The Financial Times of London -
THURSDAY DECEMBER 10 1998
Americas
FBI PROBE: YBM is put in hands of receivers
By Edward Alden in Toronto
YBM Magnex International, the magnet maker, has been turned over to a receiver and the company's board of directors has resigned, saying there is no possibility the company's shares will resume trading.
The directors also warned late on Tuesday that they had been advised by the company's counsel that YBM was certain to be indicted on criminal charges by a US grand jury unless it entered into a guilty plea agreement.
For the first time since the US Federal Bureau of Investigation raided YBM's Pennsylvania headquarters in May, the company has acknowledged that the US criminal investigation "may involve or relate to the possible links between YBM and certain alleged organised crime members".
Ernst & Young, the accountants, have been appointed as YBM's receivers, with a recommendation from the directors that the company be sold off to reimburse some of the losses suffered by shareholders.
YBM, which manufactures high-performance magnets and bicycles, became a Canadian stock market darling earlier this year, reaching a market value of more than C$900m (US$600m). The shares were bought heavily by big institutional investors, including the Ontario teachers' pension fund.
Trading in the shares has been halted on the Toronto Stock Exchange since May following the company's failure to file audited financial statements.
The investigation by the US authorities is believed to involve allegations that YBM was used to launder proceeds of Russian organised crime. A company founder, Semion Mogilevitch, was barred from the UK in 1995 following a money laundering investigation.
YBM's institutional investors seized control of the company earlier this year, installing their own board of directors. But in a statement on Tuesday the new board said it remained unable to supervise YBM's ongoing business or to ensure that its affairs were conducted lawfully, particularly with respect to its east European operations.
The directors hired US forensic auditors Miller & Tate to examine a range of questionable transactions by the company.
In a report tabled with YBM's board of directors last week, the auditors said it remained impossible to verify a number of YBM transactions. "In most instances, significant transactions involving substantial sums of money are not supported by corroborative evidence."
Most of these transactions were carried out by United Trade, a YBM subsidiary based in the Cayman Islands. The auditors said that during their probe they became aware of substantial amounts of money being moved through accounts controlled by United Trade.
The YBM saga has led to questions about why Canadian regulators approved the stock for listing.
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