ZERO DEGREES OF SEPARATION – THE LAST HURRAH?, PART I
DIAMONDS AND DUST – TEODOSIO PANGIA’S JOURNEY FROM ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC. (OTCBB: ESWW) TO DIAMOND DISCOVERIES INTERNATIONAL CORP. (OTCBB: DMDD).
August 12, 2002
Here are a few facts that investors should know about a company called Diamond Discoveries International, Inc. (OTCBB: DMDD):
• The Company has not discovered any marketable diamonds.
• The Company admits that it may never have any revenues.
• The Company has no full-time employees.
• The Company had just $276 in the bank at the end of March 2002.
And, as if that were not enough to discourage most thoughtful investors, there are these additional gems:
• The Securities and Exchange Commission wants to bar the Company’s President, Chief Executive Officer, and director, Teodosio Pangia, from serving as an officer or director of any public company.
• Pangia controls Diamond Discoveries through his New York-based investment firm and a group of offshore companies.
• The SEC says Pangia engineered a “pump and dump” scheme involving shares of Environmental Solutions Worldwide, Inc. (OTCBB: ESWW).
• Pangia also has been charged with securities law violations by the SEC and the Ontario Securities Commission.
• Diamond Discoveries recently registered almost 2 million shares of its common stock for a group of selling stockholders that included Pangia’s offshore entities and the Company’s attorneys.
• Diamond Discoveries recently sold an additional 1.1 million shares and 1.1 million warrants to unnamed offshore investors.
Is that enough to dim the sparkle of this diamond?
Flying Low
Until recently, Canadian investor Teodosio Pangia had managed to keep a relatively low profile, at least in the United States. In December 2001, however, Stock Patrol published the first of a series of articles profiling Pangia’s activities, and focusing on his use of offshore entities to acquire shares of U.S. penny stock companies, including Infotopia, Inc. and Ives Health Company, Inc. See Zero Degrees of Separation, Part I, North of the Border; Part II, It Sure Is A Small, Small World; and Part III, Were Those Irish Eyes Smiling, Or Is Georgia On Their Mind?
By then, Pangia already was in trouble with Canadian securities regulators, who had filed an action alleging that Pangia, Dallas/North Group Inc (a company he controlled), and a third individual, made over $1.38 million by selling unregistered shares of EPA Enterprises, Inc. between March 1995 and February 1996. The Ontario Securities Commission charged that Pangia, who was Chairman and Chief Executive Officer of EPA, orchestrated the sales, dictated the sales price, and decided who would receive the proceeds. See Zero Degrees of Separation, Part I, North of the Border. EPA shares eventually were delisted by the Vancouver Stock Exchange.
But Pangia was operating south of the border as well, acquiring shares of Infotopia and Ives. His relationship with those two companies, however, was not immediately apparent since his name did not appear in their public filings. Consequently, public investors did not know that he controlled several offshore entities - Altea Investments Ltd., Gata Investments Ltd., and TVP Capital – that had been issued common shares of Infotopia and Ives at a significant discount from their market price. The absence of that disclosure was particularly striking since Bondy & Schloss, the New York law firm that represented Infotopia and Ives, were also the attorneys for Pangia-controlled businesses.
The stock issued to Pangia’s offshore companies was quickly registered – 32.5 million shares by Infotopia and 4.5 million shares by Ives – while both companies were flying high. At the time, Infotopia and Ives were actively promoting their products, and the price of their stock was rising – just in time for the Pangia-controlled entities to dump their holdings.
The news was not so good for public investors who bought Ives and Infotopia shares, and then watched as they dropped in value. The SEC suspended trading of Ives shares in March 2001, expressing concern about that Company’s claims for a purported AIDS remedy. Criminal charges were subsequently brought against Ives Health Care and its founder, Keith Ives. Infotopia stock eventually plummeted to a fraction of a cent per share, and that Company’s operations appear to have ground to a halt.
But Pangia was not done. Far from it. Then again, neither were the regulators.
Dumping is not an Environmental Solution
Infotopia and Ives did not occupy Pangia’s entire attention after the demise of EPA. By January 1999 he was accumulating shares of another OTC Bulletin Board company, Environmental Solutions Worldwide, Inc. (OTCBB: ESWW).
In January 1999, one of Pangia’s companies, Tyler Dylan Corporation, received over 3.1 million shares of Environmental Solutions, as the result of a reverse-merger between Environmental Solutions (then known as BBC Stock Market, Inc.) and BBL Technologies, Inc., a private Canadian company that purportedly held the Canadian patent to a catalytic converter/muffler technology. Tyler Dylan had been one of the principal shareholders of BBL. See Zero Degrees of Separation, Part I, North of the Border.
As we pointed out in our December 2001 article, that reverse-merger set the stage for a vigorous campaign to pump the value of Environmental Solutions shares. What we didn’t know then, but later learned, was that Pangia also had an undisclosed interest in BBC before the reverse-merger – giving him even more shares to dump on an unsuspecting public. But more about that later.
Central to the “pump and dump” campaign was a February 2000 report issued by Access 1 Financial, Inc., that predicted sales of $35 million for Environmental Solutions in the year 2000, and a 6-month stock price target of $15 a share.
Access 1, and its owner Mark Bergman were not, however, financial analysts. They were public relations consultants who failed to disclose at the time that they had received $25,000 and 30,000 shares of Environmental Solutions stock from Teodosio Pangia for touting the Company.
