CMKM passes baton to Entourage ahead of SEC revocation
2005-10-26 20:50 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
by Lee M. Webb
CMKM Diamonds Inc., Urban Casavant's massively diluted pink sheet promotion, is unloading its highly touted but largely unexplored Saskatchewan mining interests to Vancouver-based Entourage Mining Ltd. and abandoning its appeal of the U.S. Securities and Exchange Commission (SEC) decision to revoke the company's stock registration.
Entourage, a financially challenged OTC Bulletin Board company headed by former McDermid St. Lawrence broker Gregory Kennedy and backstopped by chairman Paul Shatzko, who has some experience as a Howe Street promoter, outlined the proposed transactions involving CMKM in an Oct. 20 news release.
Under the terms of three agreements, only two of them directly negotiated with CMKM, Mr. Casavant's epic pink sheet promotion will receive 50 million shares of Entourage.
The proposed transactions are subject to cash-strapped Entourage, flagged with a going concern warning, closing a $1.05-million financing before Oct. 28. (All amounts are in U.S. dollars.)
CMKM, not known as a paragon of timely and accurate disclosure, fleshed out some of the details of the pending deal in an Oct. 24 SEC filing.
In the same filing, CMKM disclosed that it was dropping its appeal of a July 12 SEC decision to revoke the company's stock registration and winding up the company. As part of the winding up process, the 50 million Entourage shares will be distributed to CMKM's shareholders.
The SEC action
As previously reported by Stockwatch, the U.S. regulator instituted an administrative proceeding against CMKM on March 16, seeking to revoke the company's stock registration for failing to file required periodic reports.
Among other things, the SEC enforcement division alleged that after attempting to duck its reporting requirements by filing a fraudulent Form 15 in July of 2003 CMKM operated "in shadows and in secret," issuing hundreds of billions of shares while leaving regulators and investors in the dark about the company's "actual activities or lack thereof."
CMKM, represented by Donald Stoecklein, a lawyer with some regulatory baggage of his own, contested the SEC administrative action.
CMKM claimed that the inaccurate 2003 Form 15 had been filed in good faith and that, having belatedly discovered the error in that filing in February of 2005, the company was working diligently to complete the required reports.
During an unusual May 10 evidentiary hearing at which Texas lawyer and CMKM shareholder Bill Frizzell was allowed limited participation as counsel for approximately 5,000 other shareholders, however, there was no evidence presented of any significant progress in completing the delinquent filings, nor could anyone offer an estimate of when the filings would be submitted.
The company's auditor, Neil Levine, testified that he had not been provided with any financial reports or other documentation, notwithstanding repeated requests. Moreover, Mr. Levine, claiming that he did not want to be associated with such a company, testified that he was terminating his engagement with CMKM effective at the end of the hearing.
Mr. Casavant, CMKM's only officer, asserted his Fifth Amendment privilege and refused to answer any questions.
CMKM's trophy co-chairman, 87-year-old Robert Maheu, hired in January for $40,000 per month, did answer questions, at least as far as he was able. Mr. Maheu's testimony, however, made clear that he really did not have a clue about the company's operations or its financial condition.
On July 12, following the submission of posthearing briefs and perhaps only to the surprise of CMKM's cult-like following, Chief Administrative Law Judge Brenda P. Murray issued an initial decision revoking CMKM's stock registration.
CMKM filed a petition for review of Judge Murray's initial decision on July 29. The SEC granted CMKM's petition and set out a briefing schedule giving the company until Sept. 6 to file a supporting brief, giving the enforcement division until Oct. 6 to file an opposition brief and setting a deadline of Oct. 20 for a reply brief from CMKM.
On the same day that CMKM filed its petition for review, the company disclosed that it had fired its latest auditor, Brad Beckstead. Evidently a rift developed between CMKM and Mr. Beckstead after he raised concerns about possible illegal acts in the company's affairs. The auditor subsequently provided the SEC with formal notification of his concerns.
With the revocation decision on hold pending a review and notwithstanding the disclosure by the company's fired auditor, tens of billions of CMKM shares changed hands in continued pink sheet trading.
The company's supporting brief and the enforcement division's opposition brief were filed on time, but the Oct. 20 deadline for CMKM's reply brief passed without a filing or any word from the company.
Indeed, it was not until Oct. 24 that CMKM notified its shareholders by way of an SEC filing that it was withdrawing its petition for review of the initial decision and requesting that the U.S. regulator revoke its stock registration effective immediately.
In the same Oct. 24 filing, the company disclosed that Mr. Maheu had resigned effective Oct. 20 and that Mr. Casavant, citing health concerns, would be packing it in as CMKM's only officer and director as soon as the company was wound up.
