To: RockyBalboa who wrote (281) | 12/18/1998 2:44:00 AM | | From: Adrian du Plessis | | | |
FT on magnet powder byproduct misreps etc.
The Financial Times of London
THURSDAY DECEMBER 17 1998
Americas
YBM: Company attracts scandal over money-laundering suspicions
Regulators had doubts about YBM but cleared its C$53m stock offering, reports Edward Alden. Now it is in receivership
Canadian securities regulators have fretted over the past eight months that YBM Magnex International, an obscure magnet company that became a stock market darling, might turn out to be another fraud of the order of Bre-X Minerals, the infamous C$6bn (US$3.9bn) gold company that never found any gold.
Last week, their worst fears were realised. While the scale is smaller, the YBM tale has turned out to be every bit as sordid.
YBM was placed in receivership by an Alberta court, ending any prospect that investors will recover more than a fraction of the C$900m the company was supposedly worth earlier this year.
More astonishing than those losses, documents filed with the court build a compelling case that YBM, which had claimed to be one of the world's foremost manufacturers of high-performance industrial magnets, was actually engaged in massive laundering of organised crime proceeds from Russia and eastern Europe.
The documents also show that Ontario securities regulators had strong suspicions that YBM might be laundering money, and yet allowed the company to place a C$53m stock offering last year. That clean bill of health by the Ontario Securities Commission, along with enthusiastic "buy" recommendations from the brokerage houses that underwrote the offering, helped propel the company into the Toronto Stock Exchange's 300 index.
YBM's criminal counsel now says the company is certain to be indicted by a US grand jury following a three-year investigation by the US organised crime strike force of the US attorney's office.
In addition, US lawyers last week filed a class action on behalf of investors against YBM, its auditors Deloitte & Touche and its directors.
The suit alleges that YBM was engaged in "an elaborate scheme to defraud investors".
Since the company's headquarters in Pennsylvania were raided by US authorities last May, YBM has denied all allegations of money laundering and links to organised crime. But a report submitted to the court by Miller, Tate, a US forensic accounting firm, strengthens many of the darkest suspicions about YBM.
Miller, Tate was originally commissioned by YBM to defend the company before an Ontario Securities Commission hearing. Instead, the auditors compiled damning evidence against the company. "In most cases," the report says, "significant transactions involving substantial sums of money are not supported by corroborative evidence."
Money laundering involves placing the cash proceeds of crime in a legitimate institution. It is generally done through "layering", which separates the cash from its criminal origins by passing it through several financial transactions, and through integration with legitimately obtained money.
A number of YBM transactions, conducted through the company's subsidiary United Trade, have "several indicia of money laundering [which] were never adequately explained by YBM's management", the report says.
The transactions involved millions of dollars being moved among related entities with bank accounts in Lithuania, Hungary and Buffalo, New York.
On June 6 1996, for instance, US$3.2m was received by United Trade's Hungary bank account from four entities that shared one or more common addresses. The wire transfers all originated from a bank in Lithuania. Six days later, $3.2m was withdrawn from the account and sent to five other entities with accounts at Chemical Bank in Buffalo. All five recipients shared one or more addresses.
The report also says YBM could not provide verification for many of its customers, had in fact fabricated a list of US customers, and could not document the legitimacy of its core business activities.
YBM had claimed publicly, for instance, that it earned revenues of more than $20m in 1996 and $28m in 1997 from purchasing oil, refining it with magnet powder byproduct, and then reselling the oil. The Financial Times reported last June that no such commercial application exists, but the company continued to insist that the sales were genuine.
The oil sales were the subject of "particular scrutiny" by the Ontario Securities Commission, the report says. The OSC even compelled YBM to hire Deloitte & Touche to do a "high-risk" audit of the transactions last year.
Yet Deloitte apparently never obtained documentary evidence for the transactions, though it approved the company's 1996 books.
Finally, in September, the management of YBM and United Trade changed its story, admitting privately to Miller, Tate that "powder was never used in conjunction with the oil transactions carried out by United Trade". As the report notes: "This is a direct contradiction to years of public disclosure regarding YBM's oil business."
The Miller, Tate report, while mostly written in dry language, contains some chilling moments. For example, Pinkerton agents were commissioned by YBM's audit committee earlier this year to investigate the alleged connections to the Russian mafia.
