OT: B.C. Securities Commission - Street Wire
BCSC, Law Society probing former Howe St. lawyer Merry
B.C. Securities Commission *BCSC
Monday August 26 2002 Street Wire
by Brent Mudry
Former Howe Street lawyer Peter J. Merry and Choice Sports Network Inc. are under investigation by both the Law Society of British Columbia and the British Columbia Securities Commission in relation to an alleged illegal distribution of shares. Dubious share opinions, issued between March, 2000, to January, 2001, relate to the distribution of more than three million Rule 144 restricted shares.
In a petition filed Thursday in the Supreme Court of British Columbia, the Law Society of B.C. seeks court orders barring Mr. Merry, whose membership ceased on Jan. 1, 2000, to immediately cease and desist from appearing, acting and holding himself out as a lawyer. The allegations have not yet been proven in court and a legal response has not yet been filed by Mr. Merry.
The current court action is the latest setback for both Mr. Merry and Choice Sports, who have each endured the misfortune of troubled deals in recent years. (Choice Sports was previously known as World Sports Licensing Corp., itself previously known as Merchandise Entertainment Television Holdings Inc.)
The law society bases its case on evidence supplied by James Knopp, a former investigator with the RCMP "E" Division's Commercial Crime Section who now serves as a senior investigator with the enforcement division of the B.C. Securities Commission. "In the last few months of 2001, I conducted an investigation into an allegation of illegal distribution of shares in British Columbia. In the course of my investigation, a number of letters from the respondent Peter J. Merry came to my attention," states Mr. Knopp in an affidavit sworn Aug. 16.
While Mr. Knopp is currently on vacation and could not be reached for comment, his affidavit includes copies of seven opinion letters issued by Mr. Merry to Choice Sports Network at its head office in the Seattle suburb of Kirkland. All the letters were copied by Mr. Merry to National Stock Transfer Inc. in Salt Lake City, Utah, to help effect the transfer of the cited share certificates.
Three of the letters were dated March 9, 2000, a few days before Choice Sports' 3:2 share split came into effect on March 13. These three letters related to 1.85 million old shares, or 2.7 million new shares. In these letters, Mr. Merry cleared the sale of 500,000 old shares held by Access Capital Management, 600,000 old shares held by Big Apple Capital Holdings Ltd. and 750,000 old shares held by Professional Sports Network Inc. In Mr. Merry's unauthorized legal opinion, all three certificates, originally dated Jan. 18, 1998, could be freely sold without filing registration documents with the United States Securities and Exchange Commission.
Mr. Merry's fourth letter, dated March 17, 2000, qualified for sale 750,000 old shares held by Asian Pacific Sports Partners Ltd. The former lawyer issued two more letters on May 3, 2000, clearing the sale of 75,000 old shares each in the names of Fred Renig and Edwin Litak. Mr. Merry made a serious boo-boo in both these letters -- his letterhead included a line in which he called himself a barrister and solicitor, a misrepresentation of his true status.
Mr. Merry's seventh letter, dated July 12, 2000, cleared 750,000 shares held in the name of Nippon Atlantic Holdings Inc., while his eighth letter, dated Jan. 29, 2001, cleared 750,000 shares held by Oldtimers Hockey League Ltd. All eight certificates were originally issued Jan. 18, 2000.
The Law Society of B.C. notes that all letters were issued after Mr. Merry ceased to be a lawyer. In its petition, the society now seeks court orders prohibiting Mr. Merry from holding himself out as a lawyer, preparing any legal documents, giving any paid legal advice or offering to perform any paid legal services for anyone.
The regulatory investigations are the latest setbacks for Mr. Merry, who ended his mixed 21-year law career in January, 2000. (Mr. Merry was also busy as a Howe Street penny stock promoter, and he was a non-practicing member of the law society betweeen 1994 and January of 1998, meaning he undertook not to provide any legal services during this period. Mr. Merry took a much broader legal holiday a decade earlier. Law society records confirm he ceased being a member on Jan. 8, 1986, and resumed his membership on Oct. 25, 1988.)
In the fall of 1995, Mr. Merry's then flagship company, Lucky Break Gold, was one of the most active stocks on the former Vancouver Stock Exchange. Almost 15 million shares traded that September as the stock doubled to 40 cents, but the promotion fizzled out as quickly as it began.
A few months later, a local reporter revealed the identity of two key Lucky Break players. Neither was mentioned anywhere in Lucky Break's public filings with the VSE and the BCSC. This was quite understandable, as one was an admitted stock manipulator who was banned for 15 years, and the other faced cocaine smuggling charges.
Besides Mr. Merry, the company's reputable president, Lucky Break's key men were Philip Yeandle and Rob Levell. Mr. Yeandle actually served as Mr. Merry's de facto right-hand man, and staff called him the "company manager."
