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B.C. Securities Commission (C-*BCSC) - Street Wire
BCSC-known promoter Purdy was a purdy busy fellow, says RCMP
B.C. Securities Commission *BCSC
Monday February 10 2003 Street Wire
by Brent Mudry
More unflattering revelations are emerging about long-time Vancouver penny stock promoter John (Jack) Purdy, arrested last August as a key money laundering target in Bermuda Short, the joint FBI-RCMP undercover sting operation. The U.S. Department of Justice, in response for Mr. Purdy's discovery demands before his Feb. 18 trial in Miami, has filed a previously secret RCMP intelligence report on Mr. Purdy and his associates.
It should be noted that none of the allegations have yet been proven in court, and the only noted parties charged with any offences are Mr. Purdy and money laundering co-defendant Kevan Garner. Mr. Garner, who pled guilty on Dec. 6 and agreed to rat on Mr. Purdy and others, recently had his sentencing delayed from Feb. 10 to March 26.
The undated RCMP report details several Purdy-related deals: Redmond Capital, Ultimate Direct, Whistler and Goldstate Corp.
REDMOND CAPITAL
"Garner moved into Purdy's Vancouver office in approximately January or February, 1999. At the time, Garner had an oil deal that he was trying to promote through Redmond," states the RCMP report.
Redmond operated out of the downtown low-rise Vancouver office building owned jointly by Mr. Purdy and his close associate Don Sheldon, and is best known as a promotion of Keith Leslie King. Previous court filings allege Mr. Purdy's role in the Redmond broker bribery, pump-and-dump scheme is based largely on evidence of Frank Salerno, who pled guilty in an unrelated case and is expected to be a star witness against Mr. Purdy. There is no suggestion that Mr. Sheldon knew of the alleged nefarious dealings going on in his building or elsewhere.
Mr. King also has a history. After authorities in the Isle of Man declared in December, 1995, that he was not a "fit and proper person" to serve as an officer or director of any company in the secretive offshore enclave, he subsequently set up First Nevisian Stockbrokers Ltd. in the even murkier offshore enclave of Nevis, and later set up shop on Howe Street in Vancouver. No criminal charges have been filed regarding Redmond Capital. No allegations of wrongdoing have been made against Mr. King, and there is no suggestion he knew what Mr. Purdy and Mr. Salerno were up to.
"Purdy recommended restructuring the (Redmond) deal by rolling back the stock. The result was that there were only 138,000 shares outstanding, of which only about 20,000 were unaccounted for," states the RCMP report.
"They then issued 10 million new shares. Garner cannot recall which securities exemption was used to issue the stock. The shares were issued to the four main players: Purdy, Garner, Don Sheldon and Todd Moore. Each of the others gave Garner a list of nominees to issue the shares under so that each shareholder appeared to own less than 5 per cent. This was not the case. In fact, each of the four had beneficial ownership and control of the shares issued to their nominees."
Todd Harrison Moore is well known to regulators on both sides of the border. Mr. Moore played a key support role in the 1992-93 Nasdaq promotion of Members Service Corp., a Howe Street debacle that featured unregistered shares in nominee accounts by Union Securities broker David Gilbert. The illustrious Mr. Gilbert, whose star Members Service clients were a 96-year-old retired nursemaid in Florida and Charles Bazarian of Oklahoma City, the notorious savings and loan swindler who had recently been paroled after serving three years in jail, was fined $231,000 (Canadian) and banned for life by the former Vancouver Stock Exchange.
Union Securities was fined $221,000 by the United States Securities and Exchange Commission in an October, 1998, settlement for its key role in the Members Service rig job. The SEC defendants included Mr. Moore, then based in Seattle, Wall Street Strategies, a New York-based investment adviser in which he owned a 60-per-cent stake, banned former broker and Howe St. luminary, Joe Lanza, and promoter Philip Sung, while several defendants in the parallel criminal case were sent to jail.
More recently, Mr. Moore popped up in court in November, 2001, when he filed a $950,000 share suit against Genesis Bioventures Inc., previously known as BioLabs Inc., a penny stock company operating in the border town of White Rock, south of Vancouver.
A month after Mr. Moore's action, Genesis faced a separate suit from its former president and chief executive officer Linda Allison, who claims her professional reputation has been damaged since she was abruptly terminated that spring. (This unfortunate development came just 12 days after Genesis trumpeted its major "breakthrough," a rapid, on-site diagnostic test for mad cow disease.)
Ms. Allison and her management company, Snowdon & Associates Management Consultants Ltd., sought assorted damages, including 500,000 shares. In the serendipity of Howe Street, Ms. Allison and Snowdon previously wrote an upbeat research report on PCS Wireless, a highflying promotion of Mr. Sheldon, which since changed names to Unique Broadband Systems.