The Oct. 24 filing also fleshed out the details of the proposed transactions announced four days earlier by Entourage.
The deals
In relative terms, the proposed transactions with Entourage, which carry an imputed value of approximately $25-million based on the Vancouver company's current trading price, are not the most lucrative purported deals in CMKM's colourful, if murky, history.
For example, SEC target U.S. Canadian Minerals Inc., now trading on the lowly pink sheets after being booted off the OTC-BB, peeled off 7.5 million shares and purportedly anted up $13.5-million in cash last year for a 14-per-cent stake in CMKM's mineral properties.
In another ballyhooed deal last year, St. George Metals Inc., another pink sheet promotion, purportedly issued a whopping 200 billion shares and coughed up $10-million in cash for a more modest 5-per-cent stake in CMKM's properties. St. George is currently awaiting a finality order with respect to a Sept. 29 SEC decision to revoke the company's stock registration.
Just how much, if any, of the purported $23.5-million represented by those two deals actually changed hands remains an open question. No light was shed on the purported transactions during CMKM's May 10 evidentiary hearing or in any of filings related to the administrative proceeding.
Moreover, during the course of the SEC action against St. George, the company's president, William Haseltine, claimed that he knew nothing about the purported $10-million deal with CMKM.
In any event, notwithstanding the $23.5-million purportedly injected into the company in those two deals, CMKM now claims to be penniless.
Indeed, according to CMKM's Oct. 24 SEC filing, the company has not been able to meet its obligations with respect to its highly touted Saskatchewan properties and is in default of all the agreements covering the claims it now plans to hand off to Entourage in exchange for 50 million shares.
The first of the three agreements involving Entourage is with respect to CMKM's interest in four prospective uranium claims in the Hatchet Lake area of Saskatchewan.
On Oct. 8, 2004, CMKM announced that it had reached a deal to earn a 50-per-cent stake in the Hatchet Lake claims from Rick Walker's United Carina Resources Corp., which trades on the TSX Venture Exchange.
Under the terms of the deal with United Carina, which CMKM now claims was actually signed on Oct. 23, 2004, CMKM was obligated to spend $500,000 on exploration during the first 12 months of the agreement. CMKM did not meet that obligation and consequently defaulted on the agreement.
On Oct. 20 of this year, just three days shy of the reported 12-month anniversary of the deal with United Carina, CMKM assigned its interest in the Hatchet Lake claims to Entourage in exchange for 15 million shares.
Given that CMKM was reportedly in default of its Hatchet Lake agreement and there were no termination penalties in connection with that agreement, it is far from clear why Entourage did not ink a deal directly with United Carina.
As it happens, the Oct. 20 Hatchet Lake agreement supercedes an earlier deal between CMKM and Entourage.
Under the terms of the previous agreement, Entourage reportedly had the option to earn a 10-per-cent stake in the Hatchet Lake claims from CMKM. In a bit of quid pro quo, CMKM in turn had the right to a 10-per-cent stake in Entourage's Black Warrior gold project in Nevada.
Interestingly, among the representations or, perhaps more accurately, misrepresentations in the now dead Black Warrior agreement, Mr. Casavant claimed that CMKM was "in good standing with all regulatory and statutory bodies" and, among other things, that there were "no proceedings or investigations" in progress against the company.
Perhaps entirely unknown to Entourage, CMKM was under investigation and the subject of an administrative proceeding by the SEC when Mr. Casavant made those representations under the earlier deal.
The second of the three latest deals between CMKM and Entourage involves CMKM's 36-per-cent stake in approximately 195,000 hectares of mining claims known as the Forte Diamond property in Saskatchewan.
CMKM's Forte Diamond stake reportedly turns on a July 19, 2004, agreement with John E. Dhonau's privately owned Nevada Minerals Inc. While the exact terms of that deal are not known, CMKM reports that it is in default of the agreement because of its inability to provide the money for maintenance, drilling and exploration on the property.
The agreement between Nevada Minerals and CMKM was terminated on Oct. 20 following the inking of the deal between Entourage and CMKM.
Under the terms of the agreement, CMKM will transfer its 36-per-cent stake in the Forte Diamond property to Entourage in exchange for five million shares.
The third Oct. 20 agreement, under which CMKM will receive 30 million Entourage shares, was actually negotiated between Entourage and 101047025 Saskatchewan Ltd., which is headed by Tuxford, Sask., native Emerson Koch.
Mr. Koch's company had cut a deal with CMKM in August of 2003 with respect to a large number of claims in the Forte a la Corne area of Saskatchewan, which is home to two advanced diamond exploration projects.