When agents visited the Budapest address of Technology Distribution, another related entity, they were greeted by several guards "carrying Uzis, Berettas or revolvers". YBM's internal audit committee, nonetheless, claimed in June to have found no evidence of criminal links.
With YBM in receivership, and no possibility the stock will ever trade again, the only questions left will have to be answered in civil and criminal courts. Deloitte & Touche, the auditors, have refused to comment, and even refused to be questioned by Miller, Tate.
The OSC, which approved YBM's 1997 share offering and set Canadian investors up for a very hard fall, will only say that it continues to investigate the company.
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| To: Adrian du Plessis who wrote (283) | 12/27/1998 1:47:00 PM | | From: thewiz | | | | |
Came across an article at Stockhouse regarding YBM (if only I could cut and paste). It points out that the OSC puts total responsibility for the fiasco on Deloitte & Touche and has fears that things of this nature will harm the reputation of the TSE. I haven't noticed if the OSC has been named in any of the lawsuits but it would appear as though they may be trying to cover their butts before this happens. I would hope that they are responsible for doing considerable DD before any stock gets listed. |
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| To: thewiz who wrote (284) | 12/27/1998 7:14:00 PM | | From: Adrian du Plessis | | | |
thewiz, to wit...
YBM Magnex: will Arigon's public trail be avoided by a**-covering, alibis and amnesia?
In oft-told tales of the recent Bre-X gold fraud, a Filipino geologist, Mike de Guzman, was fingered as the, figurative and literal, “fall guy”.
The case of YBM Magnex, another fallen Bay Street wonder stock, illustrates that the practice of pointing fingers is not a survival instinct exclusive to the core perpetrators of a scam. The public record of YBM, more graphically than does the Bre-X file, shows how securities regulators, brokers, analysts, money managers, accountants and other members of the financial establishment combine in a fiasco – and, further, how they may strive to disassociate themselves from such a collective, compounded, failure.
Although documented history reveals it as a charade, there is an emerging dynamic within the Canadian securities firmament to try and hang the YBM can primarily on auditors Deloitte and Touche, LLP (called in by the Ontario Securities Commission in mid-1997 to review YBM's books).
No doubt, there's enough blame to be shared in connection with this latest TSE mega-bust. Still, an attempt to focus public attention on the events of mid-1997 and later – while serving the purposes of some securities officials, stock brokers and money managers – neglects the critical, formative, stages of the YBM scandal.
In effect, Arigon Company, a vehicle linked (by numerous international police intelligence, and news, reports) to Russian Organized Crime activities, went public in Canada through the good graces of the Alberta Stock Exchange. As detailed elsewhere on the “howenow” web-site (@ imagen.net ), beginning in 1994, the pieces were put in place to enable Arigon to gain an ASE-listing through a “blind pool” originally called Pratecs Technologies (later renamed YBM Magnex).
Despite having easily identified rogues on its board of directors, YBM Magnex gained the approval of Alberta stock market regulators and the support of Canadian brokers such as Michael Prew, a Vice-President of Yorkton Securities and a former Chair of the ASE. Broker Prew, operating out of Yorkton's Calgary office (the same branch which launched the Timbuktu gold swindle onto the ASE in 1995/96), sponsored YBM taking Arigon public.
At the same time that Russian mafia godfather Semion Mogilevitch was being banned from Great Britain, and his associated companies and bank accounts shut down – in another region of the commonwealth, Canada -- Arigon, Mogilevitch and associates (Konstantin Karat etc.) were being granted welcome access to the public markets.
As early as mid-1995 Canadian officials became aware of money-laundering investigations into Arigon, Mogilevitch and others – but failed to ensure that the investing public was adequately informed of such alarming matters.
YBM shares began trading on the Toronto Stock Exchange on March 7 1996.
In early 1996, the motley management crew aboard Pratecs/YBM was augmented by a pair of Bay Street names: on January 26, First Marathon VP Robert Owen Mitchell (whose brokerage firm served to underwrite and tout YBM stock) became a director; and, on April 29 1996, ex-Ontario Premier David Peterson joined the team. (Peterson's law firm, Cassels Brock and Blackwell, provided legal services to YBM in connection with its 1997 prospectus financing.) What type of due diligence Mitchell and Peterson conducted before lending their names to the YBM promotion may be learned as various class action civil suits make their way through the court system.
