CRIMS FAIRY TALES
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Foreign investors see red over 3-D firm with local ties
By Christopher Carey
Of the Post-Dispatch
06/09/2004
Chequemate International Inc. hailed its 3-D television technology as the biggest revolution in home entertainment since the videocassette recorder.
Offshore brokerage firms pushing its stock told of looming deals with major players in the electronics and broadcasting industries.
Those pitches persuaded foreigners to snap up shares of the company, which was based in Salt Lake City and later called St. Charles home.
But after burning through all its cash and running up losses of more than $40 million, Chequemate has vanished, along with the overseas brokerages that promoted its shares.
The stock, which peaked at $18.44 in February 2000, today trades for a 20th of a cent.
Chequemate might appear to be just another casualty of Wall Street's technology bust, which brought down many high-flying stocks.
But an investigation by the Post-Dispatch shows that it was part of a worldwide ring that profited handsomely by selling questionable U.S. stocks overseas.
Chequemate was one of seven publicly traded U.S. companies with common ties. Today, Chequemate and three others are defunct or in limbo, two are in bankruptcy and one was bought out at less than $2 a share.
The main link was an American, Bryant D. Cragun, 57, a former stockbroker turned financier.
Securities and Exchange Commission filings, incorporation papers and other documents show that Cragun figured prominently in the creation or evolution of the companies, as an officer, director or financier.
The property settlement from his divorce in Arizona in 2001 also shows that he had an ownership interest in two of the unlicensed, offshore brokerages that promoted the companies' shares.
While most people who bought and held their shares in Chequemate and the other companies lost nearly everything they invested, Cragun became rich.
Another divorce document estimated the value of the assets he and his wife were dividing to be "in the middle eight figures," or roughly $50 million.
Cragun told The Wall Street Journal four years ago that the SEC had investigated the overseas stock sales. But the agency has not taken action.
The Post-Dispatch's investigation turned up additional information about Cragun's business dealings. For example:
The divorce case in 2001 shows that Cragun had an ownership interest in Oxford International Management, based in the Philippines, and PT Dolok Permai, which was incorporated in Indonesia and did business under the name International Asset Management. He previously denied, in court cases, that he had a stake in either operation.
Two partners in a Salt Lake City accounting firm that audited Chequemate's financial statements were barred by the SEC from auditing public companies in 2001 because of their role in a separate stock fraud case. One of them, R. Gordon Jones, is listed as an officer with Cragun in a company that owned part of Oxford.
A stock research firm in California, whose glowing report triggered a sharp rise in Chequemate's share price, was incorporated by disbarred lawyer Regis M. Possino, who has convictions for drug dealing and fraud. He had big stakes in several other companies that Oxford promoted. The SEC has since charged in a lawsuit that the stock-research firm, Access 1 Financial, and its president issued a false and misleading report on another company's stock as part of a "pump-and-dump" scheme.
A firm that Chequemate hired to promote its shares was controlled by Allen Z. Wolfson, a white-collar criminal who has since returned to prison on separate stock fraud and manipulation charges.
Chequemate provides a glimpse into the world of so-called penny stocks, where failures vastly outnumber successes.
The shares that foreign investors bought were routed offshore under an obscure SEC rule that lets companies sell stock privately to certain types of non-U.S. buyers. Under the rule, known as Regulation S, companies can avoid the time and expense of a registered stock offering by placing shares with "accredited investors," such as hedge funds and wealthy people.
One caveat: Such stock cannot be resold in the United States for one year. Because of the risk, the companies often discount the shares to overseas buyers.
But in the unlicensed, offshore brokerages known as "boiler rooms,'' the stock immediately is resold to foreign investors at big markups.
Chequemate got its start as a shell company, issuing stock for cash that it could use to buy a business.
Oxford and PT Dolok bought more than 1.3 million shares of Chequemate between 1994 and 1996, at prices ranging from $2.50 to $3.75 a share.
The company went through a succession of businesses - automated occupational safety training, financial planning, check and credit card processing - before making the leap into 3-D television in 1997. It paid $3 million for the rights to a 3-D imaging system developed by another Utah company, Applied Technology Group.
But the technology was hardly as cutting-edge as the companies claimed, said Michael Starks, a pioneer in the stereoscopy world, who worked as a consultant to Applied Technology. "It wasn't even true 3-D,"' he said.
