CMKM shareholders' lawyer rallies faithful followers
2005-07-13 20:56 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
by Lee M. Webb
CMKM Diamonds Inc. shareholders represented by Bill Frizzell received a feisty message from the Texas lawyer in the wake of the July 12 U.S. Securities and Exchange Commission (SEC) initial decision to revoke the company's stock registration. In a folksy e-mail distributed the day the decision was issued, Mr. Frizzell urges shareholders to keep fighting the good fight.
Chief Administrative Law Judge Brenda P. Murray's less than flattering initial decision in the SEC proceeding against CMKM for failing to file periodic reports concluded that the appropriate sanction for the protection of investors is revocation of the company's stock registration.
The massively diluted pink sheet promotion headed by Saskatchewan native Urban Casavant has 21 days to file a petition for review of the initial decision.
CMKM is currently represented by Donald Stoecklein of the Stoecklein Law Group. Mr. Frizzell was allowed limited non-party participation in the proceeding as counsel for several thousand CMKM shareholders known as the Owners Group.
As it happens, Mr. Frizzell and Mr. Stoecklein jointly submitted a settlement proposal to the SEC on the same day Judge Murray issued her decision.
According to Mr. Frizzell, the joint settlement offer remains open, notwithstanding Judge Murray's decision.
Whether the SEC has any interest in the belated settlement proposal is another matter entirely, particularly given Judge Murray's rather stinging findings and conclusions.
Among other things, Judge Murray found that CMKM has no independent auditor to audit its financial statements.
"In fact, it has no financial statements to audit," the judge noted. "In addition, no drafts of any of CMKM Diamonds's missing periodic reports have been prepared."
According to the judge, the May 10 public hearing was an opportunity for CMKM to address the allegations in the SEC's order instituting proceedings.
"It failed to do so," Judge Murray wrote. "Casavant seems to be the only person running the company and he refused to testify.
"Several witnesses testified that they tried to get financial information from Casavant and he failed to supply it.
"CMKM Diamonds has been out of compliance since 2002, and has made no good faith effort to remedy the situation."
With that, Judge Murray ordered CMKM's stock registration revoked.
Modest proposal
In a modest five-page posthearing settlement proposal evidently submitted before they received Judge Murray's decision, Mr. Frizzell and Mr. Stoecklein acknowledged the SEC's "concern over the lack of financial reports being available to the investing public."
In a bit of a preamble, the two lawyers noted that CMKM's previous auditor had notified the company two days prior to the May 10 hearing of his intention to withdraw his services.
The lawyers say that CMKM has encountered significant difficulty in finding a qualified auditor willing to work for the company because of the pending SEC investigation and the timing involved in auditing several years of financial statements, among other things.
Nonetheless, they say, the company recently succeeded in finding just such an auditor.
"On July 11, 2005, after a month of due diligence by the auditor, CMKM has engaged the audit firm of Beckstead and Watts, LLP," the lawyers report.
The proposal makes no mention of whether the company yet has any completed financial statements to audit, let alone the supporting documentation needed for an audit.
In any event, the joint settlement proposal consists of five elements.
First, Mr. Frizzell and Mr. Stoecklein propose that a trading halt be instituted for the period of time required for CMKM to comply with its reporting obligations.
"We believe the most significant public interest factor, trading on inadequate information, is alleviated by enacting a trading halt," the lawyers state.
Second, the legal duo proposes a waiver of appeal.
"In an effort to avoid a lengthy process of appeal, and to set a time limit on the process before the Commission and the parties, we jointly would support a waiver of CMKM's rights to appeal, in that the settlement would be finite," Mr. Frizzell and Mr. Stoecklein say.
Third, the two lawyers are asking for 120 days relief from periodic reporting requirements.
According to Mr. Frizzell and Mr. Stoecklein, the proposed trading halt would protect investors from any potential financial harm that could result from the extension of time to file an annual report on Form 10-KSB.
"As it appears that the general focus of the Division's actions are more focused toward the protection of future investors, as opposed to existing investors, it would appear that the potential harm to future investors is mitigated by the trading halt," Mr. Frizzell and Mr. Stoecklein suggest.
The proposal also indicates that the Owners Group represents a large number of shareholders who support a trading halt.
Fourth, the settlement offer proposes filing one Form 10-KSB for the year ended Dec. 31, 2004, that will include audited financial statements for the fourth quarter of 2002 and audited financial statements for the years ending Dec. 31, 2003 and 2004.
Fifth, the lawyers propose a posthearing conference to be held in 60 days to provide Judge Murray with a status report on the progress of the audit.
It remains to be seen whether the proposal is deemed too little, too late.
Meanwhile, Mr. Frizzell has offered his thoughts on Judge Murray's initial decision, the proposal and other matters.