The Forte a la Corne claims became the centrepiece of Mr. Casavant's pink sheet promotion. Once again, however, CMKM reportedly defaulted on its obligations under the agreement by failing to provide the money for maintenance, drilling and exploration of the claims.
Under the Oct. 20 agreement, Entourage will acquire an undivided 80-per-cent stake in approximately 411,275 hectares of mining claims from Mr. Koch's numbered Saskatchewan company in exchange for approximately 38.9 million shares.
In an unexplained gesture of perhaps outright magnanimity, Mr. Koch has agreed to transfer 30 million of the Entourage shares to CMKM for distribution to the company's shareholders.
All told, if the three deals are consummated, CMKM will receive 50 million Entourage shares that it plans to distribute on a pro rata basis to its shareholders as part of the winding up process. At last report, there were more than 703.5 billion CMKM shares issued and outstanding.
The deal before the deals
Interestingly, it appears that a number of people with close ties to CMKM may already have a stake in Entourage as a result of participating in a private placement earlier this year.
On Jan. 7, Entourage announced that it had closed a non-brokered private placement of approximately 2.8 million units priced at 15 cents per unit. Each unit comprised one share and one warrant exercisable at 22 cents in the first year and 25 cents in the second year.
The shares issued under the private placement were subject to resale restrictions expiring on May 1 in Canada. According to documents reviewed by Stockwatch, all of the participants in the January financing were Canadians.
According to copies of regulatory documents submitted in connection with the financing, Cindy Dwyer of Lacombe, Alta., purchased 666,500 units of the private placement for $100,000.
Stockwatch has received unconfirmed reports that Ms. Dywer's maiden name is Cindy Casavant. Stockwatch has not been able to find a telephone listing under either name in Lacombe, though it is known that Mr. Casavant's daughter Cindy lived there at one time.
Indeed, Ms. Casavant was appointed to CMKM's board of directors on Dec. 13, 2002. According to the news release announcing her appointment, Ms. Casavant worked with crime victims in Lacombe.
Wesley Casavant of Saskatoon, Sask., also picked up 666,500 units of the private placement for $100,000.
On Nov. 26, 2002, Mr. Casavant's son Wesley, then attending the University of Saskatchewan, was elected CMKM's corporate secretary-treasurer "with field responsibility."
"Wesley has great outdoor skills, commitment to the environment and is a straight talker," Mr. Casavant said in announcing his son's role with the company. "I picked Wesley to be the point person in the field working with our auditors, attorneys, engineers and mining experts to keep us on budget, on time and in compliance with mining regulations."
In a Dec. 3, 2002, news release, Wesley Casavant was also billed as the officer who would "co-ordinate the new financial accounting system with the company's auditor to ensure seamless integration with newly enacted Securities and Exchange Commission auditing practices for public companies."
Evidently things did not work out as planned.
The perhaps magnanimous Mr. Koch of Tuxford, a close associate of Mr. Casavant and CMKM, also took down 666,500 units of Entourage's January financing for $100,000.
Mr. Walker, head of United Carina and associated company Consolidated Pine Channel Gold Corp., both of which have been involved in ventures with CMKM, subscribed for a more modest 153,000 units of the Entourage private placement for $23,000.
Perhaps rounding out the connections to CMKM, Eric Reid of Prince Albert, Sask., received 132,500 Entourage shares as a finder's fee in connection with the financing. Mr. Reid is Mr. Casavant's brother-in-law.
Five people with no immediately apparent connection to CMKM took down the remaining 663,000 units in the January financing. Mary Shatzko purchased 370,000 units, Kjeld Werbes acquired 133,000 units, Linda Martinez bought 100,000 units, Sanjay Asprovski subscribed for 40,000 units and Lita Cooper purchased 20,000 units.
The January Entourage financing with its coincidental connections to CMKM may be of little more than passing interest to the company's shareholders.
CMKM's devoted followers, many of whom believe that the latest developments are part of some convoluted master plan engineered by Mr. Casavant and members of the company's brain trust that will yet make them rich, may be more interested in the distribution of the 50 million Entourage shares.
Evidently the mechanics of the distribution process are being worked out by a task force cobbled together at CMKM's "board of directors" meeting on Oct. 21.
The task force
The vaunted CMKM task force charged with the responsibility of assisting in conducting "an orderly and verifiable pro rata liquidating distribution of any Entourage shares" and any other available company assists consists of Mr. Maheu, Mr. Stoecklein and Mr. Frizzell.
Mr. Frizzell, who flew from his home in Texas to Las Vegas, Nev., to attend the Oct. 21 board meeting provided a report to the CMKM shareholders known as the Owners Group that he represents on Oct. 24.
