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Years later and blowhard Treffy still rambles......
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Karen Ferguson Weber
Re: cmkm/cmkx gossip, etc 11/17/11
« Reply #1 Today at 4:29pm » [Quote]
(Bob here is BHollenegg)
Thanks bikinipro
Today at 3:18pm, dicek18 wrote: 8-)
Bob, I'd like to get a clarification if possible.
When you wrote:
I cannot explain what is going on, but I will say from my understanding the payout is happening.
1. Did you mean that the payout is happening as in now, as in this week, or soon?
2. Or was the term meant in this way: As we have believed all along, the payout is happening.
Thanks a lot!
By: portrush 8-)
I spoke with Bob for a couple hours yesterday. He would be referring to #2.
There is much talk going on about things in process--and some of the changes are visible, such as the Board changes with the company. While unexplained, it seems to suggest there is activity.
FWIW, as Bob and I discussed at length..."whatever and whenever" simply aren't things that will be told prior, nor likely "figured out." If this is as big, as complex, as life-changing, policy-changing, country-changing, diaper-changing as we've heard for quite some time...then it will likely remain quiet until the day it happens.
Just the opinion of a couple buds...fwiw.
pr
Like · · Unfollow Post · November 17 at 6:49pm
•Donald Peltier likes this.
•
Allan Treffry I gave up on getting accurate info from Bob a long time ago. I do not know why people persist in even listening. Between he and the rest of the paid shovelers, I have seen more bs than I would see if I visited a cattle ranch. I do not know if this deal could have been pulled off any other way, but no matter, I am so fed up with being used and lied to, I cannot describe it. Irrespective if we are paid, it will take along time for me to not think of those people without cringing. // Sorry for the rant, but I am not used to lying to people in such a fashion nor have I been so tied at the hip for so long with people I know are lying to me with little chance of escape. At least if someone in the real world behaves in this fashion, I can get away from them. However, if a person wants to try and find out if there is any chance of CMKX payment from the internet, you cannot help but encounter the comments of at least one of the mouths in question. I wish they and the rest of the paid shovelers would just leave us alone. Add to this fact that I have placed so many people in this stock and see what the be does to them, the lies become even more unpleasant to deal with.November 17 at 10:45pm · Like · 1
Julian Garza Forget Bob we need to hear directly from Al no more B.S.
November 17 at 11:05pm via mobile · Like · 1
Larry Kessie so f they are paid shovelers, then who is paying them and why?
Friday at 4:32am · Like
Allan Treffry I believe that different people have different paymasters. Some may be on our side, others may not. Again, irrespective of who is who in the zoo, to deceive people amounts to a form of slavery. I love freedom and thus, I hate slavery. // "Know ye the truth and the truth shall set you free." From that wonderful Biblical passage, what does inverse logic dictate? Lie to people and you enslave them. // Was there any other way this deal could have been accomplished? Perhaps yes and perhaps no - of that position I cannot claim authority to decide. However, whether they are good guys are bad, the ongoing deceit - be it was necessary evil or not - has been very stressful on everyone and I am simply stating that I am more than tired of it (I am sure they are too). Because I do not know if the ongoing deception was a necessity evil or not, I will not hate or hold a grudge in any way. However, as said, I will likely cringe for years to come when I think of this scenario and the people involved. It will bring back distasteful memories of this most uncomfortable road of which we have been forced to travel.Friday at 11:18am · Like · 2
Julian Garza So Allen do you think we should forget about cmkx/dinar and move on with our lives?
Friday at 12:55pm via mobile · Like · 1
Susan Grundner If it helps your sanity then yes. If you are bonified, then you'll get your money regardless of what you do.
Friday at 1:16pm · Like · 2
Cindy Ferguson Davis ?Julian Garza What my son and I have finally done after years of misery is we have not given up on CMKX, but we have started living our lives as though it doesn't exist. The last few years we have spent thanksgiving through Christmas hanging on every word on the boards about any time and it made our holidays not so happy. Work would get slow and instead of trying to get more work my son would sit around hoping we would get paid any day. This year my son has concentrated on building his business up as if we never invested in CMKX. He has several good jobs lined up the next few weeks, so Christmas will be happier. I still keep an eye on the boards and my sister keeps me up to date, but I don't spend hours everyday searching for any little word of encouragement like I use to. I will never totally give up on CMKX, but I refuse to drive myself crazy over it anymore . I still get frustrated about all the delays, but it no longer sends me to bed depressed for days. I still get upset when I read the boards and see where some one is about to loose everything. I know what they are going through and it breaks my heart and I want to find the people who are delaying this and give them a good a** whoopin. We have lost everything a couple of times since this saga started, but now things seem to be looking okay. Still praying everday that today is the day.Friday at 3:39pm · Unlike · 9
Julian Garza Thanks Cindy!
Friday at 6:02pm via mobile · Like · 1
Johnny Nicoloro well said Cindy- thank you!
Friday at 8:47pm · Like · 1
Allan Treffry Those are good words of wisdom Cindy. For me personally, I wish I had followed that path a long time ago. I should have never trusted in this scenario and the people involved to the extent I did, but then again, perhaps I would have never invested in CMKX - a paradox for certain. // However, I trusted those persons claiming to be in a position of authority and knowledge in this deal, listening to people who swore to me that the players should be trusted by their own personal account and experience. To that end, I made a lot of poor decisions related to that trust and confidence, loaned sh a lot of money - in part - based upon payment in the "near future" or "next week" or "by the end of the month" or "guaranteed by December 31, 2009" or whatever else..., money I will likely never see again. I also made mistakes as to professional decisions, not taking cases when I should have because I did not want to leave clients "high and dry" by quitting in the middle of the case when we got paid "next week". If I were to be paid, I certainly did not want to continue with the law practice and business "as usual" as I would immediately need to move my family due to security concerns and be generally unavailable, again, for security reasons. I also helped fund a lawsuit based upon false information or a false scenario, never being even afforded the right to even see the evidence in the case. // Ultimately, who's fault is it? it is mine. I trusted people whose hearts I did not know and it cost me dearly. However; I am not alone in this financial devastation, indicating that this reaction to the hundreds of promises was not my reaction alone, but very much a reasonable one - a very predictable one - and thus, I believe that the promoters of misdirection bear responsibility. Certainly, with benefits comes burdens. In other words, if I am paid, they are worthy of the credit or even worthy of credit for trying, but with benefits of credit or praise come the natural burdens of the criticism by those who were harmed by their path of destruction along the way to achieving their goals. Am I criticizing them? Maybe some for now. // I have been an ear for too many people harmed by these deceptions and I have seen a great deal of the pain this deal has caused. It was not disclosed to them, it was foisted upon them and worse, through deception, meaning as a matter of law that there was no consent, and it has grown into a monster that has ruined lives. // At what point do we say it was not worth it, for is money worth the confinement of slavery through deceit? That will have to be determined by each person involved. For me personally, although I have gained invaluable knowledge and wisdom through this experience, the money was not worth the slavery. Perhaps my opinion will change AFTER we are paid, but I rather doubt it. Will we be paid? I am still hopeful as facts support that there could have been a sting and money was very possibly collected (however, naked shorting is still in practice), but as I know who really runs the show in this nation, I cannot state it will be distributed with any great degree of confidence. Just my personal opinion. // For those who do not believe I should speak my mind on these issues, I encourage you to consider where I get my inspiration from. Not only do I speak for those who lost so much and have been harmed by the mind games played upon us all - including myself - but I speak because of conscious for my participation in this scenario has been a piece in this puzzle which caused harm to so many. "Learn to do good; seek justice, correct oppression; bring justice to the fatherless, plead the widow's cause." Isaiah 1:17:Saturday at 2:35pm · Like · 1
Robert BHollenegg Alan Treffry...what you posted here in this thread is not only false but is the worst case of intentionally misleading the shareholders. It is unfortunate that you made these false accusations public. You made a public apology before for making false statements about me. You presented false information but no facts. The facts you did not present are... you were the attorney for the mafia, you leaked sensitive information and embellished it with false information when you were a plaintiff, you vehemently opposed keeping the Shareholders informed. You attempted several times to undermine Attorney Hodges and his team. The list goes on but does not need to be presented in this forum...and you wonder why you were not provided with pertinent information? Please for the Shareholders' sake, do not undermine the release of the funds.
BHollenegg7 hours ago · Like
Allan Treffry Bob, specifically what have I said that is false? It is clear as crystal that when I signed onto the lawsuit, you, Sheila and Reese had already made an undisclosed arrangement with AH long before. Salty, Reynolds, Dave and I were not made privy to that understanding. Hence, I was deceived into being a plaintiff and had I known the truth about this lawsuit, I would have NEVER signed on. // The lawsuit was not 100% legit, Tyler has been a farce, we have been lied to from day one about dates and times for over 8 years, and it persists today. After I complained, I was even offered money in advance as a loan from AH (as much as I wanted) as he was to be paid by MC ahead of time. Tell me, what is NOT to complain about? // To you, it does not matter much about the lawsuit, for you went on a free ride. I put in $10,000 - a lot of money for me at this time - and for what? To have our attorney refuse to show me evidence, refuse to control our own plaintiffs from speaking publicly and compromising all the sh claims (if the lawsuit was real, I had the right to DEMAND you, Reese and Sheila keep your mouths shut for you were compromising MY claims and others by speaking, not just yours), and then send Reese and the "Team Grapevine" moderators out on a personal attack campaign against me to discredit me, or have you forgotten the 100's of attacks on me in the GV and Reese repeatedly stating that I was "bi-polar", "a f**king liar", and "a sh*tty lawyer"? I am not talking about a lawsuit we lost, that is not my problem. It is the deception dealt to me throughout the process that I do not like. I did not get into this stock or lawsuit lying to people, and I did not expect to be lied to. I know that AH felt I was a good person to use and control others, but I was not offering that service, I was signing up to be told the truth. You see Bob, I am here now and there is nothing I can do about it. But I did not sign up for this deceit when I purchased the stock nor when I paid $10,000 to be a plaintiff. The reason why you have not spoken one word in objection to anything that has happened - not even raising one word in frustration (neither Sheila or Reese - funny, Salty, Dave, Nelson and I have repeatedly) - is that you are clearly an insider to some undisclosed arrangement with AH. I would have never signed up to be played as a pawn and lied to, never given away $10,000 - end of story. Being deceived into paying money is fraud Bob, in case you did not know. // I wrote you all 4 letters asking, then telling you all to keep your mouths zipped, AH even concurred (at least on paper), but you guys persisted. I even quit at least 3 times and AH asked me to stay in the lawsuit, promising me you people would be quiet. He also promised to show me evidence, which he never did (a stack of notes and letters is not the evidence behind this case). Had we gone to trial, and you 3 speaking on public boards would have damaged our credibility by making statements of fact that were impeachable, you could have EASILY ruined the chances for ALL the shareholders to collect, not just me. That is why attorneys tell their clients to NEVER talk publicly about their claims. // As far as my former apology to you, it was at a time that I thought you were someone completely different than you turned out to be. When you first showed up and spoke as much as you did, I immediately suspected you as a shill or provocateur. I believe I wrote this as a response to one poster who asked about you. When you confronted me on that post, we had just joined the lawsuit together (in the beginning of the lawsuit when I still trusted AH to tell me the truth) and AH vouched for you. Therefore, I thought at that particular time period that you may have been on the level and I apologized, as any decent person who thought he had made a mistake should do. However, time has revealed that AH also deceived me and that there is a new class of Accas and you are one of them - end of story. I did not like it when Acca misled us and I do not like it when you, Reese, Sheila and even AH do it. It is not what I signed on for, not what these people signed on for and it is not right as deceit is a form of slavery. Answer me Bob, is it unreasonable to want people to speak the truth when talking to you? It is unfair of me to want honor among men and especially among co-plaintiffs and their attorney, someone to whom a legal duty demands it? // When you respond, here is another question for you to answer. Either the lawsuit was real and you people were risking totally screwing up the case (and I have been justified in demanding you all be silent) or else the lawsuit was a fake and I was deceived into being a plaintiff (and in such a case, I am totally justified in complaining about being misled). It can only be one of the two Bob. You tell me which one it was.3 hours ago · Like
Allan Treffry As far as me being a "mafia lawyer", that is as much bullsh*t and misdirection as it gets. I represented eConnect and one of its officers - as you know. I did not know the character of the players in the company when I went to work for them, being an investor myself who clearly by investing, believed in the company. After working for them - doing legitimate work for about 3 years - I withdrew as their lawyer for personal reasons I am not permitted to discuss. What is morally or legally improper about that scenario? // Hey, since you brought it up, are you sure you really want to talk about mafia lawyers and mafia connections? I seem to remember Al Hodges being quite open about representing Johnny Roselli - a heavy hitter in the mafia - or IBM's personal friendship and direct dealings with the mafia heads like Traficante. Do I hold anything against these men for knowing mafia people and in some cases working with them? Absolutely not, unless they did illegal or immoral things as a result of their connections - the true test of a man's character, not who he may know or have worked with by circumstance. // I note you are trying to smear my name with some alleged mafia connection to eConnect and yet, you conveniently failed to mention AH's or IBM's mafia connections - giving them 100% support without question. Perhaps the real issue here Bob, is that you are trying to take up the slack where Reese got taken out at the knees and attack my character. Can I give you a word of advice? I made Reese look like an idiot when he tried, please do not force me to make you look like one too. Don't let your intel agency training of trying to destroy a person's character instead of addressing the real issues rule the day. Remember, lawyers are far better trained at it than you are.2 hours ago · Like
Linda Lane and the saga continues! Go CMKX ;) ?
2 hours ago · Like · 1
Allan Treffry Lastly Bob, when it comes to disclosing unauthorized information about the lawsuit, I do remember Reese, Sheila and yourself doing so on several occasions, to the point, AH was furious (allegedly) with each of you. A couple times Reese tried to point the finger at me, but when I did the research and found out it was really him or you or Sheila who leaked the information, AH apologized to me. Remember also Bob, I was not on Paltalk for the first 4-5 months of the lawsuit, keeping my mouth shut. It was only when I felt a moral duty to the sh to counteract the obvious lies that I first wrote several letters you all to ask your silence on the public boards and only thereafter, returned to Paltalk. / I do not know if you sit around on the phone with Reese and Sheila planning your next misdirection, laughing as Acca did when he forgot the microphone was still on, but irrespective, deceit is wrong, using people is wrong, misleading people is wrong, causing harm to people for an undisclosed intel operation that is far bigger than merely stinging a few banksters is wrong. Maybe with all the lofty goals involved here, some people have forgotten these golden rules.2 hours ago · Like
James Ozzie Osbourn why don't you guys take this to some other place?
2 hours ago via · Like
Allan Treffry Sorry James. I am trying to set the record straight.
2 hours ago · Like
Ace Parker keep it going. good reading.
11 minutes ago · Like · 1
Allan Treffry Here is a post script for you Bob. Please quit insulting mine and the other shareholders intelligence by trying to manipulate us with the "I am delaying the payment by complaining" crap. It is not only as old as dirt, but it is an outdated, worthless tool now-a-days. It may have worked for some in the Acca days, but needless to say, my concerns and or complaints have NOTHING to do with the sh getting paid and you know it.
4 minutes ago · Like
Allan Treffry By the way, you guys did the manipulation and scare tactic with ABADGOODGIRL to chase her away. She was way ahead of everyone's curve with knowledge and wisdom about this schtick. Well sorry, I am not going to be so compliant in accepting the role of being chased away
SEC transcript of discussion of concerns of penny stocks- 10/11
http://www.sec.gov/spotlight/microcap/microcaproundtable101711-transcript.txt
CMKX and insider dumping proof
ADMINISTRATIVE PROCEEDING
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 65584 / October 18, 2011
ADMINISTRATIVE PROCEEDING
File No. 3-14592
In the Matter of
Sergey Rumyantsev,
Respondent.
ORDER INSTITUTING
ADMINISTRATIVE PROCEEDINGS PURSUANT TO SECTION 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS
I.
The Securities and Exchange Commission (“Commission”) deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted pursuant to Section 15(b) of the Securities Exchange Act of 1934 (“Exchange Act”) against Sergey Rumyantsev (“Rumyantsev” or “Respondent”).
II.
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission’s jurisdiction over him and the subject matter of these proceedings, and the findings contained in Section III.2 below, which are admitted, Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth below.
2
III.
On the basis of this Order and Respondent’s Offer, the Commission finds that:
1. Rumyantsev was the CEO and head trader at NevWest Securities Corporation (“NevWest”), then a broker-dealer registered with the Commission, from at least January 1, 2002, until April 13, 2006. Rumyantsev was also one of four members of the Board of Directors of NevWest, which had policy-making authority. Rumyantsev holds Series 4 (registered options principal), 7 (general securities representative), 24 (securities principal), 27 (financial and operations principal), 53 (municipal securities principal), 55 (equities trader) and 63 (state securities) licenses. Rumyantsev, 41 years old, is a resident of Las Vegas, Nevada.
2. On August 1, 2011, after the Commission’s motion for summary judgment against Respondent was granted, a final judgment was entered against Rumyantsev, permanently enjoining him from violating Section 5 of the Securities Act of 1933, 15 U.S.C. § 77e, and additionally permanently barring him from participating in an offering of penny stock, in the civil action entitled SEC v. CMKM Diamonds, Inc. et al., Case No. 2:08-cv-00437-LRH-RJJ, in the United States District Court for the District of Nevada.
3. In granting the Commission summary judgment, the Court concluded, among other things, that the following facts were uncontroverted: (a) while CEO of NevWest, Rumyantsev allowed NevWest to acquire and distribute newly issued unregistered stock certificates representing billions of shares of stock of CMKM Diamonds, Inc., a Nevada corporation, from which the restrictive legends had been improperly removed by CMKM’s transfer agent; (b) Rumyantsev allowed an individual associated with CMKM to open more than thirty different brokerage accounts at NevWest in more than thirty different names, while using the same social security number for most accounts, for the sole purpose of trading the unrestricted shares of CMKM stock, which were sold in several unregistered distributions between December 2002 and September 2004.
IV.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions agreed to in Respondent Rumyantsev’s Offer.
Accordingly, it is hereby ORDERED pursuant to Section 15(b)(6) of the Exchange Act that Respondent Rumyantsev be, and hereby is:
barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization; with the right to apply for reentry after five years to the appropriate self-regulatory organization, or if there is none, to the Commission.
Any reapplication for association by the Respondent will be subject to the applicable laws and regulations governing the reentry process, and reentry may be conditioned upon a number of factors, including, but not limited to, the satisfaction of any or all of the following: (a) any
3
disgorgement ordered against the Respondent, whether or not the Commission has fully or partially waived payment of such disgorgement; (b) any arbitration award related to the conduct that served as the basis for the Commission order; (c) any self-regulatory organization arbitration award to a customer, whether or not related to the conduct that served as the basis for the Commission order; and (d) any restitution order by a self-regulatory organization, whether or not related to the conduct that served as the basis for the Commission order.
By the Commission.
Elizabeth M. Murphy
http://www.sec.gov/litigation/admin/2011/34-65584.pdf
Secretary
Brian Dvorak kicked out of the biz
http://www.sec.gov/litigation/admin/2011/34-65446.pdf
CMKX Trial Transcripts
« Thread Started Yesterday at 3:26pm »
------------------------------------------------------------------I only have 8 days so far. enjoy.........lol........or not
http://www.scribd.com/doc/64097765/Transcript-of-Proceedings-Day-1
http://www.scribd.com/doc/64099008/Transcript-of-Proceedings-Day-2
http://www.scribd.com/doc/64099216/Reporters-Transcript-Day3
http://www.scribd.com/doc/64099415/Transcript-of-Proceedings-Day-4
http://www.scribd.com/doc/64099552/Transcript-of-Proceedings-Day-5
http://www.scribd.com/doc/64099701/Transcript-of-Proceedings-Day-6
http://www.scribd.com/doc/64099952/Transcript-of-Proceedings-DAY-7
http://www.scribd.com/doc/64100054/Transcript-of-Proceedings-DAY-8
Read more: http://qbidtalk.proboards.com/index.cgi?board=general&action=display&thread=8466#ixzz1XGiWLyVV
Court findings against the CMKX gang....
INFORMATION FOR CMKM DIAMONDS INVESTORS
CIVIL ACTION AGAINST CMKM DIAMONDS, INC., URBAN CASAVANT, et al.
INTRODUCTORY NOTE
This alert provides information relating to the SEC’s civil injunctive action against CMKM Diamonds, Urban Casavant et al. The complaint, filed in April 2008, seeks various remedies, including civil penalties and disgorgement of ill-gotten gains. In cases where the SEC obtains a judgment to recover money from the defendants, and the defendants do not comply with the judgment by paying the money, the SEC will seek to enforce the judgment.
It is not yet known how much money will be recovered in this case. If the assets ultimately collected are sufficient for a practical and economically feasible distribution of funds to investors, the SEC may by motion to the court propose a plan to distribute the funds. No funds can be distributed to investors unless and until the court approves a distribution plan. We will post information about any proposed or final distribution plan on this page when it becomes available. We also post information about distribution plans on the Investor Claims Fund section of our website.
The judgments entered in this case direct that disgorgement, prejudgment interest and civil penalty amounts be paid to the Clerk of the Court for the District of Nevada for deposit into an interest bearing account with the Court Registry Investment System. For information about any payments that may be made to the Clerk, please access the Court’s website.
RECENT DEVELOPMENTS
On August 1, 2011, the federal district court in the District of Nevada entered a Final Judgment of Permanent Injunction and Other Relief Against Defendants 1st Global Stock Transfer, LLC, Helen Bagley, Sergey Rumyantsev, and Brian Dvorak. The court ordered:
Dvorak to pay disgorgement and prejudgment interest of $409,638.11;
Bagley and 1st Global, jointly and severally, to pay disgorgement and prejudgment interest of $448,047.87; and
Rumyantsev to pay disgorgement and prejudgment interest of $48,254.63.
In addition, the court ordered that Dvorak, Bagley and Rumyantsev be permanently barred from participating in any offering of penny stock. Dvorak, Bagley and 1st Global have filed notices of appeal from the judgment to the Ninth Circuit Court of Appeals.
Final Judgment of Permanent Injunction and Other Relief Against Defendants 1st Global Stock Transfer, LLC, Helen Bagley, Sergey Rumyantsev, and Brian Dvorak
On February 9, 2010, the federal district court in the District of Nevada entered a Final Judgment of Permanent Injunction and Other Relief Against Defendant Anthony Santos. The court ordered Santos to pay disgorgement and prejudgment interest of $5,356.35 and a civil penalty of $45,000. In addition, the court ordered that Santos be barred from participating in any offering of penny stock for five years from the date of the judgment.
Final Judgment of Permanent Injunction and Other Relief Against Defendant Anthony Santos (February 9, 2010)
On February 25, 2010, the SEC instituted administrative proceedings against Santos and, based on the permanent injunction entered by the court, ordered that Santos be barred from association with any broker or dealer, with the right to reapply for association after five years to the appropriate self-regulatory organization, or if there is none, to the Commission.
Administrative Proceedings against Santos (February 25, 2010)
On December 4, 2009, the federal district court in the District of Nevada granted the SEC’s motions for default judgment against defendants NevWest Securities Corporation, Ginger Gutierrez, and James Kinney. The court ordered:
NevWest to pay $299,459.70 in disgorgement plus prejudgment interest and a civil penalty of $275,000;
Gutierrez individually to pay $2,177,888.67 in disgorgement plus prejudgment interest and a $2,000,000 civil penalty;
Kinney individually to pay $3,593,516.32 in disgorgement plus prejudgment interest and a $3,300,000 civil penalty; and
Gutierrez and Kinney jointly and severally to pay $762,261.02 in disgorgement plus prejudgment interest.
The court ordered the defendants to pay these amounts to the Clerk of the Court for the District of Nevada within ten business days. Any amounts paid to the Clerk will be deposited into an interest-bearing account with the Court Registry Investment System.
Order Granting Default Judgment Against Defendant Nev West Securities Corporation (December 4, 2009);
Order Granting Default Judgment Against Defendants Ginger Gutierrez and James Kinney (December 4, 2009).
On September 17, 2009, the U.S. Attorney’s Office in Las Vegas, Nevada unsealed a criminal indictment charging six defendants – John Edwards, Urban Casavant, Helen Bagley, Brian Dvorak, James Kinney, and Ginger Gutierrez – with securities fraud and related charges for their conduct in the CMKM Diamonds matter. For more information, please see the press release dated September 21, 2009. On April 28, 2010, the U.S. Attorney’s Office in Las Vegas unsealed a superseding indictment that named additional defendants. For more information, please see the indictment.
BACKGROUND
On April 7, 2008, the SEC filed a civil injunctive action against CMKM Diamonds, Inc., its former Chairman and CEO, Urban Casavant, and 12 other defendants involved in the alleged illegal issuance and sale of unregistered stock of CMKM Diamonds, Inc., purportedly a diamond and gold mining company located in Las Vegas, Nevada. The SEC charged all of the defendants with violating the registration provisions of the federal securities laws. In addition, the Commission charged CMKM and Casavant with violating the antifraud and various reporting, record keeping, and internal controls provisions.
Litigation Release No. 20519: Securities and Exchange Commission v. CMKM Diamonds, Inc., et al, United States District Court for the District of Nevada, Civil Action No. 08- CV 0437 (April 7, 2008)
Complaint
SELECTED COURT ORDERS
Final Judgment of Permanent Injunction Against Defendant CMKM Diamonds, Inc. (April 21, 2008)
On April 21, 2008, the court entered a final judgment against CMKM Diamonds, Inc. enjoining it from future violations of the federal securities laws.
Order Granting SEC’s Motion for Summary Judgment Against Defendants John Edwards, Daryl Anderson, and Kathleen and Anthony Tomasso (June 23, 2009)
Final Judgment of Permanent Junction and Other Relief Against Defendant Urban Casavant (September 2, 2009)
OTHER SEC ACTIONS CONCERNING CMKM DIAMONDS
Litigation Release No. 20855: Securities and Exchange Commission v. Marco Glisson, Civil Action No. 2:09-cv-00104 (D. Nevada) (January 15, 2009)
Complaint
In the Matter of Daryl Anderson, Admin. Proc. File No. 3-13156 (September 2, 2008) (Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Notice of Hearing)
Securities Exchange Act Release No. 58958 (November 14, 2008) (Order Making Findings and Imposing Remedial Sanctions Pursuant to Section 15(b) of the Securities Exchange Act of 1934)
In the Matter of CMKM Diamonds, Inc, Initial Decision Release No. 291, Administrative Proceeding File No. 3-11858 (July 12, 2005)
Securities Exchange Act of 1934 Release No. 52694 (October 28, 2005) (Order Dismissing Review Proceedings and Notice of Finality)
Release No. 34-51305 (March 3, 2005) (Trading Suspension: CMKM Diamonds, Inc., aka Casavant Mining Kimberlite International, Inc.)
http://www.sec.gov/divisions/enforce/claims/cmkmopinion062309.htm
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Home | Previous Page Modified: 08/31/2011
Interesting research on CMKX...
STATE OF THE INVESTIGATION,Eric Fryar, Avniel Adle
« Thread Started Today at 9:39am »
From Granny's board:
I received this letter.I have not signed a nda so here it is.
STATE OF THE INVESTIGATION
Eric Fryar, Avniel Adler
When the Fryar Law Firm began investigating the existence of a CMKX trust fund there were a myriad of issues to address. Initially, there was the extensive administrative effort of setting up representation and communication of a shareholder group in excess of 200—sending out attorney engagement letters to over 200 clients, answering clients’ questions, and collecting the funds necessary to sustain the investigation. The firm created a website as a mainframe for client feedback and to organize our work product and evidence. Finally, the Firm reviewed company history, researched the legal and factual issues of the case and read and organized the litigation pleadings of the several lawsuits that CMKX has been a party to. All of these start-up costs were performed at a considerable discount to give our clients the best opportunity at a meaningful investigation into their claims.
The investigation has had a specific focus throughout, namely: how can we determine whether a CMKX trust fund exists at a minimal expense? The Firm created an Investigation Schedule in an attempt to set-forth what the shortest path to unequivocal evidence of a trust fund would be. Naturally, the course of our investigation has informed us what the next most cost-effective step should be and our investigation plan has evolved accordingly.
Over the past few months we have spoken to a number of players in the CMKX saga. We contacted Bill Frizzell repeatedly to see what connection there exists between CMKM’s efforts at securing assets stolen by corporate insiders (Casavant, Edwards, etc.) and a possible CMKX trust fund. Frizzell disclaimed any connection between the two and explained that the funds stolen by Casavant and co. were easily traceable and that has been the focus of CMKX’s litigation efforts. We asked Frizzell about whether the company has any evidence of naked short selling. Frizzell has guarded this information as extremely private and claims that the company is not allowed to release this information. In other words, to obtain this information we would have to litigate with the company (a simple inspection request will not do). [Please be aware: The Fryar Law Firm has no connection with or prior knowledge
of Mr. Frizzell. Our approach to date has been to deal with him and the company in a polite and professional manner in order to obtain whatever information and assistance might be forthcoming. We have always understood that the company is not our primary target and that any time and money spent in needless wrangling on that front would likely be wasted. If necessary, however, we will not hesitate to deal with Mr. Frizzell in a more aggressive manner.]
In a similar vein, we have spoken to other attorneys that have favorably settled naked short selling cases. They too have confirmed that obtaining evidence of naked short selling from government entities is an uphill battle and likely a waste of time. Moreover, litigating against brokerage houses or other entities involved in the naked short selling of a company’s stock costs millions of dollars to finance. Thus, the Firm determined that litigating with Frizzell and CMKX would not be worthwhile at the moment or within the scope of our investigation. Likewise, sending Freedom of Information Acts to government entities would probably not yield any helpful information in the short term.
We have contacted a host of people who are allegedly connected to the missing trust account. Peter Maheu told us that he has no knowledge of any CMKX trust fund and that he would not return any more phone calls or letters. Keith Staub, the U.S. attorney who represented the SEC in the Bivens action said he had no knowledge whatsoever of any government trust, and in fact, that he was only put on the case to argue it out of court. Any real information would be in the SEC’s possession. Michael Phillips confirmed his story about seeing 3 CMKM trust accounts totaling trillions of dollars (more on him below). Lindell Bonney hung up on the Firm after we inquired what it means to be a “Paymaster”. Al Hodges never returned any of our letters or phone calls.
Following these efforts it occurred to us that deposing the parties who allegedly have personal knowledge of a CMKX trust fund would be the best plan of attack. Those parties are Al Hodges, Michael Phillips and Morris Richards. Consequently, we filed an extensive Rule 202 Petition seeking the depositions of Hodges, Phillips and Richards without filing a lawsuit.
One might wonder, what does it mean to depose a party without filing a lawsuit? That is an excellent question and one that required considerable legal research. Ordinarily, in order to issue subpoenas to compel testimony under oath and the production of documents requires the filing of a lawsuit. However, filing a lawsuit without an adequate factual basis can result dismissal without the opportunity to conduct discovery (this is what happened in the Hodges lawsuit), and more significantly can subject attorneys and their clients to monetary sanctions. Moreover, the persons who claim to have the information necessary for a lawsuit (Hodges, Phillips and Richards) would not be the target of the lawsuit, but only witnesses. Therefore, we are utilizing a little-known and little-used procedural tactic provided by Rule 202 of the Texas Rules of Civil Procedure. This is an innovative approach
and is not guaranteed success, but we feel very optimistic that we have put together a compelling and valid legal position.
What we are doing is representing to a court in Texas that we wish to secure deposition testimony from 3 out-of-state witnesses for use in an anticipated lawsuit. Thus, no one is being sued here. We are telling a Judge that, in the interest of justice, the CMKX shareholders need to depose Hodges, Phillips and Richards, so that their testimony is preserved for use in an anticipated lawsuit. In essence, a lawsuit could not be filed until we have a responsible party to sue. We need to depose Hodges, Phillips and Richards to determine who we could sue to reclaim CMKX trust funds.
It is worth noting that a Rule 202 Petition is an extremely rare procedure. This is particularly true in light our request to depose out-of-state residents. The Petition seeks a deposition of Hodges in California and a deposition of Phillips and Richards in Florida. Thus, the Texas Court must issue what are termed “Letters Rogatory” to request courts in California and Florida to issue subpoenas to our witnesses.
Our petition is also a persuasive document. We must persuade a judge that our deposition of Hodges does not seek to discover privileged “attorney work product”. Rather, we are only interested in hard evidence of a CMKX trust fund within Hodges’ possession, custody or control. We may not discover material that Hodges prepared for use in the Bivens action, his mental impressions developed in anticipation of the Bivens action, or the communications between any of the parties to the Bivens action or their representatives, employees or agents.
The schedule of events is as follows: a hearing will be held on whether the petition will be granted (likely at the end of August or beginning of September). We will notify Hodges, Richards, and Phillips that the hearing will take place. If the judge grants our petition, Mr. Fryar and Mr. Adler will depose Hodges in California, and Richards and Phillips in Florida. We have requested that the witnesses produce documents at the deposition, e.g., a screen shot of the computer screen Phillips allegedly viewed, or a document verifying that Maheu met with the DTCC (in the case of Richards). These documents will be inspected and copied, and posted on the PBWorks website. The depositions will probably take place some time in October, depending on how long it takes to process the Letters Rogatory and set deposition dates in California and Florida. It will be necessary to retain the services of
local attorneys in California and Florida to assist in the necessary filings in those states.
We would like to remind the shareholders the scope of our engagement. We have been retained to investigate the existence of a CMKX trust fund. We have not been retained to file a lawsuit. There is no magic bullet to remedy the wrongs perpetrated on the CMKX shareholders. Our best weapon is reliable evidence. If our investigation yields reliable evidence the shareholders will have something of value for use in an anticipated lawsuit. For now, the shareholders must understand that the Firm is doing our best to secure the information you have retained us to uncover. Additionally, any such lawsuit would also face hurdles of statutes of limitations, jurisdictional issues, and other potential obstacles. The best way to determine the viability of any such a litigation effort must start is valid evidence.
In closing, we would like to assure you that we believe we are breaking serious ground in this investigation and hope to have real answers for you shortly. We have no interest in fraternizing with any of the parties connected with the controversy. Our only goal is to get reliable information for the shareholders. We intend on securing depositions before suit, because we feel it is the fastest way to verify the existence of a CMKX trust fund at a minimal expense. Thank you again for your patience and support.
This message was sent to xxxxxxx from:
Eric Fryar | 1001 Texas Ave, Ste 140 - #111 | Houston, TX 77002-3194
Read more: http://qbidtalk.proboards.com/index.cgi?....2#ixzz1VOP2GbgS
Lin
From: IBAFT (Rep: 0) Date: 08/01/2011 09:30
Forum: Cmkm Diamonds Inc - Msg #244 Thread #673269656 (Rec: 0)
Last Chance Willy...
_________
Contrary to Willy lying on the boards, trying to turn what was an interest-free loan into a pump to purchase stock, below my following message to Willy is the email exchange between Willy and myself regarding the issue of me being repaid. Remember, Willy paid me back $14,000.00, at the time he claimed he was broke and applying for food stamps, the same approximate time he was purchasing 2 new homes in Dallas, Oregon.
__________
Once again, you have lied about me on the boards regarding issues like SFPS, your introduction to "the bad guys", that I am involved in stock scams and scamming the public when I don't even buy and sell stocks anymore and I NEVER ONCE was paid for recommending stocks to anyone, that I was an attorney for "the bad guys", not to mention other lies such as I was the person who turned you onto GBDX.
It is obvious that you could "care less" about my posts to you because my posts to you are replete with truth - a commodity in short supply at the Willy residence. As usual with liars and scamsters being exposed trying to cover their asses, you dismiss a mountain of specifics without addressing the merit of even one statement. That is a very convenient manner to deal with truth in large quantities, huh Wilber?
Come on Wilbur, tell us again how I connected you to GBDX while the entire time, even though I NEVER owned the stock and I was telling you to get away from it because it was a scam - even referenced in the emails below in 2008. It stunk of the same TA's, accountants, story-line, lawyers, promoters, consultants, and of course, Turino, that other Turino scams had. I was still a touch naive in believing that there was a chance you were being misled, so I was trying to warn you to help you as did other genuine people like Keith Houser and Don McCurdy - that was until I found all the other Turino stocks you promoted and realized that you were merely "one of the boys". There are no coincidences in this case, huh Wilbur?
I warned you Willy. "Quit lying about me and I will stop telling the truth about you." Apparently, that admonition either fell on ears to arrogant to hear or those just too plain stupid to understand. So, here it goes Willy:
If you fail to retract your previous lies about me, and you continue to open your mouth lying about me, even one more time, I will not only sue you (in the Los Angeles Superior Court), but I will subpoena every trading record, phone record, email, WillyWizard archive, hard drive, etc... you ever had and not only use them to prove my case, but I will insure that others who have been harmed by you are able to see those records so they can prove what a lying piece of trash you are for their own lawsuits against you. I may even start up a new business based upon representing people suing you for stock fraud. Not only will I expose everything about you, but I am sure your "associates" will appreciate that your endless yap led to their exposure as well. Are you game, you ignorant cheat? Go ahead Willy, lie about me again, you degenerate con man. I promise to not only sue you, but in the process, I will make your life a litigation nightmare.
I will wait 48 hours for your retraction.
and a response to Willy.....
By: planter82
22 Jul 2011, 02:38 AM EDT
Rating: Rate this post: Msg. 1185853 of 1185853
Jump to msg. #
Oh look willy wizard aka Hal Engel caught lying again
From: IBAFT (Rep: 0) Date: 07/21/2011 05:38
Forum: Cyber Mark International Corp - Msg #30 Thread #673262775 (Rec: 0)
And yet, another reply to WillyWizard...
Willy, I thought I knew the definition of stupid, but each day, you seem to redefine the concept on a new level of idiocy that goes beyond the comprehension of mortal men. You just won't stop spouting off, talking bs lies about people, including me, which over time begs a response. If it is your life's desire to be b-slapped into an even greater sense of stupidity, if it is your greatest desire for me to expose your lies further, then congratulations, your ambitions are once again achieved. If you are just too stupid to realize that not only are you intellectually outgunned by everything with the intelligence beyond the level of a tree stump, and you are terribly outmatched by that little concept people refer to as "truth", then perhaps these little exchanges will wise you up just a little, perhaps enough to keep your mindless rants to yourself. If these are posts just an effort to impress the feds in an effort to distract them from what we all know is the inevitable, the pending knock, knock, knock on your door, then know that not only are your feeble efforts being noted for what they really are, but my responses are only forcing you to tread in even deeper water, in an ocean you fully know you are incapable of swimming.