It can be seen that YBM (which absorbed Arigon and its related companies like so many Russian matrioshka – or stacking -- dolls) was seeded on the ASE in 1994/95 and had been listed and established on the TSE in 1996 (well before auditors Deloitte and Touche were invited to the party). It's hard to fathom how regulatory officials at the TSE, OSC, ASE and ASC can defend their 1995 – 1997 response to information such as is contained in the UK police intelligence report reprinted below.
(As London's Observer newspaper was first to report, British authorities investigating Arigon and its related entities alleged, as early as November 1995, that Canada was “used purely to legitimise the (Russian) criminal organisation by the floating on the stock exchange of a corporation which consists of the UK and USA companies whose existing assets and stocks have been artificially inflated by the introduction of the proceeds of crime”.)
It's worth asking how Canadian stock analysts like Rob McConnachie (of Canaccord Capital and then Scotia Capital Markets), money managers such as Sceptre Investment Counsel's Allan Jacobs (who, with seemingly unintentional irony, noted how he liked YBM's “strong entrepreneurial management”), Wayne Deans (of Deans Knight Capital Management) and other boosters of the company's shares, could issue public recommendations or votes of support when, with a modest level of research, they could have known of YBM's Russian mafia associations through Arigon and its core assets and the allegations of money laundering which surrounded Arigon et al.
There was sufficient material on the public record to alarm prudent financial players long before the Fall 1997audit report of Deloitte and Touche flagged other, serious, problems at YBM. In these days of managed money mania, however, those entrusted with informing, and/or investing for, the public are insulated and are rarely called to account for their actions.
Even after the trade journal Canada Stockwatch began, on March 10 1998, to highlight public misrepresentations and dangers evident in YBM's affairs, some Canadian securities professionals acted as cheerleaders. On April 2 1998, Nesbitt Burns' analyst Peter Sklar described the weakness in YBM's share price, which he attributed to the coverage in Stockwatch, as presenting “a buying opportunity.”
By April of 1998, North American news agencies were aware of the links between Russian organized crime and YBM, then a member of the TSE 300 Index. Due to various (and, in some instances, serendipitous) circumstances – ranging from other business story priorities, a lack of committed resources, lengthy lead-times, security concerns and, even, simple fear – the news of YBM's roots in the Russian mafia ended up becoming publicized in the west contemporaneously with the May 13 1998 raid of YBM's Pennsylvania headquarters by dozens of agents for the FBI and other U.S. law enforcement agencies.
Now, particularly as the class action suits stack up, those that knew, or ought to have known, of YBM concerns about which public investors had not been alerted must stake out their positions of defence.
Unlike past Canadian stock debacles – such as the Bre-X salt-job – various professionals may find it difficult to plausibly defend themselves or claim surprise about certain damaging details reported in the YBM scandal. And there is an extensive public record which would challenge the claims of those who would like a convenient, all-encompassing, “fall guy” – such as Deloitte and Touche.
More than anything, the YBM case shows how the Canadian brokerage establishment embodies the spirit of the three monkeys – hear no evil, see no evil and speak no evil.
Most monkeys, however, have a legitimate excuse for not following the Arigon/YBM trail. They can't read.
What explanation is there for those money managers or market regulators that can read?
SOUTHEAST REGIONAL CRIME SQUAD
REPORT
To: Regional Coordinator 10 November 1995
From: Detective Sergeant J. WANLESS
Money Laundering Investigation Team, Spring Gardens
Subject: Operation SWORD
This report concerns the investigation into Operation SWORD, which was a development package passed from the National Criminal Intelligence Service (NCIS) to the South East Regional Crime Squad's Money Laundering Investigation Team on 9th December 1994 for investigation.
Operation SWORD concerned the activities in the United Kingdom of a Russian Organised Crime Group headed by one Semion Yudkovich MOGUILEVITCH, Born 30.06.46 The operation centred around MOGUILEVITCH's relationship with two English solicitors who were partners in a legal practice called BLAKES SOLICITORS, based at 20-22 Bedford Row, London EC4 and a number of companies which had been set up by these two individuals.
