CMKM hearing told of stock records, massive dilution
2005-06-13 20:00 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
by Lee M. Webb
CMKM Diamonds Inc.'s May 10 hearing before the U.S. Securities and Exchange Commission (SEC) to determine whether the company's stock registration should be revoked listened to testimony from the company's transfer agent. Among other things, the transfer agent confirmed that CMKM had more than 778.5 billion shares outstanding as of Dec. 31, 2004.
Chief Administrative Law Judge Brenda P. Murray presided over the evidentiary hearing to determine whether CMKM's stock registration should be suspended or revoked for failing to file periodic reports as required by U.S. securities regulations.
Lawyer Leslie Hakala, assisted by Gregory Glynn, took the lead in presenting the case for the SEC enforcement division.
CMKM was represented by Donald Stoecklein of the Stoecklein Law Group and Texas lawyer Bill Frizzell was allowed limited third-party participation as counsel for a group of the company's shareholders.
During his opening statement, Mr. Stoecklein seemed to lay the blame for much of CMKM's regulatory woes on unsupportive professionals previously engaged by the company, a situation he called "damned unfortunate."
Among other things, Mr. Stoecklein alleged that CMKM paid $1.5-million over two years to an accountant identified in subsequent testimony as David DeSormeau, but received virtually nothing in return. (All amounts are in U.S. dollars.)
Mr. Stoecklein also claimed that $250,000 had been paid to prior counsel from a New York law firm, widely acknowledged to be D. Roger Glenn, to bring CMKM current in its filings, but no reports had been filed.
As previously reported by Stockwatch, Neil Levine, an auditor hired by CMKM in January, testified that he had not even started auditing procedures because the company had not provided him with the necessary reports and documentation, in spite of repeated requests.
Among other things, Mr. Levine told the court that he had not been given general ledgers, cash disbursements, bank statements and so on.
He also testified that he had not been provided any backup documentation for opinion letters from five or six lawyers regarding CMKM stock issuances, in spite of requesting the backup from Mr. Glenn and Mr. DeSormeau.
In yet another revelation, Mr. Levine testified that he was severing his connection to CMKM effective at the end of the hearing. The auditor said that neither he nor his firm wanted to be associated with a company like CMKM.
After some of the surprising allegations in Mr. Stoecklein's opening statement and some bruising revelations from Mr. Levine, the brief testimony from the SEC's next witness was rather bland.
The specialist
As its next witness, the U.S. regulator called Christopher Wall, an information technology (IT) specialist with the SEC's Los Angeles, Calif., office.
Ms. Hakala began by leading Mr. Wall through a series of questions regarding a recording he had made of an Oct. 18, 2004, webcast produced by the Green Baron.
As previously reported by Stockwatch, the Green Baron is an Internet stock touting operation that began beating the drum for CMKM as "the stock play of a lifetime" last year.
On Oct. 18, 2004, the Green Baron released an "interview" featuring CMKM chief executive officer Urban Casavant and Rendal Williams, the chief executive officer of closely associated U.S. Canadian Minerals Inc.
Shortly into Ms. Hakala's direct examination of the IT specialist, Mr. Stoecklein agreed to a stipulation regarding the authenticity of the recording.
With the recording entered into evidence, Ms. Hakala called Mr. Wall's attention to another exhibit, a price and volume chart for CMKM from Jan 1. 2003, through some time in April of 2005.
Mr. Wall testified that very little volume was traded in CMKM until August of 2003.
"And is it correct that the volume during 2004 and 2005 repeatedly went over two billion shares per day," Ms. Hakala subsequently asked.
"It looks like it did -- in 2004 and 2005, it looks like the volume went over two billion shares six or seven times," Mr. Wall replied.
Ms. Hakala went on to ask whether the IT specialist had any reason to doubt the accuracy of the chart.
"No, I -- this is a chart I got from our Bloomberg system," Mr. Wall answered.
