CMKM Diamonds Inc. (fka CMKX)

[GO FOR IT]

On October 28, 2005, CMKM Diamonds, Inc. (best known by its trading symbol CMKX) was delisted by the SEC for non reporting violations, halting trading of the stock in a company that had issued an incredible 703 billion shares of “real” stock, sold to over 50,000 shareholders. Shortly afterwards, the company appointed a three person task force, consisting of Attorney Bill Frizzell, Attorney Don Stoecklein, and Howard Hughes’ former right-hand man Bob Maheu, to “identify bonafide shareholders” of the company’s stock, a process that after seven months, and three deadline extensions, still has not been completed, as brokers have used excuse after excuse to delay delivery of shareholders’ stock certificates.

Yesterday, Bill Frizzell sent a complaint letter to the NASD, along with copies to the SEC, Nevada state securities regulators, and several key members of Congress, claiming that there is “indisputable evidence of large numbers of failed deliveries in this stock,” and that brokers are trying to undermine shareholders rights by denying them their rights to ownership, stating that:

Nevada law NRS 78.235 mandates that each shareholder has the right to request and receive certificates of ownership from the company for their stock. Specifically, the statute states “..every stockholder is entitled to have a certificate, signed by officers or agents designated by the corporation for the purpose, certifying the number of shares owned by him in the corporation.”

In his complaint letter to the NASD, Frizzell lists a few of the reasons that brokers have given their clients for failing to deliver the stock certificates to their rightful owners. It is a list worthy of David Letterman’s Top Ten:

The most alarming problems are represented by those shareholders who have been requesting certs from their brokers since the company’s first announcement of a distribution seven months ago. Here is a sampling of excuses being given to shareholders as reasons for their inability to obtain a cert:

1. “We had your cert, but it is now lost. It will take us another 6 to 8 weeks to obtain another one.”

2. “This stock purchase was a book entry only and no certificate is available.”

3. “Your stock was classified as a worthless security and is no longer in your account.”

4. “Our clearing firm has not been able to deliver these certificates due to a backlog of requests at the transfer agency.”

5. “I have been instructed we are no longer pulling certs for CMKM and there is nothing I can do. You need to contact the company.”

6. “CMKM Diamonds has a “K” code next to it, indicating that it is being held in safekeeping for the client. The clearing agent has made the decision not to issue certs but rather fax a copy of the certs it holds to the transfer agent.”

7. “Attached herewith is evidence of ownership of shares held electronically by XYZ clearing for ABC broker. ABC to confirm receipt of this proof of shares of CMKM and related companies are held with XYZ.”

8. “In light of the lack of cooperation (by the transfer agent), your May 15th, 2006 deadline must be bogus and must be extended, and Entourage shares could of course still be sent to ABC for the benefit of XYZ.”

9. “MNO said they had discussed with the Task Force the acceptability of the affidavit as proof of ownership in lieu of the certificate, and that it would be accepted.” No such conversation ever occurred with the Task Force members.

10. “We ordered your certificate, and it has been lost. You must now fill out a loss certificate.” The transfer agent confirms that no certificate was ever issued.

Each quoted statement above is taken verbatim from a shareholder’s letter or from a broker’s written response to a shareholder’s request for a cert. I could continue with pages and pages of documented incidences of these broker responses to the requests of the shareholders if such is necessary to establish the need for a full investigation.

The key to the Task Force complaints about CMKX is a scheduled distribution of shares of another company’s stock, Entourage Mining Ltd. (ETGMF). Even though there were a total of 703 billion shares of CMKX, and even though the stock hasn’t traded for almost seven months, brokers still haven’t been able to deliver stock to all of the shareholders who have requested it, pointing to a potential short that could total in the billions of shares.

Considering the fact that the DTCC has claimed that the amount of failed deliveries has never exceeded 500 million shares for the entire market, it’s quite likely that the failed deliveries in this one little company….that no longer even trades….could surpass the entire number of fails claimed by the DTCC for the entire stock market.

But the story gets even more bizarre. On April 28, 2006, a month before the final deadline for share distribution, the DTCC emptied its vaults of all CMKX shares, sending them to the brokers via the transfer agent, and the Task Force eventually compiled a list with a broker-by-broker breakdown of who had how many shares left to hand out. The distribution of certs continued, with some of the country’s biggest brokers dragging their feet in what seemed to be an attempt to stall for time until they could come up with a way to cover their trades…and their tracks.

And just this week, some of the brokers did just that, turning in their own CMKX certificates in the brokerages names (instead of the “real’ shareholders names), in an attempt to receive the Entourage shares themselves. Why would they do this? There’s only one logical reason for it. They intend to take the Entourage shares and deposit them in the accounts of the remaining CMKX shareholders who haven’t received their certificates….as “book entry’ deposits. In other words, if they’re short say, ten billion shares of CMKX, they simply “electronically” deposit the Entourage shares in the accounts, even if there aren’t nearly enough Entourage shares to give all of the real CMKX shareholders what is owed them.

They want to trade their short position in CMKX (which can’t be covered because the stock is no longer available) for a short position in Entourage Mining, which they can then go out and buy on the open market (because it is trading). Voila! No more short position, and hopefully, no more massive legal liability against the brokers for robbing the shareholders blind.

There’s only one problem: the brokers don’t own the stock, the shareholders do. Since CMKX is now a private company, the brokers should no longer hold it in street name. They were only the custodians of the stock, holding it until such time that the real owners, the shareholders, the ones who bought and paid for the stock in the first place, requested that the stock be handed over to them.

In all reality, the brokers should have delivered the CMKX stock within three days after they made the sale, as required by law. Instead, the stock hasn’t even traded for the past seven months, and many of them still can’t deliver.

