Part VII: CMKM hearing listens to outsourced lawyer Buck
2005-06-17 20:56 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
by Lee M. Webb
CMKM Diamonds Inc.'s May 10 hearing before the U.S. Securities and Exchange Commission (SEC) listened to the company's final witness, outsourced lawyer Kristen Buck, testify about her progress in assembling documents needed to prepare regulatory filings.
During a close, and at times testy, cross-examination, Ms. Buck received a rather terse reminder from the judge that she was under oath and had to tell the truth.
Chief Administrative Law Judge Brenda P. Murray presided over the administrative proceeding to determine whether CMKM's stock registration should be suspended or revoked for failing to file periodic reports as required by U.S. securities regulations.
Leslie Hakala, assisted by Gregory Glynn, took the lead in presenting the case for the SEC's enforcement division.
Donald Stoecklein of the Stoecklein Law Group represented CMKM. Anthony DeMint, managing director of Securities Law Institute, closely associated with Mr. Stoecklein's law firm, also registered an appearance on behalf of the company.
Lawyer Bill Frizzell of Tyler, Tex., was allowed limited participation in the proceeding as counsel for a number of CMKM shareholders known as the Owners Group.
The SEC called six witnesses including CMKM's chief executive officer Urban Casavant, a Saskatchewan native who now makes his home in Las Vegas, Nev. Mr. Casavant asserted his Fifth Amendment privilege against self-incrimination and refused to answer any questions.
After the SEC wrapped up its direct case, Mr. Stoecklein led off CMKM's case by calling Las Vegas businessman John E. (Ed) Dhonau, the owner of privately held Nevada Minerals Inc. Mr. Dhonau is a key figure in a web of relationships involving CMKM and associated company, U.S. Canadian Minerals Inc.
Following a chance encounter with Mr. Casavant "at the slot machines" in November of 2003, Mr. Dhonau acquired some mining claims in the Fort a la Corne area of Saskatchewan and went on to become involved in joint ventures with CMKM and U.S. Canadian Minerals, which is currently under investigation by the SEC.
Mr. Dhonau is also involved with the two companies in a small gold mining operation in Ecuador that, according to testimony, generated somewhere between $90,000 and $120,000 in gross revenues last year. (All figures are in U.S. dollars.)
Mr. Dhonau offered his explanation of the Ecuador operation and testified about how, under the terms of the agreement, the gross revenue was divvied up 50-50 between CMKM and U.S. Canadian Minerals, with Nevada Minerals shaving off 20 per cent of CMKM's half as the operator. According to Mr. Dhonau, CMKM never did receive its cut because it was reallocated to pay for some compressors for the mine.
Mr. Stoecklein next called CMKM's new co-chairman, 87-year-old Robert Maheu, who joined the company in February.
Mr. Maheu, an ex-spook and former private gumshoe who went on to spend about a decade working for eccentric billionaire Howard Hughes before being fired in 1970, told the court that he believes that he will be able to help CMKM meet its reporting obligations.
CMKM's octogenarian co-chairman, who described himself as "the man with the whip," faced a rather pointed cross-examination by Ms. Hakala.
Evidently Mr. Maheu, who is being paid $40,000 per month to whip the company into shape, did not have much of a clue about CMKM's operations or its financial condition.
Mr. Maheu was also a bit foggy about the vaunted team that had been put together to help him with his task. When asked to name the members of that team, apparently put together by Mr. Stoecklein, Mr. Maheu mentioned Mr. DeMint, an accountant named Suzanne, whose last name escaped him, and an attorney, whose first or last name he could not recall at all.
Before Mr. Maheu was excused, Judge Murray rather bluntly asked him whether it had ever crossed his mind that he was being used to provide a colour of legitimacy to CMKM. Mr. Maheu said that he did not think so.
Following Mr. Maheu's testimony, Mr. Stoecklein called CMKM's last witness, lawyer Kristen Buck.
Lawyer Buck
After being sworn in, Ms. Buck told the court that she had recently graduated from McGeorge School of Law and had received her licence to practice in Nevada earlier this year. She went on to say that she works at Securities Law Institute.
