here you go derf, if you haven't already got it.
FRIZZELL LAW FIRM
305 S. BROADWAY, SUITE 302
TYLER, TEXAS 75702
BILL FRIZZELL
Legal Assistant Goldie Norris September 6, 2005 www.frizzelllawfirm.com
Phone (903) 595-1921
FAX (903) 595-4383
E-MAIL: bfrizzell@tyler.net
Donald Stoecklein
Stoecklein Law Group
402 West Broadway, Suite 400 San Diego, California 92101
Re: Request for Company to Pursue Claims Against Various 3rd Parties Nev. R.C.P. 23.1 and Federal R.C.P. 23.1
Dear Don:
In several of our conversations you have reminded me that you are the attorney for CMKM Diamonds, Inc. and that your representation does not necessarily involve representation of any particular officer or director individually. I am writing this letter to you as the attorney for CMKM Diamonds, Inc. By prior press releases, it is the understanding of most of your shareholders that Mr. Maheu and Urban make up the current board of directors. I would ask that the contents of this letter be conveyed to them for action by the company.
To comply with the requirements of the Nevada statutes and the appropriate Federal statutes, I am making a request for certain legal action to be taken by the company at the request of numerous shareholders that owned stock during all relevant times in 2004. Many of the shareholders have owned stock (and still continue to do so) since 2001. In 2004 over 600 billion shares of CMKM Diamonds, Inc. common stock was issued by the company. The issuance of these shares caused significant dilution of the shareholders stock. The stock has not yet recovered from the effects of this dilution.
Many of the company shareholders have been involved in the investigation of the transactions that led to the issuances of stock last year in such large quantities. On behalf of the above mentioned shareholders I suggest that certain third parties have committed acts that give rise to legal liability to the company.
John Michael Edwards-A review of one complaint filed with the SEC shows that Mr. Edwards was instrumental in obtaining some early financing of the company's activities. Mr. Edwards has been identified as an individual that opened in excess of 36 trust accounts at Nev West Securities since his involvement with the company. Certificates have been issued to an additional 20 companies that have addresses in Langley, B.C. which are purportedly owned or controlled by John Edwards. All addresses have been traced to mail drops as opposed to physical addresses in both Las Vegas and Langley, B.C. Records show that company began issuing stocks to Mr.
Edwards trusts as early as 2002. Mr. Edwards used his personal social security number in setting up these accounts and he was named as trustee in all of the subject accounts.
It is clear through the company's master shareholder list that these trust accounts were the vehicle for dumping hundreds of billions of shares onto the market. Many of these shares were restricted shares and should never have been dumped on the market. This dumping occurred at a time when the company was conveying good news about the company's progress to the innocent but unknowing public. Recently it was learned that Mr. Edwards had amassed 2 billion dollars worth of Crown Financial stock. Crown Financial was one of the most active market makers of CMKX stock when hundreds of billions of shares of stock were suddenly dumped on the market. There is evidence that portions of the funds from the sale of these securities were returned to the company and/or some of the company insiders via wire transfers and other deposits. It is my opinion that certain portions of the documents I have received from the SEC investigation are confidential and I am not free to disclose certain documents, including banking records which I have in my possession, to my clients. I am obligated however to direct you to the records which you received as well for purposes of this "shareholder derivative rights" letter.
The case law regarding the requirements of this "shareholder derivative rights" demand letter is very clear. I must be specific in my demands on the company as to which actions the shareholders would like the company to pursue. In this regard, as you have now had the opportunity to scrutinize all bank accounts of the company and stock issuances as a part of your ongoing efforts to have the company's financial reports audited, we request that the company pursue Mr. Edwards for his breach of the insider trading rules and any other securities violation to which you are aware of. Specifically, the company should seek disgorgement of any short swing profits made by Mr. Edwards based on his trading activities. The company should seek cancellation of each and every CMKX share that is now outstanding and currently being held by Mr. Edwards or any of his companies or trusts.
Some shareholders have contacted principals in at least two of the companies bearing the trusts principal's names and owners of the companies bearing the trust names disclaim any knowledge of the transactions in which billions of shares of CMKX stock were sold pursuant to the instructions of Mr. Edwards. The application page which was obtained by Nev West at the opening of these trust accounts indicates that most of these trusts had assets in excess of $1,000,000. If in fact, these trusts were used as vehicles to sell stock in violation of securities law, your shareholders would request that the company seek reimbursement for all sales and any consequent gains from the trusts that were used in this manner. The net effect of these actions could result in potentially millions of dollars of recovery which could be used by the company to further its drilling operations.
It is my understanding that Mr. Edwards has been in attendance at several meetings in which the progress of an audit was being discussed. Notes from the auditor suggest that Mr. Edwards had the complete stock book in his possession in January of this year. Although the shareholders do not know why Mr. Edwards would be in possession of the CMKX stock book, it seems clear there is cause for investigation on behalf of the company as to the propriety of such acts. I would also direct your attention to a wire transfer dated July 28, 2004 from a PA Holdings, Inc. account. The
shareholders hereby request that all appropriate claims which may be asserted against Mr. Edwards be instituted at this time.
