World Gaming predecessor Starnet players sanctioned
2005-07-21 20:53 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
by Lee M. Webb
World Gaming PLC predecessor Vancouver-based Starnet Communications International Inc. players, including three Canadians, have been dealt some hefty sanctions by the U.S. Securities and Exchange Commission (SEC).
In addition to various cease and desist orders and bans, the July 18 initial decision of Administrative Law Judge James T. Kelly orders the disgorgement of millions of dollars made by dumping unregistered Starnet shares into the U.S. market.
Former Starnet chief financial officer and chairman of the board of directors John Carley, who lived in Delta, B.C., before relocating to Antigua, is ordered to cease and desist from violations of U.S. securities regulations and to disgorge $4.18-million. (All amounts are in U.S. dollars.)
Starnet's former secretary, treasurer, director and in-house counsel Christopher Zacharias, a former Port Moody, B.C., resident now living in Costa Rica, is subject to a similar cease and desist order and an order to disgorge $1.45-million.
Vancouver resident Roy Gould, vice-president of United Capital Securities and a key figure in other Howe Street promotions linked to Starnet's former chief executive officer Mark Dohlen, is also subject to a cease and desist order and is barred from any association with any U.S. broker or dealer.
Mr. Gould was further ordered to disgorge more than $13.8-million and tagged with a $500,000 civil penalty.
Because of a demonstrated inability to pay based on sworn personal financial records that show a net worth of less than $2-million and an annual income "in the low-to-mid six figures," as well as the lack of any evidence of assets hidden abroad, Mr. Gould's civil penalty was waived and the disgorgement amount was reduced to $1-million.
U.S. brokers Eugene Geiger and Thomas Kaufmann, who handled the offending Starnet trading through brokerage Spencer Edwards Inc., also drew cease and desist orders and were barred from associating with any broker or dealer.
Mr. Geiger and Mr. Kaufmann were each ordered to disgorge $885,738. In addition, Mr. Geiger drew a civil penalty of $400,000 and Mr. Kaufmann was slapped with a $300,000 civil penalty.
Spencer Edwards was censured, ordered to disgorge $759,204 and tagged with a $200,000 civil penalty.
Because of its demonstrated inability to pay and because Judge Kelly reasoned that if the SEC was not going to openly shutter Spencer Edwards, then he was not going to drive it out of business through the back door, the $200,000 civil penalty against the evidently near-penniless brokerage firm was waived and the disgorgement was reduced to a modest $25,000.
Edward Price, a 45-per-cent owner of Spencer Edwards and supervisor of Mr. Geiger and Mr. Kaufmann, was not booted out of the industry entirely, but he is barred from associating with any broker or dealer in a supervisory capacity.
Mr. Price was also ordered to pay a civil penalty of $150,000.
In an earlier ruling against another respondent in the case, Le Fond Mondial D'Investissement S.A., Judge Kelly issued a default judgment ordering the British Virgin Islands company headquartered in Spain to disgorge more than $10.4-million in ill-gotten gains made by dumping unregistered Starnet shares into the U.S. market.
While Judge Kelly's Nov. 23, 2004, $10.4-million judgment against Le Fond Mondial and the July 18 disgorgement orders and penalties totaling more than $23.5-million before being reduced to approximately $9.27-million are certainly significant, the SEC cannot claim complete success in the proceeding.
Quite apart from the $14-million reduction in the disgorgement orders and penalties against the respondents and the open question of just how much of ordered payments the U.S. regulator will ever collect, the SEC failed to prove some significant allegations and drew some rather sharp criticisms from Judge Kelly.
Moreover, the SEC was reportedly unable to serve three key respondents with its Sept. 1, 2004, order instituting proceedings (OIP) and had to obtain an order severing them from the case on Jan. 3.
The SEC has still not been able to serve Starnet's former chief executive officer, Vancouver promoter Mark Dohlen. Mr. Dohlen allegedly pocketed millions of dollars through his participation in the scheme to unload unregistered stock.
Indeed, while Celestine Asset Management, a company controlled by Mr. Gould, reportedly unloaded more than $25-million worth of Starnet shares, the SEC reduced its demand for disgorgement by more than $7-million because some of that money was disbursed to other parties and Judge Kelly reduced it by a further $5.25-million because of documented evidence of further third party disbursements.
Among other things, the judge determined that $2-million from the Celestine transactions had been paid to Mr. Dohlen and a further $1.58-million had been disbursed to "Dohlen and the Coziers" for an account at Mr. Gould's United Capital.
Starnet's former president, Vancouverite Paul A. Giles, who was believed to be living somewhere in Florida at the time the SEC instituted proceedings, has also yet to be served. Mr. Giles also allegedly profited from the sale of unregistered Starnet shares.
Rounding out the list of key respondents that the U.S. regulator has not been able to locate for service is Alfred Peeper, a citizen of the Netherlands believed to be living somewhere in Spain. Mr. Peeper allegedly controlled, at least nominally, many of the offshore entities that unloaded unregistered Starnet shares, including Le Fond Mondial.
It remains to be seen whether the SEC will eventually succeed in serving the three severed respondents and possibly fill in some of the gaps regarding the offshore entities and the share-dumping scheme, not to mention provide an opportunity for Mr. Dohlen, Mr. Giles and Mr. Peeper to respond to the allegations.
"Many of the relevant transactions were conducted through corporations, partnerships and trusts in the South Pacific, the Caribbean, Ireland, Luxembourg, Hong Kong and elsewhere," Judge Kelly noted in the preface to his findings of fact. "Many of the officers, directors, shareholders and beneficial owners of these entities remain unknown.
"Three of the eleven respondents were not served with the OIP and did not testify at the hearing.
"The result is an evidentiary record with sketchy and inconsistent details.
"The parties attempt to fill these gaps, sometimes with assumptions and sometimes with reasonable inferences from known facts."
Stockwatch will review Judge Kelly's 84-page decision in more detail in a future article. Notwithstanding the sketchy and inconsistent evidentiary record, the July 18 decision offers some intriguing insights into the setup of the Vancouver-spawned promotion, including the early distribution of millions of cheap shares to offshore entities, and the operation of the complex and illegal share-dumping scheme.
Stockwatch will also recap some of Starnet's history including the headline-grabbing and price-collapsing Aug. 20, 1999, predawn raid on the company's Vancouver office and the homes of several of its officers and directors by 100 law enforcement officials, the quick head office relocation to Antigua and the subsequent reorganization as World Gaming.
World Gaming obtained a listing on the Alternative Investment Market (AIM) of the London Stock Exchange on May 17. AIM-listed companies are arguably burdened with far less oversight than the lightly regulated but heavily prosecuted OTC Bulletin Board.
World Gaming shares also continue to change hands on the OTC-BB where the recent SEC decision has apparently had no effect on the company's stock price. Indeed, perhaps based partly on speculation about a pending acquisition, the volume and price have jumped over the past three days.
With 423,183 shares changing hands on the OTC-BB, World Gaming added 12 cents to bring its three-day gain to 30 cents and closed at $1.62 on July 21.
