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Update: CMKM Diamonds, Inc. - Sounds of Silence
Investigative Reports
June 5 2005
The saga of CMKM Diamonds, Inc. (Pink Sheets: CMKX) continues – giving new meaning to the word chutzpah. The Company has been battling the SEC, hoping to forestall the Commission's effort to revoke the registration of CMKM's common stock. See SEC Suit Against CMKM Diamonds, Inc. Could Sink Company. It also has been attempting to rally support among a cult-like troop of supporters who seem determined to ignore the Company's shortcomings. Their blind loyalty is puzzling. After all, even assuming the Company can provide a reasonable explanation for its prolonged failure to file required public reports, CMKM has yet to indicate that it has any assets with even marginal value.

Last month the Company declared that it was "diligently preparing" for a May 10th administrative hearing in the SEC case – but at the same time seemed to be diverting attention from its own conduct by insisting that the court should focus on allegations of illegal naked short selling in CMKM stock. That argument certainly appeals to a segment of CMKM fans, who have formed CMKX Owners Group and purportedly have retained a lawyer to investigate these short-selling allegations – evidently all with the Company's blessing.

As they pursue those efforts, they may wish to review the SEC's brief, filed after the May 10th hearing, to gain further insight into the Company to which they are committing their time, effort, and additional dollars. The revelations are illuminating, and might be considered amusing, if not for the devastating losses already suffered by CMKM investors.

The SEC argues, quite reasonably, that the investing public cannot possibly make informed decisions about CMKM stock because of the Company's failure to file periodic reports since 2002 – despite its clear obligation to do so. As StockPatrol.com readers will recall, CMKM attempted to terminate its filing obligations in July 2003, claiming that the Company had fewer than 300 shareholders at the time. See CMKM Diamonds, Inc. - The Spin We're In. That claim, as regulators subsequently discovered, was false. The Company actually had 698 shareholders at the time.

The SEC says that CMKM has acted in bad faith, delaying, deferring, and ultimately failing to file public reports. The first evidence of that conduct surfaced in March 2003, just months after CMKM (then known as Casavant Mining Kimberlite International, Inc.) gained control of a public shell called Cyber Mark, International, Inc. On March 31, 2003, the Company requested a fifteen day extension for filing its Form 10-K for the year ended December 31, 2002, because auditors needed additional time to prepare the financial statements. That Form 10-K never was filed.

Three months later, the Company took the same tack. On May 16, 2003, CMKM claimed that it would need an additional five days to file its Form 10-Q report for the first quarter of 2003, stating that it needed the additional time to prepare financial statements. The Form 10-Q never was filed.

The Company's failure to file reports since that time is undisputed – and its obligation to do so appears to be indisputable. The Company's lawyers have argued – as one might expect – that CMKM acted in good faith or on the advice of counsel when it filed a Form 15 in July 2003 declaring that there were fewer than 300 shareholders. The facts suggest otherwise. As the SEC points out, on January 12, 2003, the Company issued over 994 million shares to 360 individuals for "field work," and that same month CMKM conducted an "official shareholder audit" to identify every shareholder of record.

And, as if that were not enough to demonstrate that CMKM should have been aware that shares had been issued to more than 300 shareholders, there is this – as of July 22, 2003, CMKM's Master Shareholder List showed that there were 698 shareholders of record. Yet, according to the SEC, the Company did not seek that information from its Transfer Agent before filing the Form 15 and attempting to curtail its reporting obligations.

Any argument that the Company believed it was not required to file also seems to be contradicted by CMKM's statements during 2004. Time and again, the Company offered assurances that it was preparing to file and that filing was imminent. Those promises proved hollow. As the SEC points out, the Company did not even hire an auditor until January 2005, after the Commission had initiated its inquiry into the delinquent filings.

How does the Company respond to these charges? Its CEO chose silence, and its newest Director demonstrated his lack of familiarity with the Company.

Urban Casavant, the Company's CEO, who has been outspoken in the past, making bold but unsupported statements about the Company's plans and prospects, asserted his Fifth Amendment privilege at the May 10th hearing. The Fifth Amendment to the U.S. Constitution allows a witness to decline to answer questions on the grounds that his answers might tend to incriminate him. The privilege against self-incrimination is a fundamental right and protects an individual from testifying against himself in a criminal proceeding. In a civil proceeding such as this, however, a court may draw an adverse inference from the exercise of that privilege.

Robert Maheu, the former Howard Hughes operative whose appointment to the Board of Directors was supposed to signal a new era of disclosure and compliance by CMKM, demonstrated that he may be little more than fancy window dressing, as he indicated that he knew little about the Company's inner workings. Mr. Maheu admitted candidly that he did not know whether CMKM had any offices or employees, was not aware of the Company's assets and liabilities, had no background in mining, and had not disagreed with any of Casavant's decisions on behalf of the Company.

Mr. Maheu, who is being paid $40,000 a month by CMKM (according to the SEC's brief), apparently was out of another loop as well. He apparently testified that he believed an audit had commenced – which it had not - and was unaware that CMKM had not yet provided critical documents to its auditors. Perhaps once he learns the current state of the audit he will be more disturbed – and even disagree with Casavant on a point or two.

The Company's financial picture remains a blur. The auditor retained by the Company in January 2005, Bagell, Josephs & Company LLC, already has resigned, indicating that CMKM is not a business it wishes to represent. CMKM's bookkeeper testified at the hearing that a draft general ledger for the Company is based upon incomplete information, including $24.6 million of stock issued based upon an "unknown agreement," and approximately $56 million for a jade collection transaction that may or may not have been reversed.

This comedy of errors and omissions would seem laughable, if not for its profound impact on CMKM shareholders who have no way of determining whether their Company has any assets or value. The Company apparently cannot account for money it purportedly received in 2004 in exchange for mineral rights - $3 million from U.S. Canadian Minerals and $10 million from St. George Metals, Inc. Meanwhile, no one appears able to explain what happened to that $56 million jade collection.

Did those millions of dollars exist, and if so, where have they gone? Unfortunately, if the SEC wins this fight, shareholders may never learn the truth. Once the registration of CMKM shares is revoked, the Company will effectively cease to exist as a public entity and its public reporting obligations will disappear. Other proceedings may follow, seeking to hold the Company and its principals accountable for their actions, but with the pressure off, the inner workings of CMKM can fade even further from view. That will leave shareholders on their own, chasing the CMKM ghost in search of answers and assets - and waiting, perhaps in vain, for Casavant to speak candidly.




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