OSC fines Weltman at start of Banks hearing
[2003-01-08 17:33 PT ]
OSC target Larry Weltman has been fined $30,000 in the Bensberg certificate-leasing case, leaving fellow LaserFriendly executive convict Jack Banks to defend himself on the first day of a regulatory hearing. Mr. Weltman can never trade again. more...
Ontario Securities Commission - Street Wire
OSC fines Weltman at start of Banks hearing
Ontario Securities Commission *OSC
Wednesday January 8 2003 Street Wire
Also Securities and Exchange Commission (*SEC) Street Wire
by Brent Mudry
In one of the lightest monetary penalties in the Guido Bensberg certificate-leasing scheme, Toronto-area penny stock promoter Larry Weltman, the partner of Jack Banks, has been fined $30,000 (Canadian) and banned for life from securities trading, in a consent settlement with the Ontario Securities Commission approved Wednesday. In a settlement agreement, Mr. Weltman agreed he permitted the issuance of a $60-million block of shares of Laser Friendly Inc. when he knew, or ought to have known, the unpaid certificates could be used to deceive third parties. (All figures are in U.S. dollars.)
Mr. Weltman's settlement came on the first day of a three-day OSC hearing, with Mr. Banks, also known as Jacques Benquesus, now the sole defendant. Mr. Weltman is not expected to testify against his long-time close associate Mr. Banks. Mr. Weltman was the chief financial officer of Laser Friendly, while Mr. Banks was chairman and president. (LaserFriendly changed names to Gaming Lottery Corp. in 1995, then GLC Corp. in 1998 and GalaxiWorld.com in 1999. GalaxiWorld was acquired by Ostel Management in a tender offer on Dec. 21, 1999, and was delisted from Nasdaq.)
In a related but separate case, Mr. Banks and Mr. Weltman pled guilty in New York in September, 2000, to defrauding National Westminster Bank PLC's Coutts & Co. subsidiary of $32-million. The pair agreed to pay fines of $100,000 and restitution of $400,000 each, and consented to a worldwide bar from serving in a controlling management position in any public company. While the OSC agreement imposed a lifetime ban on Mr. Weltman serving as director or officer of a public company, he was already covered by the New York ban.
Gaming Lottery was one of a number of companies involved in a $200-million-plus share-leasing scheme masterminded by Mr. Bensberg, a Swiss-German financier who has maintained residences in Vancouver, Florida, Switzerland and Luxembourg. In one of the largest trial wins in its history, the United States Securities and Exchange Commission won a $27-million penalties-and-disgorgement judgment against Mr. Bensberg in May, 2001. Despite the court setback, Mr. Bensberg maintains his innocence, claims he was the innocent fall guy, and hopes to one day clear his name.
If the SEC, numerous trial witnesses and a California judge are to be believed, Mr. Bensberg defrauded Bank Leu and Lehman Brothers of $10-million in the overall scheme. The SEC claims Mr. Bensberg was the key player in a fraudulent stock leasing scheme in which he and his associates acquired hundreds of millions of shares of restricted stock in at least 18 public companies between 1992 and 1996. While the scheme involved dealings in at least six offshore secrecy havens, including Switzerland, Aruba, the Isle of Man, the Turks and Caicos Islands, Bermuda, and the British Virgin Islands, Vancouver was a major centre of operations.
Besides Mr. Bensberg's landmark fine, the SEC won $2.92-million in fines against five other figures in the broad scheme, including businessman James Ericksteen and lawyer Gary L. Moore, both based in Kamloops, B.C. The biggest penalty was levied against Mr. Ericksteen, ordered to pay disgorgement of $2.8-million in illicit proceeds, although all but $100,000 was waived based on his "demonstrated inability to pay."
The OSC case focuses on a small part of the overall certificate-leasing scheme, involving shares of LaserFriendly. The OSC claims that Bank Leu was defrauded after loaning funds against Gaming Lottery certificates which had been issued to Helix Capital Corp. and Delta West Management Trust. (In its statement of allegations and settlement agreement, the OSC makes no mention of Mr. Bensberg, Mr. Ericksteen, Mr. Moore, other key figures in the case, or any of the offshore jurisdictions used.)