Then again, maybe you actually trying to manipulate the situation in an effort to have me silenced, just like you did when you were trying to get me to go to Reno to meet you the time all your mafia friends were up there, including the Russian and Turino. You asked me not once, but literally begged me to come up there so many times, your agenda became more than obvious. Perhaps it is your desire for me to tick someone off so much that you can run back to them and tell them it is in their best interests to silence me. I know this is a usual tactic for your lot, to try and have others do your dirty work while you try to manipulate them into believing they are 'taking care" of the person for their own best interests. If this is the case, then sorry Willie, you will have to do better.
Now, during the time you were in full swing scamming the CMKX shareholder base, I tried to discourage you from pumping the lies of stocks like GBDX, SFPS, JMON, DKGR and a host of other penny scams you promoted on your stock promotion website. Although I found it reprehensible that you were scamming the public at large (including one little old lady I met through Dick Monet that you personally called on the phone and conned her out of her entire $29,000 in savings), since I had made many friends through CMKX, I wanted to stop your targeting that shareholder base for further abuse. I tried (as did other people like Keith Houser) to warn you that the company you were keeping (Turino and others in his playpen), were bad people and would only lead you down the road of destruction. You insisted that you knew nothing of these people, in spite of the fact you coincidentally promoted stock after stock of their devise, including the scam of all scams, GBDX. Hmmmm.. does it not surprise you that you were warned about GBDX being a Turino stock about 1000 times, you openly ignored it and yet, in the Turino indictment, GBDX was mentioned all over the place? Here is a lesson for you to learn Willie, historical revisions by liars are difficult when the real facts are little more than a keystroke away.
In spite of your scamming, since most people from the CMKX world are onto your real agenda, including friends of mine I wanted to protect, I have basically laid off of you and let you lay down in the bed of serpents you appear to love sleeping with. However, you sadly insist on trying to point fingers at people like me, acting like we were the cause of your sad tale in life. Get it through your head Willie, when the prison bars slam behind you, there will be nobody to blame for your ills other than the fool staring at you in the mirror.
First off Willie, you are a PROFESSIONAL STOCK PROMOTER, paid for your promotion services, so it is your legal duty to professionally investigate your stock picks, not receive them on a silver platter from basically one group of criminals who's agenda was well known to you as being out on the scam. It is your business to be truthful to your "clients" about the stock origins and your compensation, not deceive them out of their hard-earned money through a conspiracy with stock manipulators. Isn't it convenient, you were paid your salary by basically the same group of people on the vast majority of stocks you promoted, through different vehicles or corporations, and you kept on accepting compensation from them for years, likely to this very date, in spite of the fact their stocks have been repeatedly proven to be scams and you know these people are under investigations by the feds?
Of course, it should be no surprise to anyone who knows you and the history of your stock promotion services that you were given the designation of the single WORST STOCK PROMOTER IN AMERICA. Congratulations on that one Willie, I have to say, the worst in all of America, now that is impressive. I have had a few pretty neat awards in my life, but never the top in the entire country of 309 million people, at least not as an individual (vs. team sports). Maybe if you keep it up, you can take the gold medal at one of the up and coming Olympics, provided they expand their sporting events to picking company after company that gets sued, goes delisted, stops trading and is subject to government investigations. If that is the case, then Willie, I am certain you will win the gold! Taking that matter to another level, although I never pumped stocks to you nor did I introduce you to anyone you now are trying to distance yourself from, I am not a professional stock promoter, nor is Don McCurdy, thus other than promoter compensation, which we never received, we do not have the same duties to people we might recommend a stock to like the one you had to those poor souls you constantly fleeced with your phony picks.
Although I have generally decided to ignore your ongoing scamming, mostly because the people I care about have been made aware not to listen to you concerning the stocks you promote, you insist on trying to pull me into an ongoing debate by lying on such a deep level, a reply has to be expected. So, I will address portions of your recent Raging Bull post on the BMCS board, # 3696, where you really let some whoppers fly. Here are your comments and my responses:
“unngy now you are hitting the nail on the head. Don's crew introed me to Jenson, the atty was the intro person.”
Irrespective of who you claimed introduced you to “Jenson”, it was clear that long before I made the phone call YOU asked me to make, to put you on the phone with “Jenson”, you had already been working with him because of the connection to ECNC and Kanakaris that you promoted, or did it not seem obvious that you were promoting eConnect, Kanakaris (and likely other Jenson-connected stocks) on your webpage long before the alleged introduction. WIth thousands of stocks on Wall Street you happen to be involved in the same stocks with "Jenson" before our alleged intro? Coincidence? Har har har... You know, after we hung up from that 5-10 –minute conference call, I found it just a little too strange that without ever meeting you, without ever knowing anything about you, without doing one single shred of research about you, you would be offered numerous rather lucrative jobs on the phone after merely a few minutes of chatter, a call that was mostly in reference to where we all lived and fishing information. These were jobs that would be worth several thousands of dollars to you on a regular basis, offered without a shred of investigation? Although I had nothing against you, I even called back “Jenson” immediately after the conference call to make it clear that I was not endorsing you at all, because I hardly knew you. Yet somehow, you got hired on the spot, for a lucrative series of jobs, without any employer research or references. Hmmm. perhaps you guys should have paid a little more attention to setting up a foundation on that one before trying to make it look like you never knew each other prior to my alleged introduction. If this were a trial scenario, and you offered this intro scenario to me, I would have to make an objection on the grounds of a lack of foundation. It was just too easy and too convenient and far too illogical for the call to be of a genuine nature. Also, I hate to say it but it is not the first time that this little scam introduction approach has been used in the past, trying to set up a person as the introducing party to distance 2 people, when the people previously knew each other. I have seen it all before.
“GBDX was an intro from the atty and then they called me out??? bunch of liars! “
Oh my goodness, that might just be the best one yet. Willie, if I were the one who introduced you to GBDX, then why did I never own one share of that pos stock – ever? Why did I never do one single transaction related to that stock - ever? You literally begged me to get my friends into that stock, but by the time GBDX had rolled around, I was awakening to whom you were likely working with and that whatever you touched was likely to be poison. In the end, I was correct because GBDX ended up being tied to Turino.
Of course, let us not forget the literally hundreds of posts by your favorite Raging Bull poster of all time, “KAL-EL1.” If I remember, the “last son of Krypton” was trying to encourage you, with both statements of facts, quoting your constant lies of a GBDX buy-out that never came, and even the use of Bible verses an famous quotes about criminals from great men of the law, to lead you away from the lies of that scam stock, but you insisted that it was real. In fact, you called me on the phone one day, crying your eyes out, that you had been in the hospital all night with heart pains because of KAL-EL1’s posts – asking me to stop it - remember Willie? You claimed it was me, begged me to stop, and then when I asked you why you said it was me, you claimed that according to RB, the posts were coming from my IP address. When I asked you how you could possibly know that it was my IP address being lodged at RB, you refused to comment, further tying you into the RB/Turino mafia connections. In fact, you claimed that it was a company with one of the only 2 diamond export licenses in all of Russia and that DeBeers was definitely going to buy it out – remember? Nope Willy, I can provide several witnesses for you who will testify that I urged them not to purchase that scam you were living and breathing. I likely saved the CMKX shareholder base multiple millions of dollars in giving warnings about GBDX and your lowly pump and dump operation.
What is so comical, after it went south and you were trying to recover some credibility, you had the balls to call me on the phone and ask me to come into your room and comment on that Turino crapheap GBDX after it was halted, to tell everyone my opinion of what went wrong – as if I would promote the answers you wanted. If I would have come into the room, the only comment that would have been offered is that Willy and Turino screwed you – period!.
Of course, let us not forget that you called me the night before some SEC deposition and asked me for a “pre-dated opinion letter” as if I had just put down a pound of magic mushrooms and a bottle of Jack Daniels and was incapable of rational thought at the time. In that conversation, you also changed firmly outstanding positions that “Jenson” was one of your sources for GBDX to suddenly, he had nothing to do with it and that your great source on the boards for GBDX “RonnieD” was indeed probably Turino after all and that poor you, had been deceived all along.
“SFPS what a scam from the atty...loaned me money to buy that pos then they all dumped on me and they have gall enough to bash me because I paid him back in full and they lie about that.”
Again, I am not in the stock promotion business and I certainly did not promote SFPS to you. Sad to say, I did buy the stock mostly before it was SFPS, when it was Nettoy, slowly accumulating it at approximately the price of around a penny. Sadly, although it ran to about .29 cents, I was convinced by a certain someone to hold on because they were certain it would hit $5.00. I ended up selling out on an average of .03 - .04 on the way down , the last million at a loss of under a penny. Of course, irrespective if I owned the company before you, it was one of the stocks you were paid to pump, but in an effort to CYA, you are pointing the finger in my direction.
Yes, before I knew the real you, I befriended you in good faith. As evidence of that good faith friendship, even though I never even met you, I loaned you $14,000.00 for a couple months to help you in a time you were crying poverty. You know, like the times you cried poverty with filing for food stamps while during the same year you were purchasing 2 new homes in Dallas, Oregon in your family’s name? Funny thing, I charged you ZERO interest on the money, in spite of the fact you held it for almost 2 years. Wow, I really was a terrible kind of guy to loan you $14,000.00, give you nearly $3,000.00 in free interest, and then have the audacity to ask that the money be returned when I discovered that you were not broke, but buying multiple properties in Oregon. By the way, asking for food stamps under the false statements that you were broke is a felony Willie. Further, for you to claim poverty, you had to lie on your IRS tax return for certainly, if you listed the income adequate to purchase 2 new homes, you would not have qualified for food stamps… or was the food stamp story just another lie of your multiple lies to try and get your poor online victims to feel sorry for you and not demand their money back from your many scams?
“Unfortunate 99% of all there stocks turdy and atty were and are involved in were and still are scams. They haven't stopped just changed their spots. “
Yes, many stocks I owned were subject to scams, stock manipulation and naked short selling, including CMKX. According to attorney Wes Christian when we spoke on multiple occasions, as much as 85% of all stock transactions on Wall Street were subject to naked short selling alone, not to mention other forms of manipulation, so owning manipulated stocks is not unconceivable. The question no longer remains as to which side of the manipulation you were on Willie. I certainly know Willie. So do the Feds.
Although, I have not given up on CMKX, just realized that it is an animal that has not yet been uncaged. As to several other stocks I purchased that ended up being losers, they were stock referrals from you and “Jenson” and sadly, I lost my ### on them. Tell me Willie, how can I be accused of a misdeed when I lose money on owning the stock? In fact, I still own the majority of the penny stocks I bought, still unable to unload them to this day. How many of those stocks did you get paid by criminals to pump, unload onto an unsuspecting public, and then cry a river of tears with your victims, pretending you also lost everything? Willie, in your years of stock promotion, you surely pumped well over a HUNDRED stocks – likely HUNDREDS (MAYBE A THOUSAND OR MORE OF THEM) – that turned out to be scams and/or conveniently, massive losers. How many stocks did I even own over 10 years of time, 50? Maybe 100? How many of them turned out to be scams? Mostly the ones where I accepted those stated recommendations that included yours.
Another massive difference Willie is that I paid for all my stocks, mostly with hard-earned cash and some stock with the fruit of my labor – the labor of being an attorney, and I did hundreds of hours of legal work to earn them. As I have not worked for ECNC or “Jenson” for over 5 years, I have received ZERO stocks as compensation for legal work because I am not doing work for companies that pay in stock anymore. Yes, I still work as an attorney. You received stock for pumping stocks (a HUGE difference), and even were busted for not informing the public you were pumping to that you were on the payroll – a HUGE conflict of interest. I can only imagine how many more of these violations you have engaged in over the years and you have not yet been brought to justice. Telling the public the companies you promoted were great investments was a lie as the entire time you were pumping them was due to the fact you were paid to pump them. Neither Don nor I have EVER engaged in such paid promotional services, nor do we hold ourselves out as professionals in that field as you do.
As far as my “still being involved in scams”, except on perhaps 2 occasions in the last 2-3 years, I have not bought or sold any public stock at all, nor have I recommended any to anyone. I purchased BMCS in November of 2009 and again sometime in 2010. I have not been paid by any public companies for legal services, and in general I have moved far away from Wall Street, mostly because scumbags like you have polluted the waters so badly, one would die from drinking a drop of the corruption in the stock market. I do plan on returning to trading one day, but I have made it a litmus test that until you and your crew go down, it has not been cleaned up sufficiently for me to consider investing again.
“Yes Don you, ceo, smrufits and the atty were all fingered for your exact involvement in these scams then you have the balls enough to call me out. Also all loans to me were handed over to them so they could see exactly where money went that was loaned to me from the atty and for what it was spent on SFPS a scam I was led into by the atty!”
If Don, ceo (I assume you mean Keith Houser), (“smrufits?”) and I were fingered by the SEC (other than Keith Houser who is working with the Feds VERY closely and has had great success in fingering Turino and others), why were none of our records subpoenaed, none of us were deposed, none of us were charged, indicating that none of us are being investigated at all? You see Willie, in case you are just too stupid to realize, the victims of crimes are not usually the people being heavily investigated, the perpetrators are. You and your clan have all had records subpoenaed, hard drives, you have been deposed on multiple occasions, some civil and even criminal charges have been filed, some arrests have been made and I assure you, if I read the situation correctly, MORE ARE TO FOLLOW, including yours.
Led to SFPS by me? Again, if I was the “scammaster” of SFPS, then why did I leave well over $400,000 on the table and hold it all the way back down so that I sold most of my stock at .009? By the way Willie, I did recommend this stock to a few friends and unlike you, when I dumped the majority of my stock after losing faith in the big “google” buyout that was represented to me, I felt a moral obligation to FIRST inform all the people I recommended it to (5?) BEFORE I sold my remaining interests. If you don’t believe that one, ask Jeff, Robert, Cesar, Don, my neighbor (there might be one or two more). I was getting calls on a daily basis from “Jenson” telling me he believed in the stock and that it was really going to run. He also informed me, Don and Jerry that google was meeting with them to purchase SFPS. When it hit .27 or .29, I held like a damn fool while others sold out beneath me. Were you one of those sellers Willie?
In the end, you can see that the more you open your mouth, the greater the trouble you cause for yourself and those around you. Simply because I tire of these worthless exchanges with devils, I will make you Gordon Gekko’s offer, “you promise to quit telling lies about me Willie, and I will quit telling the truth about you.” That’s about as good of a deal you will get out of me, unless you prefer me to return to the boards on a more consistent basis, expose you even more and light you up on all your scam boards on a more daily basis? I guess the current flock of unfortunate victims would appreciate my presence and revealing your history. Are you game Willie? Just keep up including me in your little “lie-fests” and I will be more than happy to return, with a vengeance.
By the way dimbulb, don’t you think that only turning over one hard drive from your multiple computers to the feds to answer their subpoena was a little stupid since on your webpage, you have at least 3 SEPARATE computers showing and have admitted to having the same in your room? Oh yeah, continuing to do the same stupid routine scams in the face of an investigation is not a viable justification to negate intent. You have been told 100 times, if told once, that your conduct is wrongful. The bottom line, you have no remaining excuses.
Knock, knock Willie.. you sleeping well Willie.. or sleeping at all...? Is it still "bottom feeding time?" Is the "guaranteed" buy-out of GBDX still on the way? (ouchie… that has got to really hurt).
From Willy....
By: raginganny
20 Jul 2011, 12:52 PM EDT
Rating: Rate this post: Msg. 3696 of 3700
(Reply to 3695 by fungagain)
Jump to msg. #
funngy now you are hitting the nail on the head. Don's crew introed me to Jenson, the atty was the intro person. These guys were as two faced as they come u mping all those stocks. They were both involved in many scams and I was caught up because of their intro. Until that intro I never heard of these guys now they want you to believe I was the culprit so far from the real truth.
FFGO what farce...could care less never promoted it.
GBDX was an intro from the atty and then they called me out??? bunch of liars!
SFPS what a scam from the atty...loaned me money to buy that pos then they all dumped on me and they have gall enough to bash me because I paid him back in full and they lie about that. Turdy was right in the middle so I get sorta sick of his lies and even your bs funngy...get the facts straight before you subliminally accuse me of being involved in scams. Unfortunate 99% of all there stocks turdy and atty were and are involved in were and still are scams. They haven't stopped just changed their spots.
Don you POS my brokerage accounts are in my name, SEC KNOWS WHERE THEY ALL ARE AT IN MY NAME! Go suck a big one Don you are such a fricking liar! Don you a loser and since I have known you you have been holding stock in evry scam i have witnessed then you blame others for your losses...also you know the SEC knows exactly what happened by MY DEPOSITION! Yes Don you, ceo, smrufits and the atty were all fingered for your exact involvement in these scams then you have the balls enough to call me out. Also all loans to me were handed over to them so they could see exactly where money went that was loaned to me from the atty and for what it was spent on SFPS a scam I was led into by the atty!
Don your a loser this is why you have to lie about others. No wonder your fired from all your car jobs or forced to quit...tell the readers here how many of cars jobs you have had...many since I have known you. In my entire life I have had a handful of jobs since I was 16...no need for a good employee to move around all the time like you do Don. btw Don currently I enjoy my business and it's successful past and future and I don't answer to anyone....go to work Don your boss is calling roflmao.
funngy have a good one...seriously
anny
From Willy .....
By: raginganny
06 Jul 2011, 10:23 AM EDT
Rating: Rate this post: Msg. 3585 of 3590
(Reply to 3583 by planter82)
Jump to msg. #
Don, You one of the biggest liars on this thread. The FEDS heard it all from me even about you so not many reasons left for them to call me about tho POS stock. I am very surprised they let your little group of scammers slide this long.
I think you are lucky you escaped to Canada to avoid their prosecution. If the FEDS don't wrap up with deposing you, surfit and the atty I'll be surprised. No whistle blower bs for you guys that was already used to save an ass.
Also Don you and your buddies have worked every Torino scam and then blame others for your lack of integrity and your losses. How many has the atty given money cuz you guys sucked them into these scams. You have many sucked into this pos also and it's going sub-penny eventually cuz it's getting shorted will be your excuse.
As far as that other stock pound sand Don. Never heard of it so just another one of your many lies.
I hope paltalkers realize your one big bundle of lies and your car finance is built totally on lies and misleading little ol ladies...and yes Don you have lied to many elderly ladies as you ripped them off then bragged to the desk.
I hope you enjoyed this reading roflmao
anny
http://www.freedomfordsales.ca/dealership/staff.htm
IHUB lawsuit against unnamed company
http://adserv.stocksite.com/images/pubdocs/mmg/Florida_Final_Judgment_iHub_v_MMG.pdf
Willy Wizard info....
Harold Engel Jr has a LONG history of SEC violations.
There is no way I could soil his reputation.
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
Securities Act of 1933
Release No. 8541 / February 23, 2005
Admin. Proc. File No. 3-11310
In the Matter of
HAROLD ENGEL, JR.
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ORDER GRANTING RESPONDENTS' UNOPPOSED REQUEST FOR MODIFICATION TO FINAL DISGORGEMENT SCHEDULED PAYMENT
On May 11, 2004, an administrative law judge found that Respondent Harold Engel, Jr. violated Sections 5(a) and 5(c) of the Securities Act of 1933 when he offered and sold shares of stock to the public without a registration statement.1 On June 10, 2004, the Commission made final the Initial Decision in this proceeding as to Respondent Engel.2 Engel was ordered to disgorge $8,167.50 plus prejudgment interest. On July 13, 2004, the Commission granted Respondent's unopposed motion to modify the disgorgement order to allow Respondent to pay the ordered disgorgement over the course of a year ("July 13 Order").3 The July 13 Order established a payment schedule pursuant to which the last payment of disgorgement and interest was due on April 7, 2005.
On January 10, 2005, the Office of the Secretary received Respondent's Request for Modification to Final Disgorgement Scheduled Payment.4 Respondent seeks an accounting of how much disgorgement and interest remains to be paid and seeks leave to pay that amount in six monthly installments beginning on February 15, 2005. The Division of Enforcement reports that, at the time of the motion, Engel had paid a total of $5,100 pursuant to the Order. We are now informed that Engel paid an additional $623.47 on February 15, 2005. The Division does not oppose Respondent's request.
In response to Respondent's request for an accounting, the Division of Enforcement submitted a schedule of payments that would enable Respondent to pay the remainder of the disgorgement and interest in six installments as requested by Respondent. In the absence of any objection from Respondent, we have determined to accept the Division's calculations as the basis for Respondent's payments. Because the statutory prejudgment interest rate may change before Respondent completes the course of payments, we will direct the Division of Enforcement to provide Respondent a statement of how much remains to be paid before the last payment is due.
We will treat Respondent's filing as a request to modify the July 13 Order by altering the schedule for paying disgorgement. We hereby grant the Request.
IT IS ORDERED that Respondent's Request for Modification to Final Disgorgement Scheduled Payment is hereby granted; and it is further
ORDERED that Harold Engel, Jr. disgorge $3,694.49, plus prejudgment interest at the rate established under Section 6621(a)(2) of the Internal Revenue Code, 26 U.S.C. § 6621(a)(2), compounded quarterly, pursuant to 17 C.F.R. § 201.600, such interest to be due from December 1, 2002, through the first day of the last month preceding which payment is made; and it is further
ORDERED that payment of the disgorgement shall be made to the United States Treasury pursuant to the following schedule: on February 15, 2005, $623.47, which has been paid; on March 15, 2005, $626.05; on April 15, 2005, $628.63; on May 15, 2005, $631.26; on June 15, 2005, $633.88; and on July 15, 2005, $636.51 unless modified as provided below; and it is further.
ORDERED that following receipt of Respondent's payment on June 15, 2005, the Division of Enforcement will provide Respondent with a statement indicating how much has been paid and how much disgorgement and interest remains to be paid in the final payment due on July 15, 2005.
Each payment of disgorgement payment shall be: (a) made by certified check, U.S. Postal money order, bank cashier's check, or bank money order; (b) made payable to the Securities and Exchange Commission; (c) mailed or delivered to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, Virginia; and (d) submitted under cover letter that identifies the .names of the respondents in this proceeding, as well as the Commission's case number. A copy of the letter and of the instrument of payment shall be sent to counsel for the Division of Enforcement, Susan F. LaMarca, Securities and Exchange Commission, 44 Montgomery Street, Suite 1100, San Francisco, CA 94104-4691
By the Commission.
Jonathan G. Katz
Secretary
Endnotes
1 Lorsin, Inc., Initial Decision Rel. No. 250 (May 11, 2004), 82 SEC Docket 3415.
2 Lorsin, Inc., Securities Act Rel. No. 8429 (June 10, 2004), 82 SEC Docket 3931.
3 Harold Engel, Jr., Securities Act Rel. No. 8440 (July 13, 2004), 83 SEC Docket 1029.
4 We concur with the Division's observation that the motion should have been addressed to us, not the law judge, because we had entered a finality notice in this matter. We therefore have taken up Engel's motion on our own motion.
NSMG pump and dump info....
SEC seeks $50-million (U.S.) from pump-and-dump lawyer
http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3a*SEC-1853870&symbol=*SEC®ion=C
2011-06-21 15:14 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
Also Street Wire (U-DPRK) Deep Rock Oil and Gas Inc
Also Street Wire (U-NLST) National Storm Management Inc
by Mike Caswell
The U.S. Securities and Exchange Commission has filed a motion seeking $50.3-million in penalties against David Gordon, an Oklahoma lawyer jailed for his part in a 2005 market manipulation. (All figures are in U.S. dollars.) The regulator says there is no genuine dispute that Mr. Gordon participated in a scheme in which he and others pumped and dumped three companies. A jury in Oklahoma convicted him of parallel criminal charges on May 3, 2010.
The SEC's request comes nine months after a U.S. federal judge sentenced Mr. Gordon to 15 years in jail on charges that stemmed from the three pump-and-dumps. Prosecutors argued that he and others, including fugitive Canadian promoter Dean Sheptycki, participated in a market manipulation that defrauded investors of millions. The stocks they promoted included one company they held out as a storm reconstruction outfit in the wake of hurricane Katrina, the storm that devastated New Orleans in 2005.
Mr. Gordon unsuccessfully fought the criminal charges, arguing that there was no proof he was responsible for boosting the stocks. He sought a light sentence on the grounds that he had already suffered the loss of his profession and would be banned from penny stocks. He still maintains his innocence, and is appealing his conviction.
The SEC, meanwhile, says that the courts must impose appropriate civil penalties for Mr. Gordon. In a motion filed on June 16, 2011, it is seeking an order requiring him to disgorge the entire $43.9-million that he and others made in the pump-and-dumps. After deducting $3.9-million that the government has already collected in the criminal case and adding an appropriate amount for interest, the SEC says a $50.3-million disgorgement order is appropriate. On top of that, the SEC is seeking a third tier civil penalty, which can be anywhere from $130,000 to the total amount of investor loss. The regulator is also asking that the judge permanently ban Mr. Gordon from participating in penny stock offerings.
Should the SEC succeed in its request, Mr. Gordon's penalty could be close to the judgment that the regulator won against Mr. Sheptycki. On March 11, 2011, a Tulsa judge ordered him to pay $98.7-million. Roughly half of the amount was disgorgement of profits from the scheme, while the remainder was a civil penalty. The decision was a victory by default, as Mr. Sheptycki did not respond to the SEC case and is a fugitive in the criminal case.
SEC's complaint
The SEC launched the case against Mr. Gordon and others on Feb. 10, 2009, when it filed a civil fraud complaint in the Northern District of Oklahoma. According to the complaint, Mr. Gordon and others, relying on fraudulent legal opinions, acquired millions of shares in three companies. They then sold their stock during fraudulent promotions, realizing millions in illegal profits. The other defendants were Mr. Sheptycki, who helped send faxes touting the companies in return for 10 per cent of the profits, and a former broker from Texas named Joshua Lankford.
One of the three stocks that the SEC accused the men of manipulating was National Storm Management Inc., a purported storm reconstruction company. Some time in 2005, Mr. Gordon and Mr. Lankford acquired nearly all of the company's tradable stock, the SEC said. They then hired Mr. Sheptycki to promote the stock with mass faxes, and arranged for spam e-mail campaigns.
The faxes typically predicted massive price increases for the stock. The spamming, which went out in September, 2005, after hurricane Katrina struck New Orleans, stated that the company "is poised for a massive run up as demand to repair homes skyrockets." The stock went from 50 cents to a $2.80 high. (It was last at 0.45 cent.)
As the spam went out, Mr. Gordon and Mr. Lankford carried out a series of manipulative trades, which they concealed through nominee accounts, according to the SEC. "To ensure that the market price remained artificially elevated, Gordon and Lankford coordinated their trading so as to not dump too much stock into the market during the promotions and provided buy-side support when there were too many other retail investors selling stock," the complaint read.
The other two stocks that the SEC listed in its complaint were Deep Rock Oil and Gas Inc. and Global Beverage Solutions Inc., which were the subjects of similar promotional campaigns. Deep Rock went from 12 cents to $1.13 in 2005, and was last at 0.15 cent.
The SEC sought disgorgement of ill-gotten gains, appropriate civil penalties and penny stock bans.
Fugitives
While the SEC has secured a penalty against Mr. Sheptycki and is seeking a default judgment against Mr. Lankford, the regulator may have a difficult time collecting from either man. Mr. Lankford, who was last known to live in the Dallas area, fled before prosecutors filed the criminal charges. He did so despite having young children, possibly on the advice of Mr. Gordon, according to prosecutors.
Mr. Sheptycki was not initially as fortunate, as police arrested him in the Bahamas on a U.S. warrant in February, 2009. The U.S. attempted to have him extradited, but the attempt failed after U.S. authorities did not file an authority to proceed on time. A Bahamian judge threw out the case and released Mr. Sheptycki. It is not clear where he went from there.
The SEC was not the first regulator to impose a fine on Mr. Sheptycki. In 1998, he agreed to pay a $15,000 fine to the Alberta Stock Exchange and to serve an 18-month ban from the brokerage industry. He had been working at the Calgary branch of C.M. Oliver & Company Ltd. at the time.
The fine stemmed from unauthorized trading, in which he bought $95,472 worth of shares in an ASE listing called Timbuktu Gold Corp. The trading left one of his clients with a debt that was beyond his means. Canadian Securities Administrators records show he did not return to the brokerage industry after his suspension expired.
At the time of the National Storm promotion, he was working for a Florida tout service called Stockwire.
http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3a*SEC-1853870&symbol=*SEC®ion=C
SEC Suspends Trading in 17 Companies in Proactive Effort to Combat Microcap Stock Fraud
FOR IMMEDIATE RELEASE
2011-120
Excerpts From Internet Promotional Campaigns
Calypso Wireless Inc.
Emerging Healthcare Solutions Inc.
Montvale Technologies Inc.
Washington, D.C., June 7, 2011 — The Securities and Exchange Commission today suspended trading in 17 microcap stocks because of questions about the adequacy and accuracy of publicly available information about the companies, which trade in the over-the-counter (OTC) market.
The trading suspensions spring from a joint effort by SEC regional offices in Los Angeles, Miami, New York, and Philadelphia; its Office of Market Intelligence; and its new Microcap Fraud Working Group, which uses a coordinated, proactive approach to detecting and deterring fraud involving microcap securities. The trading suspensions follow a similar suspension last week against Uniontown Energy Inc. (UTOG), based in Henderson, Nev., and Vancouver, Canada.
--------------------------------------------------------------------------------
Additional Materials
Trading Suspension
Order
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“They may be called ‘penny stocks,’ but victims of microcap fraud can suffer devastating losses,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “The SEC’s new Microcap Fraud Working Group is targeting the insiders and promoters, as well as the transfer agents, attorneys, auditors, broker-dealers, and other “gatekeepers” who flourish in the shadows of this less-than-transparent market.”
George Canellos, Director of the SEC’s New York Regional Office, added, “The investing public does not have accurate or adequate information about these securities to use in making informed investment decisions. Nonetheless, stock-touting websites, twitter users, and often anonymous individuals posting to Internet message boards have hyped many of these companies, and these promotional campaigns have been followed by spikes in share price and trading volume.”
The 17 companies and their ticker symbols are:
American Pacific Rim Commerce Group (APRM), based in Citra, Fla.
Anywhere MD, Inc. (ANWM), based in Altascadero, Calif.
Calypso Wireless Inc. (CLYW), based in Houston.
Cascadia Investments, Inc. (CDIV), based in Tacoma, Wash.
CytoGenix Inc. (CYGX), based in Houston.
Emerging Healthcare Solutions Inc. (EHSI), based in Houston.
Evolution Solar Corp. (EVSO), based in The Woodlands, Texas.
Global Resource Corp. (GBRC), based in Morrisville, N.C.
Go Solar USA Inc. (GSLO), based in New Orleans.
Kore Nutrition Inc. (KORE), based in Henderson, Nev.
Laidlaw Energy Group Inc. (LLEG), based in New York City.
Mind Technologies Inc. (METK), based in Cardiff, Calif.
Montvale Technologies Inc. (IVVI), based in Montvale, N.J.
MSGI Security Solutions Inc. (MSGI), based in New York City.
Prime Star Group Inc. (PSGI), based in Las Vegas, Nev.
Solar Park Initiatives Inc. (SOPV), based in Ponte Verde Beach, Fla.
United States Oil & Gas Corp. (USOG), based in Austin, Texas.
Some examples of the promotions are as follows:
Calypso Wireless Inc. has not filed periodic reports since February 2008, when it filed a report for the period ending Sept. 30, 2007. Despite that, the company’s share price rose from 4 cents on Sept. 21, 2010 to an intra-day high of 17 cents on Sept. 24, 2010. Over the same period, trading volume jumped to nearly six million shares, up from 376,000 shares. On Sept. 24, 2010, a stock-promoting website encouraged investors to continue buying Calypso Wireless shares (PINK: CLYW, CLYW message board), stating, in part, “Over the week, CLYW stock has been running wild … This CLYW stock rush happened just like that, on no company’s news and on old, well known SEC filings, done for the investment community.”
Shares in Kore Nutrition Inc. began to spike on Aug. 31, 2010, following the release of a company-paid research report setting a target price of $10.50. Moreover, on Sept. 1 and 8, 2010, the company issued press releases announcing new distribution agreements to market its energy drinks. The research report and distribution agreement claims were reiterated on numerous stock-promotion websites, touting Kore Nutrition as a “winner.” Kore Nutrition’s quarterly report for the period ending Sept. 30, 2010, filed with the SEC on Nov. 15, 2010, made no mention of the announced distribution agreements.
Montvale Technologies Inc. announced the dissolution of the company on Feb. 12, 2010, and last filed financial statements with the SEC for the third quarter of 2009. The company’s shares have nonetheless continued to trade, and to be promoted. On Dec. 22, 2010, a website recommended a “closer look” at Montvale Technologies, claiming it “has the potential to do very well in the short term.” That day, the share price rose 75 percent from 12 cents to 20 cents, and trading volume soared 500 percent over the prior day.
The Microcap Fraud Working Group is a joint initiative of the SEC’s Division of Enforcement and Office of Compliance Inspections and Examinations. The Working Group is pursuing a strategic approach to combating microcap fraud by focusing on recidivists and insiders, and on the attorneys, auditors, broker-dealers, transfer agents and other gatekeepers that facilitate a large volume of the fraud in this sector. The Working Group is comprised of staff from the SEC’s headquarters in Washington D.C., each of its 11 regional offices, and from the Office of Market Intelligence, Division of Corporation Finance, Division of Risk, Strategy, and Financial Innovation, Office of General Counsel, Division of Trading and Markets, and the Division of Investment Management.
For additional information about trading suspensions, including answers to frequently asked questions, read the SEC’s Investor Bulletin on Trading Suspensions available at www.sec.gov/investor.shtml as well as on www.Investor.gov.
# # #
For more information about this enforcement action, contact:
Michael Paley
Assistant Regional Director, SEC’s New York Regional Office
(212) 336-0145
Elisha L. Frank
Assistant Regional Director, SEC’s Miami Regional Office
305) 982-6392
http://www.sec.gov/news/press/2011/2011-120.htm
Matt's case
05/17/2011 54 PRELIMINARY ORDER OF FORFEITURE granting 53 Motion for Preliminary Order of Forfeiture as to Matthew W. Brown (1). Signed by Judge Sue L. Robinson on 5/16/11. (fms) (Entered: 05/17/2011)
OCR extract:
PRELIMINARY ORDER OF FQRFEITURE
WHEREAS, on February 17, 2010, the defendant Matthew W. Brown entered a plea of guilty to Counts One, Four, Five, and Eight of the Indictment, whereby he agreed to the forfeiture of all property constituting, or derived from, proceeds defendant obtained directly or indirectly as a result of his offenses, including Counts One, Four, Five, and Eight of the Indictment; and
WHEREAS, the United States has ?led a Motion for Entry of Preliminary Order of Forfeiture which would consist of a personal money judgment against the defendant in the amount of $4,798,138.00; and
WHEREAS, the United States, pursuant to Federal Rule Criminal Procedure 32.2(e)(l)(B) and 21 U.S.C. § 853(p), as incorporated by 18 U.S.C. § 982(b)(l) and 28 U.S.C. § 2461(0), has moved for entry of a Preliminary Order of Forfeiture for Substitute Assets for certain property in partial satisfaction of the defendant’s forfeiture money judgment totalling $4,798,138.00.
NOW THEREFORE, IT IS HEREBY ORDERED, ADIUDGED AND DECREED this 16th day of May , 2011 that:
1. The defendant shall forfeit to the United States the sum of $4,798,I38.00 pursuant to 18 U.S.C. § 981(a)(l)(C) and 28 U.S.C. § 2461;
2. Defendant shall also forfeit any property, real or personal, which constitutes or is derived from proceeds traceable to the offenses for which he has been convicted, which property has not yet been identified or located;
3. Upon the entry of this Order, the Secretary of the Treasury (or a designee) is authorized to seize the following property, whether held by the defendant or by a third party, and to conduct any discovery proper in identifying, locating or disposing of the property subject to forfeiture, in accordance with Fed. R. Crim. P. 32.2(b)(3):
a. All funds in Tallahassee State Bank account number XXXXXXXX, held in the name of Matthew W. Brown;
b. All funds in Tallahassee State Bank account number XXXXXXXX, held in the name of Vertikal Group, Inc.;
c. All funds in TD Ameritrade account number XXXXXXXXX, held in the name of Matt W. Brown;
d. All funds in TD Ameritrade account number XXXXXXXXX, held in the name of Matt W. Brown.
(collectively, the “Subject Property”).
4. Upon entry of this Order, the Secretary of the Treasury (or a designee) is authorized to commence any applicable proceeding to comply with statutes governing third party rights, including giving notice of this Order;
5. The United States shall publish notice of the Order and its intent to dispose of the property in such a manner as the Secretary of the Treasury (or a designee) may direct. The United States may also, to the extent practicable, provide written notice to any person known to have an alleged interest in the Subject Property;
6. Any person, other than the above named defendant, asserting a legal interest in the Subject Property may, within thirty days of the final publication of notice or receipt of notice, whichever is earlier, petition the Court for a hearing without a jury to adjudicate the validity of his alleged interest in the Subject Property, and for an amendment of the order of forfeiture, pursuant to 18 U.S.C. § 982(b)(l);
7. Pursuant to Fed. R. Crim. P. 32.2(b)(3), this Preliminary Order of Forfeiture shall become final as to the defendant at the time of sentencing and shall be made part of the sentence and included in the judgment. If no third party files a timely claim, this Order shall become the Final Order of Forfeiture, as provided by Fed. R. Crim. P. 32.2(c)(2);
8. Any petition filed by a third party asserting an interest in the Subject Property shall be signed by the petitioner under penalty of perjury and shall set forth the nature and extent of the petitioner’s right, title, or interest in the Subject Property, the time and circumstances of the petitioner’s acquisition of the right, title or interest in the Subject Property, any additional facts supporting the petitioner’s claim, and the relief sought;
9. After the disposition of any motion filed under Fed. R. Crim. P. 32.2(c)(l)(A) and before a hearing on the petition, discovery may be conducted in accordance with the Federal Rules of Civil Procedure upon a showing that such discovery is necessary or desirable to resolve factual issues;
10. The United States shall have clear title to the Subject Property following the Court’s disposition of all third-party interests, or, if none, following the expiration of the period provided in 18 U.S.C. § 982(b) for the filing of third party petitions;
11. The United States District Court shall retain jurisdiction in the case for the purpose of enforcing this Order; and
12. The United States may, at any time, move pursuant to Rule 32.2(e) to amend this Preliminary Order of Forfeiture to substitute property having a value not to exceed $4,798,138.00 to satisfy the money judgment in whole or in part.
s/s
HONORABLE SUE L. ROBINSON
UNITED STATES DISTRICT JUDGE
IN PURSUIT OF THE NAKED SHORT
ALEXIS BROWN STOKES*
From: Jeffrey S. Mitchell
Re: Spring 2009 -- NYU Journal of Law and Business: In Pursuit of the Naked Short (Part 1 of 2)
NEW YORK UNIVERSITY
JOURNAL OF LAW AND BUSINESS
VOL. 5 Spring 2009 No. 1
IN PURSUIT OF THE NAKED SHORT
ALEXIS BROWN STOKES*
Recent lawsuits claiming market manipulation through naked short-selling have failed to produce remedies for the alleged injured parties; no private plaintiff yet has won a final judgment, with damages, based on allegations of naked short-selling. Despite this poor track record, naked short-selling litigation has proliferated in the post-Enron era, as struggling small-cap companies blame naked short-sellers for their sagging stock prices, and with the plaintiffs’ bar pursuing the naked short as a Holy Grail because of the potentially huge damage awards.