To his credit, Mr. Merry kept quite an open mind about who he worked with, as Mr. Yeandle's baggage was heavy. In 1992, the BCSC prohibited Mr. Yeandle from serving as a director or officer of any public company for 15 years. It also fined him $15,000. The promoter's well-orchestrated stock manipulations were not merely allegations or charges made by the BCSC. He admitted to all his devious tricks in a written guilty plea. The 1990 scandal which prompted the discipline action involved Fair Harbour Mining Corp. and Southlands Mining Corp., two companies controlled by Mr. Yeandle. (Mr. Merry was a director of both companies in 1991, but no unflattering regulatory allegations were made against him.)
In his settlement, Mr. Yeandle admitted he controlled more than eight accounts in four brokerage firms. He bought and sold shares from and to himself, through wash trading, and shifted his holdings from house to house, through debit-kiting. Mr. Yeandle also filed false insider-trading reports, claiming he bought 279,000 Fair Harbour shares and sold 275,000. In reality, he traded more than 1.4 million shares. In addition, Yeandle filed false private-placement notices and sold restricted stock illegally.
Lucky Break's other key man, Mr. Levell, is a former stock broker at Yorkton Securities who RCMP claim moonlighted as a cocaine conspirator. The RCMP nabbed two men as they left the underground parking lot of a hotel in August, 1994, in a well-planned drug bust in downtown Vancouver. The mid-morning raid netted 10 kilograms of cocaine, worth about $300,000, in a rental van. A few hours later, Mr. Levell was arrested at work. Police found $200,000 in cash at his rented house in the British Properties, and a $350,000 speedboat was seized at Granville Island. Mr. Levell later faced several cocaine conspiracy charges.
After his exit at Yorkton, Mr. Levell went to work for Lucky Break in the spring of 1995. He worked across the hall from the company, and Lucky Break staff directed all investors' calls to him. After preparing over the past six months, the Lucky Break team launched its promotional campaign that August.
The VSE abruptly halted Lucky Break trading for two days in the wake of the unflattering media revelations, as the company clarified its affairs. "Philip Yeandle and Rob Levell are no longer involved with or associated with the company in any capacity," Mr. Merry subsequently stated in a press release before trading resumed. This was Lucky Break's first public disclosure of the pair's involvement in the company.
The media coverage missed a much bigger fish.
In August, 1995, the same month Mr. Levell was busted in the coke ring takedown, Mr. Merry's Lucky Break raised $420,000 in a private placement of 2.8 million units at 15 cents, with each unit consisting of one share and a warrant. (The warrants were exercisable at 15 cents until September, 1996, which is when the promotion peaked at 40 cents, with each 15-cent unit then worth 65 cents on paper, a cool fourfold one-year return.)
Mr. Levell bought a modest 200,000 units. The biggest buyer was Evergreen Holdings, a British West Indies company, with 1.15-million units. This $172,500 initial investment by Evergreen was worth $747,500 on paper a year later.
Regulatory filings show a chap called Richard Hape was a key shareholder of Evergreen. (Evergreen also served as a private placement investor in Mr. Yeandle and Mr. Merry's other promotions: the notable Fair Resources and Southampton.)
Mr. Hape had the misfortune of being arrested in Toronto in February, 1999, on charges of offshore drug money laundering. (There is no suggestion that Mr. Hape was using Lucky Break, Fair Resources or Southampton as a washing machine.)
The money laundering arrest came after an extensive three-year investigation by members of the RCMP "O" Division's Integrated Proceeds of Crime section and the Royal Turks and Caicos Police. Mr. Hape, the chief executive officer of British West Indies Trust Co. Ltd. on Grand Turk, was the chief target.
Mr. Hape pled not guilty to laundering $252,000 (Canadian) and $80,000 (U.S.) in drug money offshore. Until last week's Operation Bermuda Short, which netted a number of alleged money laundering penny stock players, including former Vancouver lawyer Martin Chambers and current Toronto lawyer Simon Rosenfeld, the Hape case was one of the most significant RCMP offshore money laundering cases in recent years.
Choice Sports Network, the subject of the Merry probes by the law society and the BCSC, has its own share of controversy.
In June, 2000, a few months after Mr. Merry issued his first 144 letter that March, Choice Sports signed a letter of intent to merge with First Entertainment Holding Corp., which had its own smell. (An earlier planned merged with Cricmania.com, an Internet portal for cricket buffs, flopped. Cricmania quickly rebounded in a deal with fugitive Thai financier Rakesh Saxena's Global Explorations Inc.)
First Entertainment itself was on the rebound, as prospective deals with Mark Dohlen's Starnet Communications International and clone Healthnet International flopped.
(Starnet, an offshore gambling promotion operating in Vancouver, was raided by police in August, 1999.)
At first glance, First Entertainment hardly seemed like an obvious choice for any legitimate company to partner with. Although First Entertainment claims to be "a leading multimedia Internet entertainment company with holdings in the areas of comedy clubs, broadcast radio, Internet entertainment, advertising and marketing, and rich media production," it is hardly a blue-chip type of company.
First Entertainment had strung together an unbroken 14-year chain of losses since its inception in 1985, reaching a cumulative deficit of $18.7-million at the end of 1998.