Frizzell brigade
Mr. Frizzell, who is not a securities lawyer, is a CMKM shareholder and a former poster to one of the pink sheet company's bullish Internet message boards. He was reportedly hired by fellow Texan John Martin last year to represent him in unspecified matters relating to CMKM.
When the SEC followed up a 10-day suspension with an order instituting proceedings against CMKM, Mr. Frizzell and his principal pitchman Mr. Martin invited other shareholders to ante up $25 per person to join what became known as the Owners Group.
Evidently 5,582 CMKM shareholders signed a limited representation agreement with Mr. Frizzell. However, according to Mr. Martin, who is now pitching shareholders for another $25 for the continued services of the "incredible attorney" in "Phase 2," only about 4,200 people actually sent their money for the first agreement.
According to the Owners Group website, 1,634 people have signed on for the second phase of Mr. Frizzell's representation.
Mr. Martin and Mr. Frizzell have provided frequent updates to the members of the Owners Group. Mr. Frizzell authored a July 12 e-mail update following the release of Judge Murray's decision.
Kicked in the gut
"I felt like I had been kicked in the gut when I saw the decision coming off of my fax line today," Mr. Frizzell wrote. "Frankly, when I saw the Administrative Law Judge's letterhead on the first page, I thought it was remarkable that the Court would comment so quickly on the filing of our settlement offer.
"When I realized what the document contained, I was disappointed and a bit surprised. Not in the decision and not in the reasoning of the decision, but in the timing of the decision."
Indeed, while the order instituting proceedings against CMKM indicated that a decision had to be made within 120 days of service, many of the company's followers thought that the decision would not be handed down for several more days.
Word struggle
According to Mr. Frizzell, the settlement offer submitted on the same day Judge Murray issued her decision had been in the works for some time.
"Don Stoecklein and I had been struggling with the wording of our settlement proposal for a couple of weeks," Mr. Frizzell told the Owners Group.
"It was our belief that no settlement offer would ever be considered by the SEC attorneys nor the Commission unless a qualified auditor was formally engaged," Mr. Frizzell continued. "The auditor did extensive due diligence before accepting this job. The negotiations by Don Stoecklein were carried out with the auditor's attorney as well.
"Once an agreement was reached with the auditor, Don Stoecklein felt the SEC rules required an 8K filing of the auditor's engagement but we had not yet received a signoff from the prior auditor.
"The company began securing the signoff letter but the settlement proposal was sent without having it in hand.
"I am giving you only a bit of the background leading up to our settlement proposal.
"I am not making excuses nor suggesting that many of these delays could have been avoided."
Substantial figure
"Brad Beckstead was engaged as our new auditor yesterday," Mr. Frizzell advised. "I am not at liberty to discuss the actual amount paid to Mr. Beckstead but it was a six figure amount.
"It was not as high as the $360,000 figure rumored on the boards this morning, but a very substantial figure was paid to Mr. Beckstead according to the company.
"It is my understanding that the amount paid was a retainer and additional fees may be incurred."
Standing offer
"What becomes of the settlement offer we have proposed?" Mr. Frizzell asked rhetorically. "We will continue to seek settlement of this proceeding. Our offer of settlement remains.
"The appeals process can be a long one. I have been assured the auditor can complete the audit within 120 days. The completed audits will not take as long as the appeals process in any event."
Mr. Frizzell went on to say that CMKM's case "has many of the same facts found in the E-Smart decision mentioned by Judge Murray at the beginning of the administrative proceeding."
Indeed, in Mr. Frizzell's opinion, the facts about CMKM "are more compelling than the factual scenario of E-Smart."
In the case of E-Smart Technologies Inc., the company began filling in the gaps in its reporting following an initial decision to revoke the company's stock registration. The decision was reviewed and the SEC remanded the case to allow the judge to reassess the sanctioning determination in light of the late filings. The initial decision was basically overturned.
"I am hopeful that there will be some future dialogue about settlement once we can convince the SEC that work on these financials is proceeding," Mr. Frizzell told the Owners Group.
Hang in there
Mr. Frizzell goes on to offer what seems to at least border on encouragement to shareholders to hang on to their nearly worthless stock, if not an outright hold recommendation from the Texas lawyer.
"Folks, we took a risk (admittedly seems a bit larger than we thought at the time) when we bought this stock," Mr. Frizzell remarked. "We have watched this stock plummet to the bottom and now we have an initial order of revocation to overcome.
"The facts still remain -- if the company has the goods and if the company gets these financials filed, there remains some significant gain to be made.
"John has told me that a few of his friends have sent him farewell notes. People speak of losing all of their investment and writing things off.
"This is music to the ears of the market makers and brokerage houses that have mountains of electronic markers backed by your hard earned dollars.
"Hell folks, the stock is virtually worthless (.00008) as it is. Hang in there and lets fight these crooks."