This article explores the origins of naked short-selling litigation; considers the failures of significant naked short-selling lawsuits in federal court; surveys the obstacles erected collectively by constitutional standing requirements, the Federal Rules of Civil Procedure, the Private Securities Litigation Reform Act, brokerage firms, death spiral financiers, and the Depository Trust and Clearing Corporation; examines the efficacy of Regulation SHO, SEC rule 10b-21, and new FINRA rules; discusses recent state legislation and state court litigation; and identifies non-litigation options to curb naked short-selling. Ultimately, this article seeks to answer the question: If manipulative naked short-selling is more than a mythological scapegoat for small cap failure, what remedies are, or should be, available?
* J.D., Harvard Law School; B.A., Rice University. The author thanks both Peter Stokes and participants at the University of Florida’s Huber Hurst Research Seminar, co-sponsored by and held at The University of Pennsylvania’s Wharton School of Business in February 2007, for their comments and support. An earlier version of this paper was also presented at The Academy of Legal Studies in Business Annual Conference in August 2007. The author also notes that although, as a junior associate, she formerly served among the many defense co-counsel in one of the cases, Jag Media Holdings v. A.G. Edwards & Sons, Inc., 387 F.Supp.2d 691 (S.D.Tex. 2004), cited herein, the views expressed are solely the author’s and do not necessarily reflect those of her former law firm or clients.
INTRODUCTION
“The court was not astonished to learn from counsel that the practice of selling short naked is rather less fun than might be imagined.”1
Recent lawsuits claiming market manipulation through naked short-selling have failed to produce remedies for the alleged injured parties; no private plaintiff yet has won a final judgment, with damages, based on allegations of naked shortselling. Despite this poor track record, naked short-selling litigation has proliferated in the post-Enron era as struggling small-cap companies blame naked short-sellers for their sagging stock prices and the plaintiffs’ bar continues to pursue these claims because of the potentially huge damage awards. This article explores the origins of naked short-selling litigation; considers the failures of significant naked short-selling lawsuits in federal court; surveys the obstacles erected collectively by constitutional standing requirements, the Federal Rules of Civil Procedure, the Private Securities Litigation Reform Act, brokerage firms, death spiral financiers, and the Depository Trust and Clearing Corporation; examines the efficacy of Regulation SHO, SEC rule 10b-21, and FINRA rules; discusses recent state legislation and state court litigation; and identifies non-litigation options to curb naked short-selling. Ultimately, this article seeks to answer the question: If manipulative naked short-selling is more than a mythological scapegoat for small-cap failure, what remedies are, or should be, available?
Part I of this article provides context for understanding the naked short-selling phenomenon. Part II examines the popularization of the naked short as a scapegoat for corporate failures. Part III explores the proliferation of lawsuits alleging naked short-selling and focuses on the injusticiability of market manipulation through naked short-selling claims. Part IV previews trends in naked short-selling litigation. Part V considers current and proposed regulatory and legislative solutions to the naked short-selling problem.
I. NAKED SHORT-SELLING, DEFINED
In a typical securities transaction, an investor purchases a stock, waits for the stock price to increase, and then sells the stock at a profit. In securities lingo, this “buy low, sell high” behavior is called “selling long.” The investor’s risk is limited to the purchase price of the stock.
Sometimes an investor adopts a “sell high, buy low” strategy through a “short sale” instead. The investor, suspecting that a stock is overvalued and will decrease, borrows the stock (usually from a broker or institutional investor), sells it, waits for the price to decline, purchases the stock at the lower price to return to the lender, and pockets the difference in price as profit.2 For example, an investor believes that Company ABC, which is currently trading at $50 a share, is overvalued and that the stock price will decline. The investor borrows 100 shares of ABC stock at $50 a share from his broker3 and immediately sells them for $5000. The investor waits, and when ABC’s stock declines to $30 a share, he buys 100 shares on the open market for $3000 and returns them to his broker. The investor reaps a profit of $2000 on this short sale. The risk, of course, is that if Company ABC’s stock price increases instead of decreases, the investor’s loss is potentially infinite.4
As long as the short sale is not used to manipulate the price of a stock,5 it is generally considered a legal, non-fraudulent market tool in the United States.6 As Judge Richard Posner has noted:
For every short seller—a pessimist about the value of the stock that he’s selling short—there is, on the other side of the transaction, an optimist, who thinks the stock worth more than the short-sale price. Unless the shorts are trading on insider information, all that a large volume of short selling proves is a diversity of opinions about the company’s future. . . .Of course, if there were more pessimists, all wanting to sell short, than there were optimists, the price of a stock would plunge; but the important thing would not be the short selling, but the price plunge, and we made clear in our previous opinion that a price plunge, without more, is not a reasonable basis for suspecting fraud.7
Moreover, most American market watchers claim that short selling can be a beneficial market correction device in that it “weeds weak and fraudulent companies from the field,”8 and that by identifying “companies and industries that are overvalued by investors in the grip of irrational exuberance. . . . [and] by bringing such valuations down to earth, short selling can prevent economically wasteful over-allocation of resources.”9 Further, “selling the stock of a badly managed company to a less-thoughtful investor is [a] fair—if brutal— game in a market where stupidity is a sin.”10 Short selling may also help provide liquidity when shares of securities are needed in rapid supply.11 Finally, short-selling may act as a necessary “counterweight” to fraudulent run-ups aimed at artificially inflating stock prices.12 However, controversy arises when the short sales are “naked”—when the investor makes no effort to cover the stock he has sold13 and instead essentially creates phantom shares.14
In a naked short sale, the investor identifies a stock that is overvalued and likely to decline in price. Unlike a typical short sale, however, the investor then sells shares of that stock that he does not own or borrow and does not intend to own or borrow.15 One commentator characterizes naked short-selling as “make believe short-selling. In the same way kids play doctor without the medical equipment, naked shorters sell unborrowed stocks—stocks that no one has borrowed and possibly never will.”16
So how can an investor sell stock he does not possess?
Enter the role of the Depository Trust & Clearing Corporation (“DTCC”), a financial services company that clears and settles securities trades and provides custody of securities.17 The DTCC processes most of the securities transactions in the United States, which amounted to over $1.86 quadrillion in 2007.18 The DTCC’s mission is to provide an efficient and safe mechanism for buyers and sellers to make their exchanges without the burden of exchanging paper certificates every time a stock is traded.19 The DTCC is not a regulatory body, however; instead it is overseen by the Securities and Exchange Commission (“SEC”).20
The SEC requires that investors complete, or settle, their securities transactions within three business days of the sale.21 If the seller does not deliver the stock certificates to the brokerage firm within this “T+3” (trade date plus three days) period, 22 the DTCC issues a “fails to deliver” (“FTD”), which is the securities equivalent of an “IOU.”23 Although they are not “perfect substitutes for real shares of the issuer’s stock,”24 these FTDs have economic value25 to the buyer whose account is credited with a long position. The naked short sale thus takes advantage of a system that allows a transaction to occur, and all moneys to be paid, before delivery occurs.26 A stock sale can be processed and affect the share price, but the delivery portion of the transaction may never occur.27 Market players merely trade the FTD and in the short term, at least, the paper shares are not missed by anyone except, perhaps, the DTCC, which maintains records of delivery obligations.
Meanwhile, broker-dealers and banks credit customer accounts prior to the delivery of the securities, which may never arrive.28 The result is that a share of stock can be figuratively duplicated, sometimes multiple times, and can be owned by multiple investors,29 creating an artificial oversupply of the stock.30 With the oversupply, the stock price usually falls.31 For small- and micro-cap companies, especially, these stock price plunges can affect their ability to attract investors, raise capital, and negotiate financing.32
Allegedly, this is often the destiny of small-cap, thinlytraded, financially-challenged companies that utilize floorless, future-priced convertible financing, also known as “toxic” or “death spiral” financing, in which they accept money on unfavorable terms.33 The lender acquires the right to convert debt to stock at variable, below-market prices, and the lower the stock price, the more shares the lender gets on conversion.34 If the lender can manipulate the stock price downward, it can convert the debt to more stock and gain a greater share of control in the company.35 The original shareholders stand to lose most or all of their stake in the company if the lenders short as many shares as possible, take their profit, and then wait as the stock price continues to fall with the aim of acquiring enough shares upon conversion to cover the shorts.36 Thus, the lender has an incentive to encourage or participate in naked shorting of the company’s stock, which could theoretically drive down the stock price to the point where the company loses viability and collapses.37
That’s the theory. In reality, Wall Street players and the DTCC dispute both the extent to which naked short selling actually occurs and the extent to which it is harmful.38 For example, although Robert Shapiro, former Under Secretary of Commerce and currently a plaintiff’s consultant in naked short-selling litigation, contends that there are now about a half-billion shares in the United States that have been sold but not delivered for settlement in the required three days39 and that short selling has cost investors $100 billion and caused 1,000 companies to collapse.40 Meanwhile, another market commentator notes that “Wall Street’s best connected investors say naked shorting is as uncommon as an investment bank managing director who drives a Kia.”41 Still others note that if naked short-selling were really prevalent, “somewhere along the chain, people would be hurting. For example, brokers, having to make their clients whole, would be kicking up a tremendous fuss. Since this does not seem to be the case, it is hard to believe naked shorting is the bogeyman.”42 Another commentator points out that “an obvious check on naked short selling is the unwillingness of Wall Street firms to blow themselves up by advancing large sums against undeliverable shares.”43 A vice-president of the New York Stock Exchange (“NYSE”) once claimed that talk of unregulated naked shortselling is “fear mongering,”44 while a vice-president of the National Association of Securities Dealers (“NASD”; now the Financial Industry Regulatory Authority or “FINRA”) contended he had “seen not one instance of naked short selling or any abusive short activity.”45 For their part, hedge funds—often accused of participating in or facilitating naked shorting schemes—contend that naked short-selling is a “straw man” because most FTDs result from options trading and not a manipulative effort to drive down stock prices.46 And skeptics, responding to complaints from the alleged victims of death spiral financiers, claim that in such deals, the corporate officers are fully aware of the ramifications for themselves and their companies and thus no fraud is being committed.47 With liability and credibility on the line, none of these commentators is an objective or independently reliable source.
If naked shorting does occur, its effects on the aggregate market are arguable, with some contending that “if naked short-selling had not taken place during the micro-cap crime wave of the 1990s, such stocks would have climbed even higher before they crashed”48 and that naked shorting is “the only market force against over-hyped, or even fraudulent, small-cap and micro-cap stocks.”49 Even Warren Buffett suggests that he does not “have a great problem” with naked short-selling because “companies with a large short interest very often have been revealed as frauds or semi-frauds.”50 The stocks most affected by naked short-selling are “penny” stocks—those sold over-the-counter or listed on the NASDAQ bulletin-board.51 Although this article does not debate the economic ramifications of naked short-selling,52 in its focus on the attempt to plead and prove naked short-selling as a justiciable claim in a court of law, the article presumes for the sake of argument that naked short-selling does occur to some extent; that when used as a market manipulation tool, it is illegal;53 and that parties injured by naked short-selling schemes deserve a remedy.
II. NAKED SHORT-SELLING, SCAPEGOAT
In the past seven years, naked short-selling has graduated from an anecdote to a scapegoat. Generally, small- and microcap companies54 are the quickest to blame naked shorting for their financial woes, but now even some of America’s largest corporations contend that naked shorters—rather than their own management or balance sheets—caused their stock prices to decline, consequently preventing the companies from raising capital.55 For example, Enron’s former officers assigned partial responsibility for Enron’s stock price plummet to manipulative short-sellers.56 Furthermore, in July, 2008, the SEC imposed a temporary, emergency rule barring naked shorting of Fannie Mae, Freddie Mac, and seventeen other financial institution securities in response to concerns that naked shorting might exacerbate the subprime mortgage crisis.57
Overstock.com, Inc., an internet retailer, has become the poster child for the media and legal wars against naked shortselling. Patrick Byrne, Overstock’s CEO, claims that a naked short-selling “conspiracy orchestrated by a Sith Lord”58 drove Overstock’s share price down 77% in less than two years.59 However, observers note that this decline was more likely a result of the company’s poor cash flow, annual net losses, lack of inventory, and a problematic transition to an expensive new information technology system—issues that scared away investors— rather than a naked short-selling conspiracy.60 But Byrne remains convinced, having observed four to five times his company’s float traded in a single day,61 and points to Overstock’s daily inclusion on the SEC’s threshold security list (discussed infra) as evidence of the persistent FTDs plaguing the company’s stock.62
In the wake of the Enron, Tyco, and WorldCom scandals, the media has jumped on Overstock’s bandwagon, in part, perhaps, because “There’s something about those two words [naked shorts] that begs for sensational coverage.”63 News outlets ranging from Bloomberg Television to Al Jazeera have profiled the naked shorting controversy.64 The Case of Robert Simpson’s Sock Drawer only fueled the media fire.65 According to an SEC filing, Robert Simpson, a Michigan resident, acquired 1,158,209 shares in Global Links Corporation, which constituted 100% of the company’s issued and outstanding common stock.66 Simpson claims he placed all of the shares in his sock drawer and then watched as over sixty million Global Links shares traded over the next two days, the equivalent of every share in his sock drawer changing hands approximately sixty times, a physical impossibility suggesting that the shares being traded were phantoms created by naked short sellers.67 Although the DTCC investigated Simpson’s claims and determined that at least some of the delivery failures likely resulted from information about a reverse stock split not yet having reached the marketplace and not from naked short-selling,68 Simpson’s story is frequently told by naked short-selling opponents.69
Other small-cap companies also contend that they are the targets of naked short-sellers. For example, Pegasus Wireless claims that naked short-sellers have created thirty million phantom shares and launched a negative email and media campaign against the company, causing the stock to fall from $18.90 to about $0.61 and the company to de-list from the NASDAQ.70 Similarly, Tidelands Oil & Gas executives claim that naked shorters orchestrated the company’s share price decline from $4.00 to $0.12 in 2003, even as the company completed a major pipeline project that should have boosted the stock.71 Meanwhile, Hyperdynamics, an oil seismology firm, sued a hedge fund and other investment funds, alleging that a naked short-selling conspiracy is responsible for a loss of $67 million in market value in less than one year after the company’s stock price fell from $6.00 per share to less than $0.50.72
Naked short-sellers may well be targeting these struggling companies, but declining stock prices must be considered in context. As Bethany McLean has noted, “there are two old maxims on the Street: One, you can’t destroy a fundamentally healthy company through market manipulation—push the stock low enough, and someone will step in and buy it. And two, if a company begins to complain about short-sellers, watch out, because something else is very wrong.”73 As discussed below, the federal judiciary shares Wall Street’s skepticism about the existence and effects of naked shorting.
III. NAKED SHORT-SELLING, CAUSE OF ACTION
Although seasoned market watchers may downplay the issue, the plaintiffs’ bar claims that naked short-selling “is killing young Corporate America, costing jobs, and cheating people out of hundreds of millions of dollars with fake shares.”74 With “hundreds of millions of dollars” in potential damages, lawsuits alleging naked short-selling have proliferated in the past five years;75 plaintiffs are seeking remedies in both the federal and state courts. This section focuses on federal court litigation.
A. Legal Framework
American jurisprudence first recognized the naked shorting phenomenon in The Anderson Co. v. John P. Chase, Inc.,76 a 1975 securities fraud case in which the district court determined that an investment advisor had no duty to prevent its client from short selling. Today, plaintiffs alleging injuries caused by naked short-selling rely on both section 10(b) of the 1934 Securities Exchange Act77 and SEC rule 10b-578 in arguing that naked short-selling is fraudulent and thus illegal. In conjunction, these broad provisions establish a framework for two types of securities fraud claims: misrepresentation and market manipulation. A plaintiff bringing a misrepresentation claim under section 10(b) and rule 10b-5 must demonstrate that the defendant made a false statement or omitted a material fact, in connection with the purchase or sale of a security by the plaintiff, with scienter, and that plaintiff’s reliance on defendant’s action caused plaintiff injury.79 While not easy to pursue, naked-shorting-as-misrepresentation claims are common and consistently adjudicated by the courts.80
Many naked short-selling lawsuits also allege market manipulation. Market manipulation is a term of art that “connotes intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities.”81 However, the legal standard for market manipulation is less lucid than that for misrepresentation and differs substantially among the circuits. The uncertainty of what constitutes market manipulation and how a market manipulation claim should be pled and litigated thus animates the remainder of this section’s discussion.
The Second Circuit, which hears most market manipulation claims because of its jurisdiction over New York, requires plaintiffs to prove that they suffered damages, in reliance on the defendants’ material misrepresentations, omissions, or scheme to defraud; that the defendants acted with scienter; that this occurred in connection with plaintiffs’ purchase or sale of a security; and that this was furthered by the defendants’ use of the mails or a national securities exchange.82 The Ninth Circuit requires a plaintiff to allege the use or employment of a manipulative or deceptive device or contrivance; scienter; a connection with the purchase or sale of a security; reliance or transaction causation; economic loss; and loss causation, i.e., a causal connection between the manipulative or deceptive device or contrivance and the loss.83
The Third Circuit offers a more specific standard in requiring plaintiffs to prove that the defendant engaged in deceptive or manipulative conduct by injecting inaccurate information into the marketplace or by creating a false impression of supply and demand for a security; in connection with the plaintiff’s purchase or sale of the security; that the defendant had the purpose (scienter) of artificially depressing or inflating the price of the security; and that the plaintiff suffered damages in reliance on the defendant’s conduct.84 Under this standard, the Third Circuit holds that short selling could only form a basis for a section 10(b) market manipulation claim if done “in conjunction with some other deceptive practice that either injected inaccurate information into the market or otherwise artificially affected the price of the stock.”85 So can the “naked” part of short selling constitute “some other deceptive practice”?
In the seminal case on point, Sullivan & Long, Inc. v. Scattered Corporation,86 the Seventh Circuit said no, unequivocally holding that naked short selling is not intrinsically manipulative under section 10(b). While one scholar suggests that Sullivan & Long can be distinguished from other naked short-selling cases where the naked short seller violates a market rule or equitable trading principle,87 this argument does not help plaintiffs’ suits about over-the-counter/bulletin-board stocks for which, traditionally, there have been no locate or delivery rules. Instead, scholars and litigators attempt to distinguish the type of naked shorting in Sullivan & Long from the type of naked shorting allegedly targeting small-cap companies now.
Unlike in Sullivan & Long, most targets of death spiral financing and corresponding naked shorting are “universally small, financial weak companies that trade in inefficient, illiquid markets lacking adequate regulatory protections.”88 While the courts might tolerate naked short selling for securities of large, established issuers trading on exchanges, it is harder to justify the naked short selling of small issuers trading in the less-regulated securities markets.89
Assuming plaintiffs can distinguish Sullivan & Long and convince a court that naked shorting constitutes market manipulation, ultimately, plaintiffs alleging section 10(b) claims must meet constitutional standing requirements, the particularity requirements of Federal Rule of Civil Procedure 9(b),90 and the heightened pleading standards of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), all discussed infra. Together, these rules impose a heavy burden on plaintiffs, one that is rarely met. And even if plaintiffs surpass these hurdles, there still remains the fundamental question of whom they can viably sue.
B. Problems with Naked Short-Selling As Market Manipulation Cases
If naked short selling exists, and is more than an anecdote-supported myth chased by counsel for small cap companies, can it be effectively pleaded and proved as market manipulation by private plaintiffs in court? The answer, thus far, is no, at least in federal court. Although naked short-selling violates black-letter trading rules on the exchanges,91 to date, no naked short-selling claim has succeeded to final judgment on market manipulation grounds, and only a few suits have progressed beyond a defendant’s motion to dismiss. Collectively, standing requirements, the Federal Rules of Civil Procedure, and the Private Securities Litigation Reform Act pose high hurdles for plaintiffs. In addition, the lack of viable, attractive defendants, as well as brokerage industry and DTCC resistance to any allegation of manipulative naked shorting, make such lawsuits difficult to pursue.
1. Standing Requirements
Standing is the first obstacle for prospective plaintiffs in naked short-selling lawsuits. To meet the constitutional standard, 92 plaintiffs must show that they have suffered a legal injury, that the injury can be traced to the challenged action, and that the injury is likely to be redressed by a favorable decision of the court.93 In the context of securities litigation, courts limit standing to “persons who are defrauded in connection with the purchase or sale of securities. This limitation is satisfied by showing ‘a nexus between the defendant’s actions and plaintiff’s purchase or sale.’”94 The problem with a naked short-selling claim is that is difficult to determine who is actually defrauded or injured by the alleged action, and thus, who has standing to sue.95
Issuers are the most frequent private litigants in naked short-selling lawsuits, but unless the issuer was also a purchaser or seller of its stock, the issuer lacks standing to sue.96 Merely issuing treasury stock does not necessarily constitute a “sale” of securities, nor does honoring conversion notices, for purposes of conferring standing to assert a market manipulation claim.97 Even if issuers can meet the standing requirements, as in situations where the issuers sell future-priced convertible securities to death spiral financiers, the risk of suing short sellers may outweigh the benefits to shareholders. A study of 266 public companies that sued or publicly accused short sellers of wrongdoing from 1977 to 2002 found that the companies’ stock returns suffered, falling an average of 2% per month in the year following the action.98 This is possibly because once a company publicly admits that it is vulnerable to naked shortselling schemes, investors may lose confidence in the company’s long-term viability; or perhaps instead, investors shy away from litigious companies. In any case, from the issuer’s perspective, the negative financial ramifications of a lawsuit may undermine any successful judgments.
Investors may have a legitimate cause of action, but they face difficulties in proving damages. As per the Supreme Court’s standard in Dura Pharmaceuticals, Inc. v. Broudo, an investor would need to prove “loss causation,” i.e., that the defendants’ naked short-selling activities proximately caused the investor’s economic loss.99 In situations where the companies targeted by naked short-sellers face additional financial difficulties, it is difficult, without inadmissible speculation, to quantify the effects of naked shorting as distinguished from other contributors to a lower stock price.100
Although it dealt with misrepresentation, and not manipulation claims, Miller v. Asensio & Co, Inc.101 illustrates this dilemma. In Miller, stockholders in Chromatics Color Sciences International, Inc. (“CCSI”) sued Asensio, an investment advising company, alleging that Asensio employees made material misstatements about CCSI, causing CCSI stock to drop and the stockholders to lose money.102 A jury found that the defendant’s employees had made material misstatements, and the defendant was liable under rule10b-5, but that the plaintiff was entitled to zero damages.103 The Fourth Circuit affirmed the verdict, determining that the jury could have reasonably concluded that the plaintiffs proved that defendant’s fraudulent misrepresentations constituted a substantial cause of plaintiffs’ loss and so find the defendant liable; the court also concluded that the plaintiffs failed to show that their loss was solely caused by defendant’s fraud, and therefore, the jury could refuse to award any damages.104
The Fourth Circuit thus recognized that while many factors, including natural corrections of overinflated value, reports of financial mismanagement, scandal, and a bad business model, unrelated to rule 10b-5 and section 10(b) violations, can cause a decline in a company’s stock, such factors do not absolve a perpetrator of fraud from liability,105 and do not, by implication, undermine the standing of the plaintiff. However, a plaintiff who seeks damages—and not merely a judgment of liability—has a difficult battle in calculating and proving recoverable damages.106 CompuDyne Corporation v. Shane may bolster a prospective plaintiff’s damages and standing arguments, however. In CompuDyne, a PIPE (“private investment in public equity”) related action, the court held that:
But for Defendants’ insider trading and illegal short selling, Plaintiffs. . .would have received a price higher than $12 per share for the shares sold in the PIPE. Plaintiffs allege that the first part of Defendants’ scheme to illegally sell short CompuDyne stock artificially depressed and/or increased the volatility of CompuDyne’s stock price. . . .Plaintiffs also allege that the price of shares issued in connection with a PIPE was ‘discounted from the prevailing market price.’ Thus, the lower the market price of CompuDyne stock prior to the pricing of the PIPE, the lower the shares to be issued in connection with PIPE would be priced, and the less money Plaintiffs would receive from the PIPE. Plaintiffs’ allegations fulfill the [Dura Pharmaceuticals] standard for pleading loss causation.”107
The CompuDyne court further explained the Supreme Court held that pleading loss causation based on an allegation that the plaintiff sold his stock for less than it was worth because its price was artificially depressed is not the same as pleading loss causation based on an allegation that the plaintiff purchased a stock whose price was merely artificially inflated. 108 A plaintiff who sells a stock at an artificially depressed price no longer possesses the shares and thus has realized an economic loss.109 CompuDyne thus represents the most sympathetic judicial view yet of naked short-selling plaintiffs. However, unless the investor requested that the brokerage firm close out the sale and produce paper stock certificates, and unless the brokerage firm was unable to do so, the investor is arguably a participant—however unwitting—in the naked shorting scheme; if he never demanded a close-out or presentation of physical stock certificates, the investor cannot complain that he was sold phantom shares. Because even phantom shares show up as legitimate long positions in the investor’s account, the investor faces an uphill battle in proving he was injured by naked short-selling. Without provable, redressable injury, an investor lacks standing to sue.
In addition to the standing-based barriers, litigation is financially impracticable for the average individual investor. Class actions are no more appealing in the wake of the Securities Litigation Uniform Standards Act of 1998 (SLUSA)110 and the Supreme Court’s decisions in Dura Pharmaceuticals111 and Tellabs v. Makor Issues & Rights, Ltd.,112 discussed infra. The result: With the investors themselves unwilling or unable to sue, and standing requirements precluding the targeted corporations from litigating, would-be lawsuits against naked short-sellers lack viable plaintiffs.
2. Federal Rules of Civil Procedure
Assuming that the plaintiff meets the standing requirement, the Federal Rules of Civil Procedure pose the next hurdle. Federal Rule of Civil Procedure 12(b)(6) allows for dismissal of a lawsuit if a plaintiff fails “to state a claim upon which relief can be granted.” Such dismissals are to be viewed with disfavor and are granted only where “it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.”113 If the plaintiff is entitled to relief under any set of facts or any possible legal theory that could consistently be proven with the allegations in the complaint, the court may not grant dismissal.114 In determining whether dismissal should be granted, the Court accepts as true all allegations contained in the plaintiff’s complaint and views the facts in the light most favorable to the plaintiff.115 However, conclusory allegations or legal conclusions will not suffice to prevent a motion to dismiss,116 and it is this standard over which most plaintiffs in naked short-selling suits have stumbled.
Courts treat a dismissal for failure to plead fraud with particularity as required by Federal Rule of Civil Procedure 9(b) as a dismissal for failure to state a claim upon which relief may be granted.117 Under rule 9(b), “in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge and other conditions of mind of a person may be averred generally.”118 The purpose of rule 9(b)’s particularity requirement is to ensure that defendants can effectively respond to plaintiffs’ allegations, to prevent the filing of baseless complaints for purposes of obtaining discovery on unknown wrongs, and to protect defendants from unfounded allegations of wrongdoing which might injure their reputations.119 Although rule 9(b) is “relaxed” with respect to market manipulation claims,120 thus far many courts have interpreted rule 9(b) inconsistently and stringently in naked short cases, particularly in conjunction with the heightened pleading requirements of the PSLRA, discussed below.
3. Private Securities Litigation Reform Act (“PSLRA”)
Through the PSLRA, enacted in 1995, Congress imposed stringent requirements for pleading federal securities fraud claims. The complaint must plead fraud or manipulation with particularity and specific facts supporting strong inference of scienter. For example, PSLRA Paragraph (b)(1), which applies to securities claims alleging misstatements or omissions of material facts, requires that “the complaint shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.”121
Paragraph (b)(2) applies to securities claims “in which the plaintiff may recover money damages only on proof that the defendant acted with a particular state of mind,” and requires that the complaint “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.”122
The PSLRA prohibits discovery until these pleading requirements are met.123 This means that would-be plaintiffs often lack access to information and documents that might bolster their naked short-selling claims, especially because there is a lack of public hard data on stocks that fail to deliver. 124 Although it reports to regulators, the DTCC does not publicly disclose information on fails, because, as the DTCC argues, releasing that information might jeopardize SEC investigations into such fails, and because “[National Securities Clearing Corporation] rules prohibit release of trading data, or any reports based on the trading data, to anyone other than participating firms, regulators, or self-regulatory bodies such as the NYSE or NASDAQ. We do that for the obvious reason that the trading data we receive could be used to manipulate the market, as well as reveal trading patterns of individual firms.”125 Would-be plaintiffs are thus left with no “official” calculations of delivery fails. The SEC, with the DTCC’s support, is currently considering releasing two-month-old, aggregated delivery failure data on a quarterly basis,126 but even that data may be too opaque and only suggest naked short-selling, not prove it.127
Thus, to meet the PSLRA pleading requirements, the plaintiff would have to show that the most plausible explanation for why the disputed trading practices occurred is market manipulation. Given the lack of accessible data, this sometimes may require the equivalent of a res ipsa loquitur argument— let the available facts point toward the obvious, common-sense explanation. In addition, confidential sources, such as former brokerage firm employees, who could testify to the occurrence of naked short-selling and the knowledge of the participants might help plaintiffs plead their claims.128 The high attrition rate at brokerage firms suggests availability of such witnesses. 129 Notably, however, under the Seventh Circuit’s ruling in Higginbotham v. Baxter International, Inc.,130 anonymous witnesses are suspect and should be “discounted.”131 The Higginbotham plaintiffs’ complaint relied heavily on statements from anonymous confidential witnesses, including unnamed former employees of the defendant, in pleading scienter in support of their securities fraud claims.132 The Seventh Circuit determined that “confidential witness” allegations are insufficient because such witnesses’ motives cannot be discerned or their information objectively corroborated.133 Higginbotham thus poses another obstacle for plaintiffs seeking remedies for already difficult-to-prove naked shorting claims.
Alternatively, because market manipulation claims require the showing of a pattern of behavior, plaintiffs could gather evidence charting a pattern of black-letter rule-breaking by short-sellers and thus create a strong inference of intent. 134 Because FINRA rules expressly prohibit naked shortselling, illustrating repeated violations of these rules should be sufficient for pleading purposes. But again, the problem for plaintiffs is in gathering compelling evidence of these rule violations, given that the brokerages, the DTCC, and the SEC are not forthcoming with specific information about delivery failures. In addition, as discussed infra, the FINRA rules do not apply to all market players; if the alleged naked shorter is not bound by FINRA rules, then violations of those rules do not support evidence of intent.
Ultimately, to meet the PSLRA’s heightened pleading requirements, plaintiffs need to prove scienter. The exact degree of scienter—recklessness?135 actual knowledge? Conscious misbehavior? —required is unclear,136 although increasingly, some courts suggest leniency. As noted in CompuDyne: Allegations of scienter are not subject to the same exacting scrutiny applied to the other components of fraud, such as direct participation. Scienter can be alleged by conclusory allegations if they are supported by facts giving rise to a strong inference of fraudulent intent. The inference may be established either “(a) by alleging facts to show that defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness.”137
In CompuDyne, for example, the court determined that allegations the defendant engaged in unlawful short sales based on confidential non-public information was highly probative of scienter.138 However, generalized assertions of financial motive, without more, are insufficient to meet the PSLRA’s pleading standards.139
The Supreme Court recently tightened the meaning of the PSLRA’s “strong inference” requirement in Tellabs, Inc. v Makor Issues & Rights, Ltd.140 The Court held that in determining whether a securities fraud complaint gives rise to a “strong inference” of scienter, a court “must engage in a comparative evaluation” and consider “competing inferences.”141 As the Court noted, “[a]n inference of fraudulent intent may be plausible, yet less cogent than other, non-culpable explanations for the defendant’s conduct.”142 Thus, to qualify as “strong” under the PSLRA’s pleading requirement, the “inference of scienter must be more than merely plausible or reasonable—it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent.”143 The Court further defined “strong” as meaning “powerful,” “persuasive,” and “effective,” underscoring its conclusion that plaintiffs must present a compelling inference, not just a possibility, of scienter.144 Although Tellabs does not break dramatic new legal ground, it does emphasize how difficult the scienter burden is, as further illustrated in the following cases, which all consider whether and how plaintiffs meet the pleading requirements for claims of market manipulation through naked short-selling.
In Jag Media Holdings, Inc. v. A.G. Edwards & Sons, Inc.,145 investors sued over 100 brokerage firms, investment banks, and financial institutions, alleging a naked short-selling conspiracy. 146 Jag Media Holdings (“Jag”), a small dotcom that provides financial and market-related information to Internet subscribers, had accepted “convertible debenture” financing from three named defendants.147 After the deal was signed, the stock price tanked to five cents a share.148 Jag claimed that the financier, with the help of brokerage firms, had manipulated the market via naked short sales to drive down the stock price.149 In support of its naked short-selling allegations, Jag presented evidence that the brokerage firms had unsettled trades and pointed to purported discrepancies between trading volume and “official” DTCC records of stock ownership.150 To support a strong inference of scienter, Jag primarily relied on copies of e-mail exchanges between the brokerage firms and the issuer discussing the occurrence of some FTDs.151 The court dismissed the lawsuit for failure to state a claim, holding that evidence of FTDs does not alone support an inference of fraud.152 The court determined that the e-mail evidence showed only that the brokerage firms were attempting to settle the purported naked short sales, not that they were committing fraud.153
As Jag illustrates, merely identifying a failure to deliver is insufficient to prove fraud via naked short-selling since delivery failures can occur for innocent reasons,154 including human or mechanical errors or processing delays.155 The SEC has identified at least five circumstances in which a delivery failure may occur: (1) delays in customer delivery of shares to the broker dealer; (2) an inability to borrow shares in time for settlement; (3) delays in obtaining transfer of title; (4) an inability to obtain transfer of title; and (5) deliberate failure to produce stock at settlement which may result in a broker dealer not receiving shares it had purchased to fulfill its deliver obligations.156 Delivery failures can occur on both long and short sales, and they occur often—approximately 1.5% of all trades by dollar value fail to settle on a typical day.157 Thus, neither the courts nor the SEC are willing to declare all delivery failures illegal or evidence of market manipulation out of fear of hampering liquidity in stocks where there is no fraudulent activity.158
Jag implicitly followed the lead of the Third Circuit’s opinion in GFL Advantage Fund, Ltd. v. Colkitt,159 a case in which the court determined that short selling by itself can never be market manipulation and that something more is required. Merely alleging short-selling, or even demonstrating delivery failures—which plaintiffs claim are the hallmark of naked shortselling—is insufficient to plead market manipulation.
Questions remain in Jag’s wake: What evidentiary allegations would have satisfied the pleading requirements for fraud? How, as a practical matter, can a plaintiff plead scienter? Is naked short selling really fraud at all? Or are unsettled trades arguably negligence on the part of brokerage firms instead? And if negligence is the better route to liability, what proof is necessary to establish a duty of care from brokerage firms to issuers?
Subsequent court decisions on naked short-selling illuminate some answers. In ATSI Communications, Inv. v. The Shaar Fund, Ltd.,160 another convertible financing case, the Second Circuit provided another example of claims and evidence that do not meet the pleading requirements. In ATSI, the plaintiffs alleged both misrepresentation and market manipulation by the defendants.161 With respect to the market manipulation claim, plaintiffs alleged that defendants’ ownerships of their convertible preferred securities gave them an incentive to drive down the market price of ATSI common stock in order to obtain more shares at the time of conversion, a typical death spiral/short selling scheme.162 The plaintiffs alleged, on information and belief, that defendants “employed a variety of manipulative devices and techniques, including, without limitation, painting the tape, hitting the bids, failing to obtain the best price, naked short-selling, and dumping stock in large numbers on the market.”163 To help support their claims, the plaintiffs provided charts containing trading data for the period in question, which asserted that the data indicated manipulative trading.164 The Court affirmed dismissal of the plaintiffs’ pleadings, holding that they failed to meet the requirements of Federal Rule of Civil Procedure 9(b), that allegations that are “conclusory” or “unsupported by assertions of fact” are insufficient, and that allegations of fraud generally cannot be based on “information and belief” absent specific allegations of fact to warrant the alleged belief.165 Specifically, the court concluded that the plaintiffs’ list of “devices and techniques” failed to explain why they were manipulative; where, when, and how they occurred; which defendants committed them; and the effect of the devices on the stock’s trading volume and price.166 Further, the data charts provided by the plaintiffs did not explain how the data was linked to the defendants or how it supported market manipulation.167 The court emphasized that it is not enough to claim that naked short-selling or convertible financing occurred; the law requires that these allegations be supported by facts, and not conclusions.168 Accordingly, because the PSLRA and federal rules pleading standards were not satisfied, the Second Circuit upheld the district court’s dismissal of the plaintiffs’ naked short-selling claims.169
In contrast to the Second Circuit’s stringent standard, a federal district court in Arkansas adopted a more sympathetic view of the plaintiffs’ attempt to compile evidence in support of its market manipulation allegations in Pet Quarters, Inc. v. Badian.170 The court determined that a detailed chart of stock conversions and stock price differences in support of a death spiral theory was sufficient to satisfy the PSLRA and rule 9(b) pleading requirements.171 Likewise, in another death spiral case, Sedona Corp. v. Ladenburg Thalmann & Co, Inc. et al.,172 a New York district court adopted a more lenient pleadings standard for securities fraud claims. The court concluded that with respect to motive and opportunity, claims of motive are insufficient to support scienter without allegations that the defendant would have substantially profited from the financing agreement in question.173 However, the court also noted that “[f]actual determinations of motive and opportunity are not the only means by which a securities fraud plaintiff may plead scienter. Allegations of ‘facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness’ are also sufficient.”174 The court concluded that Sedona met the scienter pleading standard by alleging that [the defendant,] Ladenburg[,] played a central role in the alleged scheme to defraud Sedona by (1) obtaining investors for Sedona that Ladenburg knew would likely manipulate Sedona’s stock; (2) creating a “bait and switch” scenario through which Sedona would ultimately be forced to procure its financing solely through Ladenburg’s investors; (3) concealing from Sedona that it had significant prior working relationships with entities such as Amro and Markham, and that together they had participated in similar schemes in the past; and (4) misrepresented its investment capabilities as a trick to mislead the market.