Initial investigations confirmed the information provided by NCIS that MOGUILEVITCH was strongly linked with the two solicitors Adrian Bernard CHURCHWARD, Born 17.02.46 Romford, N/T CRO and Peter BLAKE-TURNER, Born 04.05.50, N/T CRO via three separate companies, these being ARIGON COMPANY LTD, CREATEBURY LTD and LIMEGOLD LTD. It was also identified that Churchward was linked with Moguilevitch via a company called PENDOSI and that Churchward's wife, Galina Vassilyevna CHURCHWARD had a son called Yuli as a result of an earlier relationship with MOGUILEVITCH.
Intelligence became available from a number of Law Enforcement Agencies in Eastern Europe, the United States of America and Canada which indicated that the Moguilevitch Organisation was involved in large scale extortion, prostitution, arms dealing and drugs trafficking, and that profits from these criminal activities were being laundered by BLAKES Solicitors in London, through a number of bank accounts held at the Royal Bank of Scotland, 67, Lombard Street, London.
As a result of this information, between December 1994 and May 1995 a total of 37 Ordes (sic) under Section 27, Drug Trafficking Act 1986 and Section 55, Drug Trafficking Act 1986 were sought. The effect of the information amassed as a result of these Orders was that it was established that approximately $50 million had passed through the client accounts of Blakes Solicitors in a three year period. It also showed that because the monies were banked or credited to the Blakes client accounts, none of the transactions came to the notice of the Money Laundering reporting officer of the Royal Bank of Scotland. One reason for this was the banks attitude that the solicitors company was itself regulated in respect of money laundering matters by the Law Society and as such there was no requirement for the Royal Bank of Scotland to persue (sic) these matters. However, it had become apparent that there was no money laundering identification system in existence at Blakes.
In the months between December 1994 and May 1995 officers from the MLIT were required to conduct extensive enquiries in a number of countries. This was in order to properly develop the investigation and these enquiries identified the world wide structure of the Moguilevitch and other Russian Organised Crime Groups.
As the investigation gathered pace it became apparent that the funds passing through the Royal Bank of Scotland accounts were unregulated and also originated from a variety of dubious sources in the former Soviet Union. However, as with all money laundering operations conducted in the UK, the criminal origin of the funds that have been laundered have to be proved beyond all reasonable doubt and this of course was extremely difficult.
It was established that the Moscow Police were investigating an advanced fee fraud whereby a man known only as MYSINKOV had set up a company in Russia called PERIGEY. This company had entered into a total of one hundred and eleven contracts with the Russian Central Government to provide food stuffs. The Russians had then advanced $3.3 million in respect of goods to be provided in the future which never were. This money was then immediately transferred to PENDOSI Ltd and CREATEBURY LTD and subsequently to account in the U.S.A. and Hungary.
Enquiries made by the Moscow Police showed that the (sic) MYSINKOV had died in unknown circumstances and that prior to his demise his wallet and passport had been stolen and altered.
As a result of this substantial evidence relating to the handling of stolen money from an identified crime, applications were made for warrants to be obtained under Schedule 1, Paragraph 12A P.A.C.E. 1984 to search the premises of Blakes Solicitors and the home addresses of the Churchward's and Blake-Turner.
On 16th May 1995, the addresses were searched and all three were arrested on suspicion of handling stolen goods and interviewed at Paddington Green Police Station. All three were released on Police bail pending the arrival of evidence from Russia in a format which would be acceptable to an English Court.
During the course of the search of Blakes Solicitors' office over one hundred files which contained extensive intelligence relating to financial transactions conducted by the Mguilevitch Organisation were recovered and extensive evidence was obtained by way of interviews. It was also established that the Royal Bank of Scotland held a total of $2,096,145.00 in three separate accounts for ARIGON Company.
As the enquiries continued it was decided to take further action against MOGUILEVITCH himself and another suspect called Konstantin KARAT. This action took the form of obtaining first instant warrants of arrest of both men from Horseferry Road Magistrates Court for conspiracy to handle stolen goods. At the same time a sworn Affidavit was laid before the High Court and the funds in the Royal Bank of Scotland were restrained. The restraint of funds in the ARIGON accounts was conducted by the Crown Prosecution Service, Central Confiscation Unit (C.C.U.). The C.C.U. had given advice in relation to all parties in the investigation and in relation to the unregulated monies which had passed through the Blakes practice. The C.C.U. had claimed that the Practice's breach of the Money Laundering Regulations was in itself a Money Laundering Offence.