Chequemate's system depended on a converter box tethered by a cord to cumbersome electronic goggles. The original boxes sold poorly, so the company hired a team of experts to improve the product.
Among them was Rob Boatright, an electronics engineer in Salt Lake City, who designed a digital box that was cheaper to produce and had better special effects. His one-year deal with Chequemate included options on 50,000 shares of stock.
While Boatright refined the technology, company executives worked to line up capital and customers. "We showed these units to a lot of people, and a lot of people invested," he said.
Blaine Harris was Chequemate's chairman and chief executive. He also was on the board of directors of Fountain Fresh International, another of the companies whose shares were peddled by the offshore boiler rooms.
What Chequemate lacked in revenue, it made up for in hype.
The company and the investor relations specialists it hired to promote the stock issued nearly 150 press releases between 1997 and 2001, hailing internal developments, acquisitions or alliances. A review by the Post-Dispatch shows that roughly a third of the announcements involved developments that never materialized.
At the end of 1997, for example, Chequemate announced a $3 million deal with Poshy Homes of Singapore for the sale and distribution of 3-D imaging systems in Asia. Chequemate said the contract called for delivery of at least 8,250 units - 500 to 1,000 a month - and reported that shipments had begun.
Those sales never showed up in its revenues. And the Post-Dispatch also could not find any record of Poshy Homes, which Chequemate described in its release as a property developer in Singapore and Malaysia, a consumer electronics wholesaler and retailer, and a maker of Chinese dessert.
Boatright was thrilled, then puzzled, by the press releases. He had the design file for the updated 3-D system, but he had not been asked to forward it to a manufacturer for large-scale production.
"It was always going to happen, just as soon as we signed the next deal," he said.
Chequemate announced in spring 1998 that it would launch a 3-D television network, available through cable and satellite services. Later that year, it bought a company that provided pay-per-view movies in about 3,000 hotel rooms and said it would offer its 3-D programming through those outlets.
That November, Chequemate hired a new chief executive, J. Michael Heil, a veteran of several broadcast-related businesses.
Shortly after he took over, Chequemate announced it had signed a deal to buy Hot Pix Inc.'s library of more than 1,000 movies. Chequemate said it would "enhance" the films for its new 3-D network.
"The pending acquisition is expected to have a significantly positive effect on the future revenues and asset valuation of the company," Heil said in announcing the deal.
Corporation records in Nevada show that a few months before the deal, a company with a similar name, HotPix Inc., was created by Chandos Mahon. His role in HotPix was not mentioned at the time Chequemate announced the acquisition, nor was it cited when Mahon later became Chequemate's chief operating officer.
His father, Barry Mahon, had been a film director, but his work, an unusual mix of "sexploitation" movies and children's features, fell far short of 1,000.
Partner in St. Charles
Chequemate announced its first distribution deal with a cable company in April 1999. Its new partner, VisionComm Inc., operated the municipal systems in Kinloch and Wellston and had administrative offices in St. Charles.
VisionComm also served apartment complexes in Texas, California and Michigan.
The next month, Chequemate announced that 3-D Television Co. Ltd. of Japan had agreed to buy at least 35,000 conversion systems and would broadcast Chequemate's 3-D programming to 1.2 million customers in Japan. Two weeks later, Chequemate said Concord Video Production Ltd. of Great Britain had placed an order for at least 20,000 conversion boxes.
Neither deal went through. And British corporation records show no trace of Concord Video Production.
Still, Chequemate's claims of operating a 24-hour, seven-day-a-week 3-D television network technically were accurate. It broadcast limited programming that was accessible to people who owned satellite dishes, knew how to pull in the signal and had one of the fewer than 1,000 converter boxes the company sold.
Just like MTV in its infancy, Chequemate repeated the same loop of programming, largely a collection of old movies that featured 3-D effects. One of the staples was "A*P*E," a 1970s-era film about a 36-foot-tall ape run amok.
In June 1999, Chequemate's shares moved to the American Stock Exchange from the Nasdaq Over the Counter market, providing greater visibility and credibility.
It also moved its headquarters to Marina del Rey, Calif., saying it wanted to be closer to the heart of the entertainment industry as it began developing content for the 3-D network.