Lets be different
"Penny stock investors always walk away," Mr. Frizzell said, perhaps unaware that Internet message boards feature many hangers-on awaiting the revival of dud companies that vaporized their investments long ago.
"They do not usually have large investments in these stocks," Mr. Frizzell continued. "That's what convinces the short sellers that easy money is to be made when there is a mountain of outstanding stock and the SEC is coming down on management.
"Let's be different.
"Watch these people with the big short positions snatch up these shares (real shares) as people give up.
"In Texas you hear the old saying, 'When you always do what you always done, you always get what you got.'
"Let's be different."
Of ships and stools
Moving deeper into his rallying missive, Mr. Frizzell told the Owners Group that he has watched many professional boxing matches and "had the pleasure of managing a world champion for several years."
"I was always amazed at how these guys could stand out there in the ring and pulverize each other (gashes, swelling, cuts, bruises) for 10 or 12 rounds and sit back in the dressing room after the fight and have a good laugh," Mr. Frizzell said. "Well, SEC, you have won the first round.
"Leslie Hakala and Greg Glynn did a very good job of presenting evidence to the judge which fully justifies her decision.
"For whatever reason, our company was unable to get the ship righted in time to win round one.
"But we will come off the stool for the second round."
Pass the juice
"I know there are those that think I must really be drinking the kool aid around here," Mr. Frizzell remarked. "I will not pump this stock because I still have some questions that I hope to have answered very soon.
"The company has invited me to go to Ecuador with the auditor at the same time.
"I have been invited to Canada for a tour of the assets.
"I refused to go thinking we could head off revocation if I stayed here and worked with the company attorney on this settlement proposal.
"Now we have another course. I will be rescheduling my trip as soon as practical."
The good fight
Mr. Frizzell rounds out his July 12 e-mail with a section urging shareholders to keep fighting the good fight.
The Texas lawyer explained that the Owners Group is not a party to the proceeding and has no right to appeal the decision. That is up to the company.
Mr. Frizzell informed his readers that he will be suggesting to Mr. Stoecklein and Mr. Casavant that the Owners Group would like to have an independent auditor have biweekly conferences with CMKM's new auditor Mr. Beckstead to monitor his progress.
He will also ask Mr. Stoecklein to give him a status report on the filing of a petition for review of the initial decision "on an every other day basis if necessary."
"I will report to you the response of the company to my requests," Mr. Frizzell wrote. "I will likewise report to you in whatever detail I can, my findings in Ecuador and Saskatchewan.
"Let's play this thing out folks.
"And to you short sellers out there, this game is not over with by a long shot."
With that, Mr. Frizzell ended his July 12 message.
Texas saying
Investors may indeed be interested in Mr. Frizzell's report of his "findings in Ecuador and Saskatchewan," particularly if the Texas lawyer has any understanding of mining or exploration. That, of course, is far from clear.
In any event, from what little information is available regarding CMKM's convoluted interest in a small Ecuadorian mining operation, it does not appear to be much more than a dilapidated hobby mine, relatively speaking.
As for CMKM's obscure Saskatchewan interests, which have seen only modest exploration efforts from the company, at this point they do not appear to involve much more than what is colloquially known as "moose pasture."
If that is the case, and given Mr. Frizzell's apparent penchant for folksy sayings, perhaps the Owners Group will be treated to another Texas saying when the lawyer delivers his report: All hat and no cattle.
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; June 6, 8, 9, 10, 13, 14, 15, 16, 17, 20, 21, 22, 29 and 30; and July 1, 4, 6 and 12, 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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The key word here is stool, as in 'stool sample' (or feces).
And anyone who examines stools isn't an auditor, they're a scatologist.
Posted by halcrow @ 2005-07-13 18:27
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The key word here is stool, as in 'stool sample' (or feces).
And anyone who examines stools isn't an auditor, they're a scatologist.
Posted by halcrow @ 2005-07-13 18:27
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Frizzy is all hat and no cattle. In fact he is a wing-nut, and his partner Martin is a penny scam spammer.
Posted by Thomas "Lefty" Malone @ 2005-07-13 19:22
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Just to keep this forum in line with Stockwatch's current fixation on non-stockmarket related court cases, might I remind the readers of this forum that this whole promotion has always been divorced from reality!
Posted by halcrow @ 2005-07-13 22:15
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Perhaps halcrow has whacked its head against its fist in the past too many times.
Posted by pemises @ 2005-07-13 22:57
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Lee we all know this is SCAM, why do you waste your time on this? Get the News out on other pump and dump scams that are out there.... PRRM, MLON, QBID, IVOC... etc...
Posted by Scam @ 2005-07-14 05:44
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Lee: I bet you haven't even left your little office chair for lunch. How could you possibly make a judgment about CMKM's assets in Canada and Ecuador?
Posted by SteveW @ 2005-07-14 05:48
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