According to the RCMP report, Mr. Moore was not the only interesting character in the Redmond Capital deal.
"Garner recalls meeting 'a bunch' of times with Salerno, and more so, Tony Zitko and Max Herndl. At the time, Salerno was working for a company called Chaucer Capital. He claimed to have a group of market makers and brokers that could place stock. Salerno was paid 20 per cent of the stock placed. He was paid by cheque. Garner believes a portion of that money was intended for Salerno to pay off his brokers."
Mr. Herndl is also no stranger to the police. The real estate developer, based in the Vancouver suburb of Langley, has a few convictions under his belt. In March, 1998, he was fined $7,500 in British Columbia Provincial Court after he pled guilty to failing to file a prospectus. (All Herndl figures are in Canadian dollars.) In the plea deal, the Crown stayed a charge of engaging in unlicenced real estate activities.
Mr. Herndl was charged again in April, 1999, after an extensive investigation by the RCMP, which claimed he defrauded investors of more than $640,000 four years earlier in a series of syndicated real estate deals in B.C., Alberta and Arizona. This time a Canadian judge got really tough, no doubt worrying other fraudsters. Mr. Herndl was convicted of one count of fraud, with a forgery count stayed, and fined $5,000. As before, his sentence included not a day of jail time.
In an unrelated deal, Mr. Salerno, Mr. Zitko and Vancouver lawyer Patrick Watson were sued in Vancouver in December, 2001, by businessman Vince Aballini over a $55,000 promissory note relating to a Vancouver property lease deal earlier that year involving developer Giovanni Zen and negotiations between Air Care Installation Inc., a shell, and Armor Enterprises Ltd.
In his statement of defence, Mr. Zitko traced out part of the stock deal. "ANTHONY ZITKO says that as security for the loan, 500,000 shares in ARMOR ENTERPRISES LTD., a company traded on the NASDAQ exchange, under the symbol 'AMRE,' were delivered to the plaintiff's representative, GIOVANNI ZEN, 200,000 of which shares have been sold by him reducing the indebtedness of the defendants, EVERGREEN LEASE CORP., FRANK SALERNO and ANTHONY ZITKO, to the plaintiffs."
It should be noted that Mr. Salerno, like most good informants, is no angel. He pled guilty on May 23, 2000, in B.C. Columbia Provincial Court to two counts of fraud over $5,000. (All Salerno figures are in U.S. dollars.) He was given a conditional sentence of 15 months and probation, which is similar to home detention, but nicer. Mr. Salerno was also ordered to pay restitution to his victims of about $40,000. His crime was ripping off banks by deposited rubber cheques in ATMs, or automated teller machines.
The Purdy associate was ordered to pay back $29,411 to the Canadian Imperial Bank of Commerce and $10,488 to the Bank of Montreal. Mr. Salerno's Bank of Montreal shenanigans took place between Feb. 18 and March 10 in 1999, the same year Mr. Purdy was allegedly using him to grease Redmond market makers.
Soon after, Mr. Salerno was arrested in May, 2001, for defrauding Seattle brokerages Quick & Reilly and Freeman Welwood in a bounced-cheque free-riding scheme. In a sealed grand jury indictment filed Feb. 25, 2000, in United States District Court for the Western District of Washington, prosecutors claim Mr. Salerno caused losses of $127,771 to Freeman and $51,848 to Quick & Reilly.
This scheme took place between about Sept. 9, 1999, and Oct. 1, 1999. Mr. Salerno bought 500 shares of America Online and 200,000 shares of Radiotower.com on Sept. 23, 1999, through Quick & Reilly, giving a rubber cheque for $350,000 drawn on his account at Bank of Nova Scotia in Vancouver. On Oct. 1, 1999, he bought a further 250,000 Radiotower shares through Freeman, with a $250,000 rubber cheque.
The prosecutor notes he interviewed Michael Lewis, an official of the National Association of Securities Dealers, on Dec. 8, 1999. "Mr. Lewis stated that due to Radiotower.com being a penny stock and Salerno entering orders to purchase hundreds of thousands of shares, the stock price could be manipulated," states the indictment.
Mr. Salerno quickly pled guilty, on June 21, 2001, and is now a star federal witness. Court papers indicate he relocated to New York. Mr. Salerno has not yet been sentenced.
The RCMP narrative continues. "Redmond had purchased Red Cell from Tony Zitko and Ron Mason, so was perpetually short of cash. Keith King became interested in the deal. Every time the group needed money they would do a matched trade with King. Purdy's shares were done through Brian Bocking at (then) Thomson Kernaghan," states the report. (Thomson Kernaghan, a Bay Street brokerage headed by Mark Valentine, was shut down by Canadian regulators last summer, while Mr. Valentine was arrested a few months later as a star target in the Bermuda Short bribed-fund-manager sting.)
