JUST A REMINDER TO ALL THAT PT DOLOK ALSO SOLD HARTCOURTS STOCK IN OFFSHORE BOILER ROOMS. Message 18420536
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Muckraker digs up dirt on companies, posts it on Net
By CHRISTOPHER CAREY
Of the Post-Dispatch
06/13/2004
FREDON TOWNSHIP, N.J. - Floyd Schneider, a mortgage broker with a booming voice and boundless energy, has given three sermonettes at the small church he attends.
Two were about stock fraud. The third might have been, were it not for the pleadings of his wife, who urged him to focus on something more biblical.
Schneider, 47, leads a second life in cyberspace as the Truthseeker, nemesis of wayward capitalists.
It is both an avocation and an obsession. Since 1998, he has posted more than 30,000 messages on Internet stock boards, raising questions about companies and digging into the backgrounds of their officers, directors and consultants.
He has been sued by three of his targets and racked up nearly $60,000 in legal bills.
Still he persists, driven by the belief that government regulators are overmatched in their battle against white-collar criminals.
"It comes down to a moral obligation to society," Schneider said.
The information that he uncovered or pieced together has helped the Securities and Exchange Commission and National Association of Securities Dealers bring cases against rogue companies, financiers and promoters.
Schneider is thinking about cutting back on his sleuthing, to spend more time with his three children, who range in age from 4 to 6 . But he remains captivated by a case that the SEC has declined to pursue.
"The biggest thing that's kept me going is ZiaSun," Schneider said. "It's something I've never been able to put to rest."
ZiaSun Technologies Inc., a little-known Internet holding company in California, sued Schneider and seven other Internet posters in federal court in 1999, saying they made false allegations as part of a conspiracy to drive down its stock price.
Bryant D. Cragun, who had been ZiaSun's chief executive, filed his own suit against the Internet posters in California state court.
"They wanted more than $1 million," Schneider said. "What did I do? Just posted my opinion on the Internet."
The defendants became known in Internet circles as the ZiaSun 8.
In its suit, ZiaSun claimed that the posters wrongly accused the company and its executives of trying to mislead and defraud investors.
Cragun alleged that the posters falsely linked him to overseas brokerages - regulators have since labeled them "boiler rooms" - that sold stock in ZiaSun, Chequemate International Inc. and other small U.S. companies to foreign investors.
ZiaSun and Cragun won court orders in early 2000 that barred Schneider from making further "false or defamatory" statements and required him to retract some information he had put on the message boards and a personal Internet site.
The plaintiffs and the members of the ZiaSun 8 agreed later that year to settle the broader case, with no finding of fault against any of the parties.
On the day the parties settled, Cragun said in a press release that he knew little about PT Dolok Permai, one of the overseas companies that had peddled ZiaSun's stock.
However, ZiaSun's own SEC filings listed Cragun's address as an $844,000 oceanfront condominium in Solana Beach, Calif., that real estate records show belonged to PT Dolok.
And documents filed in support of the injunction against Schneider show that Cragun was in close contact with the Indonesian firm. For instance, copies of letters that investors sent to their PT Dolok brokers after Schneider issued a negative report on ZiaSun bear markings that indicate that they quickly were forwarded by fax to Cragun.
What's more, court documents show that when Cragun and his wife divorced in 2001, he received their ownership interest in PT Dolok and Oxford International Management, a similar firm incorporated in the Philippines.
In other words, Cragun was part-owner of a firm that he claimed to know little about - and that had sold shares of his company to offshore customers.
Schneider has been perfecting his research methods since 1998, when he first accessed the Internet through an America Online dial-up account at his office.
He eventually found his way to the stock message boards and discovered a thread where people discussed how to use search engines to research stocks. He later taught himself how to sift through SEC filings online.
He also pulled together information on suspect companies and forwarded the dossiers to reporters.
Schneider's research has led to stories by the Wall Street Journal, Dow Jones News Service and other news organizations.
John Emshwiller, a national correspondent at the Wall Street Journal, included Schneider in his 2000 book about the online stock world, "Scam Dogs and Mo-Mo Mamas." He also did a story on Cragun and the boiler rooms in August that year.
Business Week featured Schneider in a December 2002 story on amateur investigators.
For a time, Schneider had his own Web site, where followers could pay $39.95 a year to read his reports. He even put out "sell" recommendations, in the same style as the "buy" reports issued by the promoters. His logo was a flying pig.
But when Schneider learned that charging for information could require him to register with the SEC as an investment adviser, he refunded the subscription money.
