Post A Reply
my profile
login
|
register
|
search
|
faq
|
forum home
»
Allstocks.com's Bulletin Board
»
Micro Penny Stocks, Penny Stocks $0.10 & Under
»
CMKX - May 10 - 05 D-Day - The next chapter
» Post A Reply
Post A Reply
Login Name:
Password:
Message Icon:
Message:
HTML is not enabled.
UBB Code™ is enabled.
[QUOTE]Originally posted by bill1352: [QB] this is long but i'd say the SEC is doing something about NSS, the DTC's loopholes. might be that the bad guys will soon get the message..... The PIPEs Report Part One of a Three-Part Series by Brett Goetschius July 1, 2003 Some of the most active private placement agents and investment managers stand accused of conspiring to defraud hundreds of small-cap companies, including dozens of Private Placement in Public Equity (PIPE) issuers, TPR has recently learned. Specifically, government investigators and plaintiffs’ attorneys are charging the defendants with executing stock-kiting schemes to exploit loopholes in the U.S. stock clearing and settlement system. Through these methods, the agents and managers allegedly inflated small-cap companies’ downside trading volumes and reaped massive profits from short positions. The allegations are contained in court documents and investigative reports of U.S. and Canadian authorities. An ongoing joint U.S.-Canadian investigation into the matter has already yielded 58 indictments of U.S. and Canadian offshore brokers and hedge fund managers. Those arrested include Mark Valentine, former president of the defunct Toronto brokerage Thomson Kernaghan. Valentine’s firm was closed by the Ontario Securities Commission a year ago. Its closure led to the largest claim ever against the Canadian commission. Thomson Kernaghan is named in a $2.6 billion lawsuit filed in May by Sedona against its placement agent, Ladenburg Thalmann; several former Ladenburg executives; New York-based PIPE fund manager Rhino Advisors; and several offshore funds and securities firms associated with Rhino and British Virgin Islands-based Creon Management. In the lawsuit, a copy of which was obtained by TPR, Sedona’s attorneys assert that former Ladenburg executives Michael Vasinkevich, David Boris and Thomas Tohn schemed with Creon fund manager David Sims, Rhino principal Thomas Badian, and Rhino-managed funds Amro International, Roseworth Group, Cambois Finance, and Markham Holdings to defraud Sedona and its shareholders through the illegal manipulation of the funds’ investment in a $3 million floor-less convertible PIPE issued by Sedona in January 2000. The Sedona suit goes on to allege that Rhino used its funds and cooperating broker/dealers in the U.S., the Caribbean, and Canada, including Thomson Kernaghan, to orchestrate a campaign of massive, uncovered short-selling of Sedona’s stock, despite specific prohibitions against such activity in the stock purchase agreement. Sedona claims this naked shorting campaign “painted the tape” with extraordinarily high selling volume and decimated its share value, ultimately allowing Rhino’s funds to convert their securities into common stock at a fraction of true value. The SEC filed suit this spring against Rhino and Badian, alleging Badian manipulated the market through an illegal short-selling campaign against Sedona. The commission claimed Rhino was using brokers and electronic exchanges based in the U.S., Canada, and offshore to hide and wash short trades even after the NASD placed short restrictions on the stock. Rhino settled with the SEC for $1 million without admitting or denying the allegations. All of the defendants in the Sedona suit have filed to have the case dismissed. Southern District of New York federal judge Kimba Wood has yet to set a hearing to rule on the motions. Court papers filed in the case set out for the first time the exact nature of the scheme. The papers also reveal the alleged players in a conspiracy that Sedona’s attorneys, famed tobacco and implant-liability lawyer John O’Quinn and accomplished attorney Wes Christian, believe has victimized hundreds of small-cap companies and cost shareholders billions. A Rigged System Some of the investors accused in the scheme have connections to offshore and European trusts operated by alleged money launderers working for the Russian mafia and Colombian drug cartels. Even more intriguing and insidious than these claims, however, are the