SEC launches administrative case against Bagley
Street Wire (U-CMKX) CMKM Diamonds Inc
2011-11-07 13:54 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
Also Street Wire (U-CMKX) CMKM Diamonds Inc
by Mike Caswell
The U.S. Securities and Exchange Commission has launched an administrative case against Helen Bagley and a Las Vegas transfer agency she ran, 1st Global Stock Transfer LLC, for helping the CMKM Diamonds Inc. promoters issue hundreds of billions of free-trading shares. According to the SEC her actions were essential to the massive CMKM market manipulation that ran from 2002 through 2004, in which Saskatchewan's Urban Casavant and British citizen John Edwards dumped billions of shares while promoting the Carolyn kimberlite pipe.
The action, filed on Friday, Nov. 4, comes three months after the SEC secured $448,047 in disgorgement and fines against Ms. Bagley and 1st Global in a related civil case. (All figures are in U.S. dollars.) It claimed that she ignored red flags that would have made it obvious she was facilitating illegal activity. She repeatedly issued stock based on incomplete and in some cases forged documents, the regulator said. Ms. Bagley has appealed that loss.
Ms. Bagley is also facing criminal charges for her role in the scheme. Prosecutors in Nevada named her along with several others, including Mr. Edwards and Mr. Casavant, in a criminal case that has yet to go to trial. She faces four counts of fraud, to which she pleaded not guilty on April 28, 2010. While the case appears to be proceeding against Ms. Bagley and the others, there has been no participation from Mr. Edwards or Mr. Casavant. Police have yet to arrest Mr. Casavant, and Mr. Edwards awaits extradition from the United Kingdom, where he was arrested on the U.S. charges on Sept. 7, 2009.
It is not clear what penalties the SEC is seeking in its current action against Ms. Bagley. It will hold a hearing before an administrative law judge on an as-yet unspecified date.
SEC's complaint
The administrative case does not contain full details of the allegations against Ms. Bagley, instead referring to the civil complaint the SEC filed against her and others on April 7, 2008, in the District of Nevada. The complaint described how, on about 60 separate occasions, 1st Global helped issue 589.7 billion freely tradable CMKM shares during the promotion. (The U.S. Department of Justice puts the total number of shares issued in the scheme at approximately 800 billion.) The recipients included Mr. Edwards, Mr. Casavant and their nominees.
According to the complaint, Ms. Bagley's relationship with Mr. Edwards went back to the mid-1990s, when she served as the transfer agent for multiple companies that he traded. By the time of the CMKM promotion he was her largest customer, with CMKM work comprising over half of her business.
Her role in the CMKM promotion, as described by the SEC, involved her issuing stock based on flimsy or fraudulent paperwork. Among other things, she accepted attorney opinion letters that did not identify the recipients, specify how many shares each was to receive or correctly list the company's name. Some letters were obviously written after the share issuances and backdated, the SEC said.
While Ms. Bagley's role with the promotion was mostly limited to the share issuances, the SEC said she also had a small part in misinforming the public. From July, 2003, to February, 2005, CMKM did not publicly disclose how many shares it had outstanding, leading to much speculation on the subject. The company specifically instructed Ms. Bagley not to release this information. At the same time, it issued news releases blaming significant volumes on naked short-selling.
Other defendants in the case included Mr. Casavant and Mr. Edwards, with much of the complaint describing how they heavily promoted the stock while dumping at least $64.2-million worth of shares. According to the SEC the men generated investor interest through false news releases, on-line message boards and at "funny car" events across the country. During the promotion, the stock price varied between 0.01 cent and 0.1 cent, with daily volume sometimes over two billion shares.
Among other things, CMKM claimed in a December, 2002, news release to have an office an Antwerp, Belgium, that would promote the "Casavant diamond brand." It did not disclose that it had yet to find a single diamond. It also claimed to have an ancient Chinese jade collection valued at over $50-million that an expert had appraised. According to the SEC, the expert never had any involvement with the company.
The company's most effective promotional tool, as described in the complaint, was its appearances at the funny car events. It sponsored a race team called CMKXtreme, with cars bearing advertisements such as "Got CMKX?" Mr. Casavant attended the races, where potential shareholders visited a CMKM-sponsored tent filled with geological maps, videos and other promotional materials. The SEC said that about 40,000 people purchased CMKM stock during the fraud, particularly after the CMKXtreme race team became popular in June, 2004.
While Mr. Casavant was promoting the stock, he and Mr. Edwards were also selling it, according to the complaint. Mr. Edwards dumped $26.4-million worth, while Mr. Casavant sold $31.5-million. They used the money to pay gambling debts, invest in real estate and generate more shareholder interest, among other things.
The SEC sought disgorgement of ill-gotten gains, penny stock bans and appropriate civil penalties. It secured a $54.9-million judgment against Mr. Edwards on June 24, 2009, and a $65.6-million decision against Mr. Casavant on Sept. 2, 2009.
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