"And can you give us a description of the job function that you have at Securities Law Institute?" Mr. Stoecklein asked.
"At Securities Law Institute, we -- we are an outsource for Stoecklein Law Group, and I oversee various public companies, their filings for the SEC," Ms. Buck replied.
That drew some questions from Judge Murray.
"Could I just have a little bit more information on that because I've seen the pleadings with this Securities Law Institute," Judge Murray remarked. "And I don't know. I thought it was a school, but you're affiliated with the law firm?"
"We act as an outsource for the law firm," Ms. Buck said.
"An outsource for the law firm," Judge Murray repeated. "What does that mean, 'an outsource for the law firm?'"
"Basically it's -- we receive some of the clients that, if they need extra -- some work that needs to be done, we'll oversee some of that work that needs to be done by the Stoecklein Law Group," Ms. Buck replied.
"Okay," said Judge Murray. "So your boss is Mr. Stoecklein?"
"Well, he has his own law firm," said Ms. Buck. "But he's not affiliated -- I mean that's his entity and then Anthony DeMint is the president of Securities Law Institute."
"Okay," Judge Murray said, going on to address Mr. Stoecklein. "Anthony DeMint, who's the gentleman that's been sitting beside you?"
"That's correct, Your Honor," Mr. Stoecklein answered.
"And he is an attorney?" the judge queried.
"Your Honor, for the record, the law firm owns the Securities Law Institute," Mr. Stoecklein said, not answering the question. "So it is an outsource group that we utilize in Las Vegas for work when we don't do it in the San Diego -- perform the obligations in the San Diego office."
"And does it do -- does it do work for other law firms?" Judge Murray asked.
"No," said Mr. Stoecklein. "It primarily does work -- well, in some cases but not normally, Your Honor. It generally speaking, it handles the reporting for approximately 42 different companies."
A short time later, Mr. Stoecklein returned to his direct examination.
"And do you have a job that you do for CMKM Diamonds?" Mr. Stoecklein asked.
"I've been given the task to begin the process of reporting obligations that they're going to need to be put together," Ms. Buck replied.
"And generally how do you handle that task?" Mr. Stoecklein asked. "What is the job?"
"Well, our office acts as a collective group and we have different individuals that will oversee different areas and I help divide out the tasks," Ms. Buck said. "Somebody can pull, you know, records off of EDGAR, somebody can look up shareholder equity or request shareholder reports, things of that sort, and organize the documents as they come in."
"How do you make a typical request for documents from a public company that you're involved in?" CMKM's lawyer asked.
"We do have a due diligence checklist that we'll go through usually and put together a request through a company," Ms. Buck replied.
"Do you recall whether that was utilized in this case?" Mr. Stoecklein asked.
"I don't believe it was through the normal -- I mean we did request documents," Ms. Buck said. "We basically just ask for all documents so we can start off and get a handle on everything."
"As we think of that statement of 'all documents,' can you be descriptive in terms of what you've been receiving from CMKM Diamonds?" Mr. Stoecklein asked.
"We've received a lot of boxes of information that we've been starting to go through and categorize, putting in together with -- you know, we've got through press releases," Ms. Buck began.
"We've gone through agreements that we've been given," Ms. Buck continued. "Gone through -- you know, just categorizing whether this is a stockholder equity issue or something that would be pertain to that.
"Mining claims, we've gotten some information on that as well."
Mr. Stoecklein then asked Ms. Buck to describe her function with respect to the mining claims.
"Yeah, I actually took over -- I looked at the contract for the mining claims that were in Canada," Ms. Buck said. "I went through the contracts and I started verifying the claims. And I also went on to the Saskatchewan Industry Resource Web site and pulled those -- those listings as well to verify with the claims that I also had been given."
Mr. Stoecklein moved on to some questions regarding documents that Ms. Buck and others had retrieved from EDGAR.
That testimony drew another intervention from Judge Murray.
"We should just say -- I think I've got this right -- that EDGAR is an electronic data gathering and retrieval system that the SEC operates where all public companies make their filings electronically," Judge Murray commented. "And my belief is that it's open to the general public.
"I mean, people can get on a computer at any public library and go into EDGAR and get a report that a public company has filed.
