Saturday, May 23, 1998
YBM links no secret on Street
First Marathon and others reviewed mob allegations before offering
By SANDRA RUBIN
The Financial Post
Some of Bay Street's biggest brokerages knew about allegations of Russian mob involvement in YBM Magnex International Inc. when they put together a huge share offering in 1997, one of the lead underwriters said Friday.
The Philadelphia-area company, included in the bellwether Toronto Stock Exchange 300 index, was raided by the FBI earlier this month in an investigation supervised by the organized crime strike force of the U.S. Attorney's Office.
YBM stock (ybm/tse), which traded as high as $20.15 a share two months ago, is under a cease trading order in Ontario and on notice it may be kicked off the exchange.
Investors bought about 3.2 million shares of YBM in November in an offering put together by a syndicate of First Marathon Securities Ltd., Griffiths McBurney & Partners, ScotiaMcLeod Inc., Canaccord Capital Corp. and Gordon Capital Corp.
In recent days it has emerged that the TSE knew British police suspected as far back as 1995 the magnet manufacturer was being used to launder money by Russian organized crime groups and had ties to reputed mob chief Semion Moguilevitch.
The underwriters also knew about the allegations at the time of the new issue, said Michael Walsh, vice-president of First Marathon.
"I've been given to understand that most of the information discussed in the press was known to all parties," he said.
"I've been told by people working on it that there's nothing new in this information, that it was all known and all reviewed at the time of the issue."
He said a special audit, demanded by the Ontario Securities Commission before clearing the prospectus, gave the brokerage firms a sense of security. Deloitte & Touche LLP essentially re-audited YBM's 1996 results.
"Perhaps [the underwriters and regulators] did have extensive hesitation and that's why they asked for the audit," Walsh said. "There were a lot of questions asked about the company at that time and various people did their due diligence.
"The underwriters and the securities commissions felt it was appropriate to go forward."
Deloitte has said it may remove its name from the special audit retroactively, pending the results of a forensic audit commissioned by a committee of YBM's chairman and two directors.
Walsh said underwriters are waiting to hear what new information is causing Deloitte such alarm.
TSE president Rowland Fleming and John Carson, senior vice-president of market regulation, "will not have anything further to say about YBM," a spokesman for the exchange said Friday.
Carson said earlier the TSE saw no reason to bar the company from the ranks, because there were no official proceedings against Moguilevitch as a result of the British investigation and charges against him were dropped.
But British police say clearly in their 1995 report the reason charges were dropped is because of a lack of co-operation from their counterparts in Moscow.
They had arrest warrants issued against Moguilevitch and a colleague on charges of conspiracy to handle stolen goods, and had the organization's British bank accounts frozen, but then had trouble getting the evidence from Moscow that "would be acceptable to an English court."
"The request had been passed on to the prosecutors' department ... however, it was to no avail," the report says. "The criminal proceedings for conspiracy to handle stolen goods had to be abandoned in the absence of Russian evidence."
Moguilevitch was banned from ever entering Britain.
YBM acknowledged Friday that he is still a shareholder.
"He is a current shareholder, but that quantity of shares falls below 3.2%," spokesman Guy Scala said from Philadelphia. "Let's face it, we really cannot control who owns shares of YBM stock. No publicly traded company really can."
But he said charges YBM has been used as part of a money laundering scheme "are absolutely not true."
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