While Mr. Wall reportedly had no reason to doubt the accuracy of the Bloomberg chart, many CMKM followers know that the stock registered a daily volume of more than two billion shares on far more than six or seven occasions through 2004 and 2005. For much of 2004, a daily volume of less than two billion shares was an oddity.
Indeed, Stockwatch's records indicate that CMKM tallied more than two billion shares many dozens of times, topped a daily volume of 15 billion shares on several occasions and even notched an incredible volume of more than 39 billion shares on one day.
Perhaps unknown to Mr. Wall, some systems are not programmed to report such massive trading volumes and, perhaps analogous to an odometer on a motor vehicle, simply "roll over" and start counting again once they reach a certain number.
In any event, Ms. Hakala concluded her direct examination after some brief testimony about the Bloomberg chart and neither Mr. Stoecklein nor Mr. Frizzell cross-examined the IT specialist.
The transfer agent
The SEC's next witness was Helen Bagley, owner of 1st Global Stock Transfer, which acted as CMKM's transfer agent.
Ms. Bagley testified that she had been CMKM's transfer agent since December of 2002, except "for one short week" in the summer of 2004 when there was "a rift" between 1st Global and CMKM.
As previously reported by Stockwatch, CMKM dropped 1st Global and proudly announced the engagement of Pacific Stock Transfer on June 29, 2004. Within days, Pacific Stock Transfer had disclosed to many CMKM shareholders that the company had a staggering 400 billion shares outstanding.
That was the end of CMKM's association with Pacific Stock Transfer. By July 8, 2004, the company announced that it had rehired 1st Global.
As part of her direct examination, Ms. Hakala led Ms. Bagley through a series of questions to draw out an explanation of the difference between issued, surrendered and outstanding shares.
"Ms. Bagley, just so that we understand the difference between issued, surrendered, and outstanding shares, suppose hypothetically I have a certificate -- I'm issued a certificate for 100 shares," Ms. Hakala began. "And that's the only issuance, that's the only thing going on. What would issued, surrendered and outstanding be?"
Ms. Bagley explained that there would be 100 issued shares, no surrendered shares and 100 outstanding shares.
"Okay," Ms. Hakala said. "If I then sell my -- transfer -- want you to transfer my hundred shares, I sell them to my co-counsel, Mr. Glynn here, so that now he has the hundred shares and I no longer have anything, what would the issued, surrendered, and outstanding be?"
"The issued would be 200, the surrendered would be a hundred, and the outstanding would be a hundred," Ms. Bagley replied.
"So is it correct that the outstanding number of shares is the most accurate number to know how many shares of stock issued by the company are out in circulation?" Ms. Hakala asked.
"Yes," said Ms. Bagley.
"Okay," Ms. Hakala continued. "And the issued number of shares can change depending on how many people transfer shares among themselves once the company issues them?"
"Correct," Ms. Bagley replied.
Ms. Hakala moved on to pose a number of questions regarding CMKM's shareholders list for July 22, 2003, which indicated that the company had 698 shareholders of record as of that date.
In response to a question from the SEC lawyer, Ms. Bagley testified that shares held in street name would be reflected in the entry for Cede & Co. on that list, but there was no way for her to determine how many shareholders held those shares.
The transfer agent testified that she did not remember sending a shareholder list to CMKM in July of 2003, nor did a search of her records indicate that such a list had been sent to the company.
"Do you remember anyone from CMKM Diamonds asking you how many shareholders of record there were in July of 2003?" Ms. Hakala asked.
"No, I don't," Ms. Bagley said.
"Have you asked your staff if any of them remember anyone from CMKM Diamonds inquiring about the number of shareholders of record in July of 2003," the lawyer queried.
"Yes, I did," Ms. Bagley replied.
"And what did they say?" Ms. Hakala asked.
"They said no," the transfer agent answered.
