As noted in Wednesday's column, one was Kelowna promoter Philip Kueber, who acquired control of a bulletin-board company called Pepper Rock Resources Inc. in February this year, then announced a joint venture to develop a much-recycled natural gas property in Texas.
This was followed by heavy Internet promotion that drove the shares, which had originally been sold at the equivalent of one-fifth of a cent each, to a high of 37 cents. That's a handsome profit margin for those early shareholders.
Vancouver lawyer's stock clients soar, then collapse
Vancouver lawyer William L. Macdonald insists he wouldn't help a company go public if he didn't think it was an earnest business endeavour.
"A classic example would be if [West Vancouver promoter] Brent Pierce walked in and asked me to make a shell company for him. I wouldn't do it," he said.
This is an extreme example. Pierce has been heavily sanctioned by regulators in both B.C. and the United States, and probably ranks as the province's most notorious promoter.
But there are plenty of other promoters with sketchy business plans and dodgy track records that Macdonald welcomes into The Macdonald Tuskey Law Office on the 12th floor of 777 Hornby.
As noted in Wednesday's column, one was Kelowna promoter Philip Kueber, who acquired control of a bulletin-board company called Pepper Rock Resources Inc. in February this year, then announced a joint venture to develop a much-recycled natural gas property in Texas.
This was followed by heavy Internet promotion that drove the shares, which had originally been sold at the equivalent of one-fifth of a cent each, to a high of 37 cents. That's a handsome profit margin for those early shareholders.
In April, Macdonald filed a registration statement with the SEC seeking to register for resale five million shares owned by Kueber, and another 17.5 million owned by parties in Switzerland, the Cayman Islands, Las Vegas and London.
The existence of large blocks of shares in offshore jurisdictions, particularly tax and secrecy havens like Switzerland and the Cayman Islands, is always a suspicious sign.
In this case, the suspicion is compounded by the fact that two of these large shareholders -- said to be domiciled in London -- are Naomi Johnston and Jonathan Marshall, wife and son, respectively, of former Vancouver promoter Scott Marshall.
Marshall is bad news.
In 2004, Vancouver RCMP raided his office in connection with their investigation into another bulletin board pump-and-dump scheme called Silver Star Energy Inc. Three years later, he left town after somebody pumped four bullets into his Shaughnessy house.
Pepper Rock's registration statement, for reasons that Macdonald would not explain, has never been cleared by the SEC. Meanwhile, the share price has slumped to less than two cents. With only $7,519 cash on hand as of April 30, it appears to be only a matter of time before the company defaults on its property agreement.
As dubious as this corporate client is, it pales beside Big Bear Mining Corp.
Macdonald filed a registration statement for Big Bear in 2006, when he was working for the Vancouver law firm Clark Wilson.
Big Bear's president was said to be Aaron Hall, who worked as a bouncer at the Stone Temple nightclub on Granville Street. Hall had staked a mineral claim near Prince George and sold it to the company for a mere $1,000, which suggests it is essentially worthless.
The company then sold a bunch of shares to 38 seed shareholders at prices ranging from one to 10 cents each.
Such seed shareholders often act as nominees for insiders. When the shares are registered for resale, the insiders gather them up, creating a tightly held, publicly traded company that can be easily manipulated.
In this case, one of Big Bear's seed shareholders, Gary Mang of North Vancouver, told me earlier that he didn't pay for his shares or even take receipt of them.
He said he simply permitted the use of his name as a "favour" to a friend. The person who was actually putting the deal together was a small-time Vancouver promoter named Jason Whittle.
When I called Whittle to ask him about his involvement in Big Bear, he declined to discuss the matter. "Go f---yourself," he said.
Although there were red flags waving all over the place, Macdonald apparently didn't see any of them. In March 2006, he dutifully filed a registration statement with the SEC, seeking to register the seed shares for resale to the public.
He included a letter stating that, based on documents provided by the company, which he assumed to be true, it was his opinion that all the shares "have been duly and validly authorized and issued, and are fully paid and non-assessable."
The company never did conduct any exploration on its mineral prospect. Hall stepped down as president and in March this year -- after splitting the shares on a 50-for-one basis -- he sold control to Steve Rix of Scottsdale, Ariz.
Rix is a financial motivational speaker who teaches "practical solutions" to financial success, but contradictorily, has had serious financial problems himself. A year ago, he declared bankruptcy with $5.8 million in liabilities against just $13,400 in assets.
Days after acquiring control, Rix announced Big Bear would acquire an option on some mineral claims in Ontario's Red Lake district, which became the basis for a ruthless stock promotion.
In April, U.S. pen-for-hire James DiGeorgia, editor of the Gold & Energy Advisor newsletter, called Big Bear his "hottest stock pick in years ... I'm betting this $2 stock could hit $11 or more within just 60 days."
DiGeorgia said he was so convinced that Big Bear would be a winner that he was "sending out 1.5 million letters just like this one to investors all over the United States."
In a disclaimer at the bottom of his report, he disclosed that his newsletter was simply "paid advertising" and he had received $10,000 as part of an overall fee of $900,000 paid by a private company, Treasure Cay Ltd., to cover the cost of creating and distributing the report.
The disclaimer does not identify who owns Treasure Cay.
Several days later, credible news sources raised serious questions about Big Bear's veracity. Among them was Forbes magazine, which said that, by all appearances, the company was selling fool's gold.
Perhaps sensing regulatory repercussions, DiGeorgia reversed his "buy" to a "sell," but not before the stock roared from practically zero to a high of $1.58 on massive trading volume giving the company a total stock market value of $225 million US.
At $1.58 per share, the shares that were originally sold to nominees like Mang for 10 cents each were now worth a pre-split equivalent $79 per share.
Whomever sold those shares into that buying frenzy made an awful lot of money.
Predictably -- because this is what happens in nearly all these cases -- people who bought during that period haven't fared quite as well. By Wednesday's close, the stock had sunk to 14 cents.
Macdonald said he couldn't talk about specific clients, but generally speaking, he said he doesn't have the ability to pass judgment on a client's business, nor is it his role.
"I make the assumption that the company is an earnest business. If there is no indication to the contrary, I don't have a lot of choice."
NEXT: We see what the B.C. Law Society has to say about a lawyer's duty to know his client, and his client's business, before acting for that client.
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