"I didn't need it," he said. "I do well enough in my mortgage business." Indeed, he generated $31.8 million in home loans last year, making him one of the top producers in his company.
The only way individual investors can overcome the limitations of the SEC and counter stock fraud is by taking charge of their own destinies and doing their own digging, he said.
"There's so much money involved, and (stock fraud is) so easy to do, and no one's preventing it," he said. "It's legalized thievery."
stltoday.com
Dying firm is revived for offshore trading
By CHRISTOPHER CAREY
Of the Post-Dispatch
06/13/2004
The hard-luck tale of Almost Country Productions Inc. is enough to inspire a classic barroom weeper.
The Utah-based company sold $30,000 worth of stock in 1997 to bankroll the musical ambitions of its president, Pamela Lindquist. But the recording she produced, "Wildest Dream," was anything but a hit.
In three years, she sold fewer than 500 CDs and cassettes. Almost Country's cut of the royalties was $636.
What happened next shows how failed companies can be resurrected as vehicles for global stock schemes.
Out of money and out of hope, Almost Country brought in Salt Lake City businessman Reed L. Benson to find fresh capital and identify new opportunities.
He didn't have to look far. Taking advantage of Almost Country's status as a publicly traded company, he arranged a merger with Real Estate Federation Inc., another Utah business, which was pushing an Internet-based home listing and referral service.
One block of shares in the combined company went to a consulting firm formed by Bryant D. Cragun and Lynn W. Briggs, two associates of Benson's who were becoming controversial figures in the investment world.
Cragun had an ownership interest in two offshore investment firms, Oxford International Management and PT Dolok Permai, a Post-Dispatch investigation shows. The Internet site for PT Dolok, listed Briggs among the brokers in its European and Asian offices.
Securities regulators have characterized both firms - now defunct - as unlicensed "boiler rooms" that sold shares of small U.S. companies to foreign investors.
In the merger of Almost Country and Real Estate Federation, nearly a quarter of the shares went to Calico Ltd., whose address is a post office box in the Turks and Caicos Islands. The Caribbean archipelago has attractive financial secrecy laws and no income tax.
The same address pops up in Securities and Exchange Commission filings for Broadcast International Inc., where Benson is vice president and general counsel. Its biggest shareholder also uses the post office box. And its shares were pushed by the same two offshore firms that sold shares in Real Estate Federation.
Spanish regulators last year warned that one of them, Carlton Birtal Advisory Services of Barcelona, was offering investments without a license. They identified Benson as one of the people related to the firm.
Real Estate Federation is now called Xvariant Inc. and has added virtual home tours to its arsenal. But it failed to gain a meaningful share of the market and struggled financially.
It posted revenue of $2.07 million and a loss of $884,400 in the nine months that ended June 30, 2003, the last time it filed financial information with the Securities and Exchange Commission.
The stock, which hit a high of $5 a share in summer 2002, now trades for less than 30 cents. Xvariant said in the SEC filing that without an infusion of cash, it faced oblivion.
Broadcast International reported revenue of $4.93 million for 2003. It had a loss, excluding special charges, of $1.77 million.
Its stock is listed at about $6 on the over-the-counter market, but trading volume is almost nonexistent.
Australian rancher bought shares, received nothing
By CHRISTOPHER CAREY
Of the Post-Dispatch
06/13/2004
Wally Peart is still waiting for 4,000 shares of Chequemate International Inc. stock he bought in July 1999.
The Australian rancher wired money for the shares to a bank in Singapore and got a confirmation notice from his brokerage in Manila. But the brokerage, Oxford International Management, did not send a share certificate before it stopped responding to customers and quietly shut down.
Peart, 65, an inexperienced investor, had been buying shares of small American companies through Oxford since 1994, when a representative called to ask whether he would be interested in some suggestions.
Peart bought stock in seven U.S. companies, which unbeknownst to him all had close ties to the people behind Oxford. His total investment: about $130,000.
He never sold any of the shares, in keeping with Oxford's recommendation to hold his investments for maximum long-term gains.
"Everything seemed to work OK, and they often invited me to visit them in Manila," he said. "However, in 1999 it all folded, and my retirement fund disappeared."
By then, two of the companies whose shares he owned were essentially defunct. Three others were bound for bankruptcy. But Peart could have made up some of those losses if he had been able to sell his stock Chequemate stock.
The price of shares in Chequemate, a purported 3-D television company once based in St. Charles, more than doubled in February 2000. Shares in ZiaSun Technologies Inc., an Internet holding company with headquarters in California, had a similar rise a few months earlier.