methods used by the defendants to perpetrate the fraud. They are accused of exploiting weaknesses in the centralized book entry clearing and settlement system used by each of the nation’s stock exchanges. The Sedona court papers shed light on how market participants can manipulate the system, operated by the Depository Trust Company and known as FAST. The court papers argue that perpetrators have exploited the book-entry clearing system to “kite” stock by selling short shares and allowing the trades to fail, or covering them via surreptitious, off tape purchases that can drastically inflate a small-cap company’s outstanding float and greatly distort trading volume on the sell side. Such a scheme was allegedly executed using Sedona stock by former Ladenburg executives working in concert with Rhino and its offshore network of hedge funds, U.S. market makers Wm. V. Frankel and Westminster Securities, and Thomson Kernaghan. “The story here, in our belief, is about a rigged system. That rigged system occurs by virtue of a broker/dealer community that doesn’t deliver securities in a timely manner. We believe [the perpetrators] are aided by a lack of procedures at the DTC and the National Securities Clearing Corporation, each of which is owned by the broker/dealers,” Christian said last week in an interview in New York, where he was taking depositions for the case. “The case got much larger than just some bad guys and some money launderers when those guys found holes in the system and began using them profusely. They wouldn’t have been allowed to do this if everybody had been enforcing the rules that were created to keep this from occurring.” Christian, of Christian, Smith & Jewell, and O’Quinn, of O’Quinn, Laminack & Pirtle, have devoted 70 attorneys to the 20 suits the Houston-based firms have filed against Rhino and other alleged perpetrators of the stock-kiting schemes. Christian says he expects to file similar suits on behalf of another 80 companies in the coming months. “The Goldman Sachs of Small-Caps” According to Sedona’s complaint, the scheme began to unfold shortly after Michael Vasinkevich and his team from Paul Revere Capital moved into Ladenburg Thalmann’s Long Island branch offices in the summer of 1999. There, they began soliciting financing business for Ladenburg’s structured finance group. At the time, Vasinkevich and the Paul Revere team were working with former Ladenburg executive vice president David Boris. Boris, now a managing director at Morgan Joseph, is a defendant in the suit. (All of the Sedona defendants contacted for this article declined to comment.) Vasinkevich, in an August 1999 letter to Sedona’s CFO Bill Williams, asked Williams to consider using Ladenburg’s Secondary Offering Substitute and Private Placement Alternative, or “S.O.S.,” PIPE program to raise capital through a private offering. In the letter, Vasinkevich boasts of Ladenburg’s access to “$50 billion” of investment capital and trumpets Ladenburg as “the Goldman Sachs of small cap companies.” Vasinkevich goes on to describe the S.O.S. program as a “hard floor” convertible program that protects small-cap issuers like Sedona from short selling and arbitrage plays: “S.O.S. . . . enables a company to raise funds when and as needed. The company sets a hard floor - a threshold price below which it will not issue any stock. The company knows exactly how much money it can receive every month during the life of the S.O.S. Product. Since the company decides when and how much money to draw down, the S.O.S. Product offers market ambiguity as to timing and dollars raised, keeping short sellers and arbitrageurs at bay.” In what Sedona calls a “bait and switch” by Vasinkevich and former Ladenburg associate Thomas Tohn, Ladenburg allegedly agreed to provide up to $50 mil-lion over time through the S.O.S. program, beginning with a commitment to place up to $17.5 million. Sedona announced the initial agreement in January 2000. As part of the financing program, Vasinkevich subsequently suggested Sedona issue $3 million of variable-priced convertible preferred stock. He said it would “serve as interim financing in case our proposed underwritten common stock and warrant deal is delayed due to the SEC review of the registration statement,” according to a late December 1999 fax from Vasinkevich to Sedona’s Williams. The Ladenburg PIPE