NASD Charges NevWest in CMKX Saga...Justice at Last?
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Posted by: mfaulk 9/26/2006 7:19 PM
In a saga that many thought was dead-on-arrival, the NASD today filed charges against NevWest Securities Corporation of Las Vegas, and company President Sergey Rumyantsev and Vice President Antony M. Santos. In charging the company and its officers with violating NASD's Anti-Money Laundering Rule, they stated that “between January 1, 2003, and May 31, 2005, NevWest failed to file Suspicious Activity Reports (‘SAR’), or cease trading in multiple accounts owned and controlled by JE, NevWest’s customer, regarding over 500 transactions, invo9lving over 250 billion shares of sub-penny stock issued by CMKM Diamonds Inc. (‘CMKM’) totaling over $53 million. In the 28-page complaint, the NASD also charged NevWest with failing to “adequately perform due diligence, file SARs, or cease effecting wire transfers involving $43 million through 139 separate wires from at least 28 of the accounts JE had opened at NevWest to various bank accounts.”
They were the first charges brought in a story that began in late 2002 (or even earlier including the earlier incarnation of CMKM Diamonds), and might have come to an end on October 28, 2005, when Administrative Law Judge Brenda Murray officially revoked CMKM’s (commonly referred to by its trading symbol CMKX) reporting status, after the company withdrew its appeal of Judge Murray’s initial ruling against the company for failure to file required financial reports with the SEC.
However, this was one company that simply refused to die. Bolstered by over 50,000 shareholders and an advocacy group begun by CMKX shareholder John Martin and represented by attorney Bill Frizzell, the CMKX Owners Group worked their way into the SEC hearings, and continued to press for action against the various people involved in what they perceived as a massive fraud extending into every corner of the financial market process, including not only numerous individuals who took advantage of a system rife with loopholes and poorly enforced SEC regulations, but implicating nearly every major brokerage firm in the U.S. and Canada.
In fact, in a letter to then CMKX attorney Donald Stoecklein over a year ago, Owners Group attorney Bill Frizzell called for the company to take legal action against several of the people who he named as being involved in the scheme to defraud tens of thousands of CMKX shareholders, with John Michael Edwards, or “JE,” at the top of the list. He specifically cited the 36 NevWest trust accounts, along with another 20 additional companies that have addresses in Langley, B.C., and owned and controlled by Edwards. In addition to Edwards and NevWest, Frizzell named company auditor Neil Levine (who was brought into CMKX by Edwards), CFO David DeSormeau, “consultant” James Kinney, secretary Ginger Guitierrez, and attorney Brian Dvorak as individuals who were involved in the problems with CMKX.
NevWest President Sergey Rumyantsev said today that “in our perception, we believe that we have fail-safes inn effect that go far above and beyond the industry standards. We feel completely wronged in this particular case.” Rumyantsev also questioned the NASD’s action against their company, saying that “we were singled out, why were we the only one charged when hundreds of billions of shares were sold by other brokers?”
Another source close to the story echoed Rumyantsev’s sentiments, citing the serious problems with other major brokerage firms, including Ameritrade and Etrade, and the long and drawn out process of trying to issue stock certificates to bonafide shareholders, many of whom have still not received stock certificates over a year after the company initiated a cert pull in an attempt to determine if there were more shares sold than actually existed. This source asked whether the other offending brokers had filed Suspicious Trading Reports in relation to the well-over a trillion shares that many people claim were fraudulently sold to unsuspecting shareholders.
In the meantime, many questions remain in the CMKX saga. Why has it taken so long for regulatory agencies to take action against those who defrauded over 50,000 shareholders, and why hasn’t the SEC taken any action whatsoever? It was reported last week in a court document involving John Edward’s wife Diana Lee Flaherty’s own stack fraud trial that Edwards himself is still under investigation for stock fraud, and there are unconfirmed reports of a major sting operation targeting dozens of others involved in the CMKX scandal.
In the broader sense, the sheer scope of this scam, and the reported massive selling of counterfeit stock into the market that accompanied it, raises serious questions as to the system of checks and balances that protects our stock market. This reporter is certain that this is only the beginning, and that ultimately, many more people will be brought to justice in this case. Let’s just hope that the investigations don’t stop there, and that the major brokers are held responsible for their part in this financial train wreck, and that the SEC itself is made to answer for their ineptitude and failure to “protect investors and maintain the integrity of the securities market.”
To read the NASD complaint filed against NevWest, go to: cmkxownersgroup.com
Mark Faulk is the Editor of The Faulking Truth, and the author of the upcoming book about the CMKX story entitled "The Naked Truth: Counterfeiting the American Dream," due out in late 2006. For more information on the book and on the stock market scandal, go to faulkingtruth.com, and to pre-order your copy, go to theownersgroupinc.com
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Re: NASD Charges NevWest in CMKX Saga...Justice at Last? By Roland on 9/27/2006 5:21 AM
JE may be implicit in the fraud but someone gave him the 250B+ shares to sell. Those shares were sold over a long period of time.
Where was the checks and balances in the CMKX headquarters with the Board of Directors?
Re: NASD Charges NevWest in CMKX Saga...Justice at Last? By davidn on 9/27/2006 5:33 AM
Read my post on "pre-netting" in Bobo's last thread.
There is x-clearing and CNS, but there is also "pre-netting". Little brokerages like this don't usually clear directly with the DTCC. 90% of brokerages in the US go through large clearing organizations. They "net" prior to doing one big trade with the DTCC.
Since these organizations are not audited or regulated properly, no one knows how many shares they are supposed to have. The DTCC only knows how many they actually have.
All of this pre-netting fraud happens below the surface and isn't seen by the DTCC or SEC and they can play dumb like they didn't know.
The biggest failures were done by clearing firms that "pre-netted" - refco, mjk clearing, adler coleman.
We're all looking for dirty brokerages and x-clearing for the hidden counterfeits and some do indeed reside there, but I believe most live with clearing brokerages and foreign depositories that pre-net before the trade ever hits CNS.
Re: NASD Charges NevWest in CMKX Saga...Justice at Last? By Mark Faulk on 9/27/2006 6:21 AM
The problems with CMKX extend into every corner. My feeling is that once the smoke clears that nearly everyone in and around the company will be found to have some degree of responsibility for what happened here. There is plenty of blame to go around.
I agree that that the clearing houses and especially the foreign depositories are the root of a large part of the problem here as well. It really is a matter of a system that is so poorly designed in the first place as to invite fraud, and then just as poorly enforced. Just as in the case of the company, there is plenty of blame to go around....however, the SEC deserves the lion's share onn a regulatory level simply because they make the rules...and they guard the hen house.
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