Whilst the High Court action proceeded all efforts were made to obtain the evidence from Moscow of the Perigey/Pendosi crime in order that criminal charges could be brought in the UK. It was by now that the slowness of the Russian judicial system became apparent. The request had been passed to the prosecutors department and the case had even been discussed at a high level whilst officers from NCIS and SERCS were in Moscow, however it was to no avail and to date no clear decision on assistance has reached the investigating officers. The effect of this was that criminal proceedings for conspiracy to handle stolen goods had to be abandoned in the absence of Russian evidence, this left the investigating team with the prospect of a prosecution for a minor money laundering regulations offence. It was however established that the Money Laundering regulation 1993, which concerned the manner in which the solicitors practice had conducted itself applied only to new clients. As these had been long term connections with Moguilevitch it was deemed that no successful prosecution could be brought.
In view of this the Restraint Orders were discharged and the legal costs of Mr and Mrs Churchward and Mr Blake-Turner were awarded against the C.P.S. No application for costs has ever been made by any part of the Moguilevitch Organisation.
The above is a brief resume of how Operation SWORD originated and the investigation that followed. As SWORD was the first package of its type to be produced by N.C.I.S., it is right to say that the manner of its investigation should be examined in order that any lessons may be learned for the future. With this in mind the investigation into SWORD produced some 545 Nominal Records and 1,325 exhibits, these were as a result of the 37 Orders obtained under Drug Trafficking legislation and 3 Search Warrants under Schedule 1 of PACE 1984.
CONCLUSIONS
The aim of the South East Regional Crime Squad is with the utmost vigor to bring justice and disrupt the activity of the top echelon of criminals, and it is within its criteria that Operation SWORD must be judged.
Semion MOGUILEVITCH is one of the world's top criminals who has a personal wealth of $100 million. He is a target of Law Enforcement Agencies and Security Services in several countries and as a result of the effect of his financial impact on the City of London he clearly falls in the category of an NCIS core criminal.
During the course of Operation SWORD no criminal prosecution was brought against any person, however, every company controlled by Moguilevitch has been closed down. All bank accounts, both National and International within the jurisdiction of the UK have been closed down and his entire organisation has withdrawn from UK shores.
Moguilevitch's principal method of operation in the UK was through Blakes Solicitors and in particular Adrian Churchward. As a direct result of the operation the BLAKES Partnership has been dissolved and Churchward is presently unemployed and subject to Civil litigation by the Royal Bank of Scotland. Further, in the respect of the Royal Bank of Scotland they have been the subject of a high level internal enquiry by the Special Investigation Unit if (sic) the Bank of England.
Amongst the intelligence gathered in the investigation of Operation SWORD was a record of every financial transaction conducted on behalf of Moguilevitch and other Russian Organised Crime figures by Churchward in the last five years. All of the intelligence has now been passed to NCIS for distribution to other Law Enforcement Agencies, with the added bonus that if required the South East Regional Crime Squad are in a position to produce any part of intelligence as evidence in any Court of Law.
Finally, in respect of Moguilevitch himself on 10th August 1995 the Home Secretary signed an order excluding him from entering the United Kingdom.
(signed)
John WANLESS
Detective Sergeant, MLIT.
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| To: Adrian du Plessis who wrote (285) | 12/27/1998 10:57:00 PM | | From: thewiz | | | | |
Thanks for your extensive and comprehensive reply. From what I have read lawsuits are pending against YBM, Deloitte and First Marathon. Sounds like the list should be considerably longer. Unfortunately, the wheels of justice turn very slowly so we'll probably still be discussing this for years to come. I'm afraid that those of us who invested in good faith in a company which we had been led to believe was very profitable will have to settle for a few crumbs that fall off the plate. Maybe they could at least give us a Shwinn (spelling) bicycle for all our trouble. |
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| To: thewiz who wrote (286) | 12/28/1998 10:40:00 AM | | From: Adrian du Plessis | | | |
OSC ignored YBM warning
Approved financing despite lawyers' objections
Saturday, December 26, 1998
KAREN HOWLETT and PAUL WALDIE
The Globe and Mail
The Ontario Securities Commission approved an equity financing by YBM Magnex International Inc. last year over the objections of lawyers in the OSC enforcement branch, industry and regulatory sources say.
