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CMKM Diamonds players named in $64-million SEC lawsuit
2008-04-07 20:16 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
by Lee M. Webb
CMKM Diamonds Inc., a revoked pink sheet woofer, and its founder, Saskatchewan native Urban Casavant, are among 14 defendants in a securities fraud lawsuit filed by the U.S. Securities and Exchange Commission (SEC).
The U.S. regulator claims that Mr. Casavant and his cronies pocketed more than $64.2-million during the fraudulent CMKM stock promotion. (All amounts are in U.S. dollars.)
The SEC, which acknowledges the assistance of the Financial Industry Regulatory Authority and the Saskatchewan Financial Services Commission, filed its complaint against the alleged fraudsters in the U.S. District Court for the District of Nevada on April 7.
None of the defendants has yet filed an answer to the SEC complaint and the allegations have not been tested in court.
The defendants
In addition to 51-year old Mr. Casavant, who skedaddled from Las Vegas, Nev., back to Saskatchwan about a year ago, the SEC tags 65-year-old John Edwards as one of the two masterminds and principal beneficiaries of the fraudulent scheme.
According to the U.S. regulator, Mr. Casavant made approximately $31.5-million from the stock scam and Mr. Edwards's take came in at a more modest $26.4-million.
Ginger Gutierrez and James Kinney, both 37-years old, are identified as two of Mr. Casavant's nominees. The pair served as CMKM investor relations representatives for a time and were allegedly instrumental in unloading more than 88 billion shares for Mr. Casavant and his family members, keeping a significant cut of the proceeds for themselves.
A husband-and-wife team of paperhangers from Boca Raton, Fla., 67-year-old Anthony Tomasso and 56-year-old Kathleen Tomasso, allegedly served as nominees for Mr. Edwards.
According to the SEC, approximately 77.3 billion CMKM shares were issued to five entities owned by the Tomassos, who generated at least $6.5-million by dumping stock. They allegedly wired more than $2.2-million to Mr. Edwards and transferred substantial amounts of money to some of his associates, keeping approximately $648,500 for themselves.
CMKM's transfer agent, 1st Global Stock Transfer, and its owner, Helen Bagley, are also named as defendants. According to the complaint, CMKM stock issuances and transfers accounted for more than 50 per cent of the transfer agent's business from 2003 to 2005.
The SEC claims that 61-year-old Ms. Bagley accepted suspicious payments from Mr. Edwards and his nominees while turning a blind eye to obviously bogus opinion letters and issuing more than 589.7 billion unrestricted CMKM shares to several of the defendants and others.
NevWest Securities Corp., which had its registration yanked last July, its chief executive officer and chief trader, 37-year-old Sergey Rumyantsev, chief compliance officer and general counsel, 42-year-old Anthony Santos, and 39-year-old broker Daryl Anderson are also named in the lawsuit.
According to the U.S. regulator, Mr. Edwards opened at least 36 brokerage accounts at NevWest where his accounts were handled by Mr. Anderson. With the help of NevWest and its accommodating broker, Mr. Edwards allegedly unloaded approximately 259.9 billion CMKM shares for proceeds of more than $53.3-million.
The SEC claims that NevWest and its principals turned a blind eye to the suspicious share dumping, which generated more than $2.5-million in commissions for the firm and accounted for more than 35 per cent of its revenue. Mr. Anderson earned approximately $2.3-million for handling Mr. Edwards's CMKM trades.
Nevada-licensed attorney Brian Dvorak, now living in Colorado, rounds out the list of defendants.
The U.S. regulator alleges that Mr. Dvorak wrote at least 464 attorney opinion letters authorizing the issuance of more than 606 billion unrestricted CMKM shares. The vast majority of those opinion letters were fraudulent.
In return for writing hundreds of bogus opinion letters, the regulator says that Mr. Dvorak received at least $495,000 from Mr. Casavant and his nominees during 2004.