According to the Texas lawyer, he was advised of the meeting on the evening of Oct. 20.
"The Board meeting was convened in Don Stoecklein's office of the Securities Law Institute in Las Vegas," Mr. Frizzell reported in an e-mail to the Owners Group members. "Don Stoecklein, Anthony Demint, Kristen Buck, Bob Maheu and I were present during the entirety of the meeting."
Mr. DeMint, who controls a number of blank cheque companies, is a close business associate of CMKM's lawyer, Mr. Stoecklein. Ms. Buck, also a lawyer, works out of the same offices as Mr. DeMint and Mr. Stoecklein and has reportedly done some work for CMKM. Ms. Buck testified at the May 10 SEC evidentiary hearing and during the course of cross-examination she was rather curtly admonished by Judge Murray that she was under oath and had to tell the truth.
"Urban Casavant made his appearance by telephone and was on speaker phone for much of the meeting," Mr. Frizzell's report continued.
Given that Mr. Maheu had resigned effective 10 a.m. the previous day, there would not have been a board meeting at all without Mr. Casavant's participation. As the company's only remaining director, Mr. Casavant, who now makes his home in Las Vegas, is the board of directors.
"We began at 10:00 a.m. and worked until about 5:30 p.m.," Mr. Frizzell wrote. "Sandwiches were ordered in for lunch."
The Texas lawyer did not disclose what, if anything, teleconferencing Mr. Casavant enjoyed for lunch.
According to Mr. Frizzell, all of the material matters disclosed in CMKM's Oct. 24 SEC filing had been agreed to, at least in principle, prior to the Oct. 21 meeting.
"My input was sought by the board on every issue discussed during the meeting," Mr. Frizzell wrote. "It was very important to Mahue (sic) and Casavant how I felt the shareholders would view the plan of the company.
"There was discussion of Urban's failing health, but I was not given any details of any current conditions.
"It is my opinion that the current direction being discussed by Urban is a combination of his bad health, inability to raise capital due to the massive shorting of the company, as well as the affects of some bad decisions that were made in the early financing of the company.
"Based on these factors it was determined before this meeting, it was in the best interest of the shareholders to get these claims in the hands of a company that could develop these claims.
"Urban is very confident these claims will be developed by Entourage.
"Although this meeting was long in duration there was not much time spent on the mistakes of the past. More time was spent discussing the future.
"I felt it best for the shareholders to spend as much time as possible getting assurance that Mr. Mahue (sic), Mr. Stoecklein and UC (Mr. Casavant) were in agreement to work together for the shareholders as we proceed."
Mr. Frizzell and many of the company's cult-like followers are convinced that CMKM's woes, in large part, can be attributed to massive short selling.
Indeed, Mr. Frizzell, a relative novice when it comes to stocks, claims to have proof that there are hundred of billions more CMKM shares in circulation than the company has issued.
Evidently Mr. Frizzell has not been able to convince any regulatory authorities or law enforcement agencies of this massive short position and he has not offered his claimed proof up for public scrutiny.
"The idea of a 'task force' to oversee the distribution of company assets seemed to have been born during the meetings," Mr. Frizzell continued. "Urban was very much in favor of Don S., Bob M. and myself overseeing the distribution.
"There were alternative means of distributing the assets discussed, but a private (versus court ordered) distribution was favored by all concerned.
"Although Bob Mahue (sic) resigned from his Board position, he wanted the shareholders to know he would help in any way he could to see that the shareholders received the maximum benefit from the sale of the claims and the distribution of any other assets."
According to Mr. Frizzell, during the meeting there were discussions "indicating litigation may be necessary against various third parties and Mr. Mahue (sic) wanted the shareholders to know this 'task force' will use whatever resources are available to us to assist the shareholders."
On Sept. 6, Mr. Frizzell sent a so-called "shareholders derivative rights letter" to Mr. Stoecklein demanding that the company pursue litigation against a number of individuals involved with CMKM. The letter was ignored.
"It is apparent to me that we will not receive any response to our shareholders derivative rights letter from the company," Mr. Frizzell, a participant in the Oct. 21 meeting with the company's only officer and director, advised the Owners Group. "I am equally convinced there will be no action taken by the company against any third parties. Thus any rights the shareholders have accrued in this regard can now be pursued."
It is not clear whether Mr. Frizzell, who has already tapped his dwindling Owners Group members twice for money, has any plans to pursue litigation against third parties.
Among other things, Mr. Frizzell went on to say that he expects CMKM to provide further details regarding the planned distribution of Entourage shares in an SEC filing this week.
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; and Oct. 24, 2005.)
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