MORE GAYLE ESSARY TALES FROM THE CRIPTKEEPER:
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"strong BUY recommendation"
"Gayle ESSARY, Investrend president, announced that John M. Dutton, professional securities analyst qualified in the PAR program, published his Quarterly Update PAR coverage of STARNET Communications (OTCBB: SNMM) on August 12, 1999. Mr. Dutton has reconfirmed his BUY recommendation. His 12 month price target is $30 - $35. Mr. Dutton will continue to follow STARNET Communications and issue Quarterly Update Reports. Mr. ESSARY noted that Investrend Research will be releasing shortly the previously announced Quarterly Update of MedCare Technologies (NASDAQ:MCAR). Initial Research Reports were recently issued on Vasogen Inc. (OTCBB:VSOGF) and M&A West (OTCBB:MAWI)."
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World Gaming predecessor Starnet players sanctioned
2005-07-21 20:53 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
by Lee M. Webb
World Gaming PLC predecessor Vancouver-based Starnet Communications International Inc. players, including three Canadians, have been dealt some hefty sanctions by the U.S. Securities and Exchange Commission (SEC).
In addition to various cease and desist orders and bans, the July 18 initial decision of Administrative Law Judge James T. Kelly orders the disgorgement of millions of dollars made by dumping unregistered Starnet shares into the U.S. market.
Former Starnet chief financial officer and chairman of the board of directors John Carley, who lived in Delta, B.C., before relocating to Antigua, is ordered to cease and desist from violations of U.S. securities regulations and to disgorge $4.18-million. (All amounts are in U.S. dollars.)
Starnet's former secretary, treasurer, director and in-house counsel Christopher Zacharias, a former Port Moody, B.C., resident now living in Costa Rica, is subject to a similar cease and desist order and an order to disgorge $1.45-million.
Vancouver resident Roy Gould, vice-president of United Capital Securities and a key figure in other Howe Street promotions linked to Starnet's former chief executive officer Mark Dohlen, is also subject to a cease and desist order and is barred from any association with any U.S. broker or dealer.
Mr. Gould was further ordered to disgorge more than $13.8-million and tagged with a $500,000 civil penalty.
Because of a demonstrated inability to pay based on sworn personal financial records that show a net worth of less than $2-million and an annual income "in the low-to-mid six figures," as well as the lack of any evidence of assets hidden abroad, Mr. Gould's civil penalty was waived and the disgorgement amount was reduced to $1-million.
U.S. brokers Eugene Geiger and Thomas Kaufmann, who handled the offending Starnet trading through brokerage Spencer Edwards Inc., also drew cease and desist orders and were barred from associating with any broker or dealer.
Mr. Geiger and Mr. Kaufmann were each ordered to disgorge $885,738. In addition, Mr. Geiger drew a civil penalty of $400,000 and Mr. Kaufmann was slapped with a $300,000 civil penalty.
Spencer Edwards was censured, ordered to disgorge $759,204 and tagged with a $200,000 civil penalty.
Because of its demonstrated inability to pay and because Judge Kelly reasoned that if the SEC was not going to openly shutter Spencer Edwards, then he was not going to drive it out of business through the back door, the $200,000 civil penalty against the evidently near-penniless brokerage firm was waived and the disgorgement was reduced to a modest $25,000.
Edward Price, a 45-per-cent owner of Spencer Edwards and supervisor of Mr. Geiger and Mr. Kaufmann, was not booted out of the industry entirely, but he is barred from associating with any broker or dealer in a supervisory capacity.
Mr. Price was also ordered to pay a civil penalty of $150,000.
In an earlier ruling against another respondent in the case, Le Fond Mondial D'Investissement S.A., Judge Kelly issued a default judgment ordering the British Virgin Islands company headquartered in Spain to disgorge more than $10.4-million in ill-gotten gains made by dumping unregistered Starnet shares into the U.S. market.
While Judge Kelly's Nov. 23, 2004, $10.4-million judgment against Le Fond Mondial and the July 18 disgorgement orders and penalties totaling more than $23.5-million before being reduced to approximately $9.27-million are certainly significant, the SEC cannot claim complete success in the proceeding.
Quite apart from the $14-million reduction in the disgorgement orders and penalties against the respondents and the open question of just how much of ordered payments the U.S. regulator will ever collect, the SEC failed to prove some significant allegations and drew some rather sharp criticisms from Judge Kelly.