"If I'm incorrect, somebody can correct me on that."
"No, that's correct," said Mr. Stoecklein.
"But just generally available information of all the reports like the ones that are at issue in this proceeding would be available on the EDGAR system to the general public," said Judge Murray. "So what she's doing is just drawing down public documents."
"Yes," Ms. Buck chimed in.
Mr. Stoecklein turned to a series of questions regarding a Form 15 that CMKM had filed on July 22, 2003.
"As you look at that form and review it, is there anything odd about the form?" Mr. Stoecklein asked.
"Well, we came across -- we reviewed it and then we also requested stockholder reports to verify the information that was listed on the Form 15," Ms. Buck said. "And once we had received those stockholder reports, we noticed that there was a discrepancy on what was listed and what we received from the transfer agent."
Ms. Buck went on to testify that the July 22, 2003, Form 15 reported the number of shareholders as approximately 300, effectively removing CMKM's reporting obligations, but the records from the transfer agent indicated that the company had 698 shareholders of record on that date.
On further questioning from Mr. Stoecklein, Ms. Buck testified that Kevin O'Neil from the SEC said that the Form 15 should be amended, reinstating the company's reporting obligations.
According to Ms. Buck, Mr. Maheu and Mr. Casavant discussed the matter and decided to file an amended Form 15. That filing was submitted on Feb. 15 of this year.
"Was there any discussion around that decision that you are aware of?" Mr. Stoecklein asked.
"There was some discussion as to -- I believe under the rule that they have a 60-day obligation," Ms. Buck said. "Once they filed to reinstate the reporting obligations, that they have 60 days to become current. And there was some discussion on whether or not that was going to be possible at that point."
"Was there some concern obviously about the 60-day time frame?" Mr. Stoecklein asked.
"There was definitely some concern," Ms. Buck replied. "We -- I hadn't, but others in our office had met with their former financial person and we needed to get information from them under whether or not we could actually comply with putting together reporting obligations."
"And who was this financial person?" Judge Murray interjected.
"I believe it was David DeSormeau," Ms. Buck answered.
"And can I ask what David DeSormeau said about the ability to generate financial reports?" Mr. Stoecklein continued.
"It was my understanding that we hadn't received much information from him, so it became -- the decision, I believe, was to retain somebody else that could prepare financial statements for the company," Ms. Buck replied.
"Are you at all familiar with the amount of money that was paid to Mr. DeSormeau to generate these reports?" Mr. Stoecklein asked.
"I believe it was in excess of $1.5-million," said Ms. Buck.
Ms. Buck went on to testify that after it was determined that Mr. DeSormeau was not going to provide the financial information, Opus Pointe was hired to help prepare financial statements.
Judge Murray subsequently intervened with a few more questions.
"But isn't Opus Point also affiliated with this law institute?" the judge asked.
"It -- I mean we are -- we share -- she is in our office, yes," Ms. Buck replied, stumbling a bit.
"Do you own Opus Pointe, too?" Judge Murray asked, directing her question to Mr. Stoecklein.
"Yes, I do, Your Honor," CMKM's lawyer replied. "After we saw how much Mr. DeSormeau was making."
Following that somewhat peculiar response, Mr. Stoecklein moved on to some questions regarding CMKM's former law firm, Edwards & Angell, asking Ms. Buck what information that firm had provided.
"We did not receive any information beyond one letter that was saying that they did not have any other documents except for what they'd provided under the subpoena which was some billing," Ms. Buck said.
The witness went on to testify that she did not know how much Edwards & Angell had been paid by CMKM, but it was "a fair amount."
Mr. Stoecklein turned to a series of questions regarding how much progress Ms. Buck had made, notwithstanding the fact that the company's former legal counsel and former accountant had not supplied any documentation.
"Are you still missing documents or have those all now been generated?" Mr. Stoecklein asked.
"At this point, we're still going through everything and organizing it and putting it together and making sure -- I mean there could be documents further on that we'll request, but it's -- you know, it's a process," Ms. Buck said.
"When you say 'it's a process,' it's a work in progress where every day there's new information?" Mr. Stoecklein suggested.