The approval paved the way for YBM to raise $53-million in November, 1997, by selling shares at $16.50 each on the Toronto Stock Exchange. But no sooner had YBM received the go-ahead to sell the shares than the OSC's enforcement branch told the company it was under formal investigation, the sources say.
In effect, they say, two important branches within the OSC were at odds over how to deal with YBM, a company dogged at the time by questions about the identity and ultimate location of its customers.
Lawyers in the enforcement branch wanted to dig deeper into YBM's affairs, but staff in corporate finance -- the branch that approves companies' disclosure documents -- were satisfied after chartered accountants Deloitte & Touche performed an extensive, "high-risk" audit of YBM's 1996 financial statements.
YBM's equity financing, initially announced in May, 1997, had been delayed for six months because of OSC staff concerns about the company. At the OSC's request, YBM hired Deloitte to re-audit financial statements that had already been audited by a small Philadelphia accounting firm.
"The real question that somebody has to answer is, based on what they knew at the time, did [the OSC] come to the right conclusion or not," said one of the sources.
In response to questions from The Globe and Mail, the OSC issued a news release Thursdaydefending its actions. The OSC also said Deloitte's clean audit opinion was instrumental in its decision to approve the prospectus.
Deloitte met with the OSC after it completed the audit to respond to staff questions, the release says. It adds there was no indication of the kind of problems Deloitte would uncover only a few months later, while it was auditing YBM's 1997 statements.
"At no time was staff given reason to believe that it could not rely on Deloitte & Touche's work."
The OSC's statement goes on to say that, "in the absence of any reason to believe it could not rely on the work of Deloitte & Touche, it would not have been reasonable, in these circumstances, for [OSC] staff to have . . . audited the auditor."
But critics of the OSC say its handling of the YBM fiasco is consistent with the way the regulator has dealt with problems in recent years -- giving the benefit of the doubt to corporations at the expense of protecting investors.
Philadelphia-based YBM was delisted from the TSE earlier this month, in the wake of allegations that the company was running an elaborate money-laundering operation and that one of Russia's most powerful mob bosses was directly involved in its affairs.
Documents filed in an Alberta court this month in connection with YBM's receivership application, as well as interviews with sources close to the situation, provide a rare glimpse into the OSC staff's handling of the matter.
Staff at the OSC got involved with YBM a full year before the Organized Crime Strike Force in the U.S. Attorney's Office raided the company's headquarters in Newtown, Penn., on May 13, 1998, in connection with a criminal probe.
In May, 1997, YBM filed a preliminary prospectus with the OSC concerning the equity financing. While the OSC's corporate finance branch normally deals with such documents, enforcement lawyers were also involved on an informal basis because of the questions surrounding YBM at the time.
OSC staff told YBM it would not approve its prospectus unless a major accounting firm re-audited its 1996 financial statements. But there was friction between corporate finance and enforcement over the scope of Deloitte's audit engagement, the sources said.
Enforcement lawyers wanted a detailed forensic audit done, something that "sniffs all over the place and just doesn't take the green pencil and tick off things," one of the sources said.
But Brenda Eprile, the OSC's executive director at the time, decided the high-risk audit would be sufficient, the source said. Both enforcement and corporate finance branches reported to her.
Ms. Eprile approved the prospectus in November, 1997, in her capacity as acting head of corporate finance. She left the OSC in January to join Deloitte & Touche, where she heads up its new regulatory consulting services practice. She could not be reached for comment.
Asked about the tension between the two groups, the OSC said in its statement Thursday: "As would be expected, in any matter where professional judgment and discretion are involved . . . different approaches were extensively discussed and analyzed by staff."
And commenting on the fact that the enforcement branch launched an investigation into YBM in November, 1997, after the prospectus was approved, the OSC said such an investigation "will not, per se, result in a refusal to issue a receipt for a prospectus."
P.S. ...yes, there are numerous agencies and individual entities whose contributions to the YBM scandal are worth studying (and who, as yet, are not named as defendants in any civil actions)
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