The shareholders are aware of Mr. Edwards' refusal to testify by deposition at the administrative hearing. If Mr. Edwards should continue the assertion of his fifth amendment rights in any action brought by the company, the company could seek rulings from the Court which would assist them in obtaining a favorable outcome of any action.
Nev West Securities- It has been proven by the records you and I have received from the SEC that Nev West Securities has allowed John Edwards to open at least 36 trust accounts to trade securities. The company issued stock certificates to Mr. Edwards companies and trusts totaling hundreds of billions of shares in 2003, 2004 and 2005. Once the sale of these massive amounts of CMKX stock were concluded, checks were issued and funds were wired from Nev West to various accounts at the direction of John Edwards. The company should investigate these activities to determine the complicity of Nev West in the massive dilution and improper trading activities in its company stock. I have been told there has been a full NASD investigation and we request that that company seek full discovery of any such investigation.
I have requested from you the DTCC records regarding the trading in CMKX stock and would renew that request at this time on behalf of the company shareholders. You are aware that significant naked shorting of CMKX stock has occurred and the company is hereby requested to assist in the investigation to determine those that may be responsible for the illegal shorting and fails to deliver that are present in this stock. It is believed that Nev West facilitated the naked shorting of CMKX stock. The DTCC records are crucial in following the trail of the naked short transactions.
There is a group of CMKX shareholders that contacted Nev West earlier this year after learning there was a large amount of stock available for sale. This group of shareholders contacted Nev West directly and purchased a large block of CMKX stock. Immediately upon the purchase of a large block of stock, the Nev West agent began to run the stock down to the purchasers, alienating several shareholders. It is clear that Nev West has been a facilitator in the dilution of CMKX stock.
Neil Levine- The shareholders request that legal action be taken against Neil Levine and the accounting firm of Bagell, Josephs and Company. Testimony by Mr. Levine at the administrative hearing confirms that Neil Levine was brought in to perform the audit by John Michael Edwards. Notes from Mr. Levine and testimony at the hearing also confirm that Mr. Edwards was in possession of the stock book and actually attended the first meeting between the company and the auditors. Mr. Levine admitted to his prior association with Mr. Edwards because of other work he had performed for Mr. Edwards. The company received an unwelcome surprise on the day before the important administrative proceeding was to begin. Mr. Levine stated that he was too busy with other companies and was terminating his relationship with CMKM Diamonds, Inc. We acknowledge that the company was having difficulty in gathering information needed by Mr. Levine, but his abrupt termination at such a critical time most likely constituted professional negligence. Mr. Levine's relationship with the person most involved in diluting the company renders his stated reason for abandoning the company suspicious at best.
Although Mr. Levine accepted funds to perform his due diligence and did in fact perform due diligence on the company, he opted to withdraw without warning on the day before the hearing. At the very minimum, the auditing firm should be requested to return any unaccounted for pre-paid fees. As company attorney, you are in a better position to know the merits of any legal claims that may be brought by the company against Bagell and Josephs and Company and/or Neil Levine for its dealings with CMKM Diamonds, Inc. The evidence of Mr. Edwards massive sell off of CMKX stock should be reason to bring legal action against Mr. Levine on behalf of the company.
David Desormeau- A press release dated December 3, 2002 touted the hiring of David Desormeau to institute a real time financial reporting and inventory control system. The press release indicated that his system was capable of producing daily drilling logs, field reports, core sampling data, product expenditures and other features. This hiring was ostensibly to coordinate the new financial accounting system to insure seamless integration with newly enacted Securities and Exchange Commission auditing practices for public companies. David Desormeau was named Treasurer on January 7, 2003. He has been referred to on many occasions as the Chief Financial Officer of CMKM Diamonds, Inc.
The shareholders request that the company file suit against Mr. Desormeau for professional negligence. Since the company's hiring, Mr. Desormeau has not instituted the system which was touted on his hiring. There has never been a financial report filed with the SEC since Mr. Desormeau's hiring. It is clear from the written communications between Mr. Desormeau and Neil Levine, that Mr. Desormeau did not have adequate records of the company. It now appears that Mr. Desormeau's failed accounting system is at least one of the reasons the company has been unable to file its required financials.
Of even greater concern than the inadequate bookkeeping is Mr. Desormeau's trading activities and payments for his services. Ms. Buck testified on page 347 of the administrative hearing transcript that Mr. Desormeau had been paid $1,500,000 in stock. My investigation shows that 63 billion shares were issued to Business Works (a company owned by Mr. Desormeau) at a time when the company was promoting its stock through press releases about its diamond finds. I have reviewed bank records which show cash payments from Mr. Casavant to David Desormeau for $49,500 from June 10, 2004 through August 18, 2004. As you know, I only received a few select bank statements of various company accounts. The business address for Business Works is 6300 Mowbray Ct, Henderson, Nv. This is also the resident address of David Desormeau. Business Works is also the registered agent for several other companies that have been identified as receiving billions of shares of stock. Specifically, the company should seek disgorgement of any short swing profits made by Mr. Desormeau based on his trading activities. The company should seek cancellation of each and every CMKX share that is now outstanding and currently being held by Mr. Desormeau or any of his companies.