Together, these factors supported a strong inference that Ladenburg either intended to defraud Sedona, had knowledge of the alleged fraud, or recklessly disregarded the truth in connection with that fraud.175 Consequently, Sedona survived some of its defendants’ motions to dismiss, with its market manipulation claims still largely in tact, a feat Jag was unable to accomplish.
Similarly, in Internet Law Library, Inc. v. Southridge Capital Management, LLC,176 another court in the Southern District court determined that claims alleging naked short selling as market manipulation are entitled to a more relaxed pleading standard because “the facts relating to a manipulation scheme are often known only by the defendants.”177 Plaintiffs must still specify, at a minimum, “what manipulative acts were performed, which defendants performed them, when the manipulative acts were performed, and what effect the scheme had on the market for the securities at issue.”178 In Jones v. Intelli-Check, Inc., another district court, interpreting Internet Law Library, noted that to take advantage of such a relaxed pleading standard, plaintiffs must both plead that the necessary factual support for their manipulation claim is within the defendants’ exclusive control and detail the extent of their futile efforts to obtain that information.179 In Internet Law Library, the court’s leniency was ultimately for naught as the plaintiffs’ market manipulation claims were dismissed because of discovery process abuses.180
Sedona, Internet Law Library, and Pet Quarters suggest that plaintiffs can survive the pleadings stage on naked short-selling claims; the strong dicta and holdings in Sullivan and Long, Jag Media, GFL, and ATSI suggest that they cannot. There is thus a need for further appellate review and clarification of the market manipulation pleadings standards in light of the recent Tellabs opinion. What specific factual allegations must a plaintiff plead to survive a motion to dismiss? And is evidence to support those factual allegations likely available to plaintiffs prediscovery? If such evidence is not realistically available to prospective plaintiffs, the PSLRA achieves only the first of its twin goals to “curb frivolous, lawyer-driven litigation, while preserving investors’ ability to recover on meritorious claims.”181
4. The Lack of Viable Defendants
Even if a plaintiff could meet the rigorous requirements of standing, the Federal Rules, and the PSLRA, no lawsuit is viable without a defendant. So who can be sued? The most obvious choice is the naked short seller, who is both morally and legally the most culpable. Identifying naked shorters, and more importantly, collecting judgments from them, are problematic issues, however, making them unappealing targets for the plaintiffs’ bar.
Similarly, the death spiral financiers, whom plaintiffs frequently allege are the puppeteers of naked short-selling, are also difficult to find and collect from, as many are located outside of the United States, or are protected by offshore shell companies.182 The good news for plaintiffs is that in addition to securities fraud claims, the death spiral financiers may also be easy targets for common law breach of contract, common law fraud, or breach of fiduciary duty causes of action.183 With their deep pockets, brokerage firms are superficially attractive defendants, but as discussed supra, the PSLRA’s scienter requirement poses a steep hurdle to their liability in federal court. Moreover, brokerage firms owe no fiduciary duty to issuers nor, under SEC rule 202(a)(11)-1, to typical investors with non-discretionary accounts; additionally, they have no apparent incentive to commit fraud or encourage naked shortselling.
Thus, the best case against brokerage firms would be negligence-based, not securities fraud. Even a negligence claim might not pass muster, since arguably, it could be preempted by the PSLRA, or in certain class actions involving certain covered securities, barred by the SLUSA.184 If not preempted, issuer-plaintiffs would need to articulate the precise duty of care owed to them by brokerages, how that duty of care was breached, and whether the injuries caused were foreseeable. Once more, this is an arduous standard, as brokerage firms can argue that, under SEC rules, they have a right to rely on the DTCC. DTCC rules are promulgated under the SEC’s auspices and thus essentially blessed by a federal agency. The strong federal interest in, and supervision of, the DTCC’s electronic clearance and multilateral netting system leaves brokerage firms little room for deviance or autonomy. At best, a plaintiff might claim that brokerage firms should not credit the accounts of purchasers of securities until the securities actually deliver and settle, which would reduce the incidence of multiple beneficial ownership and thus curb phantom shares. However, because federal regulators are unlikely to impose such a rule—other than on a temporary, emergency basis— out of legitimate concern for market liquidity, it remains unlikely that any court would do so, either.
Unable to win against the brokerage firms, plaintiffs have targeted the DTCC, alleging two claims: first, that the DTCC should force close-outs of FTDs to curb naked shorting; second, that the DTCC essentially counterfeits stock shares through its stock borrow program, which allows the National Securities Clearing Corporation (“NSCC”), a DTCC subsidiary to borrow shares from its members and use the shares to fulfill delivery obligations after the selling brokers failed to deliver their shares. With respect to the first criticism, the SEC clearly states that the DTCC, through the NSCC, “does not have the authority to execute buy-ins on behalf of its members. Moreover, forcing close-outs of all fails can increase risk in clearing and settlement as well as potentially interfering with the trading and pricing of securities.”185 Regarding the allegations against its stock borrow program, the DTCC defends itself with this explanation:
Under the Stock Borrow program, NSCC only borrows shares from a lending member if the member actually has the shares on deposit in its account at the DTC and voluntarily offers them to the NSCC. If the member doesn’t have the shares, it can’t lend them. Once a loan is made, the lent shares are deducted from the lender’s DTC account and credited to the DTC account of the member to whom the shares are delivered. Only one NSCC member can have the shares credited to its DTC account at any one time. . . .The Stock Borrow Program was created in 1981 with the approval of the SEC to help reduce potential problems caused by fails, by enabling NSCC to make deliveries of shares to brokers who bought them when there is a “fail to deliver” by the delivering broker. Even if a “fail to receive” is handled by Stock Borrow, the “fail to deliver” continues to exist, and is counted as part of the total “fails to deliver.” If the total fails to deliver for that issue exceeds 10,000 shares, it gets reported to the markets and the SEC.186
In short, the DTCC posits that the DTCC always holds someone accountable for a FTD, and thus, it does not enable naked short-selling or fraudulent market manipulation. The DTCC further shields itself from liability by arguing that its functions are regulated and overseen by the SEC; as a result, any naked short-selling claims based in common law negligence are preempted by federal law. As the following cases illustrate, no plaintiff yet has won a final judgment against DTCC based on naked short selling claims; most suits against the DTCC do not progress beyond the initial pleadings. As of the end of 2007, the DTCC or its subsidiaries had been sued fourteen times on allegations of naked short-selling. In at least four of these suits, including Williamson v. Goldman, Sachs & Co., et al.,187 Genemax Corp. v. Knight Securities, LP, et al.,188 Miller, as Trustee v. Boston Partners Management LP, et al.,189 and Intergold Corp. v. Depository Trust Corp.,190 plaintiffs never served the DTCC defendants and the suits against the DTCC thus did not proceed.
In Nutek v. Ameritrade, Inc.,191 the plaintiffs voluntarily dismissed the DTCC with prejudice, and the remaining DTCC defendants were dismissed two months later. Similarly, in Capece v. Elgindy,192 the plaintiffs voluntarily dismissed the DTCC defendants three months after filing suit. The DTCC also won dismissal of the naked short-selling allegations against it in X-Clearing Corp. v. Depository Trust Corp., (the Intergold action)193 X-Clearing Corp. v. Depository Trust Corp., (the Petrogen action)194 and Walters v. Depository Trust and Clearing Corp.195
Nanopierce Technologies, Inc., et al. v. The Depository Trust and Clearing Corp., et al.,196 a lawsuit brought in Nevada state court, illustrates the weaknesses in naked short-selling lawsuits against the DTCC. Nanopierce, a biotechnology holding company, sued the DTCC in April 2004,197 arguing under state law that the DTCC was responsible for the drop in the company’s stock price because the DTCC’s Stock Borrow Program had enabled brokerages to engage in naked shorting of Nanopierce shares.198 The DTCC responded that its clearing and settlement activities are subject to the oversight and approval of the SEC and thus, under the Constitution’s federal preemption doctrine, cannot be challenged under state law.199 The SEC filed an amicus brief in support of the DTCC.200 Ultimately, the court adopted the DTCC’s argument, noting, “[S]tate law may not be applied as to impose damages on [the DTCC]. To do this would be to forbid Defendants from doing what the SEC authorized them to do.”201 The Supreme Court of Nevada upheld the dismissal.202
Following Nanopierce, the DTCC achieved victory in Sporn v. Elgindy.203 The suit, filed by Trident Systems International Inc. and its president, Alan Sporn, alleged that Anthony Elgindy engaged in naked short selling of Trident shares.204 The plaintiffs contended that the DTCC and various brokerages facilitated Elgindy’s naked short-selling by allowing improper trades in Trident’s stock.205 The plaintiffs sued the DTCC on both securities fraud and breach of contract grounds.206 In addition to dismissing the claims against the DTCC, the court sanctioned the plaintiffs.207
In Capece v. The Depository Trust and Clearing Corp., et al.,208 the DTCC once again successfully defended itself against naked short-selling allegations. The Capece plaintiffs were stockholders in Cybercare, Inc., a Florida corporation publicly traded on the NASDAQ.209 After Cybercare’s stock plummeted from the plaintiffs’ purchase price of $15.06 to an average sale price of $0.25,210 the plaintiffs sued the DTCC for common law negligence, alleging that the DTCC failed to monitor its stock borrow program thereby enabling naked shorting.211 The negligence claim was thus preempted, and the case against the DTCC dismissed. In its dismissal order, the court relied on the Nanopierce decision, concluding that [a]llowing Plaintiffs to assert a state law cause of action against Defendants [DTCC and its subsidiaries] would require Defendants to tailor their practices with regard to the SBP [stock borrow program] to satisfy each state’s formulation of the standard of care in a negligence action. Such a result would destroy the Congressionally-mandated uniform system governing securities trading.212
In Whistler Investments, Inc. v. DTCC, et al.,213 the Ninth Circuit similarly held that DTCC’s clearing and settlement rules, which had been approved by the SEC, cannot be challenged under state law.214 Adopting part of the Capece court’s reasoning, the Whistler court determined that because the DTCC’s Stock Borrow Program is explicitly approved by and subject to the ongoing oversight of the SEC, the Supremacy Clause of the United States Constitution bars Whistler’s legal challenge on “conflicts,” but not “field,” preemption grounds.215
Finally, the DTCC recently scored another dismissal from an Arkansas federal court in Pet Quarters, Inc. v. The Depository Trust and Clearing Corp., et al.216 Pet Quarters, Inc. (“PQI”), an internet-based pet supply, alleged similar claims to those in Nanopierce, Whistler, and Capece.217 Specifically, PQI claimed that through its Stock Borrow Program, the DTCC, conspired with death spiral financiers to artificially increase the supply of PQI stock and permitted significant open FTD positions on “millions of shares” of PQI stock to exert additional downward pressure on the stock price.218 PQI contended that it relied on the DTCC’s misrepresentation that the Stock Borrow Program is used to clear and settle trades efficiently and sought $400 million in damages.219 The court dismissed PQI’s claims with prejudice on preemption grounds.220
The results to date in these state-law based suits against the DTCC are sensible, given the DTCC’s consecrated purpose: to provide an efficient, uniform mechanism for clearing and settlement of securities trade.221 Permitting each state to hold the DTCC to its own standards would undermine the efficacy of a centralized system. However, the DTCC’s persistent defense is that it is just fulfilling its SEC-regulated functions. If that is indeed the case, given the apparent systemic flaws, the onus is then on the SEC to reconsider its directive to and oversight of the DTCC and its subsidiaries.
IV.TRENDS IN NAKED SHORT-SELLING LITIGATION
With the limited success of traditional securities fraud claims, the search for naked shorting culpability continues along more creative routes. Now hedge funds are suing brokerages on antitrust grounds. The SEC launched an assault on hedge funds that engage in private investment in public equity (“PIPE”) transactions. For their part, state attorneys general are investigating brokerages for naked short-selling abuses. And the plaintiffs’ bar has turned its attention to state court claims of fraud, negligence, and conversion. This section previews each.
A. Antitrust Suits Against Brokerages
In April 2006, Electronic Trading Group, LLC, a hedge fund, sued eleven major broker-dealers, accusing them of collusion in improperly charging fees by failing to borrow or deliver stock needed to back naked short sales.222 The plaintiffs, who sought class action certification, contended that the banks dominate the market for prime brokerage services to short sellers and tolerate among themselves chronic failures to deliver by which clients are charged for ‘borrowing’ when in fact no borrowing actually takes place. Defendants collusively condone and engage in these practices to their individual and collective enrichment, routinely alternating among themselves in the roles of prime broker who fails to deliver and third-party broker who permits the fail to persist.223
The plaintiffs did not challenge the practice of naked shortselling; they challenged only the lending costs and fees that they were charged and paid, when they did not receive the bargained-for-value (borrowed shares) in return.224 They based their allegations, in part, on violations of section 1 of the Sherman Antitrust Act,225 which requires plaintiffs to prove that a conspiracy (i.e., a “combination”) exists, and that interstate commerce is restrained. To support their antitrust claims, plaintiffs alleged that defendants collectively control 83% of aggregate client assets in the market and thus “set prices and institute industry practices in order to benefit themselves at the expense of their clients.”226 This novel approach to brokerage liability for naked short-selling schemes did not rely on proof of market manipulation or misrepresentation and did not even attempt to show that naked shorting itself is illegal; rather, the complaint was that brokerages are permitting naked shorting but still charging clients as if their positions are covered through borrowed shares. The defendants responded that the Supreme Court’s June 2007 ruling in Credit Suisse Securities (USA) v. Billing227 precludes antitrust claims on activities “within the heartland” of securities regulation.228 The defendants argued that “even conduct that violates the securities laws is immune from the antitrust laws where the alleged antitrust conspiracy depends on finely drawn lines between permissible and impermissible conduct. In such cases, the court ruled that regulation must be left to the expertise of securities regulators.”229
Billing did not expressly address antitrust concerns in short selling cases. Instead, Billing involved allegations that defendant underwriting firms had violated antitrust laws by engaging in certain conduct in connection with a series of initial public offerings that was also prohibited by federal securities laws and regulations.230 In short, the defendants in Billing had allegedly violated federal securities law, but instead of suing for these violations, the plaintiffs sued under antitrust law instead, hoping to recover treble damages.231 The Supreme Court concluded first, that there was a “plain repugnancy” between the plaintiffs’ antitrust claims and the federal securities law, and second, that federal securities laws implicitly preclude the application of antitrust law to the alleged securities brokerage conduct.232 The lesson in Billing seems clear: If federal securities law expressly prohibits certain conduct, that conduct should be litigated under federal securities law, and not under a more creative antitrust claim.
In the Electronic Trading Group case, the district court ultimately held that under Billing, there is clear incompatibility between securities law and antitrust law with respect to short sales, and that the SEC regulations supersede.233 The court worried that if it allowed the plaintiffs’ antitrust suit to proceed, there was substantial risk that a non-expert jury might mistake legal conduct under the securities laws for evidence of a conspiracy under antitrust laws,234 and allowing antitrust suits such as this could chill activities that securities laws permit. 235 Thus, the court dismissed the plaintiffs’ suit.236
B. Lawsuits Against Hedge Funds
The SEC now carefully scrutinizes hedge funds generally, and PIPE transactions specifically, for market manipulation activity. However, most of the resulting lawsuits focus on technical violations of trading rules, not on substantive market manipulation claims,237 probably because until its recent antifraud rule,238 discussed infra, the SEC had refrained from declaring deceptive naked short selling to be market manipulation. For example, in SEC v. Lyon, the SEC filed fraud charges against Lyon, a hedge fund manager, and Gryphon Hedge Funds for engaging in illegal “PIPE” trading schemes.239 The SEC alleged that the defendants implemented an unlawful trading scheme, which realized more than $6.5 million in “illgotten gains” by investing in PIPE offerings without incurring market risk.240 Specifically, the SEC claimed that the defendants then engaged in naked short-selling of the issuer’s stock in Canada, after agreeing to invest in a PIPE transaction.241
The defendants then used the PIPE shares to cover the short positions, a practice prohibited by the registration provisions of federal securities law, while trying to avoid regulatory scrutiny by employing wash sales, matched orders, and pre-arranged trades to appear as if the short sales were covered by open market shares instead.242 Further, the defendants allegedly made materially false representations to the PIPE issuers to induce them to sell securities to defendants by falsely claiming that they would not sell or transfer the PIPE shares other than in compliance with the registration provisions of the Securities Act of 1933,243 despite intending all along to distribute the restricted PIPE securities in violation of the Securities Act.244 Finally, the SEC argued that the defendants engaged in insider trading by short selling the securities of certain PIPE issuers prior to the public announcement of the PIPE, while using nonpublic information received while being solicited to invest in the PIPE.245 In considering Lyon’s motion to dismiss, the district court determined that the SEC had met its pleading burden with respect to the securities fraud and insider trading claims but not with respect to the claims of unlawful distribution of unregistered securities.246 No final judgment has been reached in the case.
The Lyon case follows an SEC suit against Friedman Billings, an investment bank (now known as Friedman Billings Ramsey Group), which the SEC alleged had engaged in insider trading related to a PIPE the bank arranged for Compudyne. 247 That suit settled for $7.7 million in December 2006.248 The SEC has also targeted a group known as the Rhino Advisers (“Rhino”) in SEC v. Badian.249 The Badian suit alleges fraud and other securities violations in connection with a PIPE transaction and the subsequent manipulative naked short selling of the stock of Sedona Corporation (“Sedona”), a software company.250 According to the SEC, Rhino, representing hedge-fund Amro International, S.A. (“Amro”), lent Sedona $2.5 million in a convertible debt offering, typical floorless death spiral financing.251 Sedona required the investors to agree not to sell the shares short, but Amro, via Rhino, naked shorted the stock anyway, causing the shares to plummet and Sedona to face a cash crisis.252
Issuers are following the SEC’s lead in suing hedge funds. In 2005, Overstock sued Rocker Partners (“Rocker”), a hedge fund, and Gradient Analytics (“Gradient”), a research firm, claiming that Rocker paid Gradient to issue disparaging reports on Overstock, driving down the price of Overstock shares and allowing Rocker, which had short positions in Overstock, to profit.253 Overstock’s lawsuit did not allege naked short-selling, and Rocker claimed that the firm did not engage in naked short-selling, but in the media, Overstock CEO Patrick Byrne has blamed hedge funds like Rocker for naked shorting Overstock stock.254 This lawsuit, based primarily on defamation and intentional inference with prospective economic advantage, survived the defendants’ motions to strike255 and is expected to go to trial in April, 2009.256
C. State Government Lawsuits
Louisiana Attorney General Charles Foti launched an investigation into UBS’s stock-lending practices with respect to Sedona (the Pennsylvania software firm discussed supra), filing motions to compel all of UBS’s electronic and paper communications files relating to Sedona stock, trading records, monthly stock inventories, stock loan documentation, information regarding commission payments, customer account records, market-making activities, clearing and settlement procedures, and in-house research.257 The SEC contends that Sedona’s stock price plummet—from approximately $10.25 a share to less than $0.20 per share—was caused by manipulative short-selling by hedge funds and collusive brokers.258 Illinois and Connecticut are also investigating the investment banks and hedge funds.259
D. Issuer Suits Against Brokerages in State Courts
With little hope for remedies in the federal courts, alleged targets of naked shorting schemes are focusing on the state courts instead. In February 2007, Overstock.com filed a $3.5 billion lawsuit against major brokerage firms in the Superior Court of California, alleging state-law causes of action for conversion, trespass to chattels, intentional interference with prospective economic advantage, and various violations of the California Corporations Code and Unfair Business Practices Act.260 In July 2007, the Superior Court judge allowed the case to proceed, ruling that Overstock’s claims were viable under California law.261 Overstock’s California litigation may illuminate one path to remedies for victims of naked short-selling schemes. State court litigation of state law claims is not a panacea, though; state court litigation is subject to forum non conveniens disputes, forum shopping accusations, and other jurisdictional problems.
V. ALTERNATIVE SOLUTIONS
With no instant remedy from the judicial system, alleged victims of naked short selling have turned to regulators and the legislative branch for relief.
A. Regulation SHO
Although the 1934 Act, when interpreted broadly, prohibits all market manipulation, arguably including naked shorting, federal securities law historically has not provided any specific guidance as to how such market manipulation can be identified and mitigated. In 2004, the SEC crafted Regulation SHO,262 comprised of SEC rules 200, 202T,263 and 203, an attempt to update264 short-selling restrictions and curb delivery failure abuses. Effective on September 7, 2004, with required compliance by January 3, 2005,265 Regulation SHO establishes uniform “locate” requirements, creates a “threshold security list” to identify possible targets of naked short-selling and warn would-be investors, requires broker-dealers to “close-out” FTD positions of these threshold securities, and then articulates exceptions to these rules.
First, Regulation SHO establishes uniform “locate” requirements. A “locate” is the short-seller’s arrangement with a broker-dealer to confirm that it is able to make delivery of the shorted stock. Under SEC rule 203(b)(1), brokers and dealers may not accept short sales unless they have borrowed the security, entered into a bona-fide arrangement to borrow the security, or have reasonable grounds to believe that the security can be borrowed by the delivery due date (the so-called “easy to borrow” exception).266 Second, Regulation SHO requires exchanges to publish daily a “threshold securities” list of companies where at least 10,000 shares or more than 0.5% of the company’s total outstanding shares267 have been shorted and not delivered to a buyer for five consecutive trading days.268 Third, after thirteen trading days, brokers or dealers who are participants of a registered clearing agency must settle, or “close-out,” failure-to-deliver positions in these threshold securities by buying shares “of like kind and quantity.”269 Until the trade is closed out, broker-dealers involved in the trade may not engage in any further short sales of that security.270
Regulation SHO intends to reduce persistent delivery failures, but its exceptions may undermine its rules. Regulation SHO permits legal short sales: (1) when a broker or dealer accepts a short sale from another registered broker or dealer; (2) in bona-fide market making; and (3) when a broker-dealer effects a sale on behalf of a customer that is deemed to own the security pursuant to rule 200271 but through no fault of the customer or broker-dealer does not expect the security to be in the broker-dealer’s possession by the delivery date.272 The effect of the broker-to-broker exemption is that if the brokers trade back and forth between themselves, the thirteen-day clock for mandatory close-outs restarts each time.273 If the brokers trade between themselves indefinitely, they theoretically may never have to settle the naked short positions. The second exemption provides an exception that gives bona fide “marketmakers” who short sell “thinly traded, illiquid stock” extra time to obtain the securities for delivery.274 Market-makers are dealers who stand ready to buy or sell a stock at any time and who publish the prices at which they are willing to trade.275 Their role is to maintain an inventory of readily available stock, to mitigate volatility, and to manage their own risk; they sometimes need to short shares to accomplish their objectives.276 The problem is that almost anyone can apply to become a market maker, and thus almost anyone, however unscrupulous, can take advantage of the exemption and engage in naked short selling.277 In addition to these problematic exemptions, the SEC reserves the right to grant an exemption, “either unconditionally or on specified terms and conditions, to any transaction or class of transactions, or to any security or class of securities, or to any person or class of persons.”278 In short, the SEC retains significant discretionary power to exempt people and practices from the rules, and such exemptions may not even be publicly known.279 The existence of so many exemptions undermines confidence in SHO’s efficacy.
Perhaps the largest SHO controversy occurred when the SEC “grandfathered in” any failed deliveries before January 3, 2005 in an effort to avoid pre-compliance-date short-squeezes caused by close outs of naked short positions.280 The result was that in the four months between Regulation SHO’s effective date and compliance date, the grandfather provision provided that “anyone who was so inclined a generous period of time to build up naked short positions in any stock he liked. Or, to use the counterfeit analogy, imagine outlawing the printing of funny money, but giving everyone four months to print up as much as they’d like. Only then would counterfeit dollars be illegal—but only to print, not to use.”281 The SEC exempted these failed deliveries from SHO’s close-out requirement.282 The SEC did not submit the grandfather exemption for public comment, and accordingly, it was the most-criticized SHO provision until removed in June 2007.283
Collectively, SHO’s exceptions amount to toothless red flags—SHO helps identify some, but not all, incidents of probable naked shorting, but lacks an enforcement mechanism in that it does not impose unavoidable penalties for failing to deliver and thus does not provide any practical disincentive for naked short-selling.
The SEC claims that Regulation SHO is working, albeit slowly and inefficiently. The SEC credits SHO with helping to reduce average daily FTDs by 34% during the period January 2005 to May 2006 from the period April to December 2004.284 This data is difficult to verify because the SEC does not voluntarily release data on FTDs; Freedom of Information Act (“FOIA”) requests for this information indicate that some companies have actually seen increases in delivery failures since SHO’s enactment.285 Further, SHO critics respond that the threshold securities list simply “turn[s] rampant abuse into a spectator sport”286 and “adds more smoke to the fire”287 in that, while it identifies persistent FTDs, it does not provide information about whether naked short-selling is to blame. In addition, anecdotes suggest that the threshold securities list has unintentionally created more market manipulation, in the form of short squeezes, by identifying stocks where short sellers are presumably active.288 Reportedly, traders make large purchases, through long positions, of some of these threshold securities, which in turn, drive up the prices of these stocks, put pressure on short sellers as their positions lose money, cause brokers to issue margin calls seeking more collateral to protect themselves against default, force short sellers to close out their positions by purchasing more shares, and thus drive the price even higher.289
More certainly, Regulation SHO does not dictate a course of action when particular companies remain on the threshold securities list for months, or even years, at a time. In addition to Overstock.com, well-known companies like Netflix, Inc., Krispy Kreme, Delta Airlines, and Martha Stewart Living, for instance, have been frequent guests on the threshold securities list since it was introduced.290 The list may do a good job in alerting investors, regulators, and the issuers themselves that something is wrong, but Regulation SHO does not take the next step and fix the purported problem.
In June 2007, the SEC amended Regulation SHO to eliminate the grandfather provision.291 SEC Chairman Christopher Cox noted that the amendments were intended to curb “the serious problem of abusive naked short sales, which can be used as a tool to drive down a company’s stock price to the detriment of all its investors” and recognized that “persistent failures to deliver. . .may be due to loopholes in the Commission’s Regulation SHO.”292 In September, 2008, the SEC also announced the elimination of the options market maker exception. 293 Options market-makers are now subject to the same “T+3” delivery rules as all other market participants.294 These amendments and proposals address much of the SHO criticism, but still do not go far enough in mitigating the weaknesses of the threshold securities list paradigm.
B. SEC Rule 10b-21
In March 2008, in apparent response to investor concerns over naked short-selling, the SEC proposed a new anti-fraud rule to “highlight the liability” of short sellers who misrepresent their ability to obtain shares to settle their trades.295 Effective September 18, 2008,296 rule 10b-21, entitled “‘Naked’ Short-Selling Anti-Fraud Rule,” provides: It shall constitute a “manipulative or deceptive device or contrivance” as used in section 10-b of this Act for any person to submit an order to sell an equity if such person deceives a broker or dealer, a participant of a registered clearing agency, or a purchaser about its intention or ability to deliver the security on the settlement date, and such person fails to deliver the security on or before the settlement date.297
The SEC intends this rule to indicate “zero tolerance for abusive naked short selling”298 by prohibiting short sellers from deceiving their brokers about their ability to locate shares. In short, the SEC emphasizes that it is deceptive to deceive. However, rule 10b-21 does not clarify what constitutes deception, or how the Tellabs scienter standard might be met by a plaintiff alleging harm from naked shorting. Further, because the SEC acknowledges that deceptive naked short selling has always been illegal under rule 10b-5,299 it is unclear how rule 10b-21 adds anything new to the regulatory framework. At most, rule 10b-21 acknowledges that naked shorting might be more of a problem than first admitted, while sending a message to manipulative naked shorters that they are on the SEC’s radar.300
C. SEC’s New “Hard T+3” Delivery Rule
On the same day it finalized rule 10b-21, the SEC adopted, on an interim final basis, a new “hard T+3” delivery rule that imposes strict penalties for delivery failures.301 Specifically, if a short-seller fails to deliver within three days of the sale, the seller’s broker-dealer will be prohibited from facilitating any further short sales of that security for any of its customers unless it pre-borrows the shares.302 This penalty ideally encourages broker-dealers to prevent naked short-selling by its customers. This rule does not remedy the instance of naked short-selling which triggered the broker-dealer’s penalty in the first place, however.
D. SEC’s Increased Regulation of Hedge Funds
As a signal of increased oversight of hedge fund short-selling activity, and also in September, 2008, the SEC announced an emergency, temporary order requiring hedge funds and other large institutional investors (defined as those with discretionary accounts of at least $100 million) to disclose certain short positions on a routine basis.303 Initially met with great resistance by the hedge fund industry, which claimed that public disclosure of their trading strategies was unfair,304 the SEC ruled that such disclosures would be kept private by the SEC for a two-week period before public release on the SEC’s EDGAR website.305 The SEC’s move to require increased transparency and disclosure stemmed from a concern that hedge funds were responsible for short-and-distort schemes in which an issuer’s stock is shorted, and false rumors about that company’s viability are then spread, thus driving down the share price and allowing the short-sellers to profit.306 In the wake of the collapse of Bear Stearns, Lehman Brothers, and other financial industry stalwarts, the SEC’s order underscored its commitment to use “every weapon in its arsenal”307 to fight abusive short-selling and consequent market instability. However, once again, despite the good intentions and resulting increase in transparency, it is unclear how the SEC’s order will translate into more accessible remedies for the parties injured by abusive shorting.
E. FINRA Rules
The Financial Industry Regulatory Authority (“FINRA”)308 requires that when one of its members makes a short sale for its own accounts or accepts a short sale for a customer, the member must make a written affirmative determination.309 The affirmative determination must state that the FINRA member will be able to provide the security for delivery on demand.310 This affirmative determination rule limits short selling to the ability to borrow a stock at the time of sale.311 In practice, this rule curbs short sales of stock in companies with small amounts of free trading shares because such companies’ stock is usually more difficult to borrow.312
Until April 1, 2004, however, the affirmative determination rule applied only to NASD members.313 Non-members, like Canadian brokerage firms,314 specialists,315 and options players, were not required to comply with NASD delivery rules.316 In response to criticism, the NASD promulgated a new rule that requires NASD firms to treat non-member broker-dealers the same as members regarding delivery of shares sold through U.S. registered broker-dealers, thus strengthening delivery accountability and reducing naked short-selling. 317 Market-makers, however, are still exempt from the rule.318
Although the FINRA affirmative determination rule should act as a deterrent, if naked shorting nevertheless occurs, investors have no private right of action to sue for these rule violations.319 Investors are left only to hope that the brokerage industry polices its own rule infractions, a hope that may be unrealistic when most of the brokerage industry denies that these rules are violated in the first place. And even when the FINRA enforces the affirmative determination rule, the result for the offender is a fine and expulsion from FINRA membership320 —serious consequences, for sure, but no real remedy for the parties injured by the naked shorting scheme.
F. State Legislation
With little practical relief coming from the federal government, self-proclaimed targets of naked short selling have focused lobbying efforts at the state level. In May 2006, for example, Utah-based Overstock.com, Inc. won a major, but temporary, legislative victory when the governor of Utah signed a bill which would have required brokers to regularly disclose trades that fail to settle.321 The law, which was to take effect on June 1, 2007,322 would have imposed fines starting at $10,000 per day on brokers who accumulate too many unsettled trades in any company’s shares.323
The brokerage industry, represented by the Securities Industry and Financial Markets Association (“SIFMA”; formerly the Securities Industry Association or “SIA”), sued in opposition to the legislation,324 arguing that the paperwork necessary to comply with the law would be cumbersome,325 that federal securities law preempted the state standard,326 and that the legislation violated the Commerce Clause.327 Specifically, SIFMA argued that the Utah law is preempted by section 17A of the Exchange Act, which directs the SEC to “facilitate the establishment of a national system for the prompt and accurate clearance and settlement of transactions in securities.”328
If each state is granted the authority to set its own rules regarding national markets, SIFMA posited, “the resulting labyrinth of regulation would choke our financial system” and negatively affect consumers through increased costs, inefficiencies, and a reduction in “service and innovation.”329 SIFMA suggested that the American financial market would suffer on a macroeconomic level as well, as “[a]lready, companies launching IPOs shop globally for more accommodating regulatory environments. Without uniform national standards, U.S. markets would find themselves at an even greater disadvantage.”330 SIFMA also objected to the Utah law on Commerce Clause331 grounds, arguing that it “regulates wholly out-of-state brokerage transactions and imposes burdens on interstate commerce that clearly exceed the Utah law’s local benefit.”332 Given the courts’ strong position on the preeminence of federal securities law in the suits against the DTCC, discussed supra, SIFMA’s preemption arguments were likely meritorious, as were the Commerce Clause claims, which emphasized the Utah law’s burden on interstate commerce. SIFMA’s litigation campaign against the Utah statute worked. In February, 2007, the Utah legislature voted to repeal the law.333 Similarly, in 2007, Arizona, Oklahoma, and Virginia all considered and rejected short selling bans after being threatened with litigation;334 Missouri is still considering the issue.335
Undeterred by other states’ failures, South Dakota voters are now considering amending their Uniform Securities Act of 2002 to prohibit any broker-dealer who is registered in South Dakota from engaging in short selling and also penalize any sales which do not result in delivery in three days or less.336 SIFMA has again threatened litigation, chiefly on preemption grounds.337
Given that no other state to date has passed legislation to curb naked short-selling, some companies are choosing to reincorporate and affect a custody-only trading rule. Custodyonly trading requires that shares be registered to the holder by name and only be traded in physical form.338 Purchases or transfers of stock must be placed through the issuer’s transfer agent.339 The brokerage industry and investors claim that the rule makes stock less liquid and harder to sell.340 Thus, while companies who incorporate to take advantage of the rule may seek a decline in the naked shorting of their stock,341 they may also find their stock less attractive to legitimate investors who value liquidity. Thus, the typical strategy for a company concerned about the impact of naked short-selling on its stock would be to reincorporate, adopt a custody-only trading rule to effect a short squeeze, and then after the naked shorters make a run on the company’s stock to cover their positions (thus driving up the share price with their higher demand), revise their by-laws to remove the custody-only trading rule.342
G. Other Options?
With state regulations sparse and controversial, and when litigation is unsuccessful or imprudent, what can companies concerned about the effect of naked short-selling on their stock price do? First, companies can encourage investors to demand paper stock certificates by issuing a dividend that may only be redeemed through an exchange of paper shares. Jag Media Holdings, the issuer-plaintiff discussed supra, did just that, in effect creating a short squeeze in which phantom share holders engaged in a price war to acquire real certificates, thus artificially and temporarily inflating the price of the stock. Orbit E-Commerce, Inc. (“OECI”), a communications company, also encouraged investors to demand delivery of their stock certificates from their brokers so that naked shorters would be forced to cover, and the demand for OECI stock would increase, along with the price.343 In addition, companies may request beneficial owner lists and proxies to improve communication with shareholders, encourage settlement of trades, and help identify short sellers. If those strategies fail, companies may choose to reincorporate and require paper-only trades;344 the adverse effect to such a move is that paper-only trading reduces stock liquidity and thus its attractiveness to investors.
Lawyers for issuers allegedly harmed by naked short-selling practices argue that there is a “simple” way to solve the problem: force the DTCC to go into the market and buy any unsettled shares at the end of thirteen business days and then charge the brokerage firm handling the sale.345 Such “short squeezes” could rein in “undisciplined” short sellers, the plaintiffs’ bar argues.346 In response, the DTCC and the SEC contend that the DTCC does not have authority to execute forced buy-ins, and further, that forced buy-ins would increase clearing and settlement risks and could interfere with the trading and pricing of securities.347 Thus, unless the law changes, issuers and investors alike are left only with a caveat emptor warning with respect to future convertible/ death spiral financing, PIPE transactions, and delivery failures.
CONCLUSION
In the naked short-selling blame game, investors and hedge funds sue the brokerages, the brokerages point to the DTCC, the DTCC hides behind the skirts of the SEC, and in full circle, the SEC investigates the hedge funds, all while skeptics question the existence and the extent of the naked shortselling “problem.” Plaintiffs’ lawyers claim that naked short selling is the Holy Grail and could be “bigger than tobacco”348 in terms of damage awards if ever proved. But, so far, litigation has been unproductive, and even occasionally wasteful, in curtailing or “catching” alleged naked short sellers, despite an overall post-Enron, pro-plaintiff trend. Meanwhile, overregulation can do more harm than good in that it can reduce liquidity and efficiency, but the under-regulation to date has hurt vulnerable businesses, including some former Wall Street mainstays.
In the naked short-selling debate, two uniquely American value systems collide: the value of an efficient, liquid, open, nationwide market versus the values of entrepreneurship and the opportunity for young, struggling companies to have a fair shot at success. How to balance those values? One solution rests with the judiciary, who could declare all naked short-selling market manipulation as a matter of law, but then set a high bar for damages assessments by requiring proof of real economic harm. If companies can prove that but for naked shortselling, their stock price would not have declined to the extent it did—a test that requires them to affirmatively prove their business model, management practices, and/or products were not to blame—they deserve a remedy. If they cannot, they do not. The problem with that open-door approach is that while the court system sorts out deserving plaintiffs from frivolous ones, the defendant brokerages, hedge funds, and the DTCC incur legal expenses, discovery burdens, and perhaps undeserved negative publicity.
Another option is to place the burden with the regulators. Rule 10b-21, the recent amendments to Regulation SHO, and movement toward publicly releasing timely information on delivery failures are all good steps for the SEC, but they are reactionary in approach. Thus, long-term, the SEC should consider an overhaul of DTCC systems, including greater transparency, to better curb naked shorting abuses and rebut the DTCC’s persistent refrain of “It’s not our job to regulate or enforce, therefore naked short selling is not our fault.” Further, the SEC must back up rule 10b-21 with more aggressive enforcement measures. FINRA, too, must proactively enforce its affirmative determination rule and consider ways it might better cooperate with the SEC in releasing accurate information about delivery failures and their causes.