Moreover, the SEC was reportedly unable to serve three key respondents with its Sept. 1, 2004, order instituting proceedings (OIP) and had to obtain an order severing them from the case on Jan. 3.
The SEC has still not been able to serve Starnet's former chief executive officer, Vancouver promoter Mark Dohlen. Mr. Dohlen allegedly pocketed millions of dollars through his participation in the scheme to unload unregistered stock.
Indeed, while Celestine Asset Management, a company controlled by Mr. Gould, reportedly unloaded more than $25-million worth of Starnet shares, the SEC reduced its demand for disgorgement by more than $7-million because some of that money was disbursed to other parties and Judge Kelly reduced it by a further $5.25-million because of documented evidence of further third party disbursements.
Among other things, the judge determined that $2-million from the Celestine transactions had been paid to Mr. Dohlen and a further $1.58-million had been disbursed to "Dohlen and the Coziers" for an account at Mr. Gould's United Capital.
Starnet's former president, Vancouverite Paul A. Giles, who was believed to be living somewhere in Florida at the time the SEC instituted proceedings, has also yet to be served. Mr. Giles also allegedly profited from the sale of unregistered Starnet shares.
Rounding out the list of key respondents that the U.S. regulator has not been able to locate for service is Alfred Peeper, a citizen of the Netherlands believed to be living somewhere in Spain. Mr. Peeper allegedly controlled, at least nominally, many of the offshore entities that unloaded unregistered Starnet shares, including Le Fond Mondial.
It remains to be seen whether the SEC will eventually succeed in serving the three severed respondents and possibly fill in some of the gaps regarding the offshore entities and the share-dumping scheme, not to mention provide an opportunity for Mr. Dohlen, Mr. Giles and Mr. Peeper to respond to the allegations.
"Many of the relevant transactions were conducted through corporations, partnerships and trusts in the South Pacific, the Caribbean, Ireland, Luxembourg, Hong Kong and elsewhere," Judge Kelly noted in the preface to his findings of fact. "Many of the officers, directors, shareholders and beneficial owners of these entities remain unknown.
"Three of the eleven respondents were not served with the OIP and did not testify at the hearing.
"The result is an evidentiary record with sketchy and inconsistent details.
"The parties attempt to fill these gaps, sometimes with assumptions and sometimes with reasonable inferences from known facts."
Stockwatch will review Judge Kelly's 84-page decision in more detail in a future article. Notwithstanding the sketchy and inconsistent evidentiary record, the July 18 decision offers some intriguing insights into the setup of the Vancouver-spawned promotion, including the early distribution of millions of cheap shares to offshore entities, and the operation of the complex and illegal share-dumping scheme.
Stockwatch will also recap some of Starnet's history including the headline-grabbing and price-collapsing Aug. 20, 1999, predawn raid on the company's Vancouver office and the homes of several of its officers and directors by 100 law enforcement officials, the quick head office relocation to Antigua and the subsequent reorganization as World Gaming.
World Gaming obtained a listing on the Alternative Investment Market (AIM) of the London Stock Exchange on May 17. AIM-listed companies are arguably burdened with far less oversight than the lightly regulated but heavily prosecuted OTC Bulletin Board.
World Gaming shares also continue to change hands on the OTC-BB where the recent SEC decision has apparently had no effect on the company's stock price. Indeed, perhaps based partly on speculation about a pending acquisition, the volume and price have jumped over the past three days.
With 423,183 shares changing hands on the OTC-BB, World Gaming added 12 cents to bring its three-day gain to 30 cents and closed at $1.62 on July 21.
Comments regarding this article may be sent to lwebb@stockwatch.com.
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PAR Analyst Announces Investment Opinion On STARNET Communications
Business Wire, August 12, 1999
NEW YORK--(BUSINESS WIRE)--Aug. 12, 1999--
Public Analysis & Review (PAR) is the unique professional independent analyst program administered by the non-profit Investors Research Institute, Inc. PAR research is distributed by Investrend Research. Gayle ESSARY, Investrend president, announced that John M. Dutton, professional securities analyst qualified in the PAR program, published his Quarterly Update PAR coverage of STARNET Communications (OTCBB: SNMM) on August 12, 1999. Mr. Dutton has reconfirmed his BUY recommendation. His 12 month price target is $30 - $35. Mr. Dutton will continue to follow STARNET Communications and issue Quarterly Update Reports. Mr. ESSARY noted that Investrend Research will be releasing shortly the previously announced Quarterly Update of MedCare Technologies (NASDAQ:MCAR). Initial Research Reports were recently issued on Vasogen Inc. (OTCBB:VSOGF) and M&A West (OTCBB:MAWI).