Peart couldn't sell all his stock in those companies because he never received the certificates for the last $40,000 of shares he bought from Oxford.
Both stocks benefited from glowing "buy" reports by a supposedly independent securities analyst, who, it turns out, collected fees for his research.
Chequemate's shares, which peaked at around $18 a share, now trade for a fraction of a cent. Ziasun, whose shares once topped $15, merged in late 2001 with another company, in a deal worth less than $2 a share to Ziasun investors.
Peart since has learned more about the companies and the financier behind them, Bryant D. Cragun.
Peart views himself as the victim of false promises.
In one of his last letters to his broker, demanding the share certificate for the Chequemate stock, Peart threatened to sue. But figuring out who to target, where to file the legal action and whether it was possible to collect damages proved daunting.
Cragun was Oxford's chairman from 1991 to 1997. In August 1997, the firm notified investors it had been purchased by PT Pasifika Pratama Investido, an Indonesian company.
The new boss was William P. Strong, another American, who had owned a brokerage in California. He also was listed as a broker for PT Dolok Permai, another Indonesian firm that peddled most of the same stocks as Oxford.
Peart has tried without success to contact Strong.
He did hear from a representative of another investment firm, Safe Harbour Ltd. of Shanghai, China, two years ago. The caller identified himself as Sam Ford and offered to help Peart salvage his investment with Oxford.
Ford offered to credit Peart with $111,000 for his stake in six of the seven companies whose shares he bought from Oxford - if Peart would contribute another $49,950 in cash to his new account with Safe Harbour.
The total amount would have been applied toward 80,475 shares of Global Immune Technologies Inc. Peart declined the overture, which regulators say was an attempt to extract more money through a so-called "recovery" scam.
The Australian Securities and Investments Commission has put Safe Harbour on its list of companies that are offering investments in that country without a proper license. And shares of Global Immune, which lists headquarters in Woodstock, Ga., do not trade on any market.
Foreign investors see red over 3-D firm with local ties
By Chris Carey
Of the Post-Dispatch
06/14/2004
Offshore brokerage firms pushing its stock told of looming deals with major
players in the electronics and broadcasting industries.
Those pitches persuaded foreigners to snap up shares of the company, which
got its start in Salt Lake City and later called St. Charles home.
But after burning through all its cash and running up losses of more than
$40 million, Chequemate has vanished, along with the overseas brokerages
that promoted its shares.
The stock, which peaked at $18.44 in February 2000, today trades for a 10th
of a cent.
Chequemate might appear to be! just another casualty of Wall Street's
technology bust, which brought down many high-flying stocks.
But an investigation by the St. Louis Post-Dispatch shows that it was part
of a worldwide ring that profited handsomely by selling questionable U.S.
stocks overseas.
Chequemate was one of seven publicly traded U.S. companies with common
ties. Today, four are defunct, two are bankrupt and one was bought out at
less than $1 a share.
The main link was an American, Bryant D. Cragun, a former stockbroker
turned financier.
Securities and Exchange Commission filings, incorporation papers and other
documents show that Cragun figured prominently in the creation or evolution
of the companies, as an officer, director or financier.
The property settlement from his divorce in Arizona in 2001 also shows that
he had an ownership interest in two of the unlicensed, offshore brokerages
that promoted the companies' shares.
While most people who bought and held their shares in Chequemate and the
other companies lost nearly everything they invested, Cragun became rich.
Another divorce document estimated the value of the assets he and his wife
were dividing to be "in the middle eight figures," or roughly $50 million.
Cragun has acknowledged in court filings that the SEC has investigated the
overseas stock sales. But the agency has not taken action.
The Post-Dispatch's investigation turned up additional information about
Cragun's business dealings. For example:
The property settlement links Cragun to ownership of Oxford International
Management, based in the Philippines, and PT Dolok , which was incorporated
in Indonesia and did business under the name International Asset
Management. He previously denied, in court cases brought by investors, that
he had a stake in either operation.
Two partners in a Salt Lake City accounting firm that audited Chequemate's
financial statements were barred by the S! EC from auditing public companies
in 2001 because of their role in a separate stock manipulation case. One of
them, R. Gordon Jones, is listed as an officer with Cragun in a company
that owned part of Oxford.
A stock research firm in California, whose glowing report triggered a sharp
rise in Chequemate's share price, was incorporated by disbarred lawyer
Regis M. Possino, who has convictions for drug dealing and fraud. He had
big stakes in several other companies that Oxford promoted. The SEC has
since charged in a lawsuit that stock research firm, Access 1 Financial,
and its president issued a false and misleading report on another
company's stock as part of a "pump-and-dump" scheme.