Wrongs, no matter how small or infrequent, must be checked with remedies. But until a court declares naked short selling as market manipulation as a matter of law and clarifies the issuer’s and investor’s burdens in proving the occurrence of naked short selling, the practice will continue without a check from the judiciary. And until the executive or legislative branches effect better regulation and accountability, that means there is no real check at all.
http://www1.law.nyu.edu/journals/lawbusiness/issues/uploads/5-1/NYB103.pdf
Allan Treffrey's version of his involvement....Reese responds
From: IBAFT (Rep: 0) Date: 01/04/2011 18:21
Forum: Cmkm Diamonds Inc - Msg #238 Thread #673134354 (Rec: 0)
One such sample of an email between myself and Reese
From: Reece Hamilton
To: Allan Treff
Sent: Fri, November 19, 2010 1:45:38 PM
Subject: Re: Alan Treffrey comments tonight (9 PM -12Mid)
Allan,
I am tired of your ramblings and look foreword to this being over. You are the only one with connections to the mob as I recall. Did you not represent some of them in the past. I truly believe that you suffer from Bi-polar disorder.I once again will say that Al seems to share more with Bob, Sheila and myself because we have always been supportive of him. Unlike you interjecting your limited legal advise and extreme paranoid opinions on who should be named in the lawsuit.I remind you that in July of 2009 you yourself told me that you lacked the knowledge or the skills to take this case on. I have tried to stay off the boards the past few weeks but I receive emails and phone calls on a daily basis of what you and your idiot friends (gr8hiker,fisty,Spudey,Don Mccurdy) are saying that Al is not following the wishes of Peter Mahue and that Al is gone off the reservation with his new spook friends.
I for one have asked Al to establish one of the Plaintiffs to be the spokesperson for us.He has always told me that he would not sensor any of us. So I believe if Al was displeased with any of us he would have put a stop to it. So I would have to conclude that he may not always be pleased with information being out to the shareholders however if he was so upset about it he would put it to a halt.
I have to wonder why you joined this lawsuit if you did not completely trust Al. It is apparent that you don't and that is why you continue to bash your fellow plaintiffs as well as Al. So I will pray that this all ends soon for all of us.Once again for the record I am not and never have been a employee of the Government. So please tell that Spudey to quit telling people that I was his FBI contact for the past five years. I will remind you that I do have a friend pretty high up in the FBI and as soon as we get paid I will be happy to fly him stateside to meet with you and your associates. So I would encourage all of us to take a pause here and let this all go. I for one am very hopeful of a triumphant outcome in the very near future.
Respectfully,
Reece
__________________________
Hello Reese,
Permit me to address some of your comments about my "ramblings."
As to my alleged mob connections: For appx. 3 years, I worked for the company eConnect as one of the company's legal counsel, a job I had taken in good faith. At the time of my employment, not only was I a shareholder, but after doing significant research on the technology, I strongly believed that it was a legitimate company and a top-notch tech with a great future and thus, I accepted the employment offer to be their in-house counsel. Because I had been a supportive shareholder before my employment, I had visited the facility in San Pedro on several occasions, I was introduced to management through a common acquaintance and shareholder and the fact I lived just a few miles from the office, I would imagine those reasons are partially why the job offer was made to me, in addition to my charm and good looks. Yes, elements of the mafia infiltrated on the financing side, apparently giving death-spiral financing that ultimately destroyed the company. Note, this financing happened before I got hired. Some say that the CEO was of a dubious character and one day may have to answer for his misdeeds. Of that claim I cannot comment. However, what you fail to acknowledge in your letter to me is that once I felt uncomfortable, I promptly quit. Most unfortunately, I do not possess a crystal ball and can see the hearts of everyone I deal with in advance. Sometimes it takes dealing with people for a while to really see who they are, be it working for them as an attorney or perhaps even sharing the role as plaintiff in a lawsuit.
By the way, doing what I believed was the right thing almost got me harmed or killed on multiple occasions. For example, very unpleasant people personally visited my house to threaten me and my family, telling me to shut up about the Wall Street corruption. I was set up to meet people I later discovered were very dangerous and likely not sent to sell me girl scout cookies. I also got multiple death threats by phone, the criminals hired literally dozens of people to attack my character on the internet, and my car was vandalized. Of course, the feds did their usual crackerjack job in addressing these threats by stating that after someone gets hurt, then I should call them. My tax dollars at work. So, those are the extent of my contacts to the mob, other than the fact I have been openly speaking out against them and their intense corruption of the federal government ever since. If you like, maybe you should pull up my name on a Google search and see the dozens of letters I wrote to the SEC about corruption, if you want to know where I stand.
Funny thing, you seem to be implying something nefarious about my character because of my "connections to the mob" when in reality, I did not even know the company I worked for was tied in any way to the mob when I took the job, and I quit once I even suspected it. So, I guess it be reasonable to say that your comments about my "mob connection" is important enough to mention because such "connections" make me somehow untrustworthy - is that fair to say? After all, it is my understanding that this morning, you called me a "GD liar" several times in the grapevine.. right? I would imagine that there is a correlation between me having unpleasant ties to the "mob" and me being of this untrustworthy character.. is that a fair assumption? Ok, I can live with that characterization. However, what does that say for Al that he knowingly represented Johnny Roselli, a person he knew to be in the mob, as his criminal attorney? How about the fact that our alleged underlying hero in CMKX, Robert Maheu, was deeply connected to the mob as he was a sort of go-between with mob and government? Wow Reese, how can you have knowingly taken your place in this lawsuit with people that you obviously believe are of such lowly character? What does that fact say for you?
By the way, in 2009, I did state to you that I did not have the resources, the facts and the evidence to take on this case, not that I lacked the legal knowledge and the skill. It is important distinction to get these insults right, especially when you have so many times told shareholders that I am not a competent attorney and I should not be trusted. You see, I have bit my lip for quite some time, and taken the lies and defamation from you on several occasions, as well as only gently trying to get you to stop your mind-screw of the shareholders on the boards. In the spirit of keeping peace, I have said nothing of most of it or taken a very gentle approach in my efforts to stop you, Sheila and Bob to stop this misinformation campaign. This type of reserved response on my part certainly sounds like a bi-polar type, now doesn't it? However, since you have been kind enough to open up to me and lay it all on the table, I only felt it decent if I returned the courtesy.
By the way, it is not just my "limited legal advice" that contends that more parties should be included in the lawsuit or that other causes of action might be well added. I am not the sole attorney involved in this stock, nor am I the sole attorney who has reviewed this case. Since you appear to have zero legal training, perhaps it is best for you not to interject opinions into matters that are above your pay grade and knowledge. As for why I was brought into this lawsuit, I would imagine that it because in addition to the fact most of the real shareholders deeply trust me and my presence here would be a soothing effect on them, I basically funded the lawsuit because unlike you who promised $25,000 and did not deliver, I promised $10,000 and delivered $10,000 (plus an additional $5,000 to cover costs that Al personally covered later).
As far as me and "my idiot friends" like Fisty, Gr8hiker, Spudey, and Don McCurdy, making the comments that Al is not following Maheu or that he is "off the reservation".. I would love to see such comments. I have NEVER once made such a statement. I have never ragged on Al or attacked his character and in fact, I have made it a point every time I post that I trust in the man, even if this nightmare of a CMKX scenario is very frustrating. However, in typical spook fashion, you are ignoring the facts of what I have said and made up your own scenario and made this into a personal issue, trying to place me on the defense. You and Bob are also trying to emphasize that I am attacking Al, which is as complete a mountain of bull manure, almost as much as your repeated false dates and events you guys give out that never-EVER happen. As you can tell, I have seen this routine before. I am aware that it is standard government intel (a contradiction in terms?) operating procedure, and the same in the spook world, that when someone nails you with facts and evidence and you want to avoid, avoid it by making the issue either a personal attack on their credibility or create a fact to discuss that does not really exist - a.k.a - focus shifting. An example of standard fed/spook operating procedure: Innocent query to Fed: Was JFK killed by more than just Oswald because all the evidence I have here proves otherwise? Fed thinking to himself: Uh oh, I do not have any answers to that damning evidence, because we were involved, so I had better draw the attention from the issue to inquirer. Fed response to inquiry: Oh that guy is mentally unstable, bi-polar, a GD liar, saw bigfoot, the yeti, the Lochness Monster, the chupacabra and he claims he was abducted by aliens. Like the defense attorney to the poor rape victim, attacking the woman as a whore and ignoring the evidence, know that in spite of your subterfuge, I can see you.
Of course when it comes to attacking the person and not addressing the issues, Acca has done it, you have done it, Sheila has done it, and even Bob is now doing it by repeatedly trying to put me on the defense and state that I have been attacking Al when NONE of the language I have written is an attack. You are trying to shift the focus to me instead of the real issues. Indeed, what is truly disconcerting is that we have feds/spooks here, lying to us on a regular basis, and we are still not paid. I want you to know, that your presence here, Bob's and Sheila's, with all of the fabricated dates and events, is the single biggest cause of the shareholders' discontent and doubts that we will ever be paid - without any doubt. However, irrespective of a spook agenda or not, it is shameful to malign people for just wanting the truth. I made the same mistake with Urban, albeit innocently, realized I was wrong, and I openly apologized for it. However, you are doing it now with knowledge aforethought and intent and for that, one day you will account for your actions and the tremendous harm it has done to innocent people. Maybe one day, when truth settles in your spirit, you will do the same thing with me - apologize- although I am not holding my breath.
I have heard of the several instances where you tried to undermine my credibility throughout this procedure. You told people I am not a competent lawyer, that I am bi-polar, that I am a GD liar, that I am "too combative," that Al does not trust me for every reason under the sun; yet, he somehow trusts you, Sheila and Bob, the three people who can not stop talking and exposing everything from his private conversations to his private emails to the plaintiffs, the ones who are acting in a totally UN-plaintiff manner and risking the success of this lawsuit. Of course, your campaign to attack my credibility is legally actionable, but again, in the spirit of peace and for the benefit of the shareholders, I have refrained from slapping you down with a lawsuit - although believe me Reese, I have truly been tempted. Again, such restraint and the ability to control one's disdain for being wrongfully defamed certainly sounds like an unstable bi-polar mind to me, doesn't it you Reese? By the way, is your diagnosis of my bi-polar condition one based upon your professional medical insights, or are you using the same professional expertise that you used to analyze my legal insights? That's quality Reese, real quality. Never forget, I can see you.
As far as you speaking openly on the boards, including sharing Al's private emails, giving dates and events that never happen and the like, and that Al is not opposed to you doing it, I guess your memory is conveniently faltering. Permit me to bring up one of the emails from Al's office that basically asked you to shut up, but you conveniently ignored it.
Here is my April 23, 2010 letter requesting all plaintiffs remain off of the board, Note Dennis Smith's response immediately follows:
Dear All,
I am writing this letter to share a perspective that perhaps some do not have, and to make one last effort to emphasize an important point. That point is the need for us, as plaintiffs in a lawsuit with thousands of people relying upon us, to cease speaking on public boards and to quit publicly giving specific facts regarding our case. As one of the only attorneys that is in this stock who, through circumstance, has made himself relatively accessible to the average shareholder, I have gotten voluminous communications over the years from those who are broke, marriage-stressed, in foreclosure, creditor-harassed, car being repossessed, overdrawn, bankruptcy candidates, physically ill who can not continue to afford insurance, juggling one bill to pay the other, defendants in lawsuits, near death and more, seeking my advice. Over the past several years, I have assisted dozens of CMKX'ers one way or another, so I have the confidence of of many people in this stock who readily and honestly confide in me. So why do I write you about these issues?
Forget that some of these people referenced above got into their economic straights - in part - because they listened to, and trusted dates and timelines that were promised from unverified sources. Some were told to run up the credit cards, others to refinance the house, others even told not to pay their tuition for the semester and put the money into CMKX, and the like. This trust was founded in unverified sources so in reality, I recognize that the greatest degree of fault for people putting themselves in a tough place financially, are the investors themselves. However, we as plaintiffs are not merely unverified, unconnected sources in a Paltalk room. We are people who literally have one-step connections to Robert Maheu himself, through Al. Almost every time we speak as plaintiffs, it is information ending up somehow attributed to Al, so it carries the highest levels of authority. That degree of credibility from Maheu - through Al - is weighty, if not the most significant basis for reliance that the majority of the shareholders have come across their entire time in this stock. Although there is not really much more to decide regarding further investing in CMKX (unless a person purchases shares from Deli), people still have significant financial decisions to make based upon current events surrounding CMKX and further, their mental and emotional stability is being brutally taxed by our seemingly endless head-fakes, misdirection, unkept promises, unfulfilled dates, false representations, roller coaster rides and more. Because the plaintiff(s) continue to give this false information to the shareholders - so often on the public boards - we are doing great injustices to the shareholder base, both in misleading them and potentially damaging the case itself. To be blunt, it is clearly an unwise legal strategy and it is blatantly an unfair and even cruel practice to the shareholders. It is a mental and emotional rape that has been perpetrated upon the shareholders, in one form or another, for nearly seven years and frankly, it is a practice that I can not believe continues to this day. I am ashamed to be a part of it, even if the guilt is mostly by association. In the eyes of many shareholders, we have been elevated to the level of "full of bullshit" - "untrustworthy" - "stupid idiots" - "we have an ulterior agenda" - "cruel" - "the new wannabe gurus" - "blatant liars" etc.. We are fast being viewed an enemy of this cause when in fact, we really should be viewed by all as trying to help. This shareholder discord is our own fault and for me, after numerous efforts to have it stopped so as to not be a part of causing this shareholder misery, I find myself with no choice in the matter beyond what I am writing to you now.
As you well know, I am merely a plaintiff in this case. I am not the attorney prosecuting the case and I have refrained from pushing whatever my ideas to prosecute the case upon Al for he is the attorney and I am the client. Further, it is clear that Al must have access to far more information than he is releasing to us, or we would not be here today. My extremely limited access to additional information is another reason why I refrain from adding more input into this case. Basically put, I do not have the facts and evidence to add much to Al's work - so I don't. You should all know that much like a doctor being the worst type of medical patient, a lawyer is usually the worst type of law client another lawyer can have because of the natural tendency of the client to act like a lawyer, not just as a client. It has been difficult to remain in the client role for me, especially since I do not have access to all the evidence involved. I have restrained my instincts and even my own logic and placed tremendous trust in Al.
So, I do acknowledge that I am not properly positioned to dictate the strategy in this case and I have so refrained to date. However, whether I push for certain case strategies or not, I do have the option to remain as a plaintiff or to quit being a plaintiff. I would not presume to do so at this time due to any strategies that Al has engaged to date, but I could definitely do so based upon other factors - like the plaintiff(s) continuing to put the shareholders through the living hell that is the roller coaster ride of every untrue story from "Al is speaking tonight" to "Al said we already have economic receipt" to "the packages are arriving tomorrow" and the like. I am not talking about people merely expressing general opinions in a private context, and qualifying statements as such. I am talking about the definitive statements - unqualified statements - the public statements - that cause shareholders the enduring suffering of the plaintiff-induced bi-polar syndrome we have been responsible for foisting upon them. Further, plaintiffs in a lawsuit should NEVER - and I mean NEVER be making any sort of detailed public statements about the substance of a case of which they are involved - period - especially in our case knowing who is listening on these boards. As plaintiffs in a case regarding CMKX, we should be ultra-cautious of public statements of fact since we all know that the public boards are replete with mafia, bank agents, government and every other form of enemy to our cause imaginable. As if any one of us would want the mafia to know in advance when and how shareholder packages with checks or debit cards worth several millions of dollars are scheduled to arrive, so as to give these evil men a heads up on the matter, and provide to them any greater advantage to harm us than they already have.
Going back to the shareholders I have helped over the years, the fact I am relatively accessible to them, have their trust and the fact they are openly truthful with me, I have gotten more than an earful of people so angry with us that one would think that we are the enemy of the shareholders and not the bankers or the government. Further, when I address the rumors and try to somewhat soften the misinformation and the firm dates that some plaintiff(s) have been publicly releasing, I then learn that behind the scenes, those same plaintiff(s) then try to discredit me as being "out of the loop and don't know what I am talking about" or "not intelligent enough to deal with this case" or "I am the party responsible for giving out all the information so Al has cut me off" and more. I have endured this nonsense for quite some time, and in addition to some other very telling incidents, it has led me to believe that there is much more to certain people in this lawsuit than is being told. But personally, I could care less if some persons are federal agents, private spooks, Elvis impersonators or the local dog catcher, or if my phone is being tapped and my own words are being used against me by other plaintiff(s), or even if all of this public disclosure amounts to acts of fulfillment of some deep desire to live life in the CMKX heroes spotlight. If we get paid in a reasonable time, I can endure a lot of nonsense, even a degree of deception and the personal attacks that come with this endeavor. However, there is one thing I will not be around to endeavor anymore and that is this brutal emotional and mental abuse of the shareholders caused by our irresponsible public comments. Again, it is not only deceptive, it is unkind and even cruel to people who have been living on the edge for years. People are really suffering and we as plaintiffs - instead of making their burden lighter - are greatly responsible for the severity of their anguish. I write this letter to you all because I want no part of it anymore.
I know you are saying, "so what if Allan steps out of this lawsuit, we don't need him." If you made that mental assessment of my comments, I want you to know that I completely agree with you - you do not really need me to be here at all. I already paid my $10,000 as a retainer fee and it is non-refundable to date, so perhaps my usefulness as a plaintiff is a thing of the past. I am at the stage that I do not care either way and further, the "show" can easily go on without me. However, to be fair to everyone and not just disappear without warning, I felt it right to state my position first. Big money coming or not, there is a time in which human dignity and compassion has a role of primary consideration and that time has come for me. I do not want to be a part of causing unnecessary grief to these people anymore, nor associated to it, when such conduct is not only contrary to our best interests as plaintiffs, but also nothing shy of a repeated exercise in cruelty.
In summary, other than rare circumstances (which this is not one of them and Al agrees) it is simply, unquestionably and absolutely a terrible practice for the plaintiffs to talk about the substance of this lawsuit - especially in a public forum full of our enemies looking for any advantage they can get from us. Secondly, it is unfair and even cruel to these shareholders to continually mislead them and keep them on a roller coaster ride straight to emotional and mental hell. Lastly, if I see the plaintiff(s) on the public boards tossing out firm dates again on "economic receipt," "Al talking to the shareholders," "packages arrival dates" or ANY other issue causing further ongoing shareholder headache, I am simply going to dismiss myself out of the case. This decision is not personal, it is every bit logical, good business, basic legal strategy and morally the proper thing to do.
I am sorry that this matter has come to the point of this letter; however, I have already tried several times to discourage the plaintiff rumormille in a softer and more amicable manner, all efforts failing miserably. If the shareholder(s)' public comments were somehow sanctioned by Al, or if he felt them to be a proper strategy, I would say nothing. Al has clearly told me that he agrees with me and does not want these discussions of particulars on the public boards. I hope that all plaintiffs can appreciate my position on this matter that the importance of discretion in these issues are multi-fold. I do expect to remain a part of this lawsuit, just as I expect these words to supersede all issues of emotion or ego, and appeal strictly to your logic such to have merit for all. If not, then there are no hard feelings but we will part as plaintiffs in this common cause. I genuinely hope that these words fall upon receptive ears.
Sincerely,
AFT
_________________________________
RESPONSE FROM DENNIS:
_________________________________
Hi Everyone,
Just want you to know we're in sync with Allan on this.
Regards,
Dennis
--- On Fri, 4/23/10, Dennis Smith wrote:
From: Dennis Smith
Subject: Re: One Last Plea
To: "Allan Treff"
Date: Friday, April 23, 2010, 1:24 PM
Excellent letter Allan; hope it sinks in.
-d.
_______________________________________
Of course, this is just a couple of the multiple emails I received endorsing my position that you guys cease and desist on this matter. It is also in addition to the several conversations we all had, including one that you apologized to Al at lunch for revealing his private email and promising never to do it again, a promise that lasted a whole of 12 hours because you revealed his private conversations we had with him at that very lunch later that night on Paltalk. Al did try to put a stop to you three speaking on the boards and you all refused to comply. That is the sole reason I returned to the boards, because SOMEONE had to counteract the madness of you guys talking so much - madness that was nothing more than a cruel mind-screw by the feds and worse - if this lawsuit it truly real, perhaps the STUPIDEST thing a plaintiff could ever do. If we ever do go to trial (God forbid), then I assure you that you will be brought to testify - not that Al would use you - but to testify against our credibility.
As to why I wanted to join this lawsuit, I did it to help myself and other people. I did not do it to participate in a lie, in screwy fed mind games, to harm people and certainly, not to allow my fellow plaintiffs blow it for us by speaking out of school. Not only did I provide the bulk of the cash to fund it, but before I got into it, I specifically asked if I was being told everything. I was so told but it was clearly not correct. Had I been told that I was going to be used to buy time - time for our government to screw us over and over and over - I would not have signed up. You see, in spite of all the madness that you have accustomed yourself to in your role here, all the justifications you may have for being deceitful, callous, duplicitous, insensitive to the pain of thousands of people, it is not justified as it did not have to go down this way. The real reason we are not paid, the real reason that the deceptions go on and on, the real reason why there are still open book demands for real investigations into the JFK and RFK Assassinations, 9-11, Oklahoma City, Flight 800, The Vietnam war and more is that the government is replete with arrogant and proud people who cannot admit that they have ever done wrong or that something happened on their watch that they should have stopped. Had the government told the truth form the start, it would have ben painful, but then the real criminals could have been arrested (instead of dancing free with their loot), the money could have been recovered and the nightmare that this operation has put into the minds of simple and honest people would not have had to occur.
Even if this "sting" had to go down, and this lawsuit was somehow necessary, Al could have filed the it, we all stayed off of the boards, and Al gave an update every couple weeks. Instead, you and/or your bosses decided that it would be fun to take innocent people and run them through a ringer over and over and over until they are so damaged that no amount of money could ever make it right. This is a truth that you will have to live with and die with and nothing can change that fact.
As far as bringing your FBI contact to meet us one day, I remember you telling me that after he moved to London, you could not reach him anymore.. remember? You said that he was prohibited from speaking to you anymore in fear of losing his job, that he changed his email and number and moved to London. Hmmmm.. I guess what I am trying to say is no matter who you bring to some staged meeting you hope will change our mind that you are not a fed and/or spook, we ain't gonna buy it.
All of this bantering aside, I make the same offer to you that I did to Bob, the same proposition I proposed several times before. WE ALL STAY OFF OF THE BOARDS AND QUIT USING OTHER SHAREHOLDERS TO BRING INFO TO THE BOARDS. Let Al be the one to give plaintiff and shareholder updates, then there is no room for lies, misdirection, repeated mind screwing and in the end, we act like real plaintiffs in a real lawsuit should act. However, I will not stop going on the boards and counteracting the information that I perceive to be clearly false. As long as my name is associated to this lawsuit, as with any other cause in the public eye where my interests are at stake, I have a right to expect those I stand with to act in an appropriate manner. To date, that has NOT happened.
Forgive the avalanche of facts. I welcome your response, although it would be nice if your response dealt with real issues and not just attacked me personally or focused on words I never said..
Respectfully,
Allan
Update from Kevin West and Bill Frizzell 12/10...
December 31, 2010
Dear shareholders,
Another year has come to a close and we would like to wish you and your families the very best in 2011.
While the Company has been quiet for the last few months, please know that we are still working daily on litigation and other Company matters moving forward. Although shareholders are understandably focused upon a return on their investment, there has been much that has taken place behind the scenes to help revive and put a foundation under a Company that was left for dead several years ago. In this past year, outside of litigation matters to be updated below, there have been two major corporate accomplishments that have been underway for a very long time…. 1. For the first time in the history of CMKM Diamonds, Inc, all tax periods dating back to year 2002 have been prepared and filed; 2. The company has interviewed and selected a new transfer agent. Even though it is not something that can be measured by shareholders, please be advised that the Company has incurred hundreds of man-hours of time that went into the finalization of just these two projects alone.
Many questions are coming to the Company regarding the issue of a fund to be paid out to shareholders. The Company has publicly stated its position on this matter several times in the past and continues to stick by that position; after several years and countless hours of investigation into the matters surrounding the past history of this Company and the possession of hundreds of thousands of pages of documents, the Company has not come across one document indentifying a trust fund held on behalf of the Company or its shareholders.
Many have asked about my position on the matters that Al Hodges is working on. I continue to stand by my previous statements of June 25, 2010. I personally believe that Mr. Hodges is looking out for the best interests of the shareholders and that he believes, without any doubt, in the information that he has shared with you. I have spoken with Mr. Hodges in the last two weeks and although he still cannot share details with me or the Company, I am of the personal opinion that he is still 100% confident in his facts and has not wavered in those beliefs. I have let him know that I am just a phone call away if my help should be needed.
The NEW CO, J/V agreement with 1010 is still a valid opportunity for our company. 1010 and CMKM have worked together throughout the year to develop a business plan however at this time, the Company has been unable to provide the large amount of funds needed to move this venture forward. Mr. Koch has continued to secure the claims that hold potential value for the NEW Co and ultimately the sake of the shareholders.
Please see the litigation update provided by the Frizzell Law Firm to the Company below.
Very sincerely,
Kevin M West
CEO / President
December 31, 2010
To: CMKM Management
Re: Litigation Update
Desormeau Suit – Work continues on many fronts in this lawsuit. Enormous amounts of due diligence, private investigation and legal work have been expended in our effort to collect the $33,000,000 judgment which was obtained by the company in July of 2008. I reported in my litigation update in May of this year of the recovery by CMKM of properties in Georgia and Virginia. As of this date CMKM has not accepted any offers on either property. The real estate market for these valuable properties is not favorable as is the case in most parts of the country. CMKM management is currently considering contracts with new listing agents and has some real estate brokers in the area providing feedback to the company.
In September of 2009 thanks to some good work by one of our shareholder volunteer researchers, the company was informed that a property which we had once identified as a property belonging to John Edwards had recently sold in Las Vegas. This office has developed quite a database of information on properties purchased by John Edwards and held through the names of various fictitious entities and trusts. Upon learning of the sale of that property, we began an investigation into the trail of funds following the sale. Since these funds belonged to John Edwards, they were subject to our judgment. We have known for quite some time that John Edwards has historically used lawyers’ trust accounts to purchase properties.
As our investigation developed into this transaction, it was apparent to us that Mr. Edwards was using a particular lawyer and law firm and its trust account to conduct business with third parties. We noticed two lawyers in Las Vegas for depositions and requested that they turn over all files, documents and records of business dealings and investments of John Edwards. The lawyers informed me when they appeared for the deposition that they gathered the documents we requested but due to their confidential relationship with their client they could not turn them over to us without a court order. We reached an agreement where the lawyers would prepare a privilege log and we would ask Judge Delaney to review the logs and decide if the documents identified were discoverable. Judge Delaney ultimately ruled in our favor on August 18, 2010 and turned over to us each and every document which was being withheld by the Mr. Edwards’ attorneys. It took nearly 8 months and numerous court appearances in Las Vegas by Kevin West, myself and our Las Vegas counsel and the filing of several briefs to obtain this ruling.
These documents contained a wealth of material about Mr. Edwards’ business dealings. We found evidence of investments in other countries. I am confident you can understand why I must be rather vague about the matters we uncovered in these documents. We obtained a flow chart which I will provide for the company to post in the document section of the company web site which came from these documents showing some projects related to investments of Mr. Edwards. I have dedacted certain names of companies and individuals for obvious reasons. We are still in the process of investigating the matters learned of in the documents obtained from John Edwards’ lawyers.
Based on information obtained in these privilege logs your company chose to secure counsel in the UK. We have hired a top firm to assist us in our investigations in the UK. Company management spent a great deal of time searching out the right law firm and gathering the requested information to obtain their services. Mr. Edwards has been incarcerated in London since September of 2009 and has engaged counsel in the UK as well.
Our collection work continues in foreign jurisdictions as it is clear Mr. Edwards made large investments and moved money outside of the U.S..
We have recently located properties in Nevada, Florida and California which we have proven belongs to Mr. Edwards. Post judgment collection activities have begun including hiring local counsel in the locales where the properties are located. The company will customarily file a Lis Pendens in the respective locale of the property and then proceed with litigation to have the property legally seized subject to our judgment. Such activities are in progress at this time. Again, for obvious reasons, I am choosing not to specifically identify the properties until we have the appropriate legal proceedings in process to protect your company’s interests.
Once again I was notified by one of shareholders that Can Cal Resources Ltd. had made an SEC filing indicating that it had defaulted on a note the company had with two John Edwards’ entities. The note was secured by 120 acres of land in San Bernadino County, California and originated in 2000. All properties belonging to John Edwards, regardless of how the property is held or when it was acquired is subject to the judgment obtained by your company. Can Cal has recently devoted resources to testing the land to ascertain the land’s potential for mineral development. The officers presently running Can Cal were not in control in 2000 when the note was made with John Edwards. Can Cal has asserted they are unable to contact Mr. Edwards but are desirous of working out an amicable settlement with CMKM. Pursuant to those discussions I began appropriate legal proceedings to consummate an agreement with Can Cal. I filed a garnishment proceeding in a local Texas District Court on July 20, 2010 which would have allowed the company to receive a negotiated amount of money and execute a full release of the note to Can Cal. Because the property and the debt are not in Texas, this Texas garnishment proceeding would only be a viable venue if the parties reach an amicable settlement. Discussions at one time were amicable and a settlement amount was agreed to. A hearing date was set in a Tyler court to get Court approval of the agreement. Company management invested many hours in getting information to Can Cal and in discussing the ways to resolve this matter amicably. A significant amount of money and legal time was spent with Can Cal attorneys to substantiate the claim of the company. Can Cal for various reasons withdrew from these negotiations and we are renewing our efforts to collect on this note.
Your company will in short order dismiss the Garnishment action mentioned above. Our rights to collect on this note are not in jeopardy because of this dismissal. We are now proceeding in Nevada and California to assert CMKM’s rights to a turnover order of the note. Plans are being made to seize the property upon failure of Can Cal to pay the note owing to Mr. Edwards.
After extensive meetings a new plan is underway to aggressively pursue the many properties that we have found and to further our investigation into the information we have obtained about the assets of John Edwards. We have the right to conduct post judgment discovery in every state of the United States to aid us in enforcing our judgment. The procedures on how we conduct this discovery vary somewhat from state to state. Your company is in the process of engaging counsel in the various states to help us. Two firms have already been engaged. This post judgment discovery allows us to send out sworn interrogatories to individuals and companies and to take sworn depositions of people who may have information which would lead us to assets which might be subject to our judgment. We have five individuals in three different states targeted for these depositions. These individuals are people we know have had business dealings with Mr. Edwards and we believe they have information which will assist us as we pursue collection of our judgment.
Casavant/Glenn Suit – Discovery is ongoing in the Casavant/Glenn suit. If this is the first update you have read, you might want to go to the company web site (www.cmkmdiamondsinc.com) to see what transpired prior to May of this year in this case. Since my last update, your company has received a second set of interrogatories and we have responded to those interrogatories. Your company has sent its first request for production of documents to Glenn’s attorneys. Glenn has produced a number of documents pursuant to our request and has made various objections to some of the requests. Your company has recently sent a Request for Admissions to Glenn which includes over 100 requests. Request for Admissions is a discovery tool designed to narrow the contested issues in a law suit. Rules allow the parties thirty days to respond to most discovery including a Request for Admission.
A deposition of one board member was taken this year with our Las Vegas counsel representing the company and the board member. We participated in the deposition of Neil Levine, the CPA that withdrew from representing the company on the day of the administrative hearing in 2005. This deposition took place in Mr. Levine’s attorney’s office in New York City on October 20, 2010. The deposition was an all day deposition. We participated in the deposition of Don Stoecklein in his office in San Diego on October 28, 2010. This deposition was an all day deposition. We participated in the deposition of Mark Faulk in a law office in Oklahoma City on September 16, 2010. This was an all day deposition. An enormous amount of work goes into preparation for these depositions. Mr. West was previously deposed as company representative by Mr. Glenn’s attorney. His deposition as a fact witness will be taken in January.
Your company has hired an expert to testify on behalf of the company. Our expert will give his opinion on certain matters at issue in this litigation. Your expert will be given information pertaining to the legal work done by Mr. Glenn and his firm. He will then give his opinion regarding the work. Experts are commonly used in cases of this sort. The courts allow expert testimony when a matter is being litigated that might be above the common understanding of a lay person. It would be helpful to a lay juror to have information from an expert in some of the issues being tried in this lawsuit. Mr. Glenn has already announced the name of their expert witness. We expect to offer our witness up for a deposition and we expect to depose their expert. I will also be deposing Mr. Glenn but we have not yet scheduled that deposition as of this date.
A scheduling order has been put in place by the trial court. This case will be called for trial on August 1, 2011. I expect this case to be tried sometime during the month of August.
A protective order has been agreed to by the parties and signed by the Judge which cloaks many discovery documents with confidentiality by agreement. I think this scheduling order is a matter of public record. If it is, I will allow company management to post it in the document section of the company web site.
Declaratory Judgment Suit in Tyler--Service issues are being resolved due to Mr. Edwards being incarcerated in London. Once service has been obtained, this matter will proceed.
Al Hodges’ Bivens Suit – I will only make a brief comment on the Al Hodges litigation. The company has made its position very clear on several occasions. I reiterated the company’s position in my update this past May. Please reread my comments if there is any misunderstanding of my position and that of the company. There is an open line of communication between Mr. Hodges’ office, your company and my office. If any help or assistance is needed by Mr. Hodges from me or the company, Mr. Hodges knows we stand ready to do whatever is needed. Having said that, a lengthy in-depth investigation by myself and your company has been ongoing into related matters since March of 2007. Your company management has met with Mr. Hodges. We have received the same information most of you have received about this matter. The company’s position has not changed. Mr. Hodges has been relentless in his pursuit of the monies identified in his lawsuit. He is firm in his belief that he will eventually be able to obtain the funds he believes are being held in trust for the shareholders.
Communication to Shareholders – I feel compelled once again to ask you to use your common sense and be patient with the officers and directors of your company as this litigation proceeds. The law is clear that when I discuss company plans which involve litigation with the officers and directors, those discussions are privileged and not discoverable. When your officers and directors communicate with third parties, whether in my presence or not, that communication is no longer privileged. Discovery requests have been filed with us seeking communications between all parties involved and shareholders. I do not allow the officers and directors to go online or engage in conversations with shareholders about the details of the company business. The cases we are litigating are very important to this company.
Thanks and Best Wishes For 2011 – I want to thank the many shareholders who have tirelessly contributed their time and efforts to the cause of this company. I am very much aware that this update will not excite the masses out there who are in daily anticipation of the funds being sought by Mr. Hodges. Should his efforts come to fruition, I will be as happy as any shareholder alive. But I am proud of the legal work that has been done for this company. We will continue to exert our time, money and efforts until these matters are all resolved and this company is back to trading. I have confidence that our hard work and efforts will be rewarded in the end. Have a safe and Happy New Year.
Sincerely,
Bill Frizzell
The CMKX scam in a legal nutshell
http://www.scribd.com/full/46035087?access_key=key-s0iv3ts7wvcnz0alc8x
Update from Al Hodges after losing case....
Litigation Update - December 7, 2010
I understand that many are anxious to receive an update directly from the horse’s mouth regarding the litigation and the Federal Court hearing of December 6; this is it. Let me begin by quoting a post of Mona’s from Tramp’s board which I found to be cogent and to the point [the bracketed portions are mine]:
The following is a MOST EXCELLENT post and the last sentence SAYS IT ALL as we move forward!
Protocol:
To the best of my recollection, Al mentioned to those of us standing outside the courtroom:
1. 300 people had been served [and/or being prosecuted] for financial fraud and there are more to follow with arrests.
2. Everyone wants to see proof however.
The reason for the hearing was not about presenting proof but about whether the complaint that was framed and filed has legal standing in this court.
a. One of the points here is that the judge and the other side have to assume that every point in the filing submitted is true.
b. The test this court was constrained to rule on [consider] was that if the plaintiff[s] (Al Hodges) goes to trial and proves everything stated in his complaint, is he entitled to a judgment/verdict?
c. This court says, NO
d. No, because we don't qualify for the takings clause. [Essentially because no prior Ninth Circuit or USSC case has so held.]
e. No, because we don't have property interest in the shares we hold. [Essentially because no prior Ninth Circuit or USSC case has so held.]
That's the current state of the law in the 9th circuit court.
Al argued yesterday that it was in fact a taking and the shareholders did hold shares considered to be property that had value.
The company (CMKM) was structured and had business rulings that rendered the shares of CMKM real and valid.
The shareholders had no other recourse or means of redress against the government and this appeal was the only means of acquiring justice and restitution. [Therefore, making this a perfect Bivens situation.]
As far as the US attorney that was there representing the defendants:
Al said this guy is the head [actually one of the Senior] US attorney in the LA office and he is very competent.
He doesn't know much of anything because his clients are not communicating with him and do not need to at this point.
So, when he stands up there to argue, he is doing so with minimal understanding of his client’s true role and culpability. They are not giving him direction or facts.
If we go along with the idea this was scripted and yielded plausible deniability for the government then it makes sense when AL says this is [should be] over by Christmas...
Yesterday’s hearing lent to logical reasoning that this has reached a conclusion.
Al can of course take this further with an appeal in 30 days which he says he will do if we are not paid.
We will see where it goes by the end of the year.
God willing, all the work behind the scenes is done and payments begin shortly!
Proto
Let me add a few other comments:
• I did have a colloquy with Mr. Staub prior to the hearing in which I confirmed that he had essentially little or no input from his individual clients and/or the SEC; he as well confirmed that he had absolutely no knowledge of any “behind-the-scenes” discussions or other activities.
• When the hearing began, I reviewed briefly for the Court the insistence of many of the original 13 states that the Bill of Rights be included in the Constitution as a condition of ratification, how the Fifth Amendment came about and what it means [e.g. it talks about all property – not just real property], the seminal decision of Marbury v. Madison (1803) and the more recent Bivens case; I also explained in some detail why the Broad case raised by defendants could not and was not controlling here; and, although I had to concede that no prior Bivens or ‘Takings’ case of any similarity could be found, I detailed for the Court the reasons why that should not stand in the way of this Court upholding the spirit of the Constitution and all the relevant Supreme Court cases decided there-under.
• The Court explained to all that the essence of the decision rested on the absence of any decided cases of similarity to this one; he did suggest that we might find a sympathetic ear in the Ninth Circuit Court of Appeals.
• I did take the opportunity to meet and speak with some of the 25 plus shareholders in attendance, after the hearing; most of the ‘quotes’ of my statements that you have seen posted are accurate; e.g. I did say that “.... if I were a betting man, I would bet that we will receive payment by Christmas.”