So who are the guilty parties? That still remains to be seen, but the Positions Report issued by the DTCC in April provides some definite clues. First, let’s go back to the letter sent out by Frizzell yesterday:

The Task Force has now received certs in the name of certain brokerage companies. Our investigation reveals a potentially huge naked short position in at least two of the very companies that have sent us certs. The certs sent to the Task Force by the brokers represent billions of shares of CMKM stock. It is not the intention of the company to distribute Entourage stock to securities intermediaries and clearing houses for them to distribute the stock at their discretion. It is clear from the Regulation SHO records in conjunction with other sources (ADP, the transfer agent and the DTCC) that huge fails to deliver in this stock currently exist. It would be a breach of the fiduciary duty of the company to distribute these assets to a broker in lieu of its true beneficial owner when there is evidence of known fails to deliver occurring at the same brokerage house.

Now let’s look at the Positions Report. There are only five brokerage houses with reported positions (as of April 14) of over a billion shares, and of those five, Ameritrade has over 4.1 billion shares on the Positions Report, and it is likely that they still hold a sizable portion of the reported 180 billion shares that they once had. And yet they refuse to distribute the remaining shares to their rightful owners, even after seven months. What do they have to hide?

Other brokerage firms with substantial positions on the list include NFS LLC with 5.3 billion shares still in street name as of April 14, Citigroup with 2.8 billion, and Penson Financial with just over 2.1 billion. I repeat: why haven’t these firms turned over their shares to their rightful owners. What do they have to hide?

Then, on the other side of the spectrum, we have E*Trade. The positions report shows them with a paltry 38,594 total shares left to distribute as of April 14. Considering the fact that I’ve personally received emails from CMKX shareholders who haven’t received their certificates totaling tens of millions of shares, it will be interesting to see how they mange to cover those accounts and the others who are still waiting to get what they paid for so long ago.

This is nothing more than a shell game, a series of ploys and stall tactics designed to hide the fact that something is very wrong with our stock market system. Couple this little tale with the growing number of other companies now presenting evidence of their own of rampant stock market manipulation and stock counterfeiting, and you have a trail of corruption that is unraveling at a frightening pace.

Bill Frizzell put it in perfect perspective in his closing paragraph, one that I hope our securities regulators and elected officials pay close attention to:

There was a time in the market place when shareholder’s rights at least co-existed with the rights of the broker/dealers. You have now been presented with evidence of shareholders who have demanded that their brokers issue certs for their holdings. Many shareholders have been flatly refused by their broker. This violates Nevada state law and the spirit, if not the letter, of federal regulatory law. I call on you to begin an investigation into this injustice.

And that, my fellow patriots, is the Faulking Truth.


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Mark Faulk is the Editor of The Faulking Truth, and the author of the upcoming book about the CMKX saga entitled "The Naked Truth: Counterfeiting the American Dream." Because of the massive amounts of research required to complete this project, and so that the events of the next few weeks can be included in the book as well, it has been rescheduled for release at the end of July or early August. For more information on the book and on the stock market scandal, go to http://www.faulkingtruth.com/ and to pre-order your copy, go to http://www.theownersgroupinc.com/cart/


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Here is a list of the regulators and elected officials who received (or will be receiving shortly), the letter concerning the CMKM/CMKX saga. Some people on this list have been supportive of our efforts to reform the stock market (Senators Bennett and Hatch in particular), while others have not. Contact them in a professional, courteous manner, and ask them to do the right thing to protect America’s shareholders:

SEC Complaint Center 100 F Street NE Washington, D.C. 20549-0213 FAX: [phone] [e-mail]

Senator Paul S. Sarbanes 309 Hart Senate Office Bldg. U.S. Senate Washington, D.C. 20510 [phone] FAX: [phone] http://sarbanes.senate.gov/pages/email.html

Senator Richard Shelby United States Senate 110 Hart Senate Office Building Washington, DC 20510 Telephone: [phone] Fax: [phone] [e-mail]

Senator Bob Bennett 431 Dirksen Building Washington, DC 20510-4403 Phone: [phone] Fax: [phone] http://bennett.senate.gov/contact/email_opinion.cfm

Senator Orrin G. Hatch Washington DC Office 104 Hart Office Building Washington, DC 20510 Tel: [phone] Fax: [phone] http://hatch.senate.gov/index.cfm?FuseAction=Offices.Contact

Senator Harry Reid 528 Hart Senate Office Building Washington, DC 20510 Phone: [phone] / Fax: [phone] http://reid.senate.gov/email_form.cfm

Senator John Ensign 356 Russell Senate Office Building Washington • District of Columbia • 20510 Phone: [phone] • Fax: [phone] http://ensign.senate.gov/forms/email_form.cfm

Congresswoman Sue Kelley United States House of Representatives 2182 Rayburn House Office Building Washington D.C. 20515-3219 Phone: [phone] Fax: [phone] http://www.webslingerz.com/jhoffman/congress-email.html

Rep Jim Gibbons Washington, DC 100 Cannon House Office Building Washington, D.C. 20515 Voice: 202-225-6155 Fax: [phone] http://www.webslingerz.com/jhoffman/congress-email.html

Congresswoman Shelley Berkley United States House of Representatives 439 Cannon House Office Building Washington, D.C. 20515-2801 DC Phone: [phone] DC Fax: [phone] [e-mail]

Congressman Jon Porter 218 Cannon House Office Building Washington, DC 20515 Phone: [phone] Fax: [phone] http://www.webslingerz.com/jhoffman/congress-email.html

Secretary of State Securities Division Charles Moore 555 East Washington Avenue 5th Floor, Suite 5200 Las Vegas, NV 89101 [phone] [phone] (Fax) mailto:[e-mail]