Bare bones
Given that Stockwatch has published more than 60 articles dating back to October of 2003 about Mr. Casavant's wild pink sheet promotion, many readers may be familiar with the saga of the enterprising Saskatchewan native who managed to unload a staggering 703.5 billion shares on gullible investors before the SEC pulled the plug on the company in October of 2005.
In addition to Mr. Casavant, almost all of the defendants in the lawsuit have featured in previous Stockwatch articles.
SEC attorney Leslie Hakala, who is handling the regulator's civil complaint against the 14 defendants, is also quite familiar with the outrageous CMKM promotion. Ms. Hakala represented the SEC in the administrative proceeding that finally led to CMKM's revocation in 2005.
In future articles, Stockwatch will examine the Nevada lawsuit more closely and flesh out some of the details, but for now will offer a bare bones review of the promotion as it is laid out in the April 7 filing.
As noted in the SEC suit, CMKM fraudulently stopped filing periodic reports with the U.S. regulator in July of 2003. At the same time, the company gagged the transfer agent and would not publicly disclose how many of its shares were outstanding.
As part of the early promotion, CMKM asked shareholders to help "combat naked short selling" by holding their shares in certificate form. The naked short selling bogeyman figured prominently in the CMKM promotion.
Mr. Casavant then set about touting the company's purportedly fantastic mineral properties in Saskatchewan, which consisted of nothing more than untested moose pasture that saw almost no exploration work during the promotion.
In early 2004, the company dramatically announced a "kimberlite ore discovery" after some limited drilling on one of its properties, sparking a frenzy among some gullible investors who believed that CMKM had made a fantastic diamond find.
Mr. Casavant named the supposedly "new kimberlite discovery" the "Carolyn Pipe" after his wife. As Stockwatch quickly reported, however, the kimberlite body had actually been found in 1996.
"CMKM and Casavant also propped up interest in the company's stock -- while selling into the market -- through a variety of Internet activities designed to foster shareholder interest and excitement," the SEC claims.
Indeed, Mr. Casavant was incredibly successful in attracting a huge, cult-like Internet following.
"Perhaps Casavant's most effective tool to promote CMKM was 'CMKXtreme,' a team of motorbike, truck and 'funny car' racers," the U.S. regulator says.
Whether by luck or design, the funny car promotion was also a fantastic success.
"Hundreds of CMKM shareholders attended the races and visited the CMKM-sponsored tent, where they could study a map of CMKM's alleged mineral claims, watch a video loop of CMKM's purported drilling work, and meet and greet Casavant and his family," the SEC states.
"The press releases, Internet hype, and racing promotions were successful in attracting and maintaining a loyal shareholder base for CMKM for almost two years," the regulator continues. "The sustained demand for CMKM stock fueled by the constant promotional efforts allowed the defendants to continue selling newly issued stock to the public.
"About 40,000 people purchased CMKM stock in market transactions during the fraud, particularly after June 2004 when CMKXtreme became extremely popular."
As it happens, more than 40,000 people still hold worthless CMKM shares and some of them believe that the company will be revived.
The saga continues.
Comments regarding this article may be sent to lwebb@stockwatch.com.
(Further information regarding CMKM Diamonds and associated companies can be found in Stockwatch articles dated Oct. 21, 2003; June 22; Sept. 16 and 24; Oct. 1, 15 and 20, 2004; Feb. 11, 14, 18, 22 and 23; March 1, 3, 4, 7, 14, 15, 16 and 21; June 6, 8, 9, 10, 13, 14, 15, 16, 17, 20, 21, 22, 29 and 30; July 1, 4, 6, 12 and 13; Aug. 2, 5 and 9; Sept. 7, 12, 27 and 30; Oct. 24, 26 and 31; Nov. 7, 11, 22 and 25; Dec. 1, 6, 9, 15 and 22, 2005; Jan. 3; Sept. 29; Oct. 4, 2006; and Aug. 30,2007.)