• I am of the opinion that we are at the last turn in the road. More straight forwardly I do believe, based upon information from many, many sources including my work on securing release of the World Global Settlement funds, that payment is imminent.
• Apparently, dismissal [one way or another] of this litigation was required by the Government as a condition of the release of CMKX payments; we shall soon see if that assessment is correct. Whether it is or not, be assured that an appeal to the Ninth Circuit [and the USSC if necessary] will be timely taken and aggressively pursued, until such time as the payments are made.
Let me also take this opportunity to correct some prior misunderstandings of some shareholders:
• It has been asserted that I am the trustee – I AM NOT.
• It has been asserted that I am pursuing litigation on behalf of Mr. Bonney and/or Mr. Cottrell [and that this is being done at the expense of CMKX] - I AM NOT. I hasten to add that I have written correspondence on their behalf in the belief that it would assist in speeding up the WGS payouts, and in turn the CMKX release.
• It has been suggested that my actions and/or lack of same is delaying receipt of payment by CMKX shareholders – IT IS NOT.
• It has been asserted that the WGS have nothing to do with, or affect CMKX – INCORRECT.
• Some seem to believe that I have instructed various plaintiffs [most of whom have their own sources of information] to go to the boards/pal-talk and release information [either for some specific purpose or to serve some ulterior agenda] – I HAVE NOT.
• Some seem to believe that my purpose here has been to mislead, string-along, etc., and is part of some ‘master-plan’ – NOT TRUE. This litigation was [and still is] meritorious and brought in good faith to assert the rights of shareholders who had been severely robbed and otherwise damaged as the direct result of Government actions which were outside of the bounds of permissible behavior; it was also believed that the filing would precipitate the kind of attention and focus required to bring this matter to conclusion.
Some will ask why I am so confident that we are about be finished with this unnecessarily lengthy travail. The only answer that I can give you at the moment is to ask you to consider how much of my time [most of it] and other resources [substantial sums of $$] have been devoted to the matters associated with CMKX during the past year. Although you can’t know for sure, most have an idea that it has been a very bizarre, complex, convoluted battle against some of the most powerful entities in the world; it’s been that and oh, so much more. At any rate, the reason I mention it at all, is as a basis for you to understand that I now receive almost daily information from FBI, CIA, NSA, Pentagon, and JCS sources, as well as a plethora of other people with whom I have established a rapport and respect, and who have met certain screening criteria. It is information assembled from these sources that persuade me.
Some will next ask if their information is so good and accurate, why were we not we paid months ago “as you indicated we would be.” The detailed answer to that question will of necessity have to wait for another day; however, the short answer is for you to look at our competition and the results of our efforts.
My very best regards to all,
Al Hodges
Re: MOTION TO DISMISS GRANTED
« Reply #8 Today at 4:11pm »
--------------------------------------------------------------------------------
1 Plaintiffs are David Anderson, Nelson L. Reynolds, Sheila Morris, Patrick Cluney,
Robert Hollenegg, Allan Treffry, and Reece Hamilton.
2 See, e.g., Broad v. Sealaska Corp., 85 F.3d 422, 430 (9th Cir. 1996) (Takings Clause);
Brewster v. Bd. of Educ. of the Lynwood Unified Sch. Dist., 149 F.3d 971, 982 (9th Cir.1998)
(Due Process Clause).
1
David Anderson, et al. v. Christopher Cox, et al.,
SAVC 10-31 JVS (MLGx)
Tentative Order Granting Motion to Dismiss
The present action arises out of the sale of stock from CMKM Diamonds,
Inc. (“CMKM”), to plaintiffs,1 the corporation’s subsequent implementation of its
resolution to self-liquidate, and the involvement of the Securities and Exchange
Commission (“SEC”) in that process. Plaintiffs have brought an action against a
number of former and present SEC Chairpersons and Commissioners, asserting
claims for declaratory judgment and deprivation of their Fifth Amendment Rights
under the Takings Clause and the Due Process Clause.
Presently before the Court is the Motion to Dismiss the Revised First
Amended Complaint (“FAC”) of defendants Christopher Cox, Mary L. Shapiro,
Cynthia A. Glassman, Paul S. Atkins, Roel C. Campos, Annette L. Nazareth, Troy
A. Paredes, Luis A. Aguilar, Elisse B. Walter, and Kathleen L. Casey (collectively,
“Defendants”).
The Court previously, on August 2, 2010, dismissed plaintiffs’ Complaint
because plaintiffs failed to identify a viable property interest. The holding of a
property interest is a necessary predicate to both a Takings Clause claim and a
procedural due process claim.2 Moreover, as to the Takings Clause claim, the
Court noted that mere ownership of shares of stock could not establish the property
interest because the Takings Clause does not protect shareholders from a
government caused reduction of corporate equity. See Aug. 2, 2010, Order
(Docket No. 15) at 5 (citing Broad v. Sealaska Corp., 85 F.3d 422, 430 (9th Cir.
1996) (noting that, in addition to the lack of case law authority suggesting the
Takings Clause applies to cases not involving rights in real property, shareholders
have no proprietary interest in corporate assets or profits in the absence of a
declared dividend)).
2
The Court dismissed the Complaint with leave to amend. Plaintiffs filed the
FAC, adding certain factual allegations. Relevant to the present discussion, and
presented along with relevant factual allegations from the original Complaint, they
may be summarized as follows.
I. Factual Allegations
The day before CMKM resolved to self-liquidate, the co-chair of the Board
of Directors (Robert A. Maheu) resigned, and the other co-chair “agreed to remain
as the sole officer and Director . . . until the affairs of CMKM were would up to
ensure all shares and other assets . . . were properly distributed to its stockholders .
. . .” FAC ¶¶ 34-35. CMKM thereafter traded certain assets for 50 million shares
in a corporation called Entourage. FAC ¶ 34. On the day CMKM resolved to selfliquidate,
October 21, 2005, a Task Force was appointed, “to conduct and orderly
and verifiable pro rata liquidating distribution” of CMKM’s assets. FAC ¶ 35. A
website was set up to help identify bona fide shareholders of CMKM. FAC ¶ 36.
On January 19, 2006, the Task Force issued a press release regarding the reduction
in total shares of Entourage from 50 million to 45 million, with proceeds to be
distributed to CMKM shareholders. FAC ¶ 38. Based on these facts, “[t]he
CMKM shareholders . . . believed a pro-rata share of the assets that the company
possessed would be duly distributed.” FAC ¶ 39. According to plaintiffs, “[s]ince
Entourage had considerable assets and no substantial liabilities, the shareholders
then held a vested pro-rata property right interest protected under the
Constitution.” FAC ¶ 39.
At points of time not entirely clear, defendants began to use CMKM as a
“sting operation” to identify illegal trading activity. See FAC ¶¶ 46-48. Beginning
some time before the resolution to self-liquidate and continuing thereafter, Maheu
negotiated settlements between those caught in the SEC’s sting operation and the
SEC. FAC ¶ 48. These actions tended to injure the interests of the shareholders
and delayed any distribution of assets to shareholders. FAC ¶ 46, 49.
Plaintiffs allege that all the moneys were intended to be distributed within a
year of October, 2005, but that, five years later, no funds have been released.
FAC ¶ 53.
3
II. Legal Standards for Dismissal
A. Rule 12(b)(1)
Dismissal under Rule 12(b)(1) is proper when the plaintiff fails to properly
plead subject matter jurisdiction in the complaint. Fed. R. Civ. P. 12(b)(1). The
plaintiff always bears the burden of establishing subject matter jurisdiction.
Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). For a
facial attack on subject-matter jurisdiction, the Court accepts all allegations in the
complaint as true. Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139
(9th Cir. 2003). However, for a factual attack, the Court “need not presume the
truthfulness of the plaintiff’s allegations.” White v. Lee, 227 F.3d 1214, 1242 (9th
Cir. 2000). The Court may dismiss on jurisdictional grounds if the material
allegations in the complaint are “controverted by undisputed facts in the record.”
Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987).
B. Rule 12(b)(6)
Under Rule 12(b)(6), a defendant may move to dismiss for failure to state a
claim upon which relief can be granted. A plaintiff must state “enough facts to
state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007). A claim has “facial plausibility” if the plaintiff pleads facts
that “allow[] the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Ashcroft v. Iqbal, --- U.S. ----, 129 S. Ct. 1937, 1949
(May 18, 2009).
In resolving a 12(b)(6) motion under Twombly, the Court must follow a
two-pronged approach. First, the Court must accept all well-pleaded factual
allegations as true, but “[t]hread-bare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.” Id. Nor must the Court
“accept as true a legal conclusion couched as a factual allegation.” Id. at 1949-50
(quoting Twombly, 550 U.S. at 555). Second, assuming the veracity of wellpleaded
factual allegations, the Court must “determine whether they plausibly give
rise to an entitlement to relief.” Id. at 1950. This determination is context-specific,
requiring the Court to draw on its experience and common sense, but there is no
plausibility “where the well-pleaded facts do not permit the court to infer more
4
than the mere possibility of misconduct.” Id.
III. Official Capacity Claims
Sovereign immunity bars claims against the United States and its officers
when sued in their official capacity. Hodge v. Dalton, 107 F.3d 705, 707 (9th Cir.
1997) (“The doctrine of sovereign immunity applies to federal agencies and to
federal employees acting within their official capacities.”). Where there is no
waiver of sovereign immunity, the Court lacks subject-matter jurisdiction to hear
claims against the United States or its officers. Id. (“The terms of the United
States' consent to be sued in any court define that court's jurisdiction to entertain
the suit.”).
The Federal Tort Claims Act (“FTCA”) provides a limited waiver of that
immunity; however, the FTCA does not include a waiver of sovereign immunity
for constitutional tort claims. Pesnell v. Arsenault, 543 F.3d 1038, 1041 (9th Cir.
2008).
Thus, to the extent plaintiff’s claims against the defendants are asserted
against them in their official capacity, no court has jurisdiction, and those claims
are therefore dismissed with prejudice.
IV. Individual Capacity Claims
As to the individual capacity claims, plaintiffs have failed to correct the
pleading deficiency the Court found fatal to their claims when considering the
Motion to Dismiss the original Complaint: Plaintiffs fail to set forth factual
allegations supporting their claim to a property interest.
Nevertheless, even if the Court were to hold that plaintiffs have sufficiently
pleaded a property interest, the claims asserted still fail.
The takings claim fails because, as noted by the Court in its previous Order,
the Ninth Circuit has held that a takings claim is not cognizable under the present
facts. See Broad, 85 F.3d at 430. In Broad, the court considered the takings claim
of a number of shareholders who challenged the creation of a trust that favored one
group of shareholders (those who had attained the age of 65) over another. Id. at
5
425-26. In rejecting the takings claim, the court noted that “almost universally”
takings claims involve rights to real property, and plaintiffs cited no cases
suggesting that the Takings Clause applied to their personal property. Id. at 430.
The court went on to note that, by definition, shareholders do not “directly own
any part of a corporation’s property or assets,” and that shareholders merely held a
“proportionate interest in the corporate equity remaining after a corporation meets
all its other debts and obligations.” Id. On those facts, which are indistinguishable
from those presented here, the court concluded: “Thus, the plaintiff shareholders
have no proprietary interest that could have been ‘taken.’” Id. For this reason,
plaintiffs may not assert their takings claim.
Plaintiff’s procedural due process claim also fails. A procedural due process
claim has two elements: deprivation of a constitutionally protected liberty or
property interest and denial of adequate procedural protection. Brewster v. Bd. of
Educ. of the Lynwood Unified Sch. Dist., 149 F.3d 971, 982 (9th Cir.1998).
Property interests are not constitutionally created; rather, protected property rights
are “created and their dimensions are defined by existing rules or understandings
that stem from an independent source such as state law.” Bd. of Regents of State
Coll. v. Roth, 408 U.S. 564, 577 (1972).
Even assuming that plaintiffs have identified a property right in the abstract,
plaintiffs have not cited authority suggesting that such a right is constitutionally
protectable. In its research, the Court has not found authority suggesting that the
right of a shareholder to receive proceeds from the winding up of a corporation is a
constitutionally protected property right entitling the shareholder to a due process
hearing. Plaintiffs have no more than a “unilateral expectation”; to proceed here
they must have a “legitimate claim of entitlement,” id. at 577, and they do not.
In the absence of an underlying claim, the declaratory relief claim must be
dismissed. Nationwide Mut. Ins. Co. v. Liberatore, 408 F.3d 1158, 1161 (9th Cir.
2005) (noting that the Declaratory Judgment Act does not confer federal
subject-matter jurisdiction).
3 In view of the disposition of the Takings Clause and the Due Process
Clause claims, the Court need no consider the argument that each defendant’s
conduct has not been sufficiently detailed, and that they are entitled to qualified
immunity. Motion at 11-14.
6
V. Conclusion
Defendants Motion to Dismiss is granted. Plaintiffs’ claims are dismissed
with prejudice.3
IT IS SO ORDERED.
http://www.cacd.uscourts.gov/CACD/JudgeReq.nsf/d46c74ea800a4d3688256e5300731cd7/ea9d637dcccefc41882577ee00708458/$FILE/10-31%20Anderson%20v%20Cox%20MTD.pdf
Court date set for Edwards et al.. vs U.S......
US v. John Edwards et al (CMKM)
Defendants: John Edwards, Jeffrey Turino, Urban Casavant, Nickolaj Vissokovsky, Melissa Spooner, Helen Bagley, Jeffrey Mitchell, Brian Dvorak, Ginger Gutierrez, James Kinney
Scheduled Court Hearings
ORDER GRANTING CONTINUANCE OF TRIAL DATE
Status Hearing - Feb. 2, 2011 @ 8:45
Trial Date - Feb. 7, 2011 @ 8:30
Victim Letter
INFORMATION AND ASSISTANCE FOR FEDERAL CRIME VICTIMS AND WITNESSES BROCHURE (Click here to view and print.)
Press Release
Restitution Information
Second Superseding Indictment
On March 24, 2010, the grand jury returned a sealed Second Superseding Indictment which added the following defendants: Jeffrey Turino, Nickolaj Vissokovsky and Jeffrey Mitchell. In addition, several new charges were added, alleging that certain defendants engaged in a conspiracy to conduct an enterprise engaged in a pattern of racketeering activity, a conspiracy to sell unregistered securities and to commit securities fraud and a conspiracy to commit money laundering. On May 6, 2010, the Second Superseding Indictment was unsealed.
Superseding Indictment
The superseding indictment in United States v. Edwards, et al., alleges as follows: the defendants combined and conspired to perpetrate a fraud involving the issuance and sale of CMKM stock over a period of several years. Hundreds of billions of shares of CMKM stock were sold to thousands of investors during that span. Investors in CMKM are invited (but not required) to complete the following questionnaire. The questionnaire solicits information pertaining to this case for purposes of enabling prosecutors to confer with and receive information and opinions from victims of the CMKM scheme. Please note that while the completed questionnaires will not be publicly accessible, relevant information may be disclosed to the court and/or defense counsel in accordance with the Federal Rules of Criminal Procedure and other laws
OMG! Vincent A. LoCastro, arrested 10/21/2010 for Auto - padding/false claim in Canonsburg, PA
Insurance fraud is five years! Stick a fork in Vinnie the Torch! DONE
http://insurancefraud.org/arrests.lasso
Vincent A. LoCastro, arrested 10/21/2010 for Auto - padding/false claim in Canonsburg, PA
10/21/2010 3:32 AM
Owner of used car dealership faces more charges
By Kathie O. Warco, Staff writer kwarco@observer-reporter.com
This article has been read 4569 times.
CANONSBURG - The owner of a Canonsburg used car dealership was arrested Wednesday by agents of the state attorney general's office for allegedly making a false insurance claim.
Vincent A. LoCastro, 47, of 102 Standing Rock Drive, McMurray, is accused of filing the false claim for a Cadillac Escalade that was involved in a crash in Pittsburgh. The vehicle was being leased by his dealership, All Pro Auto Mall, 108 S. Central Ave.
The state attorney general's office was contacted by investigators for the Progressive and Esurance insurance companies.
"Basically, there was an insurance lapse on the Cadillac Escalade that was then involved in an accident," said Nils Fredericksen, deputy press secretary for Attorney General Tom Corbett. "New insurance was obtained and a claim was made, changing the date of the accident to make sure it was within the time period of coverage. A forged towing bill also was submitted."
Insurance for the vehicle was initially obtained from Progressive by Gregory Washington with All Pro Auto Mall and LoCastro designated as leinholders. Fredericksen said the insurance was canceled due to lack of payment. The policy expired Oct. 2, 2008, and the crash happened Nov. 21, 2008 when Washington's girlfriend, Shanice Jennings, was driving it.
Washington told investigators he told LoCastro the insurance had lapsed and that Progressive was going to help him go after the owner of the van that hit the Cadillac. Washington also told investigators he was not aware that another insurance policy was obtained until he was contacted by Esurance.
LoCastro reportedly filed a claim with Esurance indicating the wreck happened Dec. 1, 2008. He also reportedly submitted a tow bill indicating the vehicle had been in storage since Dec. 1 and not Nov. 20.
"This is fairly common," Fredericksen said of the fraudulent claim. "People believe it is OK to let insurance lapse and then fudge the truth. We deal with this almost daily."
LoCastro was arraigned before District Judge David Mark on charges including insurance fraud, attempted theft and forgery and released on his own recognizance. A preliminary hearing is set for Oct. 28 before Mark.
Earlier this year, LoCastro waived to court charges stemming from his alleged failure to pay the state money for fees collected on vehicles he sold at All Pro Auto Mall.
State police at the Washington barracks charged him with multiple violations, including 338 counts of applications for certificate of title and more than 500 counts of violating rules for registering vehicles. He also is charged with theft by failure to make required deposit of funds and tampering with public records.
He also faces charges filed by state police claiming fraudulent business practices at the dealership in 2007 and 2008.
LoCastro is tentatively expected to enter a plea Friday before Judge Janet Moschetta Bell.
http://www.observer-reporter.com/or/localnews/10-21-2010-locastro-arrested-w-headshot
10/27/2010
Used car dealership owner facing charges
By Kathie O. Warco Observer-Reporter kwarco@observer-reporter.com
The owner of a Canonsburg used car dealership was arrested Oct. 20 by agents of the state attorney general's office for allegedly making a false insurance claim.
Vincent A. LoCastro, 47, of 102 Standing Rock Drive, McMurray, is accused of filing the false claim for a Cadillac Escalade that was involved in a crash in Pittsburgh. The vehicle was being leased by his dealership, All Pro Auto Mall, 108 S. Central Ave.
The state attorney general's office was contacted by investigators for the Progressive and Esurance insurance companies.
"Basically, there was an insurance lapse on the Cadillac Escalade that was then involved in an accident," said Nils Fredericksen, deputy press secretary for Attorney General Tom Corbett. "New insurance was obtained and a claim was made, changing the date of the accident to make sure it was within the time period of coverage. A forged towing bill also was submitted."
Insurance for the vehicle was initially obtained from Progressive by Gregory Washington with All Pro Auto Mall and LoCastro designated as leinholders. Fredericksen said the insurance was canceled due to lack of payment. The policy expired Oct. 2, 2008, and the crash happened Nov. 21, 2008 when Washington's girlfriend, Shanice Jennings, was driving it.
Washington told investigators he told LoCastro the insurance had lapsed and that Progressive was going to help him go after the owner of the van that hit the Cadillac. Washington also told investigators he was not aware that another insurance policy was obtained until he was contacted by Esurance.
LoCastro reportedly filed a claim with Esurance indicating the wreck happened Dec. 1, 2008. He also reportedly submitted a tow bill indicating the vehicle had been in storage since Dec. 1 and not Nov. 20.
"This is fairly common," Fredericksen said of the fraudulent claim. "People believe it is OK to let insurance lapse and then fudge the truth. We deal with this almost daily."
LoCastro was arraigned before District Judge David Mark on charges including insurance fraud, attempted theft and forgery and released on his own recognizance. A preliminary hearing is set for Oct. 28 before Mark.
Earlier this year, LoCastro waived court charges stemming from his alleged failure to pay the state money for fees collected on vehicles he sold at All Pro Auto Mall.
State police at the Washington barracks charged him with multiple violations, including 338 counts of applications for certificate of title and more than 500 counts of violating rules for registering vehicles. He also is charged with theft by failure to make required deposit of funds and tampering with public records.
He also faces charges filed by state police claiming fraudulent business practices at the dealership in 2007 and 2008.
http://www.thealmanac.net/alm/story10/10-27-2010-locastro-arrested
The response from the defendents in the Xer nutcases vs. SEC execs
http://viewer.zoho.com/docs/zNIjh
Glenn says he didn't write Sarbanes Oxley....
Correspondence from D. Roger Glenn
I was tired of the same chatter over whether or not D. Roger Glenn "wrote" the Sarbanes Oxley Act, "worked on" the Sarbanes Oxley Act, "Did anything in relation to" the Sarbanes Oxley Act and wanted to get some clarification on the issue so we can move on!
So I wrote to him through his law firms website which allows you to submit a request and it sends a copy to your personal email. Below is the copy it sent to my email address at 1:38pm EST today.
Name:
Mr. Hand
E-mail Address:
HndtoHnd@optonline.net
Subject:
Sarbanes Oxley
Brief description of your legal issue:
Mr. Glenn,
I am sure you have been bombarded with emails from CMKX'ers over many issues through the years and I am sorry for adding to it, but....could you PLEASE CLARIFY ONE THING? (It might actually stop some of the harassment by shareholders if you do clarify it for them)
Did you help write SARBANES OXLEY itself OR did you only write the Corporate Responsibilities of Public Companies in 2003 and people are confusing the two?
I know this is taking valuable time but PLEASE answer me so that we can stop the false statements either way and end some controversy!
Respectfully,
Hand
This e-mail was initiated at the Findlaw FirmSite www.glennandglenn.com/E-mail.shtml.
The content of this e-mail is provided by and is the responsibility of the person posting the e-mail communication. You acknowledge that any reliance on material in e-mail communications is at your own risk.
So I checked my inbox just now and got this email directly from him! I must say, the subject line lets me know just how many times he has been asked obviously and yet no one ever reported it as such. lol Makes me wonder...
From: Roger Glenn [mailto:rglenn@glennandglenn.com]
Sent: Tuesday, October 12, 2010 02:46 PM
To: HndtoHnd@optonline.net
Subject: For God's sake
I only wrote the book not the Act. I have never been a member of Congress
D. Roger Glenn
Glenn & Glenn
124 Main Street, Suite 8
New Paltz NY 12561
Main (845) 256-8035
Direct (845) 256-8031
Fax (845) 255-1814
rglenn@glennandglenn.com
To ensure compliance with requirements imposed by the IRS, Glenn & Glenn LLP informs you that if any advice concerning one or more U.S. Federal tax issues is contained in this communication (including any attachments), such advice is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
This message contains information which may be confidential and privileged. Unless you are the addressee (or authorized to receive for the addressee), you may not use, copy or disclose to anyone the message or any information contained in the message. If you have received the message in error, please advise the sender by reply e-mail @glennandglenn.com, and delete the message.
That is it. He DID NOT WRITE OR WORK ON THE SARBANES OXLEY ACT!
HndtoHnd
treffrey loses his license to practice law?
And 9/13/2010, he lost his law license for one of the following reasons below;
Status History
Effective Date Status Change
Present Active
9/13/2010 Active
9/1/2010 Not Eligible To Practice Law
6/15/1993 Admitted to The State Bar of California
http://members.calbar.ca.gov/search/member_detail.aspx?x=164979
Administrative Actions
9/1/2010 Suspended, failed to pay Bar membr. fees Not Eligible To Practice Law
Member Status Definitions:
Active: Only active members may practice law in California.
Inactive: Inactive members have chosen this status voluntarily and may transfer to active at any time upon request.
Not Eligible to Practice Law: Those listed as not eligible may not practice law in California. There are several reasons that may result in this status, including suspension, involuntary transfer to inactive status and failure to pay mandatory State Bar fees.
Disbarred: Those listed as disbarred are prohibited from practicing law in California by order of the California Supreme Court.
Resigned: Those listed as resigned may not practice law in California. Their resignation has been accepted by the California Supreme Court and may be entirely voluntary or may have been submitted with disciplinary charges pending.
RIHC: Those listed as Registered In-House Counsel (RIHC) are out-of-state attorneys. They have complied with rules permitting them to practice in California on a limited basis.
RLSA: Those listed as Registered Legal Services Attorneys (RLSA) are out-of-state attorneys. They have complied with rules permitting them to practice in California on a limited basis
CMKX financials from 2002-2009
http://www.cmkmdiamondsinc.com/documents/2002-2009%20combined%20financials.pdf
CMKX UPDATE
http://www.cmkmdiamondsinc.com/index.html
September 17, 2010
CMKM Diamonds, Inc. is very happy to announce the completion of the form 1120 Internal Revenue Income Tax Returns for years 2002, 2003,2004,2005,2006,2007,2008,and 2009.
Using the subpoena power granted by the District Court of Clark County Nevada, we have been able to recover all of CMKM bank records from various banks accounts known to us that the prior management used in years 2002 -2005. After intensive work by the Company’s accounting firm, 4 years of financials have been prepared based on the information we could gather. Current Management had already filed years 2006-2008 on time. However, after completing the previous years, the new financial data obligated the Company to restate years 2006, 2007 and 2008. Each of these IRS filings have been filed in addition to the most current year filing for 2009.
One of our main goals has always been to establish a foundation that would one day support the Company’s efforts to return to trading status. Filing these returns has moved the Company one step closer to that goal.
The Company is happy to now make available to shareholders the financial statements of the combined 2002 – 2009 Balance Sheet and the combined 2002 – 2009 P&L Statement. (Click HERE to be directed to those statements) Please understand that these statements contain the combined numbers from all of the financial data available for the full eight years. We have made notations on several of the entries to make them more understandable. Many of the minor settlements that are shown were made under non-disclosure agreements between the parties. CMKM is devoting substantial time and resources in its ongoing attempt to collect on all judgments obtained by the Company through its litigation.
The United States Department of Justice has brought a criminal indictment against John M. Edwards, Urban Casavant, Helen Bagley, Brian Dvorak, Ginger Gutierrez and James Kinney alleging that they conspired to commit, and did commit, securities fraud involving the issuance and sale of CMKM stock. The United States Attorney for the District of Nevada has posted information regarding this criminal case on its website at http://www.usdoj.gov/usao/nv/victim_witness/case_updates.html
Federal prosecutors will periodically update this information to notify shareholders and victims of significant events in that case and the status of those proceedings. Shareholders and victims of this alleged scheme are invited to visit the website for additional information and instructions.
Not sure if this will work but, http://www.cmkmdiamondsinc.com/documents/2002-2009%20combined%20financials.pdf
A word from Hodges (apparently) via World Report...
Hodges Update:
As all are by now well aware, we have been battling a serious headwind, obtaining Economic Receipt. Although I have previously stated that I would not provide an “update” until we had confirmation of economic receipt or, I became convinced that payment to CMKX shareholders would not be forthcoming in a timely manner, I believe a further update is called for due to the status of the CMKX litigation and due to the unreasonable length of time resolution is taking. Please be advised as follows:
• As previously indicated, the August 2 Court hearing was utilized, in part, as a means of conveying to the Judge and to the defendants, some of the additional information which could be added to the originally filed Complaint; this information has now been included in a First Amended Complaint which, out of an abundance of caution, has been filed and served today, September 16, 2010. We will continue to aggressively pursue this matter until such time as all shareholders have been paid.
• It has been a very unreasonable period of time since we first began this litigation. Shortly after filing the original Complaint, I advised you of my opinion that resolution was imminent. I am confident that many of you are now convinced that I either don’t know the meaning of that word or am certifiably non compos mentis. Unfortunately, neither is the explanation; in point of fact we, and many others involved in bringing this matter to resolution, have been consistently lied to and ‘played’ by our own government.
I do remain convinced that we will prevail. I know that the SEC is anxious for this to be over; however, it is not particularly the SEC that has held things up, IMO. We are, like it or not, tied to the World Global Settlements payouts. Until that process has been concluded, I do not believe that you will receive your payment.
As always, inquiring minds want to know: what is our status; what has been going on; what is holding up economic receipt; when will our money be released; etc. etc.? I will try to address some of these concerns, to the extent I am able, separately:
1. Our Status – Our status remains pretty much the same as before. We remain literally on the thresh-hold. This means that the “work” remaining to be finished will not consume more hours than can be accomplished within one day; we have been at this point now for way too many months. However, progress in consummating the World Global Settlements has been made, which is a substantial improvement. I have now been advised that nearly all of the BASEL list items [some 20 in number] have been paid out; only one or two items remain IMO.
2. When is Release – The CMKX distribution funds will be released within a very short time after there is confirmation of Economic Receipt. What does that mean? There is in process a massive shift of wealth within the US and the world community which includes: pay-out of all the domestic prosperity settlements; institution of the US dollar re-funding project; pay-out of world settlements; and, distribution of funds to many other programs. This involves a total of more than $42 Trillion. Economic Receipt occurs when all trustees have access to all of the funds they are responsible for. When the last BASEL item is paid, we will have ER and the CMKX trustees can begin distribution, IMO.
3. Goings On – What’s been going on behind the scenes is a war. As I said before, there is an economic war raging in the background; this war is between those who have controlled this planet for the last hundred and fifty years, and we who think that it must stop. It is a war which, as much due to world circumstance as anything else IMHO, we seem slowly, inexorably winning. Because the naked corruption in D.C. is so endemic, it takes time. These miscreants are, in effect, fighting for their lives – at least that part of their lives that secures an environment in which they can continue to lie, cheat, steal, and mortgage your progeny’s lives, all for their personal gain. Accordingly, they will fight until the doors are all closed by a power that they cannot subvert. The good news is, we are winning the battle.
4. When - When will it be over, you ask; when will we get paid? I have suggested dates in the past, each of which was based upon information that I had received from the people on the scene and in the trenches. I am unwilling at this point to say anything more than I believe it will be soon: 1) because of the status of the World Global Settlements; 2) because I have received anecdotal information regarding movement of CMKX funds; and 3) because of additional information received concerning the status other related payments being made.
I again want to extend my heartfelt thanks to those of you who continue to demonstrate support and encouragement for our efforts; I am especially thankful for all of the IM good wishes and thank-you’s. I remain very optimistic for the long term; rest assured that the fight will continue until we succeed. We will prevail!
Hodges new 9/16 re filing.
http://viewer.zoho.com/docs/dub3df
A nice explanation of PIPES
A Troubling Finance Tool for Companies in Trouble
By FLOYD NORRIS
Published: March 15, 2006
When a company goes the route of PIPE's, you can bet that it is in trouble, unable to raise funds through conventional routes. But such companies can often raise millions of dollars, thereby postponing disaster.
PIPE stands for private investment in public equity, and providing such financing can be very profitable, even if the companies later go bankrupt.
Yesterday, in penalizing a New York hedge fund and its lead trader a total of $15.8 million, the Securities and Exchange Commission laid out one — illegal — way that investors get rich on such deals.
Jeffrey Friestad, an S.E.C. lawyer, said the penalty was the largest ever imposed in a PIPE case. "It represents our ongoing commitment to stamp out fraud and ongoing abuses in the PIPE market," he said.
While details vary, PIPE deals usually allow the buyer to buy shares — or securities convertible into shares — at a price below the market price of the stock. The catch is that the shares are not registered with the S.E.C. Buyers are required to sign statements promising not to sell the securities until the registration statement is effective.
The market price usually sags after a PIPE deal is announced, and any investor who buys such an investment and waits for the shares to be registered, usually within a matter of days, risks discovering that the market price of the stock will have fallen below the purchase price.
To avoid that, it is good to short the shares as soon as possible. But to do that in the United States, a trader is supposed to first borrow the shares. And, the S.E.C. says, it is illegal to use the shares obtained from the PIPE to repay the shares borrowed, since that would amount to having sold the PIPE shares too early.
The investor is supposed to buy other shares to cover the short position, and then sell the PIPE shares separately. If the shares are illiquid, there is a risk that prices will move, leaving the trader with a loss.
In addition, the S.E.C. says, it is illegal insider trading to sell the shares short if the seller knows a PIPE deal is coming, but that fact has not been announced to the public.
The complaint against Jeffrey Thorp and three hedge funds he ran — Langley Partners, North Olmstead Partners and Quantico Partners — says that in 22 deals, PIPE shares were improperly used to cover short positions, often with elaborate ruses aimed at making the tactic hard to discover. In six of those cases, and one other, Mr. Thorp was accused of illegal insider trading by shorting the stocks before the PIPE deal was disclosed to the public.
Mr. Thorp, 42, of New York and the funds settled the case without admitting or denying the S.E.C. allegations. Mr. Thorp also agreed to talk to the S.E.C. when asked.
No phone number could be found for Mr. Thorp or his funds. His lawyer, Andrew G. Gordon of Paul, Weiss, Rifkind, Wharton & Garrison did not return a telephone call.
The S.E.C. allegations indicated that unnamed brokers in the United States and Canada worked with Mr. Thorp to cover up what he was doing.
Asked if the brokers would face charges, Mr. Friestad of the S.E.C. said the commission would "look to see whether brokers had any responsibility for this and bring charges if appropriate."
The S.E.C. said that in the PIPE trades from 2000 to 2002, the defendants realized profits of $7 million. Their tactics included selling shares short without borrowing them, a practice known as naked shorting. But that shorting was done in Canada, where the practice is legal, and no charges were brought over that.
Instead, the charges dealt with fake or prearranged trades intended to make it look as if the funds had bought other shares to cover their short positions.
The S.E.C., in its complaint, described the PIPE market gently, saying companies issue such securities "when more traditional means of financing, such as a registered repeat offering, are for various reasons impractical."
One thing that limits the size of the offerings is that buyers are reluctant to place large orders, out of fear that they will not be able to legally short the shares in time. But the S.E.C. said the tactics Mr. Thorp used led him to seek very large allocations.
Few buyers of PIPE securities invest because they believe in the long-term prospects of the company, so the burden ends up falling on those who buy common stock.
They rarely do well. Of the 23 PIPE deals covered in the S.E.C. complaint, it appears that in 21 cases the common stock is now trading, if it is trading at all, at a price below that paid by the PIPE buyers. Since that price was below the public price at the time, the common shareholders did even worse.
There was one major exception, a company known as HealthExtra. It prospects grew worse, and its sale price fell, in the months after the PIPE deal was sold in 2001. But its business later improved and the share price has risen sharply.
But the rarity of such good outcomes explains why it is usually a good strategy to sell any investment in a company that issues a PIPE as soon as the deal is announced.
Ed Salvato responding to Al Hodges
Some interesting tidbits from a post that was deleted earlier because it was linked to another stock message board. No problem copying some of the content, though:
From: Al [mailto:Al@hodgesandassociates.com]
Sent: Friday, July 30, 2010 3:45 PM
To: Ed Salvato
Cc: particleswaves@xxxxx.com;Gina
Subject: RE: From Ed
Importance: High
Mr. Salvato ¡V
I am interested in any information which tends to support and/or prove the allegations of the Bivens class action I filed in January. I understand from Michael that you have documentary and testimonial evidence that meets these criteria. Accordingly, I would like the opportunity to speak directly with you so that you understand what my role is, and how we are proceeding on behalf of every shareholder of CMKM Diamonds, Inc. Please call me at your early convenience at my office or on my Cell/Blackberry at (818) 625-6222.
Thanks in advance.
Sincerely,
Al Hodges
--------
From: Michael x [mailto:stealthpaw@xxxxxxx.com]
Sent: Friday, July 30, 2010 11:16 PM
To: Ed Salvato
Subject: Urgency now..
Dear Ed:
Now with the courts posting early about the decision to try to throw out our case (which can be challenged and will Al could use by this weekend any relevant documents which you may have to substantiate things, such as contracts with Maheu,, etc. Al can better explain to you what documents he needs than I can... but he needs to talk with you as soon as possible this weekend. He will be in the office all this weekend, and the relevant documents may be a good source of support to uphold our case remaining viable and on the dockets -- which he could submit on Monday.
Please provide him with a reachable phone number if you can... he is a honorable man, and is doing all he can to assist and aid the shareholders. If you look back their is a picture of the "original team".. and Al Hodges is in that photo. I am sure Peter knows of him and all his current work.
Again, Ed I can't stress how important that this get going now this weekend. I thank you again for your due diligence and help. It's really clutch now at this juncture.
Sincerely,
Michael W.
---------
From: Ed Salvato [mailto:esalvato3@xxxxx.com]
Sent: Friday, July 30, 2010 7:27 PM
To: Al
Subject: RE: From Ed
Mr. Hodges:
I need to check with Peter before I release any documentation. I'll get with you once I speak to him. I may
call you in advance of my conversation with him but not quite sure what can be released.
Have you gotten documents from Tyler and Company and/or from Marco Gleason yet?
Respectfully,
Ed
---------
From: Al [mailto:Al@hodgesandassociates.com]
Sent: Saturday, July 31, 2010 12:49 PM
To: Ed Salvato
Cc: particleswaves@xxxxx.com;
Gina
Subject: RE: From Ed
Importance: High Mr. Salvato-
Al Michael W. has advised, it is very important that I speak with you today or tomorrow ¡V whether or not you and/or Peter are willing to provide any documents for me to use. Please call me at 626-564-9921 this afternoon or at 818-625-6222 at any time. It is very, very important! Please call.
Sincerely,
Al Hodges
--------
From: Dennis Smith [mailto:particleswaves@xxxxx.com]
Sent: Sunday, August 01, 2010 12:53 AM
To: Ed Salvato
Subject: RE: From Ed
This guy sounds like a major putz.
On Sat, 7/31/10, Ed Salvato <esalvato3@gmail.com>wrote:
From: Ed Salvato <esalvato3@xxxxx.com>
Subject: RE: From Ed
To: "'Al'" <Al@hodgesandassociates.com>
Cc: "'Michael x'" stealthpaw@xxxxx.com, particleswaves@xxxx.com, Gina@hodgesandassociates.com
Date: Saturday, July 31, 2010, 6:11 PM
Mr. Hodges:
A Bivens claim can be based on conspiracy of federal agents by showing: (1) the existence of an express or implied agreement among the defendants to deprive someone of constitutional rights, and (2) an actual deprivation of those constitutional rights resulting from the agreement or a violation of civil rights. Where does this fall in our claims? Did I miss something? I don't see the real connection.