James Kinney- James Kinney was identified as being a consultant to CMKM Diamonds, Inc. in an S8 filing by the company on April 15, 2003. Mr. Kinney was paid 530,000,000 shares valued at $265,000 for a 6 month consulting contract for his expertise in zinc claims. Although Mr. Kinney is never mentioned in any other filings with the commission as an officer, employee or board member, Mr. Kinney, and companies under
his control such as Part Time Management, Inc., were issued nearly 100 billion shares of CMKX stock in less than 10 months from late 2003 to 2004. You have now had the benefit of seeing all the bank statements and stock issuance records. You have also seen the company bank accounts with the documentation of the wire transfers as part of your efforts in gathering records for financial audits. The shareholders are requesting that you take action on behalf of the company if these records show unlawful trades which were conducted by insiders resulting in dilution of company stock. Specifically, the company should seek disgorgement of any short swing profits made by Mr. Kinney based on his trading activities. The company should seek cancellation of each and every CMKX share that is now outstanding and currently being held by Mr. Kinney or any of his companies.
Ginger Gutierrez- Ginger Gutierrez has maintained mostly clerical positions with the company. Her signature appears on many checks written from CMKXtreme account. There are also checks written out to Silver State Bank for cashier's checks which ultimately were endorsed by Ginger Gutierrez. Ms. Gutierrez is listed as secretary and treasurer of Part Time Management, Inc. Beginning in August of 2003 through October of 2004, Ms. Gutierrez transferred 23 billion shares of CMKX stock personally in addition to the stocks that were issued to Part Time Management, Inc. Specifically, the company should seek disgorgement of any short swing profits made by Ms. Gutierrez based on her trading activities. The company should seek cancellation of each and every CMKX share that is now outstanding and currently being held by Ms. Guitierrez or any of her companies.
Brian Dvorak- The shareholders have been presented with evidence that numerous opinion letters were written by Brian Dvorak which resulted in free trading shares of CMKX stock. The evidence suggests Mr. Dvorak incorrectly issued opinions which resulted in legends being removed or authorized free trading of shares when in fact, such shares should have been restricted and subject to certain holding periods. I have personally viewed some cancelled checks from PA Holdings, Inc. and CMKXtreme, Inc. signed by Urban Casavant payable to Brian Dvorak totaling over $72,000 during the months of June, July and August of 2004. A check with the Nevada Secretary of State records reveals PA Holdings, Inc. is a Nevada corporation with the President, Secretary and Treasurer as Brian Dvorak. You have reviewed many documents supporting the issuances of stock such as the board resolutions. I am assuming you have reviewed the opinion letters issued by Mr. Dvorak. The shareholders have not seen evidence that there has ever been a 100 for 1 forward split. It appears stock issuances referring to a 100 for 1 forward split were supported by Mr. Dvorak's opinion letters, yet stock was issued to only a select few. If there is a logical explanation for this issuance of stock, please advise. The shareholders request that you take legal action against Brian Dvorak for any occurrences of legal malpractice which have caused company stock to be freely traded in the market, when such should not have occurred.
Finally, you are the one person who has unfettered access to all records of the company and the most likely person with the ability to obtain any missing records. When Mr. Maheu was brought on as Chairman of the Board, he entrusted you with the job of
getting the company in good financial reporting shape. You have seen two auditors bail out after being paid substantial sums of money. One auditor has notified the SEC of serious improprieties found during the attempted audit of CMKM Diamonds, Inc. If your work has uncovered any acts that may warrant legal action on behalf of the company, the shareholders request that you take any and all action that you deem necessary on behalf of the company. This obviously puts you in an awkward position, and for that I apologize. You have been very up front with me in every aspect of your representation of the company. I look forward to continue our working together on behalf of the shareholders. I am optimistic that pursuing some of the above mentioned claims will be beneficial to the company and ultimately to the shareholders.
The list of actions we are requesting that the company take are based on documents which have been given to me in these proceedings. The shareholders have performed much due diligence on the company's dealings and relationships because they have received no information of substance on the company's operations in over a year. Maybe the bright lights of litigation will help illuminate some of the reasons this company stock has been diluted and shorted. This list does not purport to be a complete and final list of actions that the shareholders deem to be warranted. In accordance with the requirements of Nevada law and Federal Rules of Procedure, we will notify you of any additional acts the shareholders deem necessary.
Please present these matters to Urban and Mr. Maheu for consideration. The cases which I have found interpreting the relevant statutes do not suggest a specific time period within which to request action. I will look forward to your response within 30 days from today. If after due consideration of the shareholders' request, the company believes in its best judgment, that the actions we are seeking are not justified, please so advise. Call me if you have any questions or concerns about this request.
ergly,
Bill Frizzell
Attorney for John Martin
and the CMKX Owners Group
AI
