OEX riggers Scott, Simons lose $788,000 LML share suit
2002-09-17 08:54 PT - Street Wire
by Brent Mudry
Notorious Vancouver securities violators Elford Scott and Montague (Monty) Simons have lost their $788,000 suit against former partner Byron Williams, ending, at least for now, a three-year court battle over a block of 70,000 shares of LML Payment Systems, a current OTC Bulletin Board promotion of the controversial Cam-Net group. In a decision released Monday in the Supreme Court of British Columbia, Madam Justice Nicole Garson dismissed all the claims of Mr. Scott and Mr. Simons and awarded costs against them, although a freeze on the LML share block was extended for 30 days in case the pair decide to appeal their loss.
The decision comes five months after a 12-day trial ended April 16 in Vancouver. The ruling is a win for lawyer Francis Lamer of Shapray Cramer, representing Mr. Williams's Abraxis Trading, formerly known as Four-Star Management Ltd., and a loss for David G. Fredricksen, representing Mr. Scott and Mr. Simons through BMF Trading, their former partnership with Mr. Williams. Mr. Fredricksen told Stockwatch his clients were disappointed with the loss, although no immediate appeal decision has yet been made.
The trial offered several intriguing fresh insights into one of Howe Street's most notable old scandals, OEX Electromagnetics. Mr. Scott, Mr. Simons and Mr. Williams are best known for the rig job of OEX on the former Vancouver Stock Exchange. In 1989, the same year the trio were banned 12 years by the British Columbia Securities Commission in the OEX case, Forbes magazine dubbed the VSE as the Scam Capital of the World.
The judge found that Mr. Scott, Mr. Simons and their now-disbarred former lawyer Ted Ewachniuk were less than candid at OEX's outlandish $803-million civil trial against Coopers & Lybrand more than a decade ago, in 1991. "The testimony of Scott, Williams and Ewachniuk at this trial is that at the OEX trial they either lied or mislead the court concerning the ownership of Four Star. They now say that the issue of ownership of Four Star was not central to the OEX trial," states Judge Garson.
Mr. Ewachniuk was disbarred in January, 2001, by the Law Society of B.C., which found that he intimidated two American witnesses in the OEX case and asked, without success, that senior Crown prosecutor Moncrief (Monty) Carstairs to lay unsubstantiated criminal charges against the key witnesses to scare them off from coming to testify in Canada. The OEX judge was forced to temporarily transfer the Vancouver trial to St. Louis, Mo., to hear the witnesses' evidence.
Mr. Scott, Mr. Simons and Mr. Williams, the promoters of OEX, blamed Coopers for their troubles after OEX, which was purportedly developing a revolutionary audio speaker, was exposed as a massive Howe Street fraud. Although Mr. Scott, Mr. Simon and Mr. Williams claimed losses of $816-million against Coopers, and Mr. Williams also claimed $3.2-million in lost management fees, the OEX trial judge dismissed the claims, despite finding Coopers 50-per-cent responsible for not sniffing out the fraud. The plaintiff promoters were found liable to Coopers for costs of $155,000, and lost a series of appeals all the way up to the Supreme Court of Canada.
The current action stems from a post-OEX falling out between Mr. Scott, Mr. Simons and Mr. Williams and traces a historical perspective. Mr. Simons and Mr. Scott began working together to promote penny stocks in about 1969 and Robert (Bobby) Moore joined them in the mid-1970s. The trio then hired Mr. Williams in 1975 as office manager, and Four Star was incorporated in 1979 with Mr. Williams as its sole shareholder, director and officer.
"Four Star's purpose was to provide management services to the public companies (trading on the Vancouver Stock Exchange), which Simons, Scott and Moore were promoting. The name 'Four Star' was chosen to reflect -- at least by their own perception of their status within the industry -- the four individuals involved in the business," states Judge Garson. Mr. Moore left Four Star in about 1985 to pursue other interests, notably the unseemly promotions of Hovik Medical and Cam-Net Communications Network.
In the wake of the OEX fiasco, Mr. Williams moved offshore to the Cayman Islands some time after 1992 and has had no significant contact with his former partners Mr. Scott and Mr. Simons since. Mr. Williams retained ownership of Four Star, which was later renamed Abraxis. After making a half-hearted attempt in 1992 with Mr. Williams's lawyer, Kjeld Werbes, to liquidate and split the LML shares three ways, Mr. Simons and Mr. Scott apparently fell asleep for seven years. The pair resumed their claim by filing a trust suit against Abraxis in August, 1999.
The crux of the current trial was the issue of who owned Four Star, and thus the 70,000 LML Payment shares. Mr. Simons and Mr. Scott testified they were equal partners with Mr. Williams, reversing their assertions a decade ago in the OEX trial.
Mr. Ewachniuk, who served as the promoters' counsel in the OEX trial, testified in the current trial and claimed that "everything was in Williams' name for convenience. The beneficial ownership of Four Star shares was with all of them."
"Under cross examination, Ewachniuk testified that Williams had told him that neither the public, nor the BC Securities Commission were supposed to know Simons and Scott were partners in Four Star. This secrecy allowed them to build up assets in Four Star to accomplish bridge financing. Ewachniuk testified he was led to believe that Simons and Scott did not take money directly from Four Star and that Williams and Four Star held money for the benefit of all three individuals," noted Judge Garson.
"Ewachniuk admitted that at the OEX trial he did not come close to suggesting that the beneficial ownership of Four Star lay with anyone other than Byron Williams. At this trial Ewachniuk stated that he did not think Scott's evidence was misleading as the legal owner of Four Star was, and remains, Byron Williams."
After taking the stand, placing their hands on the bible and swearing to tell nothing but the truth, Mr. Scott and Mr. Simons gave similar testimony this year. "Scott and Simons testified at this trial that, with respect to the ownership of Four Star, Scott's testimony at the OEX trial was not true and Ewachniuk's submissions were not correct," stated Judge Garson.
Unfortunately, Mr. Scott and Mr. Simons had trouble keeping their facts straight. "Throughout this trial, Simons and Scott made assertions contrary to their position at the OEX trial -- namely, that Four Star belonged to them," noted the judge.
Evidence at the current trial also revealed that Four Star acted as a conduit to distribute funds to the OEX promoters. "Scott, Simons, and Williams each drew cash from Four Star, usually on an equal basis. It is worth noting at this point that at the OEX trial, evidence was led to the effect that such transfers of money from Four Star to the partners did not occur," stated Judge Garson.
Judge Garson saw through the ruse and ruled that Mr. Scott and Mr. Simons have no claim to ownership, directly or through various types of trust claims, of Four Star and its sole asset, the LML Payment shares. "First, the parties deliberately structured their affairs to insulate themselves from the burdens of ownership and they were cognisant of both the benefits and restrictions of such an arrangement. Now, the partners come to court alleging a relationship to Four Star which directly conflicts with both the documented legal structure created by Simons, Scott and Williams and with the position the partners had taken in an earlier trial."
Judge Garson also ruled that constructive trusts are "not a device to be utilized by sophisticated business people caught in the web of their own intrigue."
"Constructive trusts are not to be used as a reward to parties who have gained advantages by denying legal ownership of an asset, only then to assert ownership when it suits them at a later date. This court must not facilitate such manipulation."
bmudry@stockwatch.com |