"Objection, Your Honor," Ms. Hakala called out. "Leading."
"It is leading," Judge Murray agreed.
"I know, Your Honor," Mr. Stoecklein said.
"Pardon?" Judge Murray queried.
"I know, Your Honor," Mr. Stoecklein repeated. "I've been lucky so far."
"Don't push it," Judge Murray cautioned.
"Coming back to the issue of these documents, are there significant documents that you're missing right now to complete the legal side of the reporting obligations?" Mr. Stoecklein moved on.
"Well, we obviously haven't been provided the financial statements which will be part of the reports," Ms. Buck replied. "That's a big chunk of the documents that will go along and coincide with the legal aspects of it."
Ms. Buck went on to testify that she felt that she still needed to go through documents, but "the process can begin."
With that, Mr. Stoecklein ended his direct examination and handed off to Mr. Frizzell for a brief cross-examination.
"Ms. Buck, is your company being paid by CMKM in cash or by check?" Mr. Frizzell led off.
"I don't know how the billing -- I mean I don't handle the billing, and I believe that we are paid from Stoecklein Law Group," Ms. Buck replied.
"As opposed to receiving stock from the company, you're not being paid by stock in this matter, are you?" Mr. Frizzell queried.
"Not that I'm aware of," said Ms. Buck.
Mr. Frizzell went on to draw from Ms. Buck that she had "definitely been sidetracked in the last couple of weeks" in preparing for the hearing.
Mr. Frizzell also elicited testimony regarding whether Ms. Buck felt that the necessary filings could be completed.
"I think the filing could be done if everything was provided to us, yes," Ms. Buck said.
Mr. Frizzell then passed the witness.
Something of a tone was set early in Ms. Hakala's cross-examination.
"Ms. Buck, when did you graduate from law school?" Ms. Hakala asked.
"May -- " Ms. Buck began.
"Of what year?" Ms. Hakala queried.
"2004," Ms. Buck finished her answer.
"So less than a year ago?" asked Ms. Hakala.
"Yup," said Ms. Buck.
"You didn't return my phone calls, did you?" Ms. Hakala asked.
"I believe I re -- well, there was one phone call I did not return," said Ms. Buck.
"Who supervises you?" Ms. Hakala asked.
"I work with Mr. Stoecklein," Ms. Buck answered.
"And do you report to him?" the SEC lawyer asked.
"If I have questions, yes," said Ms. Buck.
"How many Form 10-Ks have you personally prepared?" Ms. Hakala queried.
"A couple," Ms. Buck said.
"How many?" Ms. Hakala quizzed.
"I would be speculating," Ms. Buck replied. "If I -- I know that our office -- or our company has filed multiple ones."
"I understand," Ms. Hakala said. "I'm asking you personally how many Form 10-Ks have you personally prepared?"
"I have prepared a few," Ms. Buck answered.
"More or less than five?" Ms. Hakala pressed.
"Around five," Ms. Buck said.
"How many Forms 10-Q have you personally prepared?" the SEC lawyer asked.
"Probably around similar amount," Ms. Buck answered.
"About five?" Ms. Hakala quizzed.
"And, I mean, as our office, we are always -- we're reviewing multiple people work as well, so I'm going through multiple 10-Qs, not just myself preparing them," Ms. Buck said.
"I understand," Ms. Hakala said. "But I'm just trying to understand your personal experience with these SEC filings. Do you have any drafts yet of any of CMKM Diamonds' filings?"
"I mean we can put a rough draft together, but at this point, I have not put them together because I've been preparing for this hearing and putting it together, the information in a time line formation, so therefore I can go back in a quarterly amount and put that stuff in," Ms. Buck said, not seeming to get to the answer.
"But, as you sit here today, do any drafts of the SEC filings exist?" Ms. Hakala persisted.
"We purposely -- I believe we wanted to wait until we'd gotten through the time lines and categorize the information and put them in before we decided -- actually put the form itself together," Ms. Buck replied.
"I understand," Ms. Hakala began again. "But I'm asking you a 'yes' or 'no' question. As we sit here today, are there any draft SEC filings in existence in your offices for CMKM Diamonds?"