did indeed include a $3.50 per share “hard floor” on the securities’ conversion pricing—but only for the first 90 days. After that, the fixed conversion price was replaced with a “floorless” pricing formula that used a conversion price equal to the lesser of $5.12 and “95% of the aver-age of the three lowest closing bid prices” of Sedona’s common stock during the 20 consecutive trading day period immediately preceding the conversion date, according to Sedona's S-3 filing for the offering. Notably, the terms of the stock purchase agreement prohibited holders from engaging in any short sales of Sedona stock. Sedona executed the PIPE offering with Ladenburg in late March 2000. The company’s shares traded near $6 on the Nasdaq Small Cap Market. The Offshore Players Sedona agreed to pay Ladenburg a fee equal to 1% of the face value of an expanded $50 million shelf registration, plus 6% of the gross proceeds from each sale of the securities, and warrants equal to 7% of the gross proceeds. Ladenburg placed Sedona’s convertible securities with several funds managed by Rhino Advisors, Badian, and David Sims, a principal at Creon and British Virgin Islands-based Beacon Capital Management. Rhino placed the Sedona securities with several offshore funds managed by Sims and a David Hassan of Gibraltar, including Amro, Roseworth, Markham, and Cambois Finance. Amro, which has invested more than $47 million in Rhino-managed PIPE deals according to private placement research firm Placement Tracker, is identified in SEC filings as a “sister fund” of Creon. Other filings declare Roseworth and Cambois as being wholly owned by Creon. Creon is also listed as the guarantor of another PIPE fund that uses the address of H.U. Bachofen in Zurich, Switzerland. Bachofen is, in fact, president of Amro. Finally, a funding announcement filed with the SEC in April 2000 by Stockgroup.com, a Rhino PIPE investment, states of Rhino that “in three years of operation its investment strategies have nearly quadrupled the base capital deposited into Amro and Creon.” Several of Rhino’s funds, including Roseworth and Markham, are registered to a Lichtenstein-based law firm, Dr. Dr. Batliner & Partner. Batliner, who claims to hold two doctorates (hence the double Dr.), is a former German federal judge and confidant of former German chancellor Helmut Kohl. He has been the subject of investigations by German intelligence, reports of which were leaked to Der Spiegel, linking the doctor-doctor to money laundering operations with the Russian mafia, the Medellin drug cartel, the Ferdinand Marcos family, and Kohl’s Christian Democratic Union party. Batliner has denied all wrongdoing. Nonetheless, Badian told The Daily Deal in October 2001 that Rhino had ceased doing business with Batliner after the allegations came to light. Christian said that Batliner and his firm would be added to an amended complaint in the Sedona case, expected to be filed soon. With the $3 million of financing from the Ladenburg PIPE in hand, and a commitment letter from Ladenburg’s Boris to place up to $50 million in financing for the company over coming months, Sedona issued a press release in May 2000 announcing that it would increase its shelf registration to $50 million in anticipation of additional Ladenburg led placements. Ladenburg, however, would never fund even the original $17.5 million commitment announced in January 2000, despite alleged assurances from Ladenburg and Rhino that they could provide “all the financing the company would ever need.” Within 90 days of closing the convertible preferred offering with Rhino, Sedona’s stock price would plummet from over $10.25 per share to less than $3, wiping away $195 million in value. By the end of 2000, Sedona’s stock hovered near $1 a share. Sedona executives, suspicious of trading patterns in its stock but still desperate for capital, would soon find themselves working on a second PIPE with Ladenburg and Rhino to retire the previously issued convertible preferred shares. It would be Sedona’s last offering as a Nasdaq-listed company. [/QB][/QUOTE]
Instant Graemlins
Instant UBB Code™
What is UBB Code™?
Options
Disable Graemlins in this post.
*** Click here to review this topic. ***
Contact Us
|
Allstocks.com Message Board Home
© 1997 - 2021 Allstocks.com. All rights reserved.
Powered by
Infopop Corporation
UBB.classic™ 6.7.2