A summary of the STARNET Communications report follows. The entire report including disclaimers can be downloaded from the Investrend Website at www.investrend.com/research/snmmupdate1.html.
Please read the disclaimers posted on the Investrend site before investing.
We reaffirm our strong BUY recommendation. The reasons for the continuation of this recommendation are as follows.
1. The stock price of SNMM is down over 50% since its recent high of $29. We believe this decline is the result of side bar events coupled with nervous investors. The stock is presently at attractive levels.
2. Management is on course in executing its business strategy to become the dominant factor in most major phases of internet gaming. A current market share of 35% - 40% of all internet gaming sites belong to STARNET and its licensees. Present estimates are that only 10% of potential internet gaming customers use the internet to gamble.
3. Like most highly successful internet companies, STARNET is a dominant factor in its industry in both marketing and technology. It endeavors to pick franchisees capable of aggressive marketing to build a customer base. It exchanges a low initial license fee for an average 25% of their net revenues as an on-going license fee. It becomes their partner. However, unlike most top Internet companies, STARNET has escalating earnings and EBITDA.
4. At current prices, the stock sells at a P/E of 28x current year EPS estimate of $.47, and 11.8x the $1.13 estimate for next year. In fiscal 2001 and 2002, SNMM should obtain the earnings benefits from the high margins flowing from a large licensee base. Given a reasonable market 12 months hence, we expect SNMM to trade at 30x - 40x the $1.13 fiscal 2000 forecast of EPS, supported by a valuation of 25x to 30x EBITDA.
We further note the following:
For the year ending April 30, 1999, sales increased $6.4 million to $9.8 million, of which gaming accounted for $6 million of the increase and on-line interactive (adult) the balance of $0.4 million. EBITDA (earnings before interest, taxes, depreciation and amortization) expanded $3.6 million to $3.4 million from a negative ($0.234) million in 1998. Sales of gaming licenses to new operators totaled 36 in 1999 and 1 in the initial year of 1998. Recognized revenues from initial license sales in 1999 were $1.6 million. Revenues from on-going license fees from the 15 operating licensees of 20 completed sites totaled $3.5 million. STARNET's own casino (World Gaming Services) and its transaction service fees (EFT credit card processing) contributed revenues of $1.1 million. Total gaming revenues were $6.2 million. There were no significant comparable revenues in 1998.
In May 1999, 11 new licenses were sold bringing the total sold to 47 as of June 1. As of 2000 Q1 end, we estimate there were 25 operating licensors. Management has stated that it believes approximately 3-4 new licenses can be sold monthly for fiscal 2000 and 2001. Our earnings model assumes lower franchisee additions. Revenues from on-going licensee fees are a majority of STARNETAEs gaming revenues. In the current 2000 fiscal year, we expect initial license fees of $4.7 million and reoccurring license fees of $33.1 million. Revenues from World Gaming and transaction service fees should exceed $2.0 million. Total gaming revenues should total $39.8 million.
Finally, SNMM shares should be accepted for listing on the NMS of NASDAQ within 60 days. This listing coupled with the absence of the adult segment whose sale should be announced shortly, should broaden the stock's appeal to the institutional market place. With capital presently being raised, we expect shareholder's equity to exceed $50 million at year end, up from $9.4 million.
Mr. Dutton is the par supervisory analyst. He is a member of both the Boston and Los Angeles Security Analyst Societies, and has been an analyst and director of research at several firms including Moseley, Hallgarten, Estabrook & Weedon and LH Friend, Weinress, Frankson & Presson. He was president of Corsair Asset Management, an asset management firm, for over 11 years. For seven years, he was Executive Vice President of the international hospital company American Medical International. Mr. Dutton's past work includes development and execution of strategic and financial planning for small cap companies. Mr. Dutton presently is charged with expanding the PAR program.
For Further Information, please contact:
STARNET Communications, Inc., 425 Carrall Street, MezzanineLevel, Vancouver, B.C. V6B 6E3, Canada, Mr. Robert Grace, Investor Relations Phone 604-608-6035, Fax 604-684-0391 Email: mailto:robg@STARNETc.com, website www.STARNET.ca Investrend Research, John M. Dutton, President 801 S. Figueroa, Suite 1100, Los Angeles, CA 90017 Phone (213) 630-4401 Fax (213) 623-4590 e-mail: jmdutton@mediaone.com web site: www.investrend.com.
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