As previously reported by Stockwatch, CMKM filed a Form 15 with the SEC claiming that it only had 300 shareholders of record as of July 22, 2003, effectively exempting the company from reporting obligations. In fact, CMKM had 698 shareholders of record as of that date and should have been filing periodic reports.
Ms. Hakala then moved to another series of questions regarding a share issuance in January of 2003.
According to Ms. Bagley's testimony, a total of more than 994 million shares were issued to 360 different people "for fieldwork in Canada" in January of 2003. Those 360 people were all shareholders of record after the stock was issued.
"So as of January 2003, the company knowingly had over 300 shareholders of record?" Ms. Hakala asked.
"Yes," Ms. Bagley replied.
"Did it seem strange to you that 360 people received shares for fieldwork in Canada?" the SEC lawyer queried.
"Yes," Ms. Bagley said.
Moving forward, Ms. Hakala referred Ms. Bagley to CMKM's master shareholders list for Dec. 31, 2004.
"How many shares were outstanding as of December 31st, 2004?" Ms. Hakala asked.
Ms. Bagley replied that there were 778,518,875,000 shares outstanding as of that date.
"If any auditors contacted you to ask how many outstanding shares there were as of December 31st, 2004, what would you say?" Ms. Hakala asked.
"I would tell them there are 778 billion," Ms. Bagley said.
"And change," suggested Ms. Hakala.
"And change," Ms. Bagley agreed.
Ms. Bagley went on to testify that there were 2,033 shareholders of record as of Dec. 31, 2004.
"And issued shares?" Ms. Hakala asked.
"It looks like two trillion and change," Ms. Bagley said.
"Does that mean that there are two trillion and change shares floating around out there?" Ms. Hakala asked.
"No," said Ms. Bagley. "That is the same thing as what's been issued and cancelled. It's constant."
"And the number of surrendered shares?" the lawyer queried.
"A billion four and change," Ms. Bagley began. "Or, excuse me, a trillion four and change."
"So if I took that trillion four and change, subtracted it from the 2.2 trillion and change, I'd end up with the number of outstanding shares?" asked Ms. Hakala.
"Correct," said Ms. Bagley.
"And do you have any reason to doubt the accuracy of these numbers?" Ms. Hakala asked.
"None whatsoever," Ms. Bagley replied.
With that, Ms. Hakala finished her direct examination and handed off to Mr. Stoecklein, who conducted a brief cross-examination.
Mr. Stoecklein drew an acknowledgement from Ms. Bagley that his office had requested the CMKM shareholder list for July 22, 2003, and Dec. 31, 2004, on Feb. 10 or Feb. 11 of this year.
"Okay," Mr. Stoecklein said. "You've mentioned that the shareholder list that we've been referring to -- and we've been referring to two lists. One is July and one is December.
"And I'm not really going to distinguish amongst the two of them for this question.
"You've mentioned that the shares listed on those lists, the shares are in Cede & Company?"
"Correct," Ms. Bagley replied.
"And where do those shares go when they're in Cede & Company?" Mr. Stoecklein asked.
"They go into street name," Ms. Bagley began. "I -- I -- excuse me. Can you please clarify?"
"Sure," said Mr. Stoecklein. "I think you answered the question, though. They go in street name -- "
"Okay," Ms. Bagley said.
"Which means they don't stay in the name of the very shareholder; is that correct?" Mr. Stoecklein asked.
"That's correct," the transfer agent replied.
"Do you have any idea where that actual certificate ends up when it goes to Cede & Company?" asked Mr. Stoecklein.
"No, I don't," said Ms. Bagley.
"You don't keep a copy; correct?" CMKM's lawyer asked.
"No," Ms. Bagley answered.
"Are you familiar with the Depository Trust Company, DTC?" Mr. Stoecklein asked.
"Yes," said Ms. Bagley.
"Do you have an understanding that those shares may actually end up with the DTC?" Mr. Stoecklein queried.