"Ultimately, King offered to buy out the deal. A large matched trade was done to get the cash for the deal, then the remaining certificates in the various nominee names were physically delivered to King. Garner and Purdy retained one million shares each, but they no longer had control," states the RCMP report.
ULTIMATE DIRECT
"The next major deal they undertook was ULTC. Garner had a lesser role in this deal. It was primarily Purdy's deal. It was originally 'Ultimate Cigar.' The business plan was changed for the company to become a business-to-business Internet portal, although it never did have an Internet presence," states the RCMP report.
"500,000 shares were given to Sal Marasso and Sal Russo of SOS Resources in New York to do the promotion. Garner has no knowledge of their tactics, but the price immediately took off from pennies to $0.90 on heavy volume. Garner knows there were again huge undeclared control blocks held in nominee names."
WHISTLER
"The shell for Whistler was bought from Craig Shaber for $500,000. A $50,000 deposit was paid, then they did a cross of 225,000 shares at $2.00 each to make up the balance. Shaber then delivered the rest of the certificates in physical form," states the police report.
"The company was 'always behind the eight-ball' -- meaning always short of money. Any time the company of Garner or Jack or Joan Purdy needed money to cover an account, they did match or wash trades to kite the debit from one to the other."
The name of Mr. Shaber, a San Diego-based entrepreneur, also came up in an FBI report, based on details from talkative Mr. Garner. Last April, after being given a duffle bag stuffed full of $500,000 cash by a yacht in Fort Lauderdale by an undercover RCMP office, Mr. Garner figured he would launder it by buying a penny shell, American Toy Vending.
"Sometime later, before going back to Vancouver, GARNER met with an individual by the name of CRAIG SHABER and purchased the AMERICAN TOY VENDING corporate shell. SHABER sold the shell to GARNER in return for $260,000 cash and returned to San Diego with the cash in the private jet. GARNER advised that he spent the remainder of the cash on personal bills and expenses," states the FBI report.
The RCMP document claims a senior broker at Canaccord Capital in Vancouver was helpful. "At one point in the spring or early summer of 2002, Purdy needed to park 150,000 shares that he couldn't afford to cover. Graham Harris, Purdy's broker at Canaccord, agreed to 'purchase' the stock into one of his own accounts and park it for a month. Purdy later repurchased the stock. Harris was paid off for this transaction by Bolivian Hardwoods giving him approximately $20,000 USD worth of hardwoods for a house Harris was building." (Bolivian Hardwoods was the alleged money laundering vehicle noted in the Miami indictments.)
Mr. Harris praised Mr. Purdy last September in a support letter when the promoter was trying to make bail in the Bermuda Short case. His letter, and one from another Canaccord broker, were originally prepared on official Canaccord letterhead, but then redone on personal letterhead before being filed in the Miami court.
"My name is Graham Harris and I am Senior Vice President and Director of Canaccord Capital Corp.," states Mr. Harris. "I have been in the investment business for 15 years and have known Jack Purdy for over 10 of those years." "I have a long history of doing business with Jack and have helped raise millions of dollars for projects that Jack has been involved with. These projects include gold mining in North America, diamond drilling and technology companies here in B.C. Jack has always conducted his business dealings with honesty and integrity. There has never been any misappropriation of the sizable funds that were in Jack's stewardship," states Mr. Harris.
"As well as vouching for Jack's integrity guarding public companies' money I have also maintained brokerage accounts for Jack's personal holdings. Although Jack has been known to stretch himself thin through his myriad of business dealings, I have never known him to not settle his accounts," states the Canaccord broker.
The RCMP report gives further details on the deal. "The payment was structured to conceal the paper trail. Jack or Joan Purdy crossed 20,000 American Toy Vending (ATYV) at $1.00 per share with Garner. Garner then wrote a cheque to pay Bolivian Hardwoods," states the report.
"It became so obvious that the trading was being 'organized' that the market-maker -- Meyerson Securities -- questioned Canaccord about it. As a result, the trading was shut down."
GOLDSTATE
The last stock noted in the RCMP report is Goldstate. Although not noted, Ronaldo (Ron) Horvat, a Bermuda Short money laundering co-defendant, was named to the company's board in February, 2001.
"Gold State was another shell purchased by Purdy and Garner. They intended to vend in a medical device deal from Seattle. They went to Seattle to pitch the deal to a group of doctors. The doctors and their friends started buying up the stock so huge volume traded over the next few days. Garner then learned that Purdy was the seller, and had blown off all his stock, so that was the end of the deal."
bmudry@stockwatch.com
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