I am not sure this is the proper form of action that is necessary to file in this case. Although I may not have the credentials to practice law in my state, I do posses extensive knowledge of the law and I personally do not believe this type of claim is now will ever hold any water. Furthermore, personally I believe this will just STALL payment if it is not dismissed. Perhaps, I have missed something here and I am open to learn from you what that might be, however litigation has been the reason for several delays thus far and it is not fair to the shareholders to keep getting screwed. I don't think Urban set this entire operation up to be drug out this long.
For that reason, I am very reluctant to making any further contact with your firm nor showing my hand right now and what documentation I may posses and or any additional knowledge I may have. Unless you have something else to support why I should be inclined to discuss this further I am not certain we could continue dialog.
I am open to hearing how you believe this is the right move to be taking and I would prefer any correspondences were via email until I hear back from the people who I feel I can trust regarding this matter. I do not know you, nor your firm from anything other then this case and I am not seeing this as the proper filings especially in the best interest of the shareholders. I am surprised that you are not looking at the "original" CMKM Diamonds corporations Articles of Incorporation that were filed in Nevada and Delaware (when the company was a Delaware Corporation) for some avenues of litigation.
Something does not smell right here and I am not sure what it is yet but when I do find out you can bet I won't be quiet about it. It may be released as early as Monday next week. It is overtime for us to get paid and additional litigation may be the cause of a hold up. There are people out there that have copies of some very interesting documents that will implicate many people and could be the key to keeping them out of prison and unless we see a payment soon or at a minimum notification of procedure of payment these people will be going down in history just like Bernie Madoff did. Once the gates open, only payment will be able to stop the bleeding.
Feel free to contact me back via email with any SPECIFICS you are seeking and I'll get back to you.
Respectfully,
Ed Salvato
--------
From: Ed Salvato [mailto:esalvato3@xxxxx.com]
Sent: Sunday, August 01, 2010 10:59 AM
To: 'Dennis Smith'
Cc: 'Al'; 'Gina@hodgesandassociates.com', 'Michael x'
Subject: RE: From Ed
Importance: High
Good Morning Dennis:
You might want to be careful what you are sending out in writing. Perhaps you only wanted to send this email to your crew but you sent it to me. I don¡¦t have much of an opinion on you either. You and Mr Hodges are talking out of both sides of your mouth. One time you state this is not a CLASS ACTION then another it is identified as such¡KWhich is it¡KOh yea I doesn¡¦t matter anymore because it will be officially DISMISSED and not an issue after Monday. Its funny how so many people are saying this has been over for so long according to you and Mr Hodges but you scramble this weekend to get what ever you can from people you have never cared to speak to before showing a sense of urgency or desperation. Very Interesting!
For that reason I will follow the advice of council and not communicate with you or Mr Hodges nor anyone associated with your group like Michael Weiner aka TIGERPAW, Gr8Hiker (Steve) from Florida and other does and roes not named here but known.
I will drop what needs to be dropped as will many others and let the cards fall as they may. YOUR actions are nothing more then stall tactics and I do not see them as beneficial to the shareholders and will affect the outcome and delay in payment. There are documents in the possession of many that show there is $12.5 BILLION in accounts that list 5 signatories (none of which are you nor Mr Hodges) and these will become public very soon. This firm cant jump onboard and try to become some sort of "hero" and you well I won't stoop to that level and give my opinion of your professionalism or lack thereof.
If I was wrong in my analysis then perhaps instead of making an attack you should have corrected me and if you had shown me where I was wrong then communication lines could have stayed open. You can explain this to Al (your left hand man) as to why communication will cease and I will also look into slander actions against you personally if you do continue these attacks. You have no clue who I am nor what information I have so my best advise to you is to keep your opinions to yourself or face the consequences.
Also bribes put in writing from an attorney won't be looked favorable by the courts. This entire thread will become public info.
Respectfully Submitted
Ed Salvato
-------
From: Al [mailto:Al@hodgesandassociates.com]
Sent: Sunday, August 01, 2010 10:57 AM
Subject: Read: From Ed
Importance: High
Your message
To: 'Dennis Smith'
Cc: Al; Gina; 'Michael x'
Subject: RE: From Ed
Sent: Sun, 1 Aug 2010 10:58:33 -0700
was read on Sun, 1 Aug 2010 10:56:40 -0700
here's the SEC motion reply for dismissal (can you imagine the depression that would set in if granted, this would really make Hodges look great and you want to talk about a mutiny)
SEC's Reply to MTD just filed...
copied from pacer
ANDRÉ BIROTTE JR.
United States Attorney
LEON W. WEIDMAN
Assistant United States Attorney
Chief, Civil Division
KEITH M. STAUB (State Bar No. 137909)
Assistant United States Attorney
Room 7516 Federal Building
300 North Los Angeles Street
Los Angeles, California 90012
Telephone: (213) 894-7423
Facsimile: (213) 894-7819
Email: Keith. Staub@usdoj.gov
Attorneys for Federal Defendants
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
SOUTHERN DIVISION
DAVID ANDERSON et al.,
Plaintiffs,
v.
CHRISTOPHER COX et al.,
Defendants.
)))))))))))
No. SACV 10-31 JVS (MLGx)
Date: August 2, 2010
Time: 1:30 p.m.
Hon. James V. Selna
DEFENDANTS’ REPLY TO OPPOSITION TO MOTION TO DISMISS;
MEMORANDUM OF POINTS AND AUTHORITIES
Case 8:10-cv-00031-JVS-MLG Document 14 Filed 07/19/10 Page 1 of 4 Page ID #:102
MEMORANDUM OF POINTS AND AUTHORITIES
Defendants’ Motion to Dismiss addresses multiple fundamental deficiencies in Plaintiffs’ Complaint. However, Plaintiffs’ Opposition fails to address those deficiencies in any meaningful way. While Plaintiffs’ Opposition provides long discussions of basic legal principles, they consistently fail to show that their Complaint contains the type of allegations required by those legal principles.
Accordingly, the Complaint should be dismissed.
A. Plaintiffs’ Claim for Declaratory Relief Should Be Dismissed Because It Is Either Barred by Sovereign Immunity or Brought Against the Wrong Defendants. As explained in the Motion to Dismiss, a claim for declaratory relief against Defendants in their official capacities is barred by sovereign immunity. (Motion,
pp. 5-6) Also, to the extent Plaintiffs’ claims against Defendants in their individual capacities seek a declaratory judgment, the Complaint has failed to state a claim because it names the wrong defendants. Plaintiffs’ Opposition does not substantively address the issues presented in Defendants’ motion. Instead, Plaintiffs incorrectly argue that sovereign immunity does not bar the declaratory judgment claim because underlying jurisdiction exists
under Bivens. (Opp., pp. 11-12) 1 To the contrary, there is no underlying source of jurisdiction here. Plaintiffs have not demonstrated a waiver of the government’s sovereign immunity such that they can seek declaratory relief from defendants in their
official capacities. The Declaratory Judgment Act, 28 U.S.C. ¶ 2201, is not an independent source of federal jurisdiction. The purpose of the Act is merely to provide an additional remedy once jurisdiction is found to exist on another ground. Benson v.State Bd. of Parole and Probation, 384 F.2d 238, 239 (9th Cir. 1967), cert. denied, 391 U.S. 954 (1968). Here, plaintiffs assert jurisdiction for 1 Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics,403 U.S. 388 (1971) Case 8:10-cv-00031-JVS-MLG Document 14 Filed 07/19/10 Page 2 of declaratory relief under Bivens, which cannot be pled against defendants in their official capacities. Absent some other underlying basis for jurisdiction, plaintiffs may not seek relief under the Declaratory Judgment Act.
B. Plaintiffs’ Complaint Should Be Dismissed in Its Entirety Because
Plaintiffs Have Failed to State a Plausible Claim. Plaintiffs’ Complaint should be dismissed because it does not contain factual allegations “sufficient to plausibly suggest” a viable claim that these particular Defendants took steps to prevent Plaintiffs from receiving funds in which Plaintiffs had a property interest. See Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949, 1952 (2009). Despite Plaintiffs claim that they “have met and exceeded this
standard,” they fail to point to a single factual allegation supporting that claim. (Opp., p. 15) Instead of citing any allegations that would provide a basis to believe the Defendants improperly withheld the purported funds, Plaintiffs’ Opposition provides (p. 15) only the conclusory statement that “they were victims
of an unprivileged, substantive deprivation of the rights to their property” and “their injuries were brought about by the Defendants’ acts under color of law.” Those conclusions are wholly insufficient under Iqbal.
C. Plaintiffs’ Bivens Claim Should Be Dismissed Because Plaintiffs Have Not Alleged That Defendants Were Either Personally Involved In, or Caused Plaintiffs to Be Subjected to, a Constitutional Deprivation.
Plaintiffs’ Bivens claim must be dismissed because the Complaint does not contain any factual allegations detailing Defendants’ direct involvement in the general matters asserted against the SEC. In responding to that argument, Plaintiffs simply state that Defendants, as chairman and commissioners of the SEC, had “ultimate exclusive authority for approval or disapproval of all actions
taken by the SEC.” (Opp., p. 18) Plaintiffs, however, have not alleged facts demonstrating that any of the Defendants directly took any action or made any decision regarding the alleged funds.
Plaintiffs ignore the well established rule that respondeat superior, or supervisory liability, does not apply in an individual capacity suit under Bivens. As the Supreme Court reiterated in Iqbal, a supervisor’s mere knowledge and acquiescence in their subordinate’s conduct fails to demonstrate a Constitutional violation. Iqbal, 129 S.Ct. at 1949. Instead, the supervisor’s liability must stem
from his or her own misconduct. Id. Thus, Plaintiffs have not satisfied the pleading requirements mandated by the Iqbal decision.
D. The Complaint Fails to Set Forth Facts Sufficient to Overcome
Defendants’ Qualified Immunity. Finally, Plaintiffs’ Complaint fails to set forth facts sufficient to overcome Defendants’ qualified immunity. In this case, it is not even necessary to address
whether a constitutional right was “clearly established” because the facts alleged do not show that Defendants violated a constitutional right at all. Plaintiffs’ Fifth Amendment due process and takings claims cannot succeed because Plaintiffs’ have not alleged facts sufficient to establish that they have a property interest in
the funds they allege Defendants withheld. Plaintiffs’ Opposition ignores this argument, which alone warrants dismissal.
CONCLUSION
For these reasons and those set forth in Defendants’ Motion to Dismiss, Plaintiffs’ action must be dismissed in its entirety.
Dated: July 19, 2010
ANDRÉ BIROTTE JR.
United States Attorney
LEON W. WEIDMAN
Assistant United States Attorney
Chief, Civil Division
/s/
KEITH M. STAUB
Assistant United States Attorney
Attorneys for Defendants
3
Case 8:10-cv-00031-JVS-MLG Document 14 Filed 07/19/10 Page 4 of 4 Page ID #:105
A collection of CMKX info...
The P.I. could start here:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=50437994
Docket -- http://viewer.zoho.com/docs/zLqxb
01 -- http://viewer.zoho.com/docs/dIzaad
02 -- http://viewer.zoho.com/docs/aIaW6
03 -- http://viewer.zoho.com/docs/nIdaYa
04 -- http://viewer.zoho.com/docs/tJvdR
05 -- http://viewer.zoho.com/docs/rJVqj
06 -- http://viewer.zoho.com/docs/yJadMe
07 -- http://viewer.zoho.com/docs/kJd3ci
http://www.ca6.uscourts.gov/opinions.pdf/06a0241n-06.pdf
http://www.metnews.com/sos/0707/0510575.PDF
http://bulk.resource.org/courts.gov/c/F3/159/159.F3d.916.96-21045.html
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=50436908
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=50438276
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=50477580
CMKM against Wells Fargo (amended)
http://www.cmkmdiamondsinc.com/documents/2ndamendcomplaintWellsFargoetal.pdf
CMKM vs Casavant/Glenn Case Conference
http://www.cmkmdiamondsinc.com/documents/JointCaseConferenceReport.pdf
Biotech medics Grand Jury
Federal Grand Jury Indicts 10 With 93 Charges in Illegal Stock Manipulation of BioTech Medics, Inc.
LAS VEGAS, NV--(Marketwire - 06/09/10) - BioTech Medics, Inc. (Pinksheets:BMCS - News) announced a Las Vegas Federal Grand Jury has criminally indicted 10 persons with 93 felony counts. Keith Houser, Chairman/CEO of BioTech said: "For years I have been making formal complaints on behalf of the legitimate victim shareholders of BioTech Medics regarding illegal stock manipulation, theft and forgery of shares, shorting and massive failures to deliver of stock. Within the past 60 days the U.S. Attorney General and a Federal Grand Jury felt the compelling evidence was sufficient for an 85 page indictment against 10 persons including: Jeffrey G. Turino, formerly of Tampa who has fled the USA to Europe and is using an assumed name to avoid arrest and prosecution; John Edwards (formerly of Las Vegas) who is currently incarcerated in England awaiting extradition to the USA; Urban Casavant (allegedly in Canada); Nickolaj Vissokovsky (from Tampa, now allegedly in Moscow); Melissa Spooner (from Pennsylvania and Las Vegas -- now allegedly with Turino in Europe); Helen Bagley and Jeffrey Mitchell of Las Vegas; Ginger Gutierrez and James Kinney. All are considered innocent until adjudged guilty."
Mr. Houser said: "The Grand Jury vindicated the existing Board of Directors and Officers of BioTech by stating: 'BioTech has assets, revenues and substantial business activities. However, unbeknownst to (Houser), the principals of HaloLaser BioTherapy, LLC and Charles R. Crane MD & Associates, the coconspirators and accomplices... were intent to perpetrate their fraudulent scheme.'"
The indictment continues: "(Jeff) Turino's coconspirators and associates were instrumental in attempting to conceal Turino's involvement. The conspirators exploited (BioTech)... by fraudulently issuing, reissuing and transferring, offering and selling millions of shares of Corbel Holdings and BioTech Medics." (Note: Turino, an adjudged illegal penny stock manipulator, had been under a prior 2003 Court Order restraining Turino's involvement with Penny Stocks.)
The government is seeking individual "in personam criminal forfeiture" aggregates of over $140 Million in disgorgement and restitution to BioTech Medics victims for the crimes committed if the parties are found guilty. The grand jury has valued the aggregate damages to BMCS at approximately $1.30 per share. BMCS is currently trading at $.03. The indictment indicated several more coconspirator indictments are expected!
BioTech has retained the Houston Law firm of Shepherd, Smith, Edwards & Kantas, LLP. "The purpose of retaining the law firm is to litigate, arbitrate, mediate and/or negotiate recovery of claims for damages to BioTech arising out of illegal stock manipulation, fraud, interstate transportation of forged or stolen stock and other torts," said Keith Houser, CEO of BioTech. BioTech commenced a civil lawsuit against Wells Fargo Bank and others in January, 2010.
BioTech Medics owns and/or has affiliated BioTech Laser Pain Management Centers in 3 states.
BioTech also manufactures SHBAN™ Alcohol Free Hand Sanitizer and BioBody Nutriceutical Products.
This release may contain forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 (the "Act").
MOTION TO DISMISS_________ANDRÉ BIROTTE JR.
United States Attorney
LEON W. WEIDMAN
Assistant United States Attorney
Chief, Civil Division
KEITH M. STAUB (State Bar No. 137909)
Assistant United States Attorney
Room 7516 Federal Building
300 North Los Angeles Street
Los Angeles, California 90012
Telephone: (213) 894-7423
Facsimile: (213) 894-7819
Email: Keith. Staub@usdoj.gov
Attorneys for Federal Defendants
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
SOUTHERN DIVISION
DAVID ANDERSON et al.,
Plaintiffs,
v.
CHRISTOPHER COX et al.,
Defendants.
)))))))))))
No. SACV 10-31 JVS (MLGx)
NOTICE OF MOTION AND
MOTION TO DISMISS;
MEMORANDUM OF POINTS AND
AUTHORITIES
Date: July 19, 2010
Time: 1:30 p.m.
Hon. James V. Selna
PLEASE TAKE NOTICE that Federal Defendants, CHRISTOPHER COX,
MARY L. SCHAPIRO, CYNTHIA A. GLASSMAN, PAUL S. ATKINS, ROEL
C. CAMPOS, ANNETTE L. NAZARETH, TROY A. PAREDES, LUIS A.
AGUILAR, ELISSE B. WALTER, and KATHLEEN L. CASEY (“Defendants”),
by and through their counsel of record, the United States Attorney for the Central
District of California, will bring on for hearing a Motion to Dismiss plaintiffs’
Complaint, pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), on
July 19, 2010 at 1:30 p.m. or as soon thereafter as counsel may be heard, in the
courtroom of the Honorable James V. Selna, at 411 West Fourth Street, Santa Ana,
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 1 of 18
California.
The motion is made pursuant to Federal Rules of Civil Procedure Rules
12(b)(1) and 12(b)(6) on the following grounds:
(1) This Court lacks jurisdiction over the claim for declaratory relief.
(2) Plaintiffs’ complaint fails to state a claim for declaratory relief.
(3) Plaintiffs’ complaint fails to state a claim for constitutional violations
against the Defendants in their individual capacities; and
(4) Defendants are protected by qualified immunity.
This motion is based upon this Notice of Motion and Motion to Dismiss, the
attached Memorandum of Points and Authorities, all pleadings, papers filed in this
action, and any oral argument which may be presented at the hearing of this
motion.
Statement Re Compliance With Local Rule 7-3
Defendants complied with Local Rule 7-3 on May 13, 2010.
Dated: May 28, 2010 Respectfully submitted,
ANDRÉ BIROTTE JR.
United States Attorney
LEON W. WEIDMAN
Assistant United States Attorney
Chief, Civil Division
/s/
KEITH M. STAUB
Assistant United States Attorney
Attorneys for Defendants
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 2 of 18
i
TABLE OF CONTENTS
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
II. FACTUAL BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
III. ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
A. Plaintiffs’ Claim for Declaratory Relief Should be
Dismissed Because it is Either Barred by Sovereign
Immunity or Brought Against the Wrong Defendants . . . . . . . . . 5
B. Plaintiffs’ Complaint Should Be Dismissed in its Entirety
Because Plaintiffs Have Failed to State a Plausible Claim . . . . . . 6
C. Plaintiffs’ Bivens Claim Should Be Dismissed Because
Plaintiffs Have Not Alleged that Defendants Were
Either Personally Involved in, or Caused Plaintiffs to
Be Subjected to, a Constitutional Deprivation . . . . . . . . . . . . . . . . 9
D. The Complaint Fails to Set Forth Facts Sufficient to
Overcome Defendants’ Qualified Immunity . . . . . . . . . . . . . . . . 10
IV. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 3 of 18
ii
TABLE OF AUTHORITIES
FEDERAL CASES
Ashcroft v. Iqbal,
129 S.Ct. 1937 (2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 7, 9, 10
Barrens v. Harrington,
152 F.3d 1193 (9th Cir. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Bibeau v. Pacific Northwest Research Foundation,
188 F.3d 1105 (9th Cir. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics,
403 U.S. 388 (1971) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Board of Regents v. Roth,
408 U.S. 564 (1972) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Booth v. Churner,
532 U.S. 731 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Butz v. Economou,
438 U.S. 478 (1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Cato v. United States,
70 F.3d 1103 (9th Cir. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Committee for Immigrant Rights of Sonoma County v. County of Sonoma,
644 F.Supp.2d 1177 (N.D. Cal. 2009) . . . . . . . . . . . . . . . . . . . . . . . . 5
Erickson v. United States,
67 F.3d 858 (9th Cir. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Gilbert v. DaGrossa,
756 F.2d 1455 (9th Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Greenwood v. FAA,
28 F.3d 971 (9th Cir. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Harlow v. Fitzgerald,
457 U.S. 800 (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Hodge v. Dalton,
107 F.3d 705 (9th Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Ivey v. Bd. of Regents of the University of Alaska,
673 F.2d 266 (9th Cir. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Johnson v. Duffy,
588 F.2d 740 (9th Cir. 1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 4 of 18
28 iii
Lucero v. Hart,
915 F.2d 1367 (1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Marquez v. Gutierrez,
322 F.3d 689 (9th cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Mitchell v. Forsyth,
472 U.S. 511 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Pearson v. Callahan,
129 S.Ct. 808 (2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Pellegrino v. United States,
73 F.3d 934 (9th Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Peterson V. United States Dep’t of Interior,
899 F.2d 799 (9th Cir.), cert. denied, 498 U.S. 1003 (1990) . . . . 12, 13
Romero v. Kitsap County,
931 F.2d 624 (9th Cir. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Rumbles v. Hill,
182 F.3d 1064 (9th Cir. 1999), cert. denied, 528 U.S. 1074 (200) . . . 9
Saucier v. Katz,
533 U.S. 194 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SEC v. CMKM Diamonds, Inc.,
No. CV 08-00437 (D.Nev) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Swanson v. Babbit,
3 F.3d 1348 (9th Cir. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Terrell v. Brewer,
935 F.2d 1015 (9th Cir. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Wolfe v. Strankman,
392 F.3d 358 (9th Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FEDERAL STATUTES
F.R.C.P. 12(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 2
F.R.C.P. 12(b)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 2, 11
U.S.C. 78d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 5 of 18
2
MEMORANDUM OF POINTS AND AUTHORITIES
I. INTRODUCTION
Plaintiffs David Anderson, Nelson L. Reynolds, Sheila Morris, Patrick
Cluney, Robert Hollenegg, Allan Treffry and Reece Hamilton (Hereinafter referred
to as “Plaintiffs”), all of whom allegedly owned shares of stock in CMKM
Diamonds, Inc. (Complaint, ¶¶ 6-12), filed a complaint for declaratory judgment
and violation of civil rights against Defendants CHRISTOPHER COX, MARY L.
SCHAPIRO, CYNTHIA A. GLASSMAN, PAUL S. ATKINS, ROEL C.
CAMPOS, ANNETTE L. NAZARETH, TROY A. PAREDES, LUIS A.
AGUILAR, ELISSE B. WALTER, and KATHLEEN L. CASEY ( Complaint, ¶
13). Defendants are current and former Chairmen and/or Commissioners of the
Securities and Exchange Commission (“Commission” or “SEC”) who have served
since early 2006. The Chairman and Commissioners together constitute the agency
head who accomplishes the agency’s mission in conjunction with the staff in
Divisions and Offices beneath them. See 15 U.S.C. 78d (Section 4 of the
Securities Exchange Act of 1934).
II. FACTUAL BACKGROUND
Because Defendants are moving to dismiss and must, for purposes of this
motion, accept the allegations of the Complaint as true, the relevant facts are those
alleged in the Complaint. The allegations that appear to relate to Defendants and
the claims against them are as follows.
CMKM was formed in 2004 through a merger of other companies, and
within a few months of its formation, it had amended its Articles of Incorporation
to authorize the issuance of 800,000,000,000 common shares with a par value of
$0.0001. Complaint ¶¶ 15-16. In 2005, the company was reinstated to a public
reporting status, but the SEC imposed a temporary suspension of trading of
CMKM stock based on concerns over the adequacy of publicly available
information, and then brought an administrative proceeding alleging CMKM had
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 6 of 18
1 The Complaint does not define or explain naked short selling, and
resolution of this motion does not require definition of that practice. However,
some general information on naked short selling is available at
http://www.sec.gov/spotlight/keyregshoissues.htm.
3
failed to file required reports. Complaint ¶ 18-19. In July 2005, an SEC
administrative law judge found the facts to be as alleged by the SEC, and in
October 2005, CMKM started to wind up its affairs by selling its assets.
Complaint ¶¶ 21-23. Also on October 28, 2005, the SEC entered an order deregistering
CMKM. Complaint ¶ 23. At that time, CMKM had 703,518,875,000
shares of common stock issued and outstanding. Complaint ¶ 23. A “Task Force”
that was involved in liquidating the CMKM assets stated in November 2005 that
“the number of naked short shares is potentially as high as 2 Trillion shares.”
Complaint ¶ 24.1
The Complaint later alleges that from “June 1, 2004 through October 28,
2005 a total of 2.25 Trillion ‘phantom’ shares of CMKM Diamonds Inc, was sold
into the public market . . . . The sales of the majority of such shares were at all
times known to the Securities and Exchange Commission, including Defendants
herein.” Complaint ¶ 31. The Complaint also alleges that the SEC and the United
States Department of Justice (with alleged assistance from the Department of
Homeland Security) used CMKM to “trap[] a number of widely disbursed persons
who were believed to be engaged in naked short selling of CMKM Diamonds Inc.
stock” by taking actions related to the management of the company. Complaint ¶
32. Those actions included facilitating settlement conferences between CMKM
and persons who had engaged in naked short selling. Complaint ¶ 32(d). In the
settlement, which was apparently between CMKM and the short sellers, the short
sellers “promised to pay negotiated amounts to a frozen trust for disbursal at a later
time” in return for a promise that the United States government would not
prosecute them. Complaint ¶ 34.
Plaintiffs also allege that other moneys were “collected for the benefit of the
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 7 of 18
2 As is evident from public filings, the SEC has brought a civil enforcement
action against CMKM and other related persons alleging that CMKM officers
oversaw a complex scheme to issue and sell unregistered CMKM stock and to
manipulate CMKM’s stock price and volume through false statements from
January 2003 through May 2005. SEC v. CMKM Diamonds, Inc., No. 2:08-CV-
00437 (D. Nev.). The SEC did not bring any claims against alleged naked short
sellers. While the SEC has obtained judgments requiring substantial payments of
disgorgement and civil penalties against several defendants, Plaintiffs never
mention this action in the Complaint or otherwise suggest the funds at issue were
obtained through the SEC’s lawsuit.
4
shareholders of CMKM Diamonds, Inc. from the Depository Trust & Clearing
Corporation, from the United States Government, and from the sale of additional
assets” (apparently assets of CMKM). Complaint ¶ 35. These assets allegedly
“have also been placed in a trust or are otherwise now held in trust by the
Depository Trust & Clearing Corporation [“DTCC”] and the United States
Treasury.” Complaint ¶ 35. The Complaint does not allege why the DTCC or the
United States government would have put money in a trust for CMKM
shareholders or why the DTCC or Treasury Department would hold assets from
CMKM in trust.2 It is also not clear whether the Complaint is alleging that these
funds are in the same trust as the alleged funds from naked short sellers.
Without specifying what funds it is discussing, the Complaint continues by
alleging that the SEC “reserved unto itself the sole and absolute discretion to
determine when moneys collected pursuant to the scheme set forth above would
and could be released for distribution.” Complaint ¶ 36. Plaintiffs also allege that
“[d]emand for release of said moneys has been repeatedly presented to the
Securities and Exchange Commission without result.” Complaint ¶ 37. Allegedly,
agents of the SEC and the Department of Justice have said the money would be
released soon, but allegedly the governmental agents knew those statements, made
“at the specific direction of the named Defendants,” were false. Complaint ¶ 37.
The Complaint then concludes that “withholding distribution of said moneys,
without compensation and without due process of law, amount[s] to a taking of the
property of the individual Plaintiffs.” Complaint ¶ 37.
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 8 of 18
5
The Complaint purports to state two causes of action, both against all
Defendants. First, the Complaint seeks a declaration that Defendants wrongfully
“cause[d] certain acts and omissions to proceed in such manner” to “prevent the
distribution of moneys held for the benefit of Plaintiffs,” and that their actions
caused Plaintiffs “to be deprived of property without just compensation and
without due process of law.” Complaint ¶ 53. Second, the Complaint alleges that
Defendants violated Plaintiffs’ “Fifth Amendment right to be secure in their
property, free from taking without just compensation and without due process of
law,” and that Defendants’ actions caused Plaintiffs and all persons similarly
situated to suffer damages “in excess of 3.87 Trillion Dollars.” Complaint ¶¶ 56,
58.
III. ARGUMENT
A. Plaintiffs’ Claim for Declaratory Relief Should Be Dismissed Because it
Is Either Barred by Sovereign Immunity or Brought Against the Wrong
Defendants.
Plaintiffs seek declaratory relief from Defendants in both their official and
individual capacities. Complaint ¶¶ 52-54. Plaintiffs seek a declaratory judgment
that “declares the validity of the contentions of the parties set forth in Paragraphs
52 to 54 . . . .” Complaint, Prayer at p. 19. For the reasons stated below, the court
lacks subject matter jurisdiction to the extent the claim is against Defendants in
their official capacities and plaintiffs fail to state a claim for declaratory relief to
the extent the claim is against Defendants in their individual capacities.
Claims against the Defendants in their official capacities are barred by
sovereign immunity. “The doctrine of sovereign immunity applies to federal
agencies and to federal employees acting within their official capacities.” Hodge
v. Dalton, 107 F.3d 705, 707 (9th Cir. 1997); see also Committee for Immigrant
Rights of Sonoma County v. County of Sonoma, 644 F.Supp.2d 1177, 1192-93
(N.D. Cal. 2009). A plaintiff suing the United States bears the burden of showing
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 9 of 18
6
an unequivocal waiver of sovereign immunity. Cato v. United States, 70 F.3d
1103, 1107 (9th Cir. 1995) (citation omitted); Gilbert v. DaGrossa, 756 F.2d 1455,
1458-59 (9th Cir. 1985) (holding that a suit against officers and employees of the
United States in their official capacities is essentially a suit against the United
States and is barred by sovereign immunity). Plaintiffs have failed to identify a
waiver that would allow their claim for declaratory relief to proceed. Thus, this
Court should dismiss that claim because it lacks subject matter jurisdiction over it.
To the extent Plaintiffs’ claims against Defendants in their individual
capacities seek a court order compelling official Commission action, they have
failed to state a claim because they have named the wrong defendants. Defendants
– in their individual capacities – are not parties from whom a declaratory judgment
(or any other equitable relief) can be obtained. There is no basis in the law for a
plaintiff to seek equitable relief from a government official, in his or her individual
capacity, as redress for alleged government violations of constitutional rights
because the Defendants cannot take government action in their individual
capacities. See, e.g., Wolfe v. Strankman, 392 F.3d 358, 360 n.2 (9th Cir. 2004)
(declaratory and injunctive relief only available in official capacity suit; it is not
available in lawsuit against individual government employees in their personal
capacities). Thus, this Court also should dismiss plaintiffs’ declaratory relief claim
for failure to state a claim.
B. Plaintiffs’ Complaint Should be Dismissed In its Entirety Because
Plaintiffs Have Failed to State a Plausible Claim.
The entire Complaint (to the extent it is not dismissed for lack of jurisdiction
or because it names the wrong defendants) should be dismissed because it lacks
“facial plausibility”; that is, it does not, as required by Ashcroft v. Iqbal, 129 S.Ct.
1937, 1949, 1952 (2009), contain factual allegations “sufficient to plausibly
suggest” that Defendants took steps to prevent Plaintiffs from receiving funds in
which Plaintiffs had a property interest.
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 10 of 18
7
In Iqbal, the Supreme Court clarified that in all federal court cases, Rule 8
“demands more than an unadorned, the-defendant-unlawfully-harmed-me
accusation. A pleading that offers ‘labels and conclusions’ or ‘a formulaic
recitation of the elements of a cause of action will not do.’ Nor does a complaint
suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’”
Iqbal, 129 S. Ct. at 1949 (internal citations omitted). Instead, a “complaint must
contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Id.
The allegations that were dismissed in Iqbal for failure to satisfy a
plausibility standard are analogous to the allegations at issue here. In Iqbal, the
plaintiff alleged that the defendants, the former Attorney General and the director
of the Federal Bureau of Investigation “‘knew of, condoned, and willfully and
maliciously agreed to subject [him]’ to harsh conditions of confinement ‘as a
matter of policy, solely on account of [his] religion, race, and/or national origin and
for no legitimate penological interest.’” Id. at 1951. The plaintiff further alleged
that the Attorney General was the “‘principal architect’ of this invidious policy,”
and that the FBI director was “‘instrumental’ in adopting and executing it.” Id.
The Court found that these allegations were nothing more than “a ‘formulaic
recitation of the elements’ of a constitutional discrimination claim.” Id.
Consequently, “the allegations are conclusory and not entitled to be assumed true.”
Id. That is, they do not “contain facts plausibly showing that petitioners
purposefully adopted a policy of classifying post-September 11 detainees as ‘of
high interest’ because of their race, religion, or national origin.” Id. at 1952.
In this case, Plaintiffs’ allegations similarly do not contain any facts that
plausibly show that there is a trust fund containing funds from naked short sellers
and others that was gathered to benefit CMKM shareholders. With respect to the
key allegation that there was “a settlement with the illegitimate brokers, dealers,
market makers, hedge funds, and other persons and entities that had engaged in
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 11 of 18
8
naked short selling,” the complaint does not identify a single party to the settlement
(it does not even say whether the Commission was a party) or provide anything
other than the most general terms – persons who engaged in naked short selling
agreed to pay negotiated amounts in return for a promise of no prosecution.
Complaint ¶ 34.
In addition, Plaintiffs do nothing to identify their purported rights under that
alleged agreement. They say only that “other moneys have been collected for the
benefit of the shareholders of CMKM Diamonds, Inc. from the Depository Trust &
Clearing Corporation, from the United States Government, and from the sale of
additional assets including consent to enter into joint venture agreements with
other companies holding mineral claims in Saskatchewan, Canada.” Id. at ¶ 35.
Plaintiffs do not say why, when, or how the DTCC and the United States collected
money for the CMKM shareholders or explain why they think the money was
collected.
The Complaint also does not identify how or when Plaintiffs were deprived
of any funds. To the contrary, the Complaint alleges that “the Securities and
Exchange Commission reserved unto itself the sole and absolute discretion to
determine when moneys collection pursuant to the scheme set forth above would
and could be released for distribution.” Complaint ¶ 36. The Complaint also
refers to statements that agents of the SEC supposedly made promising to release
money to CMKM shareholders without providing the most basic facts about those
statements such as the context in which they were made, who made them, and
when they were made. Complaint ¶ 37. The Complaint also alleges that the
Defendants directed their agents to make the statements without providing a single
fact to support that contention. Complaint ¶ 37.
The vague and conclusory facts alleged by Plaintiffs do not allow the Court
to draw any reasonable inference that points to any liability of Defendants; the
allegations provide nothing more than “a sheer possibility that a defendant has
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 12 of 18
3 “Actions under § 1983 and those under Bivens are identical save for the
replacement of a state actor under § 1983 by a federal actor under Bivens.”
Rumbles v. Hill, 182 F.3d 1064, 1069 (9th Cir. 1999), cert. denied, 528 U.S. 1074
(2000), abrogated on other grounds, Booth v. Churner, 532 U.S. 731 (2001); Butz
v. Economou, 438 U.S. 478, 500-02 (1978) (liability of federal officials under
Bivens same as liability of state and municipal officials under § 1983).
9
acted unlawfully” (and they may not provide even that). See Iqbal, 129 S.Ct. at
1949. Consequently, the Complaint does not satisfy the pleading requirements of
Rule 8(a)(2) and must be dismissed.
C. Plaintiffs’ Bivens Claim Should Be Dismissed Because Plaintiffs Have
Not Alleged that Defendants Were Either Personally Involved in, or
Caused Plaintiffs to Be Subjected to, a Constitutional Deprivation.
Even if Plaintiffs’ had satisfied the Rule 8 pleading requirements, their
second cause of action would have to be dismissed. In that cause of action,
Plaintiffs seek damages from Defendants on a constitutional tort theory of recovery
under Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics, 403
U.S. 388 (1971). In a Bivens action, the plaintiff must allege facts, not simply
conclusions, that show that the defendant was personally involved in the
deprivation of his constitutional rights. Barren v. Harrington, 152 F.3d 1193, 1194
(9th Cir. 1998)(emphasis added). Vague and conclusory allegations of official
participation in constitutional violations are not entitled to be assumed to be true,
and thus, not sufficient to withstand a motion to dismiss. See Ashcroft, et al. v.
Iqbal, 129 S.Ct. 1937, 1951 (2009); Ivey v. Bd. of Regents of the University of
Alaska, 673 F.2d 266, 268 (9th Cir. 1982).
A defendant is not liable under Bivens unless the facts establish that the
defendant had a “personal involvement” in the alleged constitutional deprivation,
or that there was a “causal connection” between the defendant and the alleged
constitutional deprivation. See Johnson v. Duffy, 588 F.2d 740, 743-44 (9th Cir.
1978) (claims brought pursuant to 42 U.S.C. § 1983);3 Pellegrino v. United States,
73 F.3d 934, 936 (9th Cir. 1996) (Bivens liability is premised on proof of direct
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 13 of 18
personal responsibility).
Moreover, respondeat superior, or supervisory liability, is not applicable in
an individual capacity suit under Bivens. See Iqbal, 129 S.Ct. at 1949; Terrell v.
Brewer, 935 F.2d 1015, 1018 (9th Cir. 1991). In Iqbal, the Supreme Court rejected
the notion that a supervisor’s mere “knowledge and acquiescence in their
subordinates’ [conduct]” could demonstrate the supervisor’s violation of the
Constitution. See Iqbal, 129 S.Ct. at 1949. Absent vicarious liability, a
government employee’s liability must stem from his or her own misconduct; thus,
“purpose rather than knowledge is required to impose Bivens liability” on both
subordinates and supervisors. Id.; see also Bibeau v. Pacific Northwest Research
Foundation, 188 F.3d 1105, 1114 (9th Cir. 1999).
Notably missing from Plaintiffs’ Complaint are any factual allegations
detailing Defendants’ direct involvement in the general matters asserted against the
SEC. Nowhere do Plaintiffs contend in anything other than the most conclusory
fashion that these high level SEC Chairman and Commissioners said, wrote,
directed or instructed any of the conduct alleged, nor do Plaintiffs allege specific
facts demonstrating that Defendants were aware of, or acquiesced in, the alleged
conduct.
Accordingly, Plaintiffs’ Bivens claim must be dismissed as there are no
factual allegations showing that Defendants were personally involved in any
alleged constitutional violation.
D. The Complaint Fails to Set Forth Facts Sufficient to Overcome
Defendants’ Qualified Immunity.
Even assuming that the Complaint set forth facts sufficient to establish that
Defendants violated Plaintiffs’ constitutional rights, each Defendant is entitled to
///
///
///
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 14 of 18
4 Because the qualified immunity determination requires consideration of
whether the facts alleged state a constitutional violation, raising qualified immunity
is entirely consistent with a motion to dismiss under Rule 12(b)(6) for failure to
state a claim on which relief can be based. As the Supreme Court has recently
stated, “whether a particular complaint sufficiently alleges a clearly established
violation of law cannot be decided in isolation from the facts pleaded. In that sense
the sufficiency of respondent’s pleadings is both ‘inextricably intertwined with,’ . .
. and ‘directly implicated by,’ . . . the qualified immunity defense.” Iqbal, 129 S.