It announced in fall 1999 that VisionComm had begun a rollout of the new programming throughout its cable systems.
"We've had an enthusiastic early response to the C-3-D Television Network," said Tom Nix, president of VisionComm, in a release at the time.
Heil, head of Chequemate, was even more exuberant. "Our objective, to achieve a 5 percent market penetration of the 75 million U.S. cable homes, looks easily obtainable."
The agreement between Chequemate and VisionComm called for the 3-D network to be offered first in a Dallas apartment complex at $9.95 a month. An assistant manager at the time, who lived in one of the apartments, said the channel was never offered at the complex.
To raise operating money, Chequemate turned repeatedly to offshore investors, selling stock through private placements.
Heil said he was more interested in building the 3-D network than in selling converter boxes and other products.
"I was a real guy with a real business plan and a real heart to succeed,'' he said.
Half a world away in Australia, Scott Bowen was getting calls from brokers offering a chance to get in early on promising U.S. companies, including Chequemate.
One broker, Robert Mason of Capital Assets Ltd., set up a meeting between Bowen and Lynn W. Briggs, an American whom Mason described as a financial and investment consultant for the firm. In fact, Briggs was an associate of Cragun's.
When Bowen and Briggs met in Melbourne in August 1999, Briggs pitched him shares of Chequemate and other companies. Unbeknownst to Bowen, Briggs had been of one of them. Bowen invested about $365,000 in the firms.
Paper millionaire
The touting of Chequemate extended to stock-related message boards on the Internet. On Jan. 19, 2000, a posting appeared on one of the most heavily trafficked sites, SiliconInvestor.com. A poster who identified himself as Randy Berg, a professional investor from the Pacific Northwest, said he had added to his Chequemate holdings because he heard that a securities analyst at Access 1 Financial soon would put out a "buy" recommendation on the stock.
On Jan. 27, with Chequemate's shares trading at about $2, the board of directors approved a 1-for-4 reverse stock split. The company said the move would lift the price out of penny stock range and attract mutual funds and other big buyers.
"Our business has now matured to a point where we have received considerable interest from institutional investors inquiring about the possibility of adding the company's shares to their portfolios," Heil said in a release.
No institutional investors filed forms with the SEC disclosing purchases of Chequemate stock.
But the reverse split had another effect: It reduced the supply of shares as demand surged. When the reverse split took effect on Feb. 2, 2000, Chequemate's shares closed at $8.25.
The next day, Access 1 issued a glowing report, setting a six-month price target of $24 a share and a 12-month target of $40 a share. Access 1 called Chequemate a 3-D innovator and predicted it would "dominate a multibillion-dollar market."
Within days, Chequemate's share price more than doubled, briefly topping $18.
Its own investment banker, Dutchess Advisors, put out an equally rosy "buy" recommendation with a 12-month price target of $36. Dutchess projected that revenue for 2001 would total $36 million - more than 16 times the actual figure.
Chequemate's soaring stock price made Boatright, who designed the digital 3-D box, a millionaire - at least on paper.
When he tried to exercise all the stock options he had accumulated in nearly four years with the company, he said Chequemate executives rebuffed him.
Boatright wound up suing Chequemate. After going through three attorneys and waiting out several management changes at the company, he dropped his complaint in return for a portion of the shares he was owed.
"The 78,000 shares I finally got out of them, at 18 bucks would have been worth $1.4 million," Boatright said. By the time he could liquidate his holdings, he collected less than $20,000.
End of an era
Meanwhile, Wall Street was in the throes of one of the greatest periods of irrational exuberance in market history. When the bubble burst early in 2000, investors abandoned speculative stocks for safer financial havens.
Chequemate's public relations machine went quiet from mid-March to early May that year. The stock fell from $13 a share to less than $6 in that period, and continued to sink throughout the summer.
The decline in the stock market and Chequemate's share price made it almost impossible for the company to raise more money, Heil said.
"The 3-D thing was working; we didn't have enough time in the bottle to make it happen.''
That August, Chequemate announced a new fall lineup for its 3-D network, including "Rave-O-lution," a dance party show to be shot in nightclubs in the United States and abroad, and "The Big Fat Movie Show," a hosted special.