"I have a template draft put together for one of the years, yes," Ms. Buck said.
"Was that produced to the SEC in response to the Commission's subpoena in this matter?" Ms. Hakala queried.
"It's a template that we use for every client," Ms. Buck said.
"Is it specific to CMKM Diamonds?" Ms. Hakala asked.
"No," said Ms. Buck.
"So are there any SEC filings for CMKM Diamonds in draft form in your offices, as we sit here today?" Ms. Hakala tried again.
"No," Ms. Buck finally said.
Ms. Hakala turned to some questions regarding the amount of material that Securities Law Institute had received from CMKM.
"You said that you'd gotten boxes from CMKM Diamonds," Ms. Hakala said. "How many?"
"I don't actually receive the boxes," Ms. Buck replied. "The information was just provided to me, so I don't know."
The discussion continued for some time as Ms. Hakala attempted to draw from Ms. Buck whether the materials received from CMKM amounted to less than would fill two banker's boxes.
Evidently Ms. Buck did not know what a banker's box was.
"Would you like me to show you a banker's box?" Ms. Hakala asked during one exchange.
"Yes, please," said Ms. Buck.
Ms. Hakala's co-counsel obliged.
"May the record reflect that I am holding up in the courtroom what is known as a banker's box," Mr. Glynn said. "This one from Ikon. It's a standard file."
"Were the materials that you have been provided to prepare the CMKM Diamonds filings by the company more or less than would fill two of those boxes," Ms. Hakala asked after the demonstration.
"I would say around two boxes or more," Ms. Buck said.
"Which is it?" Ms. Hakala wanted to know. "Two boxes, less or more?"
"Probably more," Ms. Buck said.
"Why weren't those provided to the Commission?" Ms. Hakala queried. "I can represent, Your Honor, that the materials provided to the Commission did not fill two banker's boxes."
"I believe we -- I know that we gave all the information that we had," Ms. Buck said. "Now, whether or not how you stack it and fill it in a box is, I guess, how you put the information together. I didn't put the boxes together myself."
As Ms. Hakala pressed on regarding the matter, Mr. Stoecklein registered an objection that the SEC lawyer was being argumentative, adding that it was a really ridiculous line of questioning.
Evidently Judge Murray had heard enough about the boxes.
"I think it's around two boxes," Judge Murray remarked. "But let me ask you, is that all the material now for, like, three years of business?"
"That's what has been provided, yes," Ms. Buck said.
Changing gears, Ms. Hakala moved on to some questions regarding the July 22, 2003, Form 15.
She called the witness's attention to two exhibits of correspondence dated Dec. 29, 2004, and Jan. 4, 2005, between the SEC and a CMKM lawyer, David Liston, regarding the matter.
According to the letters in evidence, Mr. Liston had bcc'd Mr. Casavant and Mr. DeSormeau.
"Were you aware that the lawyer for CMKM and the Division had conversations in December of 2004 regarding problems with the Form 15 filing?" Ms. Hakala asked.
"Not until I read your letter," Ms. Buck replied.
"Did Urban Casavant ever tell you that there were any problems with the Form 15 before you brought it to his attention?" asked the SEC lawyer.
"Not that I recall," said Ms. Buck.
A short time later, Ms. Hakala posed some questions regarding the $1.5-million reportedly paid to Mr. DeSormeau.
"Was he paid cash or stock?" Ms. Hakala asked.
"I believe he was paid in stock, but I don't know if there was anything more," Ms. Buck said. "I don't know, as far as -- "
"Who told you that?" Ms. Hakala interrupted.
"In going through some documents, I also saw an affidavit that he had signed saying that he was owed money and there was -- there had been issuance of those shares when we went through the stockholder equity to him as well," Ms. Buck said.
"So was it your assumption that the shares that were issued to him were payment for amounts owed to him?" Ms. Hakala queried.
"In the affidavit that I read, it was said that he was being -- shares were being given to him for compensation," Ms. Buck replied.
"Did that say compensation for what?" asked Ms. Hakala.
"I -- I mean, I don't have the sheet in front of me, so I don't want to speculate," said Ms. Buck.