The LaserFriendly case was one of the biggest in the overall scheme, with the company agreeing in November and December of 1994 to subscription agreements for 45 million shares, triple its issued and outstanding shares. Mr. Weltman agreed that while LaserFriendly intended to issue the share certificates, it did not intend to actually issue any shares.
In the first of three dubious tranches of 15 million shares in its "roll program," LaserFriendly issued a $60-million debenture to Helix Capital Corp., a Turks and Caicos company ostensibly controlled by Mr. Ericksteen. The other tranches involved Delta West Management Trust, a Utah trust served by James Farrell of Alpha Tech Stock Transfer of Salt Lake City, who was shut down and banned from the industry by the SEC last April in the U.S. prosecution.
Delta West rented out 30 million shares of restricted LaserFriendly stock for $650,000 per month, while Helix rented 15 million shares at $150,000 per month, for a total monthly outlay of $800,000.
Court documents show the scheme was also aided by Stephen Dadson, a Vancouver securities lawyer, and Sandy Anderson, a North Vancouver banker, both of whom have since left the practice of their professions.
"Moore received the GLC certificate on or about November 17th. Moore immediately delivered it to Dadson at his firm. The certificate was immediately obtained from Dadson's firm by Ericksteen. Ericksteen immediately took the certificate to the Lynn Valley branch of the North Shore Credit Union. Bensberg was a credit union customer. The officer acting on behalf of the credit union on all of the transactions involving Bensberg was the Lynn Valley branch manager, Anderson," states Gaming Lottery in a court filing.
The SEC claims that Mr. Ericksteen and Mr. Moore then subleased millions of shares of the target companies, including LaserFriendly, to Mr. Bensberg's Isle of Man-based alter ego, Red Oak Ltd., for $4.5-million a year. If the SEC is to be believed, after acquiring the share certificates from Helix, Mr. Bensberg pledged them as collateral to obtain a $5-million line of credit from Bank Leu.
The U.S. regulator claims Mr. Bensberg forgot to tell the Swiss bankers that he had to return the share certificates at the end of a year. "To effect the fraud, Bensberg portrayed himself as a man of considerable wealth and made misrepresentations as to the value of the stock and his ownership interest in the stock," states an SEC attorney in a sworn affidavit.
The OSC settlement agreement notes that in March, 1995, Bank Leu tried to realize upon one of the Helix certificates, purportedly representing 2.5 million shares of LaserFriendly, which had been pledged as security, but LaserFriendly informed the unhappy Swiss bankers that the shares had not beeen validly issued because they had not been paid for.
In the Canadian settlement, Mr. Weltman agreed he acted contrary to the public interest.
First, "Weltman knowingly permitted share certificates of the Company to be delivered in circumstances where he knew or ought to have known that the certificates could be used to deceive third parties," states the agreement. "Weltman knew that the share certificates purported to represent fully paid shares, when the Company did not receive payment for the shares. Weltman failed to ensure that sufficient controls existed to prevent the share certificates from being used for an improper purpose."
Second, "Weltman failed to take immediate steps to cancel and to attempt to retrieve share certificates and agreed to permit such certificates to remain in the possession of others, even after he had received notice that one or more of the share certificates may have been used for an improper purpose."
Left unmentioned in the OSC settlement are several other questionable loans of the dubious LaserFriendly shares, besides those in the Bank Leu case.
In December, 1994, Mr. Farrell deposited restricted shares from LaserFriendly, Essential Technologies, Metro Wireless and Tera West, with a purported collective market value of more than $200-million, into an account at Dean Witter Reynolds. When Dean Witter rebuffed attempts to get these shares designated as "free and clear for disposition according to the instructions of Delta Management Trust," the group tried, and failed, to use the shares as collateral for loans from Omni Bank in Detroit.
In a separate daisy-chain transaction, Mr. Ericksteen agreed in November and December of 1994 to sublease millions of shares of LaserFriendly and Dynatec to FirstVest Capital Corp., which intended to use the shares to obtain credit.
bmudry@stockwatch.com
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