By September, Chequemate was out of broadcasting. It blamed prohibitive operating and marketing costs, and said its focus would shift to other 3-D products and technology
The company closed its offices in California and retreated to Albany, Ore., near Heil's home.
Then in December 2000, it announced it was buying VisionComm in St. Charles.
Chequemate said VisionComm, with fewer than 2,700 subscribers, was building or negotiating to buy cable systems that would offer access to 50,000 more households.
Chequemate said the "pending acquisitions" would give the new subsidiary a value of more than $50 million. "Their assets create the foundation to our new cable distribution plans and provide us a path to explosive growth possibility in that sector," Heil said at the time.
In fact, VisionComm had almost no cash, a history of losses and little ability to finance big deals. Nearly two-thirds of its annual revenue came from the pay phone business, which has been hit hard by the proliferation of cellular phones.
After the deal went through, Mahon took over as chief executive and Chequemate's headquarters moved to St. Charles.
Still, brokers peddling the shares overseas were bullish on its prospects.
In January 2001, Leif Fredsted got a call in Norway from a broker who identified himself as Richard Swatman, with Capital Assets in Spain.
Swatman recommended Chequemate. Fredsted agreed to buy 250 shares.
Not long after, Swatman called again and urged Fredsted to buy more, saying the shares' value was poised to increase several times over. Only after Fredsted added to his holdings did he learn the shares could not be resold for a year, under the SEC's Regulation S.
Swatman and another broker kept calling with new investment opportunities. Despite some reservations, Fredsted ultimately put more than $100,000 into Chequemate and other companies, all with ties to Cragun.
Meanwhile, faced with delisting from the American Stock Exchange, Chequemate took drastic action. It announced in May 2001 that it would sell 43.1 million new shares - a 51 percent stake in the company - for $3.5 million to a syndicate of investors headed by a Korean company, Another World.
Chequemate said it intended to use $2.5 million of the proceeds to develop, market and distribute 3-D content; $250,000 to repay outstanding debts; and $750,000 for other working capital purposes.
In November 2001, after the stock sale was completed, Chequemate moved its headquarters to the Los Angeles area. Philmoon Seong, who headed Another World, became Chequemate's chief executive.
The company gave VisionComm's cable and telephone operations to creditors rather than continuing to pay the debt associated with them. The managers of the hotel-movie unit took the business back, saying they had not received all the shares promised to them as payment.
Chequemate has not filed a quarterly financial statement with the SEC since August 2002.
Fredsted and Bowen sued Cragun, Briggs, Capital Assets and other defendants, claiming fraud. Their lawsuit in California Superior Court alleged that the defendants raised money from investors by using high-pressure sales tactics and by making false statements and omitting material facts.
A judge last year threw out the case, saying the law the investors relied on in their complaint wasn't applicable to securities transactions. An appeals court affirmed that ruling last month.
Oxford International Management, PT Dolok and Capital Assets are no longer in business. But a succession of new offshore boiler rooms has continued selling shares of U.S. companies with ties to Cragun and others involved in the Chequemate story.
And regulatory agencies in at least seven jurisdictions - Australia, New Zealand, Hong Kong, Spain, the Philippines, Thailand and Indonesia - have warned investors about boiler rooms that pushed Chequemate's shares.
Reporter Christopher Carey
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Dutchess Advisors, Ltd. Issues Buy Recommendation With $36 12-Month Projection On C-3D Digital
Business Wire, Feb 16, 2000
Business/Technology Editors
LOS ANGELES--(BUSINESS WIRE)--Feb. 16, 2000
Chequemate International Inc. (AMEX:DDD), doing business as C-3D Digital Inc., the world's first 3D television network and 3D Internet media company, announced today that Boston-based Dutchess Advisors, Ltd. initiated coverage of the Company with a buy recommendation and a 12-month price target of $36 per share.
Dutchess Advisors based its price target on C-3D Digital's key developments, including: "The recent licensing agreement with Trimark Pictures, a division of Trimark Holdings Corp. (NASDAQ: TMRK); an equity investment from I-O Display, LLC a joint venture between Illixo, Inc. and Liberty Media Group (a division of AT&T; NYSE:T); the enrollment of additional cable system Telepro, a national DirectTV account, to provide distribution of the 3D Television Network to its subscribers; and the expected launch of the 3D.COM Virtual Reality Portal(tm) in June 2000.
