Back to the Future: The Magnex Files

I'm receiving requests for my non-music writings - dating back to the 1990s and earlier. Oy!

Starting with the saga of YBM Magnex and its web of white collar, and Russian, organized crime.

Wading back into paper files in this computer age is not something I'll be doing for a long time. If ever. Online, there's not one common repository for all that I wrote about YBM Magnex. It's a big, sprawling story. Numerous essays were published in 1997/98 on a website that I took down (offline) before this millenia. There were also quite a number of articles written for a Canadian trade publication called Canada Stockwatch. Finally, there was a multi-part feature that appeared in The Vancouver Sun newspaper.

Sincere requests have prompted me to look for writings I've not seen in almost a decade! It's cool to find, that, while, not all, quite a lot, of my reportage on YBM Magnex, and assorted tales of white collar crime and rascality, remains cached in cyberspace thanks to the Wayback Machine and archives of various financial forums, newsgroups, and major media publications. To collect this mass of data would require intensive digging and sorting (and/or having an account in some instances). There's no rush, eh!

In the case of YBM one finds years of coverage in newspapers and other media that followed my reportage of '97/'98. The scandal - involving Semion Mogilevich and his network - spawned lawsuits, criminal charges, government regulatory hearings+ - all of which earned extensive, often international, press coverage.

RACKETEERING; SECURITIES FRAUD; WIRE FRAUD; MAIL FRAUD; MONEY LAUNDERING

SEMION MOGILEVICH

SHOULD BE CONSIDERED ARMED AND DANGEROUS AND AN ESCAPE RISK

IF YOU HAVE ANY INFORMATION CONCERNING THIS CASE, PLEASE CONTACT YOUR

LOCAL FBI OFFICE OR THE NEAREST AMERICAN EMBASSY OR CONSULATE.

ROBERT S. MUELLER, III DIRECTOR FEDERAL BUREAU OF INVESTIGATION UNITED STATES DEPARTMENT OF JUSTICE WASHINGTON, D.C. 20535 TELEPHONE: (202) 324-3000

From 1986 until 1995, I wrote, primarily, for print publications around the world - newspapers and magazines including those Canadian journals mentioned in my first post on starting this blog - and others including The Observer (London), The New York Times, The Washington Post, Forbes and Barron's. Though largely in print, I also worked in broadcast media - researching documentaries for the BBC, Channel 4 in the UK, ABC in Australia, ABC-TV and CNN in the U.S., and, home in Canada, for the CBC's Fifth Estate and CTV's W5 investigative tv programs.

From 1995 to 1998, I created one of the first, and most detailed, investigative journals on the internet. "Back in the day", this was more like posting a book online. My YBM Magnex web-text alone is 50,000 words. Sheesh. (I don't know a total, but it looks like I wrote several hundred thousand words on other entities! All in laborious HTML-tagged text. lol)

Discovering blogging, I'm reminded of the thrill of those days. Only it's better now. Writing online is faster and more fun! It's easier to make things graphically appealing. Web searches are superior. So much data is now online. And, people are connected. What I find especially welcome is that there is now a genuine global community on the web.

In light of this exciting new environment - given time, (yeah, right - more like, given next-to-no-sleep), I may attempt to reconstruct "my back pages". If it'd make for a potentially entertaining cultural study of corruption. Maybe, eh?

First, however, I'd want to find a blog or other format that doesn't run all the words into one long page - or, make the archives less prominent than the present content. Something not-so-linear in contextual applications. A blog or other format with multi-dimensional form. Maybe I just need more time to play with links on blogger. Is Wordpress the answer?

Should anyone, in practice, not theory, want to read several books-worth of writings on the arcana of con-artistry, well, good for you! Unless, though, it can appear on multiple pages, and be enlivened with great images, even sounds ~ it's seems too static. Also, it may be that I need two, separate, blogs. Combining historic "true white collar crime" essays with current analyses of the music world may be too jarring. It's an uneasy juxtaposition - to my mind. Of course, blogs seem to be about anything people choose them to be! Something to sleep on...

Even should it seem like a good idea to be acted upon, it'll be months, likely more, before I'll have any opportunity to do the job right. For now, if you've a taste for stories like YBM Magnex, here's a page that contains a nice mix of items - a few by myself, and a few by other investigative writers. It's the reporter's equivalent of a mixed-tape or CD song-sampler: Russian Mafia

Here, below is the intro that appeared online in 1998 to:

The Magnex Files

- Eternal Russia. The soul of this country is so deep, the beauty it can create so powerful, perhaps unique in the world. But there is always that other dark, brooding, violent and greedy side that is never far from the surface.

Jennifer Gould -- Vodka, Tears, and Lenin's Angel

The strange case of YBM Magnex International, Inc. is the most extraordinary I've ever investigated. A study of YBM is extraordinary in that it so clearly reveals the essential nature of Canada's stock markets.

The articles on this web-page will, hopefully, shine some public light into corners of the most bizarre affair, and the case most graphically illustrative of the nurturing corporate culture, encountered in close to 20 years work, much of it exploring the dark underworld of Canada's junior financial markets.

The saga of YBM Magnex began to receive expansive coverage through such regional U.S. newspapers as The Bucks County Courier Times, The Philadelphia Inquirer and The Philadelphia Daily News in mid-May 1998. The first American print journal to give extensive national coverage to related subject matter was The Village Voice with its publication of Robert Friedman’s May 26 1998 cover story, “The Most Dangerous Mobster in the World”. However, word of the criminal activities of Russia's Semion Mogilevich (and the alleged use of Arigon/YBM as a money laundering conduit by the Russian mafia) was widely accessible long before May 1998 on the internet and in European print journals. As early as 1995/96 newspapers and magazines in Czechoslovakia, Hungary and countries formerly of the Soviet Union, carried details of such activities. By at least 1997 (and likely earlier) various news articles and police intelligence reports were accessible on-line to anyone with an internet connection.

On this, my own, web-site I began publishing analyses of the YBM Magnex scam in March 1998 (following the first stock market exposes of YBM which appeared in Canada Stockwatch). In April 1998 I alerted virtually all major Canadian media outlets to YBM’s Russian mafia links (including Mogilevich and another “godfather”, Sergei Mikhailov). The story gained international attention when dozens of U.S. federal agents raided YBM’s Newtown, Pennsylvania headquarters on May 13 1998. Within days of the raid, the YBM story (and the history of Mogilevich et al in the U.K.) appeared on television news, and in newspapers and magazines around the world - from London’s The Observer and The Financial Times to Hungary’s HVG and The Financial Post and The Globe and Mail in Canada.

In May of 1999, David Baines, a reporter with The Vancouver Sun newspaper, and I received a National Newspaper Award (Canada’s top print journalism award) for our breaking coverage of the YBM-Russian mafia story.

In handing out the award, the NNA noted:

“The Vancouver Sun’s David Baines, working with freelance securities investigator and writer Adrian du Plessis, unraveled the intriguing tale of YBM Magnex International Inc., the Canadian company that operated as a money laundering vehicle for the Russian mafia. The Sun began its early work on the company’s murky business dealings and links to organized crime even as investors were driving its share prices to record levels on the Toronto Stock Exchange. Judges called it a thoroughly comprehensive effort that combined extraordinary initiative, research, analysis and writing.”

There were bells, on a hill, but some never heard them ringing...

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 gold-mining fiasco.

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.

Separately, YBM'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
intelligence.

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