Another firm that Chequemate hired to promote its shares was controlled by
Allen Z. Wolfson, a white-collar criminal who has since returned to prison
on separate stock fraud and manipulation charges.
Chequemate provides a glimpse into the world of so- called penny stocks,
where failures vastly outnumber successes.
The shares that foreign investors bought were routed offshore under an
obscure provision in the U.S. securities code that lets companies sell
stock privately to certain types of non-U.S. buyers. Under Regulation S,
companies can avoid the time and expense of a registered stock offering by
placing shares with "accredited investors," such as hedge funds and wealthy
individuals.
One caveat: Such stock cannot be resold in the United States for one year.
Because of the risk, the companies often discount the shares to overseas
buyers.
But in the boiler room schemes, the stock immediately is resold to foreign
investors at big markups.
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Reporter Christopher Carey
E-mail: ccarey@post-dispatch.com
Phone: 314-340-8291
Stock fraud on a global scale
Just as the U.S. manufacturing and technology industries have gone offshore in search of lower costs and looser operating restrictions, so has the stock-fraud industry. Post-Dispatch reporter Christopher Carey has looked into their operations for nearly three years; this is what he found.
Topics: Day 1 | Day 2 | Graphics | Outside resources
Day 1
Investors are losers in high-tech shell game
06/11/2004
Just as the U.S. manufacturing and technology industries have gone offshore in search of lower costs and looser operating restrictions, so has the stock-fraud industry. [more]
About the project
06/11/2004
Reporter Christopher Carey was gathering information three years ago on Chequemate International Inc., a newcomer to the area, and was surprised by its claim of operating a 3-D television business. [more]
Regulation S
06/11/2004
A little-used financing mechanism authorized by the U.S. Securities and Exchange Commission has caused big trouble for thousands of foreign investors. [more]
'Boiler rooms' cloak themselves in stolen legitimacy
06/11/2004
Firms whose identities have been lifted include a brokerage arm of H&R Block Inc. [more]
Scottish man did sleuthing - and still got taken
06/11/2004
$30,000 for daughter's education vanished . [more]
Illinois town got taken by firm with a false front
06/11/2004
Doing business with a penny stock company can be perilous, as Canton, Ill., learned after Canton Industrial Corp. set up a tire recycling business there in 1992. [more]
Overseas boiler room feels the heat: SEC case marks breakthrough
06/11/2004
Fraud suit also targets 5 companies in U.S. . [more]
Day 2
Foreign investors see red over 3-D firm with local ties
06/09/2004
Chequemate International might appear to be! just another casualty of Wall Street's technology bust, which brought down many high-flying stocks. But an investigation by the St. Louis Post-Dispatch shows that it was part of a worldwide ring that profited handsomely by selling questionable U.S. stocks overseas. [more]
Australian rancher bought shares, received nothing
06/13/2004
He lost $130,000 investing in Chequemate, 6 other companies. [more]
Muckraker digs up dirt on companies, posts it on Net
06/13/2004
His goal? To help federal investigators track down stock fraud [more]
Dying firm is revived for offshore trading
06/13/2004
The hard-luck tale of Almost Country Productions Inc. is enough to inspire a classic barroom weeper. [more]
Graphics
Anatomy of a boiler room operation
06/11/2004
Boiler rooms typically operate from inexpensive, out-of-the-way offices. Here is how a boiler room operates. [more]
Anatomy of a scam: How one investor was taken in
06/11/2004
When Scottish geologist Adrian Charters got an unsolicited call in 2002 from a broker offering him shares of a hot American biotechnology company that had filed for an initial public stock offering, he was skeptical. [more]
Boiler rooms copy legitimate web sites to boost credibility
06/11/2004
Others have gone so far as to appropriate photos, professional biographies and even names from the online homes of actual brokerages. [more]
Outside resources
How to check for boiler room sites
06/11/2004
These nations have provided Web sites where consumers can try to determine whether stock sellers are legitimate. [more]
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stltoday.com
Foreign investors see red over 3-D firm
An investigation by the Post-Dispatch shows that Chequemate International in St. Charles was part of a worldwide ring that profited handsomely by selling questionable U.S. stocks overseas. [more]
- Post-Dispatch
• Muckraker posts dirt on companies on the Web
• Dying firm is revived for offshore trading
• Read more in the stock fraud series |
