Herewith, some reportage of the last scam I exposed in my career as a white collar crime investigator. The context is explained in the next post on this blog: May 27, 1998 THE NEW YORK TIMES U.S. Raid Helps Crash Former Canadian High-Flyer By ANTHONY DePALMA TORONTO
-- A small cinder-block building in a suburban office park outside Philadelphia is an unlikely setting for a complex tale of international intrigue.
But the FBI and other federal agents descended on it earlier this month to haul off boxes of records from the offices of YBM Magnex International
, a maker of bicycles and magnets. On the same day, the once high-flying shares of YBM were suspended from trading on the Toronto Stock Exchange
, the only place they had been listed.
The events have raised questions about the individuals involved in the company and the financial records it kept, and about the reliability of the Toronto exchange, whose previous problems include the Bre-X
An official with the U.S. Customs Service, who spoke on condition that his name not be used, said YBM
was being investigated on suspicion of money-laundering and having close ties to members of Russian organized crime. The company's primary manufacturing plant and most of its sales are in Eastern Europe and the former Soviet republics.
's auditors, Deloitte & Touche, have so far declined to certify its financial statements for 1997. Deloitte has asked YBM to commission an independent review because of irregularities in the company's sales records, concerns about individuals involved in the company and serious questions about whether illegal acts had occurred. The Financial Post
of Toronto, among other newspapers, has cited a 1995 report by the National Crime Squad of Britain that links YBM
to Russian organized crime. According to The Financial Post
, the British police identified Semyon Mogilevich, one of YBM
's original shareholders, as a director of Arigon Co. Ltd., a Channel Islands concern linked to the Russian mob, which was a predecessor of YBM
The British police report, according to The Post
, stated that Canada has been used by Mogilevich "purely to legitimize the criminal organization by the floating on the stock exchange of a corporation which consists of the U.K. and U.S.A. companies whose existing assets and stock have been artificially inflated by the proceeds of crime." YBM
has facilities in Kentucky and in Southport, England. Company officials deny that they have been involved in any wrongdoing. Guy Scala, a vice president, said operations were continuing at the headquarters in Newtown, Pa., and at manufacturing plants in the United States and abroad. He expressed confidence that the company would eventually be allowed to resume trading on the Toronto exchange.
"I wish I had a crystal ball so I could understand what they're all looking for and where this is going," Scala said.
Investors who briefly made YBM
one of the hottest stocks on the Toronto market -- and until recently a member of the exchange's leading index of 300 companies -- are uneasy. Particularly worried are the managers of the Canadian mutual funds that hold 40 percent of YBM
's 44 million shares, according to Portfolio Analytics Ltd
"There seem to be a lot of allegations flying around now but very few real facts," said Alastair Dunn, a director of Connor, Clark & Lunn Investment Management of Toronto and Vancouver, which manages mutual funds holding about $48 million (Canadian) in YBM
stock. "It's obviously a very embarrassing thing to have happened, not only to ourselves but to a lot of other very fine investment managers."
Although the Ontario Securities Commission ordered a halt in trading for at least 15 days on the day the FBI agents seized the company's records, the commission said its action was unrelated to the possibility of a criminal investigation. Rather, it was YBM
's inability to file its 1997 financial statement that forced the trading halt.
Subsequently, the Toronto Stock Exchange decided to remove YBM
from the 300-company index. YBM
shares had shot up as high as $20.15 (Canadian) in March. On the day trading was suspended, it was valued just over $14. There is no way to know its true current value, but some Canadian mutual fund managers recently organized a conference call to establish a value for carrying YBM
stock in their portfolios while trading is halted. They agreed to lower it to a range of $5 to $7 a share. Technimetrics
, a listing company, indicates that at least one mutual fund in the United States may also hold YBM
stock. Invista Capital Management
of Des Moines held 53,000 shares at the end of last year. Invista
officers declined to respond to phone calls seeking comment.
For Canadian investors who have been burned by other hot stock deals that flamed out, YBM
's trouble is an all-too-familiar story. Just over a year ago, thousands of shareholders in Bre-X Minerals
of Calgary were wiped out on the disclosure that someone had falsified samples to make its Indonesian gold strike appear to contain huge amounts of gold when in fact there was almost none.
Even before the U.S. agents swooped down on YBM
's headquarters May 13, there were signs -- widely overlooked by the market and many stockbrokers -- that the company might not be all that it said it was.
In February, Adrian du Plessis, who publishes a newsletter that investigates stock offerings in Canada, raised questions about the company's history.
After being listed on the Alberta Stock Exchange in 1995, the value of YBM
rose rapidly, and in 1996 it was listed on the Toronto Stock Exchange
. By March its shares had soared to $20, as it reported rising revenue in North America and a total market value of more than $800 million (Canadian). The stock was heavily promoted by Canadian investment brokerage houses, some of which had substantial holdings.
"The fundamentals weren't outlined," du Plessis said in an interview. "It was just a lot of cheerleading." Company audits eventually showed that YBM
had vastly inflated sales in North America.
But that was not the most worrisome of du Plessis' findings. He determined that Arigon, the YBM
predecessor, had "been identified by the European media and intelligence agencies as conduits for the Russian Mafia." YBM
officials acknowledge that Mogilevich was one of the 31 original shareholders of the company but deny that he ever had any management responsibilities.
FBI officials would not comment on the nature of their investigation of YBM
or on the connection of Mogilevich to the company. Nor would the agency confirm any suspicions about Mogilevich's activities, other than to say that "we are aware of him." YBM
also confirmed that the British police had investigated Arigon
. which it acknowledged was its predecessor, in 1995 on unspecified charges, but that the case had been dismissed.
