CMKM Diamonds Inc. (fka CMKX)

[janice shell]

Yes...

Some of these Institutions could have struck deals with Urban to provide previous funding with the opportunity to take a huge position before the major PR is released to initiate the first major run.

...could be. But that's not necessarily a Good Thing:

PIPE DEALS SMOKING

By CHRISTOPHER BYRON

June 1, 2004 -- IT didn't get much attention in the press, but in a Tampa, Fla., courtroom last week, the Mafia's much-chronicled rampage through the penny-stock market a decade ago officially came to an end, with sentences finally handed down for the four top remaining insiders in the case.

So is the so-called "microcap" end of the stock market any safer a place to put your money now that the bell has finally tolled for men like New Jersey crime under-boss Philip Abramo and his henchmen? Don't count on it. Just as Henry Kissinger once observed of diplomacy, each solution simply opens the door to the next problem, and on Wall Street, from behind every door wafts the scent of easy money.

This week we follow the beguiling aromas of Wall Street's newest penny-stock ploy - the so-called PIPE deal (for "private investment in public equity"), a kind of new-and-improved version of the so-called Regulation S deals on which Abramo and his crew feasted back in the 1990s.

In "Reg. S" deals, men like Abramo were able to cheat the market by orchestrating penny-stock pump-and-dump schemes while hiding behind the veil of offshore brokerage accounts held by local nominees in places like the Bahamas and the Netherlands Antilles.

In the new version, the hiding goes on in plain sight, via self-styled "micro-" and "small-cap" hedge funds that often function as willing patsies to pump worthless stock onto the market at outrageous prices.

Some on Wall Street say that more than $12 billion has been raised already from PIPE deals of all sorts. One trade group publication, the so-called PIPEs Report, estimates that close to $8 billion of fresh money has flowed into PIPE deals since January alone, with close to $1 billion of it funneled into itty-bitty transactions of $2 million or less - the typical-sized deal for an obscure penny-stock issuer.

In fact, however, no one can really see the full picture for any of this since the whole point of such transactions is to keep them free of regulatory oversight and control - the exact sort of conditions that sooner or later brings on the swindlers.

HEDGE funds are attractive customers for PIPE deals because the law treats such funds as "sophisticated" investors that don't need any help from the SEC in order to decide where to put their money. That apparently applies even when the funds are pouring money into the same sorts of troubled penny-stock companies that outfits like the Abramo crew exploited in their Reg. S swindles of the 1990s.

One such company, American Stock Exchange-listed Magic Lantern Group, Inc., has no working capital, no tangible net worth and no cash flow, and keeps producing quarterly net losses that exceed gross revenues. What's more, nearly half the company's stock is held by the court-appointed receiver of New York's Mob-connected Lancer hedge fund, which was shut down by the SEC following disclosures first published in this newspaper two years ago.

Though the stock is currently trading for 90 cents a share, the company has no obvious market value at all. Yet it was nonetheless able to raise $1.5 million from New York's Laurus family of penny-stock hedge funds.

Why would Laurus invest in such a company? One answer can be found in the deal it got, which boils down to 7.1 million shares of Magic Lantern stock, or 10 percent of the entire company, at less than 26 cents per share - a staggering 71 percent discount from the price that everyday investors had to pay in the public market. As a result, even if Magic Lantern Group's share price falls by 50 percent by the time the Laurus folks decide to bail out, they'll still be able to reap a stunning 80 percent profit on the deal while outside investors get hosed.

Or consider Summus Inc., an OTC bulletin board-traded company with a colorful past. At various times this company has functioned as a plaything for everyone from Vancouver penny-stock promoters to a North Carolina man who began his career peddling horse shampoo as a cure for human baldness.

These days, Summus claims to be in the business of developing "applications and solutions that optimize the consumer wireless experience," which basically involves selling photos of fashion models in bikinis that you can download into a cell phone.

The company's new boss, who's been on the job since February, says business is going great.

But apparently, it's not going quite great enough. During the first three months of this year, cash in the kitty fell by 86 percent, and by the end of March it was down to $300,000. In the process, the company's day-to-day working capital evaporated and the company plunged into insolvency, even as net losses soared by nearly 75 percent while the company's deficit in operating cash flow jumped by nearly 35 percent.

So is Summus a smart investment? At a current price of a mere 18 cents per share, the stock hardly seems to have many fans. But last month, the company was able to raise $2 million in a PIPE deal in which nearly 43 million shares of stock were offered at the equivalent of roughly 4.5 cents per share, or a 75 percent discount from the market price.

Nearly 40 percent of the Summus PIPE went to a penny-stock player named Joseph D. Samberg who runs hedge funds in New York and the Cayman Islands. Now Mr. Samberg is undoubtedly a fine individual, but he has a habit of turning up in deals with men whom you wouldn't want your daughter to bring home to dinner.

In October 1999, Samberg's funds paid roughly $15 million for about 2.5 million shares of a NASDAQ-traded company called Futurelink Corp. Thereafter, the company's stock price surged from $8 to nearly $36 per share, after which it precipitously collapsed in the early months of 2000, settling eventually in the pink sheets at its current price: roughly 1/100th of a cent per share.

THERE is no evidence that Samberg or his fund were knowing participants in what was obviously a well-orchestrated pump-and-dump heist, which wound up lifting an amazing $2.5 billion from the market. But he should have known who he was getting in bed with when he handed over the money.

For one thing, only two months before the deal, the company fired its founder and CEO, a Canadian penny-stock promoter named Cameron Chell who had recently run into problems with Canadian regulators and been banned from the Alberta Stock Exchange.

And not long after Samberg became an investor, the company filed papers with the SEC acknowledging that "persons formerly associated with our business may have engaged in unlawful activities designed to manipulate our stock" - an apparent reference not just to Chell but to others who had been associated with him at the company.

Chell, whose previous business associates have included a confessed Internet stock swindler from Illinois and a Canadian penny-stock promoter now awaiting trial on criminal charges in Miami, was not about to let his ouster from Futurelink slow him down. Two years ago he sold a company he controlled - the aforementioned Magic Lantern Group, Inc. - to a Canadian company that promptly resold it to New York's Mob-connected Lancer hedge fund.

Not every PIPE deal involves companies - and deals - as convoluted and fishy as these, and many of the larger ones are undoubtedly on the up and up. But the smaller and more troubled the issuer of the stock, the fishier and more suspect the transactions become. And just because the Mafia is no longer in the game hardly means the game itself is going to stop.

As Glenn Frey reminds us in "Smuggler's Blues," the lure of easy money has got a very strong appeal. And that is just as true on Wall Street as anywhere else.

Please send e-mail to: cbyron @ nypost .com

http://www .nypost .com /business/25017.htm