"Yes," the transfer agent said.
"Are you familiar with what's called the share borrower program?" Mr. Stoecklein asked, drawing an objection from Ms. Hakala.
"What is the relevance of the share program?" Judge Murray asked CMKM's lawyer.
"Well, Your Honor, the whole issue just now was on what's issued and what's outstanding," Mr. Stoecklein said. "I'm trying to get to this issue of outstanding. They brought it up again."
"Wait a minute," Judge Murray said. "This has a bearing on what's outstanding?"
"It sure does, Your Honor," Mr. Stoecklein replied.
"Okay," the judge said. "I'll overrule the objection and allow the question if the witness knows."
"And I'm going to be very brief about it, Your Honor," Mr. Stoecklein said.
"Well, I don't -- I think you might be disappointed," Judge Murray said, turning to Ms. Bagley. "Does the witness know the answer to the question?"
"No, I don't," Ms. Bagley replied. "It's the first time I've heard it."
That marked the end of Mr. Stoecklein's cross-examination.
Ms. Hakala put a few more questions to Ms. Bagley on redirect, drawing testimony that the transfer agent retained the originals of all the shares that were surrendered and cancelled.
The SEC lawyer also drew a confirmation from Ms. Bagley that neither she nor anyone on her staff remembered anyone asking for the number of CMKM shareholders of record in July of 2003.
When Ms. Hakala finished her short redirect, Judge Murray posed a question of her own.
"Could I just ask the witness, do you transfer stock for any other company that has over 778 billion outstanding shares," the judge asked.
"No, we don't," Ms. Bagley replied.
With that, Judge Murray excused the witness.
Stockwatch will review further testimony in a following article.
The saga continues.
Comments regarding this article may be sent to lwebb@stockwatch.com.
(More information regarding CMKM Diamonds and associated companies can be found in Stockwatch articles dated Oct. 21, 2003; June 22; Sept. 16 and 24; Oct. 1, 15 and 20, 2004; Feb. 11, 14, 18, 22 and 23; March 1, 3, 4, 7, 14, 15, 16 and 21; and June 6, 8, 9 and 10, 2005.)
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Reader Comments - Comments are open and unmoderated, although libelous remarks may be deleted. Opinions expressed do not necessarily reflect the views of Stockwatch.
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ONCE AGAIN....Lee Webb, you have earned a place in history imo as, bar none, the single worst "journalist" I have ever read.
Posted by Janice Smells @ 2005-06-13 17:27
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Thanks for posting the script.
Posted by Barri Park @ 2005-06-13 17:49
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Guess what. You did not even mention all the NSS that have been put into the system by the MM's. Our lawyers will prove this with no problem. I will not sell one share of my CMKX stock no matter what you say.
Bart
Posted by Marion L. Barton @ 2005-06-13 17:52
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Where Is The rest Dirt Bag!!! Hillarious
Posted by accadacca @ 2005-06-13 17:53
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Asswipe,why dont you show us the WHOLE transcript and NOT the parts you want us to read. Come on Jackass!!
Posted by Janice Smell's son @ 2005-06-13 17:54
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rotflmao! freakin lee web.....go find a rusty spoon!
freddocazzo......always freddo......even more cazzo!
Posted by FreddoCazzo @ 2005-06-13 17:57
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Very good article ..... you convinced me i am buying more shares tomorrow.....
S.
Posted by Sillo @ 2005-06-13 18:04
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Garbage and bias crap
Posted by Whatawanker @ 2005-06-13 18:16
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There are nmerous articles on this website and blog on the naked short selling scandal at antandsons.com
All relate to CMKX and this hearing. NSS will come out
Posted by Gus @ 2005-06-13 18:16
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CMKX Pink sheet results
CMKX Pinksheet results DD CMKX Results . Click HERE to go to CMKX pink sheet results.
Posted by JACKSON @ 2005-06-13 18:20
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