(All First Entertainment figures are in U.S. dollars.) At Dec. 31, 1998, the company had an excess of current liabilities over current assets of $1.5-million, it was unable to meet all of its obligations when due and it had defaulted on a substantial portion of its debt. "These conditions raise substantial doubt about our ability to continue as a growing concern," noted the company.
First Entertainment also had an eclectic flavour more reminiscent of penny stock promotions than well-established operating companies. "We currently are involved in the radio broadcast business through the ownership of one station in Gillette, Wyo., in the comedy club business through the ownership of one comedy club in Denver, Colo., and in the operation of an Internet portal and Web page development," stated the company in an SEC filing.
Past ventures were hardly stellar. In early 1995, First Entertainment claimed to have won certain licensing and merchandising rights for the Indian Motor Co., relating to the once-powerful former rival of Harley Davidson, but the bankruptcy court never approved the agreements. The next year, First Entertainment then-president Abraham Goldberg and several associates were sued by Indian Motorcycle Manufacturing's receiver, and the case finally settled in early 1997, with First Entertainment agreeing to relinquish all claims to Indian trademarks and rights, and to pay $114,000. Later that year, the company took a $902,000 hit on another failed deal, a venture involving toy balls from Australia.
In an even more distressing development, in June of 1996 former director Frank D'Alessio sued Mr. Goldberg, his mother and a number of broker-dealers, including Denver-based Cohig & Associates, a favourite house of penny stock promoters, in the U.S. District Court for the District of Colorado, claiming he was defrauded in certain share purchases. After strenuously denying any violations of any laws, Mr. Goldberg settled the case four months later by agreeing to give Mr. D'Alessio 150,000 shares and $20,000.
The SEC, meanwhile, was also sniffing around. In 1997 and 1998, First Entertainment, various officers and directors and unrelated parties received requests from the regulator in an an investigatory probe. In its June 17, 1999, annual report filing, First Entertainment revealed that the SEC's Denver-based Central Regional Office planned to recommend an enforcement action be instituted against the company, Mr. Goldberg and a former director for failure to make required filings and failure to report material transactions.
The SEC made good on its promise, filing a civil complaint against Mr. Goldberg and First Entertainment on Aug. 2, 1999. Mr. Goldberg, who had served as chief executive since February of 1995, resigned a week after the SEC launched its action. The SEC alleges that First Entertainment failed to disclose compensation paid to Mr. Goldberg in its 1995 and 1996 annual reports and in a registration statement and proxy filing in 1997. The regulator claims that Mr.
Goldberg received $350,000 in undisclosed compensation.
"The SEC alleges that Mr. Goldberg attempted to conceal the compensation by directing the payment of money and stock through his wife, including the issuance of stock that allegedly was not approved by the company's board of directors. The SEC also alleges that Mr. Goldberg failed to properly disclose his securities holdings in the company and changes in those holdings," states First Entertainment.
Much of Mr. Goldberg's secret compensation was funnelled through Munchkintown, a company controlled by his wife.
In a consent agreement on Oct. 22, 1999, the company, without admitting or denying any guilt, agreed to refrain from further securities law violations in the future. The case against Mr. Goldberg remains unsettled.
While First Entertainment's troubles might make it an odd partner for Healthnet, the company passed some sort of muster with a subsidiary of Starnet. On March 23, 1999, two months before First Entertainment's letter of intent with Healthnet, Starnet's Softec Systems Caribbean signed up Kensington Investments, a subsidiary of First Entertainment, as a licensee for its Internet casino software.
(A year ago, on Aug. 17, 2001, in a landmark North American Internet gambling prosecution, Starnet pled guilty to one criminal gambling count and agreed to forfeit $3.92-million (U.S.) in illicit proceeds and pay a fine of $100,000, plus a mandatory victim surcharge of $15,000. The forfeiture of $3,925,000 (U.S.) is the largest forfeiture in B.C. history, and one of the largest in Canada, under the Criminal Code of Canada, although not as large as some drug-case forfeitures under the Controlled Drugs and Substances Act.)
Just before its deal with Choice Sports, First Entertainment also attracted the attention of a notorious penny stock tout. On April 25, 2000, First Entertainment announced that Access 1 Financial had "initiated" coverage with a "buy" recommendation and a six-month target price of $4 (U.S.).
Access 1 Financial was the touting company of Mark Bergman, a close associate of disbarred Los Angeles lawyer Regis Possino, significant players in the recent General Commerce Bank affair, an Austrian scandal featuring Vancouver-based Thai fugitive Mr. Saxena, Saudi arms merchant Adnan Khashoggi and a star-studded cast of other colourful financiers. Mr. Bergman was targeted by the SEC earlier this month in the Pangia case, which has roots back to Howe Street.
In the Pangia case, the SEC claims two Canadians, Teodisio V. (Ted) Pangia, of Kleinburg, Ont., and New York, and Satbal Singh, of Toronto, allegedly dumped $15-million of Environmental Solutions shares on unsuspecting victims. Mr. Singh's previous entrepreneurial exploits included a drug stint, for which he was convicted in Canada of narcotics trafficking and sentenced to two years in jail.
stockwatch.com |