In an earlier statement about the U.S. authorities' search, the company said that along with the FBI, agents from the Immigration and Naturalization Service, the U.S. Customs Service and the IRS had arrived to retrieve documents.
According to the search warrant, which was issued in U.S. District Court for the Eastern District of Pennsylvania, the agents seized bank statements, billing invoices, expense-account receipts, customs documents, employee records, tax returns and many other documents relating to YBM
as well as to Arigon and other companies connected to YBM
***Dumb Us September 18, 1999
By Alan Abelson, Barron's
New Haven, Connecticut, long has been known as the home of ivy-clad Yale University. Now, we're able to report, it has another, equally impressive claim to fame -- the zeal with which it guards the intellectual integrity of its police force.
Unlike many an unhappy hamlet that has cut its civic cloth to meet the political or social fashion of the day, New Haven remains steadfastly true to principle. More specifically, it refuses to veer from the strict standards it has traditionally employed to determine the fitness of potential peace officers.
Thus, New Haven's finest recently affirmed a longstanding policy of screening out applicants burdened by a high IQ.
In so doing, the estimable guardians of public safety ensured that they would keep unsullied a record stretching back some 35 years of never having solved a major crime.
At the same time, the New Haven P.D. has avoided degrading the unique characteristics that distinguish it from the vast majority of the nation's police departments. It has, for example, no intelligence unit. And virtually alone among the country's law enforcement agencies, it uses only dum-dum bullets.
In truth, in refusing to hire persons of elevated cognitive capacity as police officers, New Haven is in perfect tune with many of America's leading institutions. Indeed, the linchpin of our democratic structure -- our vaunted system of checks and balances -- has been preserved only because the citizenry has been so vigilant in keeping the executive, legislative and judicial bodies equally free of superior
Can you imagine, for instance, the chaos that would ensue had we a bright President and the usual dim Congress? Or if the Supreme Court were adorned with gray matter as well as black robes?
Happily, to judge by the front-runners for next year's Presidential election, the Republic is in no imminent danger of its leadership emerging from the slough of mental mediocrity. So we can all relax, sit back and enjoy another thrilling battle of wits between unarmed opponents.
Nor, if Jesse Ventura has his way, will the Reform Party offer an alternative. If anything, its choice could significantly lower the average of the candidates' acuity, since Mr. Ventura is trumpeting Donald Trump as the party's standard-bearer.
Critical to Mr. Trump's acceptance of their nomination is that the Reformers agree to his demand that the party platform be 135 stories high and display his name in five-story letters. Besides a lifetime fruitfully spent speculating in real estate and operating gambling casinos, Mr. Trump is renowned as an author who has never read a book.
Although we think it's patently unfair to conclude that "smart banker" is an oxymoron, one is compelled by an extensive file of evidence --added to most recently by Republic New York and the Bank of New York -- to admit that banking is a peculiarly attractive field to the intellectually challenged, perhaps because they often achieve positions of eminence in it. (The same can be said of various other of our bulwark institutions -- journalism, for one; economics, for another.)
Republic was seemingly an unwitting and certainly witless accomplice of Martin A. Armstrong and his investment advisory firm, Princeton Economics International, in allegedly bilking scores of Japanese corporations out of nearly a billion dollars. The victims were ensnared by a rather transparent old-fashioned Ponzi scheme, with the lure taking the form of guarantees of handsome returns on fixed-income instruments (apparently not all Japanese executives are eligible for membership in Mensa).
According to The Wall Street Journal
, Mr. Armstrong is one of the two scheduled keynote speakers at the Canadian Society of Technical Analysts conference next month. The Journal failed to identify the other keynote speaker, but rumor has it he's Martin Frankel (who may encounter trouble booking air passage from Germany).
The president of the society says he still hopes Mr. Armstrong can fill the engagement because of his "wealth of knowledge" (presumably of Ponzi schemes).
Since technical analysts of whatever nationality use a vocabulary based exclusively on the entrails of animals, their IQs do not lend themselves to any of the standard measures of intelligence. So, grudgingly, we'll give the Canadian variety of this strange species a pass.
However, no such barrier exists to determining the intellectual level of Canadian securities regulators, most notably those overseeing the Toronto Stock Exchange, as Barron's
West Coast editor Jaye Scholl, who has done some great pieces on sleazy operators up north, reminds us.
Noting that the notorious Russian financial manipulator Semion Mogilevitch has recently come under suspicion for his involvement in the Bank of New York money-laundering scandal, Jaye points out that Adrian du Plessis, a muckraking Canadian financial journalist, co-authored a pair of revealing articles on Mogilevitch's machinations early last year. In particular, he exposed the seamy history of Mogilevitch-controlled YBM Magnex
, a company based in a suburb of Philadelphia but whose shares were traded in Toronto.
Among other things, Adrian's articles linked two of YBM
's Canadian directors to previous stock swindles and questioned how mutual funds, analysts and especially regulators could ignore not only the Mogilevitch connection but also a Deloitte Touche audit questioning whether YBM
's U.S. sales were real.
Even though Great Britain had banned Mogilevitch from the country because he had allegedly laundered millions of dollars from illicit activities, including such nice stuff as prostitution, drug smuggling, arms sales, extortion and murder, in 1996 the Toronto Stock Exchange cheerfully granted his company a listing.
The damning information was there for the taking for anyone with an Internet connection and a little time to spare. But obviously, the folks at the Toronto Exchange aren't plugged in. Ah well, if they ever decide to emigrate, they seem to have the necessary qualification for a job with the New Haven police.Up & Down Wall Street, Part 2
Labels: Adrian du Plessis, Alan Abelson, Alberta, Anthony DePalma, Barron's, criminal, FBI, magnets, mobster, Newtown, New York Times, Pennsylvania, scam, Semion Mogilevich, swindle, Toronto, TSE, YBM Magnex