"Do you remember what compensation it was for?" Ms. Hakala queried.
"I don't remember because I don't have it in front of me," Ms. Buck answered.
"Do you know why CMKM Diamonds paid David DeSormeau $1.5-million?" Ms. Hakala persisted.
"I don't know," said Ms. Buck.
A short time later, Ms. Hakala turned to another line of questioning.
"You said you had all of the contracts you needed, I think," Ms. Hakala began. "Do you have any contracts with drilling companies?"
"I would have to go through my agreements binder," Ms. Buck said.
"Do you remember seeing any contracts with drilling companies?" Ms. Hakala asked.
"I don't have it in front of me," Ms. Buck said. "It's information -- I don't memorize everyone's agreement."
That response brought a rather terse admonishment from Judge Murray.
"Hold on just a second," said Judge Murray. "The witness has to remember you're under oath, so I want you to think before you fire back an answer. All right?
"If you think, you pause, you remember you're under oath, you have to tell the truth."
Ms. Hakala returned to her questions.
"Do you remember seeing -- as you sit here today, do you remember seeing any contracts with drilling companies in the materials you have reviewed for CMKM Diamonds?" Ms. Hakala asked.
"I don't remember at this time," Ms. Buck said.
As Ms. Hakala continued her cross-examination, Ms. Buck testified that she did not remember seeing any contracts for assaying, any employment contracts, or any contracts related to the $56-million jade collection that featured in earlier testimony.
Ms. Buck also testified that she did not know how much money CMKM had spent to acquire mining claims.
After eliciting further testimony from Ms. Buck that CMKM could not file its periodic reports without having audited financial statements and that the young lawyer could not provide a specific date by which CMKM would file, Ms. Hakala turned to a discussion of the company's office address.
After Ms. Buck acknowledged that she was involved in preparing Forms 8-K filed by CMKM on March 14, April 6 and April 12, 2005, and that she understood that all SEC filings have to be truthful and accurate, Ms. Hakala asked whether she had taken any steps to confirm that the company address on those forms was correct.
"We relied on management," Ms. Buck said.
"What management -- who is management?" Ms. Hakala queried.
"I would think Mr. Casavant," said Ms. Buck.
A short time later, Ms. Hakala referred Ms. Buck to an April 6 e-mail from Debbie Amigone of Securities Law Institute to Mr. DeMint, the managing director.
Ms. Buck confirmed that Ms. Amigone and Mr. DeMint both worked in her office.
In the e-mail, Ms. Amigone informed Mr. DeMint that she had visited an Internet chat site and there were "21 pages of the fact that there is no corporate office."
According to Ms. Amigone's message, a vacationing shareholder had visited what was supposed to be CMKM's Las Vegas office and reported that the address belonged to a hot rod shop "and the rest of the warehouse is empty."
"The stockholders are saying that the company lied in its PR and SEC filings and they are now going to call Andy (Hill) in the morning and then call the SEC," Ms. Amigone's e-mail said in part. "You may want to call Urban or Michael and have them move in and talk to Shawn at the hot rod shop and also tell Andy what to tell the stockholders when they call him."
"Have you come to understand whether or not the Procyon address and Suite 101 is, in fact, CMKM's office?" Ms. Hakala asked.
"It's according to this e-mail, no," said Ms. Buck.
"Do you have any independent knowledge about it?" asked Ms. Hakala.
"I have not gone to that office to look otherwise," Ms. Buck replied.
"Have you ever had any conversations with anyone about whether or not CMKM has an office there?" Ms. Hakala queried.
"I have not had any conversations about it," said Ms. Buck.
"Have you ever been to any offices for CMKM Diamonds?" asked the SEC lawyer.
"No," said Ms. Buck.
Ms. Hakala had no further questions and Mr. Stoecklein did not have any redirect.
Ms. Buck was excused.
After a bit of legal housekeeping regarding exhibits and posthearing brief scheduling, the hearing adjourned at 6:04 p.m.
The saga continues.
Comments regarding this article may be sent to lwebb@stockwatch.com.
(More 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; and June 6, 8, 9, 10, 13, 14, 15 and 16, 2005.)
Ref: stockwatch.com.
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