B.C. Securities Commission -
BCSC/SEC probe of Kott enhanced by Rafi Khan
B.C. Securities Commission BCSEC
Shares issued 0 1899-12-30 close $0
Friday Jan 28 2000
Also Hariston Corp (HRSNF)
Also (U:HRSNF)
Also (U:SRRIF)
by Brent Mudry
While legendary boiler-room operator Irving Kott's fondness for Howe Street traces back to at least 1983, when the Vancouver Stock Exchange listed the predecessor to his Canadian flagship Hariston Corp., the United States Securities and Exchange Commission investigation into the Montreal native's affairs covers the period from Jan. 1, 1993. In spring of that year, Mr. Kott led a group which took control of Reynolds Kendrick Stratton, a Los Angeles penny stock brokerage.
One of RKS's key brokers was Rafi Mohamad Khan, a controversial stock promoter who also had a fondness for Howe Street, the centre of dealings for the former VSE, the exchange formerly known as the Scam Capital of the World.
Mr. Kott and Mr. Khan were well established in the penny stock world when they arrived at RKS in early 1993. Mr. Kott began his career in his native Montreal, where he was charged in 1974 on a stock fraud case, fined a record $500,000 in 1976, sentenced in 1979 to four years in another case, which was reversed on appeal, before he headed for greener boiler-room pastures with Amsterdam as his European headquarters.
Mr. Kott was run out of the Netherlands by Dutch authorities in 1986, three years after his Western Allenbee Oil & Gas, later renamed Hariston, was listed in Vancouver 1983.
Mr. Khan arrived on Howe Street a few years later. He served as chairman and controlling shareholder of VSE-listed Tarn Pure Technology from 1985 to 1989, before Tarn Pure became a focus of the VSE's embarrassing Wolverhampton pension fund scandal.
A few years later, Mr. Khan emerged as a shareholder of Neuro Navigational, a promotion of Harry Moll, the former VSE promoter-of-the-year who later left Vancouver for the sunnier climes of the Cayman Islands in the wake of the collapse of his Pineridge Group.
Mr. Khan left H.J. Myers, a controversial U.S. brokerage that sold stocks by script, to join RKS in early 1993. Although he left RKS in October of that year, he has a wealth of information about penny stock deals, incentivized fund managers and, most importantly, Mr. Kott. Mr. Khan turned federal witness in September of 1998, and serves as the SEC's trump card in its long-running Kott probe.
While the SEC's interest in RKS and Mr. Kott began soon after he took control of the Beverly Hills brokerage, it proceeded with its investigation quietly. Mr. Kott's key roles in RKS became public knowledge by March of 1994, when Business Week revealed his behind-the-scenes control in a feature article, read with great interest by regulators in the U.S. and Canada, including those at the British Columbia Securities Commission.
Although more major media coverage of Mr. Kott's RKS affairs followed, including a Time feature in December of 1996, the SEC's biggest breakthrough came in August of 1997. The Federal Bureau of Investigation directed simultaneous raids on the Los Angeles and Swiss offices of J.B. Oxford, RKS's successor.
The SEC wasted little time in extending its Kott probe to the roots of Howe Street. In an Aug. 14, 1997, investigation order, the BCSC, acting on behalf of the SEC, officially launched a probe into Mr. Kott, Hariston, Synergy Renewable Resources, and related companies.
Five days later, on Aug. 19, the BCSC served a first formal disclosure demand on Synergy, seeking full records on 28 named individuals and 21 corporate entities, mainly offshore accounts.
After production of extensive records and a extended disclosure tug-of-war with Howe Street lawyer David Anfield, who has served Mr. Kott's companies since at least 1985, the SEC greatly expanded its Vancouver probe. The BCSC, acting on behalf of the SEC, targeted Mr. Anfield directly in a second disclosure demand on Sept. 14, 1999.
This time the SEC sought every scrap of information Mr. Anfield has on 52 named individuals and 73 corporate entities, mostly offshore accounts. By coincidence, this was exactly a year after Mr. Khan reached a formal plea agreement with U.S. officials. Mr. Khan's long-time lawyer, Saied Kashani, told Stockwatch last July that Mr. Khan reached a plea agreement in September of 1998, after some months of discussions. The plea agreement has been sealed in court.
With this background in place, the SEC is eager to uncover everything it can on Mr. Kott's empire through the files of Mr. Anfield, his long-time Vancouver lawyer.
Under the watchful eyes of the VSE and the BCSC, numerous offshore accounts in a myriad of seclusive enclaves bought millions of shares in Mr. Kott's two Howe Street companies, Hariston and Synergy, for years, although the SEC is focusing on the period from 1993 to date.
Hariston started its busy 1993 finance campaign early in January. That month, the company secured a $4-million debenture financing of subsidiary Canadian Capital Financial Markets, convertible into Hariston shares at $3 to $4. The biggest investors, each with $1.6-million, were two companies in Mr. Kott's hometown of Montreal: Cite Du Cinema (Mel) Inc. and Rubywood Holdings Inc.
Hareton Sales & Marketing Inc., using a Toronto accountant, subscribed for $500,000, while two California investors, Dr. Recia Blumenkranz and Mark Blumenkranz, subscribed for $150,000 each. Cite Du Cinema and Hareton are the on the SEC's list of records sought from Mr. Anfield.
Three weeks later, on Feb. 4, Hariston raised $3.45-million by selling 803,000 units at $4.30 in a private placement to Olinka S.A., care of Credit Suisse in Sion, Switzerland. After a six-week breather, Hariston issued 300,000 shares at a deemed price of $4 per share to Michael Solowow of Kielce, Poland, for its purchase of 80 per cent of Polish Life Improvement S.A. While Olinka and Polish Life are on the SEC's file demand on Mr. Anfield, Mr. Solowow is not personally named.
The next month, on April 7, Hariston filed with the BCSC to issue 97,700 shares to Olinka at a deemed price of $391,000. This was related to Hariston's purchase of all the shares of Groothandelsmarkt Gemar B.V., a company in Mr. Kott's former stomping grounds of the Netherlands.
On June 9, Hariston raised $2.5-million by selling 472,000 units at $5.30 in a private placement to Titano Trading Establishment, using a post box address in Vaduz, Liechtenstein.
Two weeks later, on June 24, Mr. Kott's other Howe Street company, Synergy, then called Western and Pacific Resources, raised $400,000 (U.S.) by selling 1.6 million units at 25 U.S. cents in a private placement to Y.L.T. Investments Ltd, using a post box address in George Town on Grand Cayman in the Cayman Islands.
While Titano is on the SEC's records shopping list in Vancouver, Y.L.T., for some reason, is not.
The second half of 1993 was equally busy for Mr. Kott's Vancouver companies.
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