"Dutchess projected future growth, stating, "Management is making all the right moves by licensing content, increasing distribution through the enrollment of cable systems, building its internal team of seasoned and highly skilled professionals while reshaping its Board of Directors. With the expected launch of 3D.COM VIRTUAL REALITY PORTAL(tm) later this year and the continued non-stop pace at which the C-3D Television Network appears to be moving, we believe puts C-3D Digital on the fast track. By capturing just 1% of both the U.S. cable and hospitality markets, together with Strata's current revenue, we project total revenues of $36 million in 2001 and applying a 7x multiple, we forecast a 12 month price target of $36 per share.
"The report noted particular growth in C-3D's Internet division 3D.COM, "We believe that 3D.COM is poised for explosive growth and may contribute up to as much as 25% of C-3D Digital's total revenues by 2003. The hidden gem here is the fact that 3D.COM also doubles as the self supporting, dynamic R & D arm of the Company.
"A comparative analysis in the report commented on C-3D's virtual lack of competition, "Although several companies currently offer 'simulated' or 'shadow' 3D e-tailing web sites, to date there are no known direct competitors of the Company involved in either stereoscopic "pop out" e-commerce or network broadcast of 3D programming to the home. Imax Theaters and Universal Studios currently offer a stereoscopic 3D experience within a controlled environment, but the viewer must make an actual paid visit to the venue in contrast to a 3D experience in the comfort of one's home, for a fraction of the cost. Nonetheless the rapid growth of these 3D outlets is only further evidence of the vast market potential that awaits those ready to service the public's insatiable appetite for new and unique virtual entertainment.
"To view the Dutchess Advisors report online, visit www.nfnonline.com/ddd/dutchess.html. For a copy by mail or fax, please contact Dutchess Advisors, Ltd. directly at 617-375-6747.
C-3D Digital is a leading innovator, manufacturer and developer of 3D imagery and virtual reality entertainment for television and the Internet. The Company operates several synergistic divisions, including C-3D Television, the world's first and only broadcast network to offer 24-hour, 7 days a week 3D stereoscopic programming; 3D.COM, its Internet subsidiary, which includes Strata software, and the Hotel Movie Network.
The Company recently formed 3D.COM Virtual Reality Portal(tm), the world's first 3D virtual reality portal. This multimedia website is set to launch in mid-2000 and will feature streaming video over the Internet, real-time online gaming and e-commerce solutions in stereoscopic 3D. For more information, visit www.3d.com.
This news release may contain forward-looking statements made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. While these statements are made to convey to the public the Company's progress, business opportunities and growth prospects, readers are cautioned that such forward-looking statements represent management's opinion. While management believes such representation to be true and accurate based on the information available to the Company, actual results may differ materially from those described. The Company's operations and business prospects are always subject to risk and uncertainties. Important factors that may cause actual results to differ are set forth in C-3D Digital's periodic filings with the U.S. Securities and Exchange Commission.
For more information, see www.3d.com and www.nfnonline.com/ddd
COPYRIGHT 2000 Business Wire
COPYRIGHT 2000 Gale Group
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Access 1 Financial Issues Buy Recommendation With $40 12-Month Projection On C-3D Digital
Business Wire, Feb 3, 2000
Business/Technology Editors
LOS ANGELES--(BUSINESS WIRE)--Feb. 3, 2000
Chequemate International Inc. (AMEX:DDD), doing business as C-3D Digital Inc., the world's first 3D television network and 3D Internet media company, announced today that California-based Access 1 Financial initiated coverage of the Company with a buy recommendation and a 6-month price target of $24 per share and a 12-month price target of $40 per share.