Ct. 1946-47 (citations omitted).
11
qualified immunity.4 Government officials are shielded from civil damage liability
if their conduct does not violate clearly established constitutional or statutory rights
of which a reasonable person would have known. See Harlow v. Fitzgerald, 457
U.S. 800, 818 (1981); Romero v. Kitsap County, 931 F.2d 624, 627 (9th Cir.
1991). The Supreme Court has repeatedly underscored the importance of resolving
qualified immunity questions at the earliest possible stage in litigation so that the
costs and expenses of trial are avoided where the defense is dispositive. Saucier v.
Katz, 533 U.S. 194, 200 (2001). Indeed, the defense of qualified immunity is an
entitlement not to stand trial or face the other burdens of litigation. Id. (citing
Mitchell v. Forsyth, 472 U.S. 511 (1985)).
In Saucier, the Court established a two-part inquiry in determining whether
qualified immunity applies: (1) whether taken in the light most favorable to the
plaintiff, the facts as alleged show the officer’s conduct violated a constitutional
right; and (2) whether the constitutional right in question was clearly established
such that it would be clear to a reasonable officer that his conduct was unlawful in
the situation he/she confronted. Saucier, 533 U.S. at 201; Marquez v. Gutierrez,
322 F.3d 689, 692 (9th Cir. 2003). The Supreme Court recently held that while the
sequence of the two-part inquiry set forth above in Saucier is often appropriate, it
is no longer mandatory; thus, the Court may grant qualified immunity if either of
the two prongs of the Saucier test are not met. See Pearson v. Callahan, 129 S.Ct.
808, 818 (2009).
This case is one in which Defendants can easily establish that the first part of
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 15 of 18
the test is not satisfied, so the Saucier order can be followed. The Complaint
alleges that Defendants denied Plaintiffs “their Fifth Amendment right to be secure
in their property, free from taking without just compensation and without due
process of law” by withholding distribution of money. Complaint ¶¶ 38-39. But
Plaintiffs have not shown that Defendants violated a constitutional right because
Plaintiffs have not alleged facts sufficient to show that they have a protected
property interest in that alleged money.
In addressing property interests, the Supreme Court has stated:
To have a property interest in a benefit, a person clearly must have
more than an abstract need or desire for it. He must have more than a
unilateral expectation of it. He must, instead, have a legitimate claim
of entitlement to it.
Board of Regents v. Roth, 408 U.S. 564, 577 (1972). Property rights are not
created by the Constitution, but are defined by independent sources such as state
law, statutes, ordinances, regulations or express and implied contracts. Id.; Lucero
v. Hart, 915 F.2d 1367, 1370 (1990). Further, if a right has not vested, it is not a
cognizable property interest. Peterson v. United States Dep’t of Interior, 899 F.2d
799, 807 (9th Cir.), cert. denied, 498 U.S. 1003 (1990).
Peterson is instructive because it shows that a claim based on an expectation
– even an eminently reasonable expectation – that a person will obtain funds from
the government is not a property interest. In Peterson, several California public
water agencies asked the federal court to declare unconstitutional a provision in the
Reclamation Reform Act of 1982, which they claimed interfered with their rights
to receive subsidized water from federal reclamation projects for certain lands.
Plaintiffs made two arguments to establish a constitutionally-protected property
right. First, they argued that such a right was implicit in contracts they had with
the federal government. Second, they contended that they had a “reasonable
investment-backed expectation to receive water at subsidized rates” even if the
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 16 of 18
right was not included within the contract. Peterson, 899 F.2d at 812. The
Ninth Circuit found that the contract between the plaintiffs and the federal
government was insufficient to establish a property right, so it turned to the second
argument. Id. at 811. The court rejected the plaintiffs’ second argument, noting
that the plaintiffs did not have a property interest just because they expected to
receive certain funds from the government and made investments based on that
expectation. Id. at 813.
Moreover, numerous cases illustrate the proposition that an individual has no
property interest in a particular benefit where a government agency retains
discretion to grant or deny the benefit. See, e.g., Erickson v. United States, 67 F.3d
858, 862 (9th Cir. 1995) (under due process clause, doctors had no property interest
in continued participation in Medicare or Medicaid); Greenwood v. FAA, 28 F.3d
971, 976 (9th Cir. 1994) (where annual renewal of pilot examiner designation was
left to the discretion of the FAA, plaintiff had no entitlement); Swanson v. Babbit,
3 F.3d 1348, 1353-54 (9th Cir. 1993) (undertakings clause, no vested right to obtain
patent to mining claim upon filing of claim where agency had discretion to review
claim).
Here, Plaintiffs fail to establish a constitutionally-protected property interest
and thus their Fifth Amendment claim (under either the Due Process Clause or the
Takings Clause) is not cognizable. Plaintiffs attempt to base their property interest
on a purported promise from unidentified entities engaged in naked short selling
who allegedly “promised to pay negotiated amounts to a frozen trust for disbursal
at a later time” in exchange for “a U.S. Government promise of no prosecution” for
naked short selling. Complaint ¶ 34. This allegation illustrates that Plaintiffs
themselves have not entered into a contract and have not obtained any enforceable
rights. Indeed, Plaintiffs allege that the Commission has “the sole and absolute
discretion” to determine when to disburse the purported pool of money. Complaint
¶ 36. As discussed above, individuals have no vested property interest in a
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 17 of 18
particular benefit where a government agency retains discretion to grant or deny
the benefit.
Because Plaintiffs have not alleged that they have a vested property interest
in the alleged trust fund at issue, they have not made allegations sufficient to show
that Plaintiffs violated a constitutional right.
IV. CONCLUSION
For the reasons set forth above, Plaintiffs’ action must be dismissed in its
entirety.
Dated: May 28, 2010
Respectfully submitted,
ANDRÉ BIROTTE JR.
United States Attorney
LEON W. WEIDMAN
Assistant United States Attorney
Chief, Civil Division
/s/
KEITH M. STAUB
Assistant United States Attorney
Attorneys for Defendants
Case 8:10-cv-00031-JVS-MLG Document 8 Filed 05/28/10 Page 18 of 18
US v. John Edwards et al (CMKM)
Defendants: John Edwards, Jeffrey Turino, Urban Casavant, Nickolaj Vissokovsky, Melissa Spooner, Helen Bagley, Jeffrey Mitchell, Brian Dvorak, Ginger Gutierrez, James Kinney
Scheduled Court Hearings
ORDER GRANTING CONTINUANCE OF TRIAL DATE
Status Hearing - Feb. 2, 2011 @ 8:45
Trial Date - Feb. 7, 2011 @ 8:30
Victim Letter
INFORMATION AND ASSISTANCE FOR FEDERAL CRIME VICTIMS AND WITNESSES BROCHURE (Click here to view and print.)
Press Release
>>>>>>Restitution Information <<<<<<<<<<<<<<<<<<<
Second Superseding Indictment
On March 24, 2010, the grand jury returned a sealed Second Superseding Indictment which added the following defendants: Jeffrey Turino, Nickolaj Vissokovsky and Jeffrey Mitchell. In addition, several new charges were added, alleging that certain defendants engaged in a conspiracy to conduct an enterprise engaged in a pattern of racketeering activity, a conspiracy to sell unregistered securities and to commit securities fraud and a conspiracy to commit money laundering. On May 6, 2010, the Second Superseding Indictment was unsealed.
Superseding Indictment
The superseding indictment in United States v. Edwards, et al., alleges as follows: the defendants combined and conspired to perpetrate a fraud involving the issuance and sale of CMKM stock over a period of several years. Hundreds of billions of shares of CMKM stock were sold to thousands of investors during that span. Investors in CMKM are invited (but not required) to complete the following questionnaire. The questionnaire solicits information pertaining to this case for purposes of enabling prosecutors to confer with and receive information and opinions from victims of the CMKM scheme. Please note that while the completed questionnaires will not be publicly accessible, relevant information may be disclosed to the court and/or defense counsel in accordance with the Federal Rules of Criminal Procedure and other laws.
Is the information you submit secure? Yes. According to Department of Justice computer personnel, the data you submit is protected to the same extent as any other information maintained by the Justice Management Division of the Department of Justice. Our computer personnel believe that the greatest security vulnerabilities lie for victims whose computers do not have a firewall enabled, or do not have up to date anti-virus software and anti-malware software.
What is the deadline to complete this questionnaire? March 31, 2010.
Might be easier to link the board....
http://ragingbull.quote.com/mboard/boards.cgi?board=JDCOM
Adam Barnett Paid Jeffrey Turino
By: nutced
28 Jun 2009, 09:54 AM EDT
Msg. 231620 of 231620
2 name of Adam Barnett?
3 A. Yes, I am.
4 Q· And howare you -- how do you know
5 Mr. Barnett?
6 A. He is -- he's one of Mr. Turino's friends
7 and business associates; lives in the Miami area.
8 I would -- from time to time I would go
9 with Mr. Turino, fly to -- from Vegas to Miami or
10 to -- fly first from -- to Clearwater and then fly
11 from Clearwater down to Miami to meet with
12 Mr. Barnett for discussion of business and to
13 receive payment of monies.
14 Q. Do you know what these monies were
15 payments for?
16 A. No.
17 Q. How were these payments handled?
18 A. Cash.
19 Q. Did Mr. Turino at any time tell you why
20 he was receiving cash from Mr. Barnett?
21 A. No, he did not.
22 g. Did Mr. Turino tell you that he was
23 receiving cash from Mr. Barnett?
24 A. Yes.
25 Q. How many times did you observe this type
Alderson Reporting Company
1-800-FOR-DEPO
Case 8:02-cv-00822-EAK Document 39-3 Filed 05/29/2009 Page 28 of 31
Bruce M. Harlan March 26, 2009
Clearwater, FL
Page 61
i H. reS.
2 Q. You recall mentioning that?
3 A. Yes, I do.
4 Q· To your knowledge, does 504 involve penny
5 stock companies?
6 A. Yes, it does.
7 Q. During the -- after the bar was imposed
8 on Mr. Turino, do you know if Mr. Turino
9 participated or negotiated any 504 transactions?
10 A. Yes, he did.
11 Q- And after -- and one of the other bars
12 against Mr. Turino was an officer-and-director bar;
13 are you familiar with that?
14 A. Yes, I am.
15 Q. To your knowledge, after the
16 officer-and-director bar was imposed, did Mr.
17 Turino continue to participate in the control of
18 companies?
19 A. Yes, he did.
20 Q. For example, Corbel Holdings?
21 A. Yes.
22 Another company might be -- would be
23 Pinnacle Business Management; is that correct?
24 A. Correct.
25 Q. To your knowledge, were these companies
Alderson Reporting Company
1-800-FOR-DEPO
Case 8:02-cv-00822-EAK Document 39-3 Filed 05/29/2009 Page 29 of 31
63
1 CERTIFICATE OF REPORTER
2 STATE OF FLORIDA
3 COUNTY OF HILLSBOROUGH
4 I, Elida T. Hager, Registered
5 Professional Reporter, Notary Public in and for the
6 State of Florida, do hereby certify that I was
7 authorized to and did stenographically report the
8 foregoing deposition and that the foregoing pages
9 constitute a true and complete computer-aided
10 transcript of my original stenographic notes to the
11 best of my knowledge, skill and ability.
12 I FURTHER CERTIFY that I am not a
13 relative, employee, attorney or counsel of any of
14 the parties, nor am I a relative or employee of any
15 of the parties' attorney or counsel connected with
16 the action, nor am I financially interested in the
17 action.
18 IN WITNESS WHEREOF, I have hereunto set
19 my hand at Tampa, Hillsborough County, Florida,
20 this 31st day of March 2009.
21
22
ELIDA T. HAGER, R.FV.R.
23
Notary Public, State of Florida
24
My Commi ;·E~·~x=P~slm1lS·~~?d~,/a, % ~0Ir1 2
25 ~ iv~!·Co·r~;~rj~1l~s8'1la4i~ 066
Commiss .":cc~I~F~~~'\;~i~1jt8~ '18
Spooner
By: nutced
28 Jun 2009, 09:43 AM EDT
Msg. 231619 of 231620
get 23 Melissa involved with his stock dealings.24 And I just know this from hearsay from
25 Melissa, that she formed a company; she went to
Alderson Reporting Company
1-800-FOR-DEPO
Case 8:02-cv-00822-EAK Document 39-3 Filed 05/29/2009 Page 21 of 31
Bruce M. Harlan
March 26, 2009
Clearwater, FL
PacrP ~6
~inneso~a to ~orm a company called Mountain
2 Passages; specifically Minnesota, so that they
3 could do a 504, Stock 504, which allows a company
4 to raise a million dollars.
5 AndI know of this, specifically remember
6 her comlna back and telling me about what they did s
7 and how they did it and where they went shopping.
8 Q. And "they," who are you referring to?
9 A. Mr. Turino and Ms. Spooner.
10 Q. Did you discuss this trip with Mr. Turino
11 at all?
12 A. Yes. But that'd be attorney-client, what
13 I said to him.
14 Q· Do you know if Mr. Turino directed
15 Ms. Spooner in business matters and affairs?
16 A. I would assume so. She did not have a
17 business background. We oftentimes joked that if
18 anything ever happened and they were asked about
19 Mr. Turino, she was to say, "I thought" -- that she
20 would say, "I thought he the mayor of Las Vegas."
21 Q· Did you ever see Mr; Turino give Melissa
22 Spooner directions?
23 A. No.
24 Q· We've already touched upon a company by
25 the name of Mountain Passages. I believe you
Alderson Reporting Company
1-800-FOR-DEPO
Case 8:02-cv-00822-EAK Document 39-3 Filed 05/29/2009 Page 22 of 31
Bruce M. Harlan
March 26, 2009
Clearwater, FL
Ps~e ·17
I Inaicated that you understood that company to've
2 been set up by Ms. Spooner; am I correct?
3 A. That's correct.
4 Q· Do you have any familiarity as to what
5 kind of company Mountain Passages was intended to
6 be?
7 A. No.
8 Q- Do you know if Ms. Spooner independently
9 made the decision to set up Mountain Passages?
10 A. No, she did not.
11 Q· Do you know who made the decision to set
12 up Mountain Passages?
13 A. Mr. Turino.
14 0. We've already talked about Mary Turino.
15 Mary Turino is Jeff Turino's ex-wife; is that
16 correct?
17 A. That's correct.
18 Q· Are you familiar with Ms. Turino's
19 employment background?
20 A. Yes.
21 Q. What do you know of Ms. Turino's
22 employment background?
23 A. She's a distributive education teacher,
24 high-school level, in -- I believe it's Pasco
25 County.
Alderson Reporting Company
1-800-FOR-DEPO
Case 8:02-cv-00822-EAK Document 39-3 Filed 05/29/2009 Page 23 of 31
Bruce M. Harlan March 26, 2009
Clearwater, FL
Pao~e 51
i (L. now aia she -- wno supported her?
2 A. Mr. Turino.
3 g. To your knowledge, did she have any other
4 means of income outside of her father, Jeff Turino?
5 A. No. No, she did not. S
6 Q· Are you familiar with the relationship
7 between Jennifer Lynch and Melissa Spooner?
8 A. Yes, I am. It's tumultuous.
9 Q· Yes. Could you describe that
10 relationship.
11 A. Yes. As crazy as it seems, Mr. Turino
12 shared with Jennifer Lynch -- his stepdaughter, the
13 natural daughter of his wife -- that he,
14 Mr. Turino, was having an affair with Mr.
15 Ms. Spooner.
16 So you can imagine how the -- the situ-
17 -- the dynamics of that would be, to start off s
18 with, and -- in other words, your
19 stepfather tells you you're having an affair on
20 your mother and expect it to keep quite, which she
21 didand -- but she still had built-up resentment
22 with Ms. Spooner.
23 Specifically, I recall one incident in
24 early 2005. We were at a ski resort in Utah, Park
25 City, Utah. And we were all sitting around. We'd
Alderson Reporting Company
1-800
DECLARATION OF BRUCE HARLAN
By: nutced
28 Jun 2009, 10:56 AM EDT
Msg. 21042 of 21046
DECLARATION OF BRUCE HARLAN
I, Bruce M. Harlan, hereby aver as follows, on personal knowledge:
1. I am an adult individual, residing in Clearwater, Florida. I am an attorney,
licensed in Florida, practicing primarily in the areas of real estate and corporate
law. I also have acted as a corporate officer and consultant, seeking opportunities
including reverse mergers for small companies.
2. I know Jef~ey G. Turino, and had a close personal and professional relationship
with him ~-om at least 2000 through May 2006. I met Turino in approximately
1998, and worked closely with him as his attorney, on personal and family
matters, starting around 2000. I also represented Turino in handling matters for
Pinnacle Business Management, Znc., the company that Turino controlled. In
addition, Turino would use my attorney trust accounts to hold funds that Turino
received from various individuals. The matters I discuss below do not disclose
confidential attorney-client communications.
3. In late 2003, I became President of Pinnacle Business Management aRer Turino
was barred by the SEC from being an officer and director and subject to a fiveyear
penny stock bar. He appointed me to be president because he no longer
could serve. Previously, Turino had appointed me president ofCorbel Holdings,
a spin-off of Pinnacle. I acted solely under Turino's direction as president of
these companies, before and aRer the ban.
4. At Turino's request, I helped him engage in several Rule 504 penny stock
offerings.
5. I am personally familiar with Turino's ex-wife, Mary Turino, who lived in
Clearwater, Florida from at least 2000-2006.
6. Throughout 2004-2005, Turino lived with Melissa Spooner land me) in Las
Vegas during the week, and with Mary Turino on weekends in Clearwater.
Turino and Mary Turino were divorced in January 2008.
7. I am personally familiar with Turino's mistress and business assistant, Melissa
Spooner. She lived in Las Vegas, at least from 2001 through 2005. I met her in
January 2003. She was an exotic dancer at the Cheetah's nightclub in Las Vegas
fr-equented by Turino, until 2003, at which point she became Turino's mistress. In
2003-2005, I lived with Spooner intermittently in two houses in Las Vegas that
Turino rented. ARer Melissa became Turino's mistress in 2003, she quit dancing
and had very limited financial means. She depended on Turino for her housing,
health, and living expenses. Melissa Spooner regularly confided in me during that
period, and told me that she had no money except as provided by Turino. I
traveled regularly with Spooner and Turino, on various business and vacation
trips.
Case 8:02-cv-00822-EAK Document 39-12 Filed 05/29/2009 Page 1 of 4
8. In approximately June 2005, Spooner replaced me as Turino's primary assistant to
holdf imdsa, ndt o assisht imi n settingu p Rule5 04o fferingisn volvinpge nny
stock. From what I observed, Spooner had no financial background, and would
only act on financial matters under the direction of Turino. I understand Rule
504 offerings to be a method used by a company to raise up to a million dollars by
issuing penny stock shares.
9. In September 2005, Turino traveled with Spooner to Minnesota to set up a
company to assist them in undergoing Rule 504 offerings of penny stock. I
understand that company to be Mountain Passages. They told me about the trip,
and its purpose, before and aRer they traveled. They told me they met with a
broker and shopped at the Mall of America. Turino also told me that he needed to
set the company up in Minnesota, because it was the only state that would allow
an issuer to sell penny stock pursuant to Rule 504.
10. I am personally familiar with Robert Leslie. Turino introduced me in 2003, and
we became friends. I also represented him in a collection·matter. He was the day
manager in the Cheetah's club in Las Vegas where Spooner danced. From what I
know, he did not have any financial training, and did not seem sophisticated in
business matters. In January 2003, Turino invited Leslie, his wife, Cynthia
Leslie, myself, and others, to go to the Superbowl in San Diego.
11. I am personally familiar with Turino's step-daugher, Jennifer Lynch. I know that
she attended UNLV in approximately 2004 and lived in a house nominally owned
by Melissa Spooner, but paid for by Turino.
12. I am personally familiar with Samantha Turino, Turino's daughter. She went to
law school at Villanova, and Turino paid for her tuition. I am also aware that
Adam Barnett, a business associate ofTurino, wrote a $15,000 check to Villanova
to pay for Samantha Turino's tuition.
13. I am personally familiar with Adam Barnett. He and Turino had a business
relationship ~om which Barnett would give cash to Turino. I traveled with
Turino to Miami on several occasions at which Turino told me that Barnett gave
cash to Turino. Barnett was the CEO ofOMDA Oil and Gas.
14. I am personally familiar with Nikolaj Vissokovsky, a Russian-American
businessman. I worked with him for more than 25 years, as his lawyer, on various
personal, real estate, and corporate matters. In 2003, I helped him to ~incorporatea
corporation, Atlantic & Pacific Seafood, for which his daughter, Victbria Lee is a
corporate officer, but that he controls. I was also an officer and registered agent
for Atlantic & Pacific Seafood.
15. I introduced Vissokovsky to Turino in July 2003, and they began doing business
in the areas of corporate stock transactions and financing. Vissokovsky has a
Case 8:02-cv-00822-EAK Document 39-12 Filed 05/29/2009 Page 2 of 4
home in Russia, about an hour from Moscow, and is a frequent international
traveler.
16. Later in November 2005, Vissokovsky and Turino directed me to go to the Czech
Republic to visit a seafood factory. World Wide Cannery & Distribution, Inc.
was created to operate this seafood factory. Vissokovsky and Turino controlled
World Wide Cannery. Later, I understand that World Wide Cannery became
Global Diamond Exchange, Inc., which then traded under the ticker symbol,
GBDX.
17. On April 10, 2006, World Wide Cannery issued a press release claiming that it
had 14.5 million euros in annual revenue for 2005. I know that this press release
was false, because the seafood factory had been losing money and was
subsequently lost in foreclosure in February of2006.
18. I am aware that in December 2003, Turino was barred by the federal district court
in Tampa, Florida from participating in a penny-stock offering for five years. I
know that Turino, at a minimum, violated this penny-stock bar in 2004-2005 by
negotiating the BioTech Medics reverse merger and Rule 504 offering.
19. X am familiar with the circumstances surrounding the BioTech Medics reverse
merger with Corbel Holdings and penny stock offering that took place in mid to
late 2004.
20. Chris Jensen is a close friend ofTurino. In October 2004, Turino told me to meet
with Jensen, and a gentleman, Keith Houser, to look over a medical laser
company, Halo Laser, for a potential reverse merger with Corbel. We met in a
hotel room in Las Vegas, and Houser demonstrated his medical laser treatment on
me.
21. Thereafter, in November 2004, Turino and I, and others, traveled to Houser's
clinic in Dallas, to discuss the terms of the merger with Houser and his partners,
Rim Jacobs and Stephen Crane. Turino told me that I was going to receive 17
million shares of stock in the new company. At that meeting, Turino told the
parties present that all of the contact on this merger had to be with me, though I
had little knowledge of the details of the deal. He then began to structure and
direct the deal, the merger and the ensuing offering.
22. In November 2004, I went to the Czech Republic. While I was in the Czech
Republic, negotiations for the deal continued without my participation.
Subsequently, Turino called me and told me to come back to the U.S. to finalize
the deal. In early December, at Turino's direction, I flew to Las Vegas from
Prague. I met in Las Vegas at the transfer agent, Helen Bagley's office, to sign
the closing agreements, which included the merger documents and a 504 offering.
Present at the closing were Turino, Jensen, Houser, Jacobs, Bagley, myself, and
others.
Case 8:02-cv-00822-EAK Document 39-12 Filed 05/29/2009 Page 3 of 4
23. In early 2005, there was another meeting at Helen Bagley's of~ice to iron out
problems with the BioTech Medics merger and offering. Turino was present and
ran the meeting, and calmed down the dispute.
24. Helen Bagley was the transfer agent on the BioTech Medics, Inc. offering.. She
had a close relationship with Turino. Bagley's company, Ist Global Stock
Transfer, was the transfer agent on several penny stock issuers, CMKX, Pinnacle,
Corbel, and BioTech Medics, where Turino was involved. When in my capacity
as president of Corbel or Pinacle, I would ask Bagley to do something, she would
first say she had to check with Turino.
25. The last discussion I had with Turino was in May 2006. Lbelieve he has since
been living overseas.
I~d~e/c/l~usned er penalty of perjury that the foregoing is true and correct. Executed this
~zC~Y~aoafyN ovember2, 008.
Bru~
Hodges and Associates INTERIM UPDATE
--------------------------------------------------------------------------------
I have previously stated that I would not provide an “update” until we had confirmation of economic receipt or, I became convinced that payment to CMKX shareholders would not be forthcoming in a timely manner. This “Interim Update” is the exception that proves the rule, so to speak. However, it has been a relatively long period [certainly more than I originally anticipated] since I communicated with the shareholders at large, and there is material information to impart.
Before providing some information about what has been transpiring and our current status, let me address a few other matters:
• I am an attorney and have been retained by seven brave and exceptional shareholders that represent a cross section of the proposed class.
• The Bivens action which I have filed not only sets forth the facts as I know them, it seeks to become a class-action on behalf of all shareholders.
• At this instant in time however, I literally represent only the seven named plaintiffs; as a result, I am constrained in the types and extent of information which I can provide to putative members of the class.
• In the unlikely event that this litigation continues forward, a motion will be filed with the Court requesting that a class be certified. If granted, at that point I will, presumably, be appointed by the Court to continue acting as counsel for the class; thereafter, the Court will be required to approve any and all settlements, and others matters.
• The status of the litigation can at all times be monitored on PACER; as a result, we do not respond to inquiries at my office; accordingly, please do not contact us directly for such information.
• For everyone’s information, all defendant’s have been served, and an initial scheduling conference, originally set by the Court to be held on April 26, 2010 has been continued by mutual agreement of the parties [with consent of the Court] to July 26, 2010.
• The litigation will be aggressively pursued until such time as all CMKX shareholders have been paid.
In a similar vein, please understand that we are not involved in any ongoing negotiations with the SEC and/or their representatives with a view to compromising and/or otherwise attempting to resolve claims of the shareholders.
We have set forth in the complaint what the shareholders are entitled to receive; compromise is not anything that the shareholders want, desire, or would tolerate or accept.
The belief of some that yelling and screaming, loudly and publicly enough, can somehow “force” release of the CMKX moneys, is erroneous and misplaced; it will not. Having said that, I do believe that media exposure is beneficial in the sense that it keeps the pressure on the entire financial community.
Inquiring minds want to know: what is our status; what has been going on; what is holding up economic receipt; when will our money be released; and how much money is there?
Let me address each of these questions, to the extent I am able, separately:
1. How Much Money – As I have said before, we have persuasive evidence to all of the facts alleged as such in the complaint; accordingly, there is a total of 3.87 Trillon Dollars.
2. When is Release – The CMKX distribution funds will be released within a very short time after there is confirmation of Economic Receipt. What does that mean? It means that currently in process is a massive shift of wealth within the US and the world community; that includes: pay out of all the domestic settlements; institution of the US dollar re-funding project; pay out of world settlements; and, distribution of funds to many other programs. This involves a total of more than $ 42 Trillion. Economic Receipt occurs when all trustees have access to all of the funds they are responsible for.
3. Our Status – We are literally on the thresh-hold. This means that the “work” remaining to be finished will not consume more hours than can be accomplished within one day. We have been at this point now for more than a few weeks.
4. The Delay – Although I could write a book about what’s been going on behind the scenes to cause this additional delay, I’ll try to give you the condensed version:
First - Please be aware and understand that there is an economic war raging in the background.
Second - The naked corruption that is endemic in D.C. is more than most can comprehend; it is clear that these miscreants have no regard for the US Constitution, Federal Laws and Regulations, nor even any sense of simple morality. They are convinced that they are above any constraint that might apply to lesser mortals and that no enforcement activity will ever successfully address them. I hasten to add that such opinions are not universal; having said that, it is more widespread than not.
Third - These miscreants are, in effect, fighting for their lives – at least that part of their lives that establishes an environment in which they can continue to lie, cheat, steal, and mortgage your progeny’s lives, all for their personal gain. Accordingly, they will fight until the doors are all closed by a power that they cannot subvert. That fight continues as I prepare this interim update.
Fourth - The good news is, we are winning the battle. The circle within which these bad apples can operate draws inexorably smaller with each attempt to bribe, suborn and otherwise corrupt the system, and the people within it. By way of example, I was advised that over the weekend one State Department person, 10 bankers and 18 Federal Reserve people were arrested and dealt with.
Fifth – By what date will we have Economic Receipt, you ask. We will have it when this initial battle phase comes to a successful conclusion. That will be in the very near future in my opinion; the current schedule based on advice I received this afternoon is that it should all be finished, with funds in the Trustee’s hands, by week’s end.
I want to extend our heartfelt thanks to those of you who continue to demonstrate support and encouragement for our efforts. We remain very optimistic for the long term. Rest assured that the fight will continue, and we will prevail.
Al Hodges
Corporate Updates April 22, 2010 CMKM Diamonds, Inc. Update
CMKM management would like to take this opportunity to update shareholders on the following items:
Transfer Agent… There are now over 6,300 online security holder accounts set up with our new transfer agent. Transfer Online has done an outstanding job to get this far along being that they have had to take the extra time to answer hundreds of phone calls and well over one thousand emails since they were announced on April 8th. You are not required to set up an account at this time with the Transfer agent.
The company has been asked if there are any preferred shares authorized, issued or outstanding. Please be advised that CMKM Diamonds, Inc. has only common stock. There are over 48,000 known shareholders holding well over 60,000 certificates.
Texas lawsuit… On Tuesday, April 20, 2010, CMKM appeared in the 7th Judicial District Court in Tyler, Texas and was awarded a judgment of $28,355,411 against the plaintiffs in exhibit “J” of the filed judgment. (Link) On March 25, 2010 CMKM was awarded a judgment (Link) to cancel all outstanding issued shares in the names of the defendants.
The Company’s general counsel has issued this comment following the Court's actions Tuesday.
"CMKM management has an obligation to pursue any party responsible for damage to the Company. Our investigation to date has involved the acquisition of hundreds of thousands of pages of financial records obtained through subpoenas as well as sworn depositions of numerous insiders, promoters and legal representatives. Cooperation with law enforcement and regulators is ongoing. Through this expensive and time consuming work, the Company has acquired evidence which is difficult to dispute by those that illegally profited from their actions. The paper trail left by those that profited from their illegal stock acquisitions is quite clear and additional legal actions are planned against other individuals. There has been very little cooperation from prior management and those insiders and promoters that profited from the stock dilution of the Company. We strongly encourage those that have information helpful to the Company to come forward and assist the company in its rebuilding. The Company fully intends to pursue collection of this judgment and all prior judgments obtained by the Company."
The Company hired James E Lowden who is coming to CMKM Diamonds with over 25 years of executive experience in Business development, Real Estate development and Crisis Management. Known for crafting strategic visions to achieve business goals, Mr. Lowden offers a unique blend of executive acumen, team building and solution development crediting strong return of investments and operational systems. Mr. Lowden’s background in commercial development will assist CMKM in our Real Estate transactions. Mr. Lowden has accepted the role of Chief Operating Officer and Interim Secretary / Treasurer for a period of two years.
Where a lot of the CMKX money ended up...
Texas Lawsuit was against Urbans relatives, to cancel shares.
http://www.cmkmdiamondsinc.com/documents/texas_lawsuit_09_05_08.pdf
Original Petition 09-05-08 (long - 7MB)
Amendment, 08-13-09
Motion for Remand with Order 12-30-09
Urban banned from trading...
ASC Issues Permanent Orders against former CMKM Diamonds CEO Urban Casavant
CALGARY, April 13 /CNW/ - The Alberta Securities Commission (ASC) has reciprocated orders made by the United States District Court, District of Nevada and permanently banned Saskatchewan resident Urban Casavant from trading in securities, relying on Alberta securities laws exemptions, and acting as a director or officer of any issuer.
The Nevada judgment was entered in response to allegations that Casavant contravened U.S. federal securities laws and participated in a fraud in connection with the sale of CMKM Diamonds, Inc. securities. ASC staff provided the ASC panel with evidence that Albertans were among the CMKM Diamonds shareholders.
A copy of the decision is available on the ASC website at www.albertasecurities.com.
The ASC is the regulatory agency responsible for administering the province's securities laws. It is entrusted to foster a fair and efficient capital market in Alberta and to protect investors. As a member of the Canadian Securities Administrators, the ASC works to improve, coordinate and harmonize the regulation of Canada's capital markets.
For further information: For Media Inquiries: Mark Dickey, Senior Communications Advisor, (403) 297-4481; For Investor Inquiries: ASC Public Inquiries, Toll Free: 1-877-355-4488
http://www.newswire.ca/en/releases/archive/April2010/13/c9990.html
http://www.albertasecurities.com/Enforcement/Enforcement%20Orders/CASAVANT,%20Urban%20-%20RDEC%20-%202010%2004%2008%20-%203489533v1.pdf
LoCastro facing fresh charges
http://www.observer-reporter.com/OR/Story/02-05-2010-LoCastro-charged-
2/5/2010 3:33
LoCastro facing fresh charges
By Kathie O. Warco, Staff writer, kwarco@observer-reporter.com
A Canonsburg used car dealer, already facing charges in federal and Washington County courts, was accused this week of failing to pay the state money he collected for license plates and other fees on vehicles sold.
Vincent A. LoCastro, 47, of 102 Standing Rock Drive, McMurray, was charged Tuesday by state police with multiple violations including 338 counts of applications for certificate of title and more than 500 counts of violating rules for registering vehicles. He is also charged with theft by failure to make required deposit of funds and tampering with public records. LoCastro owns and operates All Pro Auto Mall, 108 S. Central Ave.
Trooper Kevin Daerr, who filed the charges against LoCastro, said he had received complaints from customers who purchased vehicles from All Pro Auto Mall but did not receive their titles and/or registration from the state within 90 days of purchase.
LoCastro allegedly sold 52 vehicles between Feb. 7 and Nov. 2, collecting $26,597 in taxes and fees from the buyers. Daerr said dealers are required to pass the collected fees within 20 days of the sale of the vehicle, but LoCastro failed to submit them to the Department of Transportation.
LoCastro is also accused of failing to submit a title to Penn-DOT for a vehicle he sold on July 17. Since that temporary registration expired, LoCastro allegedly completed a new form showing an Oct. 15 sales date to give the owner of the vehicle another 90 days on the new temporary registration card. LoCastro allegedly entered a false date for the purchase, listing the sale as Oct. 15 when the true date was July 17.
Last week, Canonsburg police received a complaint from a Pittsburgh woman who reported that she learned that the license plate on the BMW she purchased at All Pro was registered to a Harrisburg couple. The vehicle identification number indicated her car was owned by a Pittsburgh couple. The report will be turned over to Daerr, who said that vehicle owners should receive the necessary registration paperwork from the state before the temporary tag expires 90 days after the date of purchase.
"It is an oddity if you don't get the registration within the 90 days," Daerr said. "It may be as simple as a paperwork error, but you should contact the dealer."
In December, LoCastro was indicted in federal court for allegedly using another person's personal information to obtain financing for nine luxury cars. He was charged with identity theft for allegedly using the name, date of birth and Social Security number of "a person known to the grand jury" to acquire loans that resulted in four banks losing more than $330,000.
According to federal prosecutors, LoCastro obtained the loans while doing business as owner of All Pro Auto Mall.
LoCastro is awaiting a March hearing before county Judge Janet Moschetta Bell on hundreds of charges filed by state police claiming fraudulent business practices at the dealership in 2007 and 2008.
Early in 2008, LoCastro agreed to comply with a state consumer protection law regarding some cars that were improperly sold through the dealership. State Attorney General Tom Corbett had filed claims that LoCastro violated fair trade practices, consumer protection laws and Pennsylvania auto regulations.
The filing said his company misrepresented the condition of advertised vehicles and collected deposits for online auctions but failed to return them when purchasers did not complete a transaction.
LoCastro signed a voluntary compliance agreement and paid $11,607 in civil penalties, the cost of investigation and filing fees and has returned deposits or security collected from consumers who canceled or breached sales contracts.
The most recent charges were filed at the office of District Judge David Mark. A preliminary hearing is set for March 10 before Mark.
Daerr said the investigation is continuing. Anyone with similar complaints should contact him at 724-223-5200.
http://www.thealmanac.net/ALM/Story/03-03-2010-locastro-charged-again
3/3/2010
Charges on used car dealer mount
By Kathie O. Warco Observer-Reporter kwarco@observer-reporter.com
The owner of a Canonsburg used car dealership, already facing charges for allegedly failing to pay the state money for fees he collected on vehicles he sold, now faces theft charges.
Vincent A. LoCastro, 47, of 102 Standing Rock Drive, McMurray, was charged Feb. 19 by state police Bureau of Criminal Investigations Western Task Force with deceptive or fraudulent business practices, theft by deception, bad checks and theft. The charges were filed at the office of District Judge David Mark.
LoCastro is accused of failing to give full payment of $20,000 for the 2005 Lexus that Kenneth Homerosky of North Franklin Township was selling.
According to court documents filed with Mark, Homerosky talked with All Pro employee DJ Logue about selling the Lexus on Sept. 28. They reportedly agreed that All Pro Auto would sell the car and give Homerosky $20,000 by Oct. 1.
When Homerosky went to the dealership to get his money, he was reportedly told they needed more time to sell the vehicle. On Oct. 6, Homerosky received a check for $19,500. When he tried to cash the check, it was returned for insufficient funds. Logue talked to LoCastro about the check. LoCastro reportedly said the check was OK; however, when Homerosky attempted to cash it, the check was again returned for insufficient funds.
Logue told police that LoCastro did not want to buy the vehicle but agreed to put it on the lot. If it did not sell, the dealership would take it to an auction. LoCastro took the luxury car to the auction. Records from American Auto Auction show the car sold for $21,100. After fees, a check for $20,900 was made out to Auction Credit Enterprises and applied toward All Pro Auto's debt with the auction. Earlier this month, Auction Credit Enterprises of Irving, Texas, filed a suit in federal court against LoCastro, his wife, Kim, and LoCastro & Associates, seeking foreclosure of the dealership, claiming LoCastro is in default of a $500,000 loan obtained in December.
Homerosky eventually received $4,000 for the vehicle but attempts to recover the remaining $16,000 have been unsuccessful.
Earlier this month, Locastro was charged by state police at the Washington barracks with multiple violations including 338 counts of applications for certificate of title and more than 500 counts of violating rules for registering vehicles. He is also charged with theft by failure to make required deposit of funds and tampering with public records.
LoCastro also faces charges filed last year in federal and Washington County courts.
In December, LoCastro was indicted in federal court for allegedly using another person's personal information to obtain financing for nine luxury cars.
A preliminary hearing for both sets of charges filed against LoCastro is set for March 18 before Mark.
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