While the revenue projections had no basis in fact, the Company’s stock, which had been trading at just over $4 per share in mid-February 2000, jumped to $7.75 by March 6, 2000.
The public was buying – both the story and the stock - and Pangia was selling. Between March 2000 and March 2001, as the Company was promoting the Access One report and issuing a series of promotional press releases, Pangia was dumping more than 3.3 million shares through Rule 144 sales.
Was this all part of an elaborate pump and dump scheme as we suggested last December? That is precisely what the SEC is now saying – and so much more.
The SEC Complaint
In fact, it was a $15 million pump and dump scheme, according to a complaint filed by the SEC on August 9, 2002. The Commission claims that Pangia and his offshore companies Gata Investments, Altea Investments, and Jalon Investments, Ltd., conspired with nine other defendants, including Access 1, in an aggressive promotional campaign to “prime the market” for Environmental Solutions stock through a series of fraudulent press releases, spam e-mails, and the false and misleading Access 1 report.
Then they made millions of dollars by dumping shares, all the while filing misleading public reports that failed to disclose their plan, the facts behind their stock sales, or the true identity of the individuals controlling the Company.
The SEC complaint casts a new light on the maneuvers that led to the merger of Environmental Solutions (then called BBC Stock Market) and BBL. It reveals that Pangia actually was working both sides of the transaction.
Prior to the merger, Pangia, and a Canadian attorney named Michael W. Smith, arranged for the BBC public shell to be purchased, for $150,000, by ESW Capital Management Corporation, a Canadian company controlled by Smith, and another Canadian attorney, Adam Michael Oliver. They had a plan; they wanted to merge BBC with BBL, a private Canadian firm owned by Pangia, Smith, Oliver and an individual named Satbal Singh (who had been convicted of narcotics trafficking and sentenced to two years in prison in 1996).
First, however, they would stack the deck by getting 15 million shares of BBC into friendly hands. In January 1999, shortly before the merger, BBC issued 15 million unrestricted shares to five offshore nominees through a private placement that was exempt from registration under Rule 504 of the Securities Act of 1933. Rule 504, which is part of Regulation D, exempts certain offerings from registration if they raise less than $1 million. BBC later claimed that it was paid $150,000 for the shares, but the SEC says that the money never was received.
According to the SEC, Pangia received at least 6.9 million of those shares, and subsequently sold 2 million shares through offshore accounts controlled by Gata, Altea and Jalon. His associate Singh received and sold approximately 2.6 million of the private placement shares.
Then, on January 29, 1999, BBL was merged with BBC (which now became Environmental Solutions) and the BBL shareholders received another 11 million BBC shares – including 3.1 million that went to Pangia, and another 1 million that were issued to Singh. Oliver became the sole officer and director of Environmental Solutions, but according to the SEC, unbeknownst to public shareholders, Smith was really running the Company.
With shares in hand, the pump began. The SEC says that Zoya Financial Corporation, Ltd., a Canadian company controlled by Singh, began to provide “public relations services,” issuing a series of fraudulent press releases concerning the Company’s plans and products.
Beginning on July 12, 1999 a series of press releases and “analyst” reports sought to generate interest in the Company by falsely characterizing, and grossly over-inflating, the capabilities of the Company’s principal product, a catalytic converter that was supposed to reduce automobile emissions.
These were followed, in January 2000, by the woefully inaccurate Access 1 report. Like the press releases, the report mischaracterized the potential of the Company’s catalytic converter and failed to note the limitations of that device. In fact, Access 1 simply ignored the Company’s own public filings, including an October 22, 1999 amendment to its Form 10-12G filing, which conceded that “[Environmental's converter] may have no advantage over existing converter technology, or may be less efficient than existing technology in reducing some or all noxious emissions.”
And, as we have seen, the Access 1 report dramatically overstated the Company’s short-term potential, projecting revenues of $35 million, and earnings of $14.2 million in the year 2000. In reality, there was no potential for immediate revenues since the Company had yet to complete the design of its prototype converter.
Although the Company subsequently disavowed portions of the Access 1 report, the campaign to promote Environment Solutions stock continued. Spam e-mails falsely claimed that two other analysts had issued price targets of $150 and $70 for the shares, and a series of press releases continued to reiterate inaccurate claims for the efficacy of the Company’s catalytic converter.
All that touting achieved its intended effect. Environmental Solutions share prices, which were less than $2 in late 1999, moved as high as $7.35 on March 9, 2000, just over a week after the Access I Report was released.
Meanwhile, Pangia and his cronies were dumping shares. According to the SEC, Pangia realized about $3.8 million by selling at least 2 million shares through brokerage accounts opened in Canada for Altea, Gata and Jalon. He disposed of another 2 million shares through a U.S. brokerage account opened in the name of “Dolphin Partners,” transferring some of that stock to Mark Bergman as payment for the Access I report, and other shares to the spam e-mailers who had been circulating false reports on Environmental Solutions.
Singh reportedly sold 2.63 million shares, realizing approximately $11.2 million.
Now the SEC wants Pangia and the rest of his crew to disgorge those ill-gotten gains. Perhaps of more importance to investors in other Pangia ventures, the SEC wants to bar Pangia, Singh. Smith and Oliver from serving as officers or directors of any public company.
What does all of this mean for Diamond Discoveries International? Will Pangia be forced to abdicate as President, CEO and Director? Who has been buying and selling shares of that Company? Have there been private placements rivaling the deals for Environmental Solutions?
Who would buy diamonds – or stock – from this group anyway?
We examine all of those questions, and more, in Part II of this series. |