The initial coverage of C-3D Digital by Access 1 Financial noted, &uot;C-3D is an industry innovator in the manufacture and development of three-dimensional solutions for home entertainment. The Company operates a subsidiary, C-3D Television that is the world's first entirely 3-D stereoscopic television network. Its 3D.Com division, composed also of computer graphics trendsetter Strata Software, is also positioning the Company to become a major player in the Internet marketplace...C-3D is ideally positioned to dominate a multi-billion dollar market.&uot;
In summarizing the Company's subsidiaries including C-3D Television, 3D.Com, (a forthcoming virtual reality/3-D e-commerce portal and Strata software line) and the Hotel Movie Network (HMN), Access 1 reported, &uot;C-3D's investment potential is improved by the high degree of internal synergy within its component divisions, allowing for more efficient and improved operations at minimal additional cost structure. The graphics services of Strata Software complement C3-D Television programming development, as do the planned Internet components of 3D.Com. The substantial suite of services and products offered by C-3D Digital products increases the Company's profitability. This provides for significant barriers-to-entry for competitors.&uot;
Access 1 continued, &uot;The future growth of C-3D Digital, Inc. and its subsidiaries is projected to be considerable within the next two years. As the cable rollout of the C-3D Television Network begins in earnest in early-to-mid 2000, HMN will expand its offerings and services, Strata Software will continue its significant revenue growth, and the launch of the 3D.Com Web portal will provide the Company with a valuable, high-visibility, cross-promotional platform from which to expand its market penetration significantly and to facilitate the development and rollouts of new 3-D technologies, services, and products. The full integration of, and improved internal synergies within the Company will be fully undertaken by mid-2000, providing an opportunity to take advantage of technological advances (i.e. availability of 3-D gaming both online and on the C-3D Television Network, as is planned for the World Virtual Reality League).
&uot;Comparative analysis included in the report marked the Company's early market penetration as a significant advantage, &uot;C-3D's market position is considerably enhanced by its early dominant position in the 3-D industry....C-3D has been the only company to devote significant funds or resources to 3-D development and use. Their use of advanced, consumer-friendly, technology and their creation of a 3-D television network gives C-3D a lead-time of 1 to 2 years over their potential competitors.&uot;
Commenting on the Company's expansion, the report stated,&uot;C-3D's future growth will be driven by several primary factors: (1) capitalizing on the newly-emergent market for high quality consumer entertainment products, such as the 3-Dimensional home entertainment products; (2) continuing to refine and develop both its 3-D technologies and C-3D Television content and capture a larger portion of the overall market; and (3) developing strategic relationships with cable and entertainment providers to provide the Company's products and services.&uot;
Access 1 projected a 6-month valuation of $24 per share, based on 6x 2001 revenues of $24.1 million and a turnaround to profitability, with an estimated $0.48 earnings per share in 2001 up from an estimated loss of $1.24 in 2000. &uot;During fiscal 2001 we anticipate C-3D gaining an approximate 2% share of cable customers to subscribe to the company's television network. This along with the expanding of www.3D.com should push estimated revenues to approximately $24 million. We anticipate this growth continuing with C-3D expanding its television presence to approximately 6% of cable and satellite households in fiscal 2002. Additional growth is also expected within the company's web presence as cross marketing and vertical and horizontal factors expand C-3D's revenue to an estimated $71 million for this period.&uot; (all estimates are based on a 1-to-4 reverse stock split effective 2/2/00).
For a complete copy of the buy recommendation on C-3D Digital, please contact Access 1 Financial directly at 310-581-7997.
C-3D Digital is a leading 3D media company that gives broadcasting and entertainment companies the ability to deliver 3D entertainment to any standard television 24 hours a day. As a leading innovator of 3D entertainment technology, C-3D Digital is the first television network to offer 3D programming exclusively to satellite and cable television subscribers. Additionally, the Company operates an Internet subsidiary company 3D.com. C-3D Digital maintains offices in the Los Angeles, California; St. George, Utah; and Phoenix, Arizona areas.
This news release may contain forward-looking statements made pursuant to the &uot;safe harbor&uot; provisions of the Private Securities Litigation Reform Act of 1995. While these statements are made to convey to the public the Company's progress, business opportunities, and growth prospects, readers are cautioned that such forward-looking statements represent management's opinion. While management believes such representation to be true and accurate based on the information available to the Company, actual results may differ materially from those described. The Company's operations and business prospects are always subject to risk and uncertainties. Important factors that may cause actual results to differ are set forth in C-3D Digital's periodic filings with the U.S. Securities and Exchange Commission.
For more information, see www.3d.com and www.nfnonline.com/ddd
COPYRIGHT 2000 Business Wire
COPYRIGHT 2000 Gale Group
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