YBM probe unveils policy breaches
Officers reprimanded but details scant
The Globe and Mail
Tuesday, June 9, 1998
By Paul Waldie
An internal review by directors of YBM Magnex International Inc. has found no illegal activity by company officials but has noted "significant breaches in corporate policy and common business prudence" by chief operating officer Igor Fisherman and others.
A summary of the report released yesterday also identified "substantial transactions that required, but did not receive, board of directors' approval."
The company has "reprimanded the officers involved based on the breaches of policy," the summary said.
Mr. Fisherman is the only company official identified in the report.
YBM vice-president Guy Scala said yesterday that the company would not provide any further details because the report contains proprietary information. He also refused to name the other officers involved or say if Mr. Fisherman was among those reprimanded.
"That information is confidential," he said.
YBM is based in Pennsylvania and listed on the Toronto Stock Exchange. The company, which makes industrial magnets and bicycles in Hungary and the United States, was the subject of a search warrant executed by the FBI and other U.S. authorities. Police have alleged that the company that created YBM -- Arigon Co. Ltd. of the Channel Islands -- has links to Russian mob interests. The allegations have not been proven in court.
Mr. Fisherman is a former president of Arigon and manages YBM's Eastern European operations. He has also been a member of the Anix Investment Club, a partnership that includes Konstantin Karat, who British police allege is a Russian mobster.
YBM's shares have been suspended from trading because it hasn't filed a 1997 financial statement. The statement has been delayed because the company's auditors, Deloitte & Touche, have raised concerns about its Eastern European operations.
Deloitte requested the internal review, which was done by a committee of the company's board.
The investigation was assisted by a Philadelphia law firm and Pinkerton Investigation Services of New York.
YBM board member Owen Mitchell, who was a member of the committee that wrote the 83-page report, also declined to provide any details.
"The summary is crystal clear in what it says," said Mr. Mitchell, who is also a vice-president at First Marathon Securities Inc. in Toronto.
Mr. Scala said the report has been sent to Deloitte. An official at the firm declined to comment.
"The investigation has found no evidence of participation in criminal acts by the company, its officers or its employees," the summary said.
It also said that reputed crime figure Sergey Mikhailov has never had any ties to YBM. Another alleged Russian mobster, Semeon Mogilevich, has not had any involvement in YBM since its initial public offering "beyond a passive shareholding," the report said.
Mr. Mikhailov and Mr. Mogilevich have been linked to Arigon, which police allege launders money for their organizations. Mr. Mogilevich is a former director of Arigon. He and five associates also owned nearly one-third of YBM stock when it was first listed on the Alberta Stock Exchange. The company has said his current stake is less than 3 per cent.
The report also found no evidence of improper transactions in Eastern Europe.
The committee did not disclose any details in the summary about the breaches in company policy it says Mr. Fisherman and the others committed. Nor did it disclose the size of the transactions that required, but did not receive, board approval.
"I think the key there really is the fact that no losses were incurred," Mr. Scala said. "The issues were addressed when they came to light and the company is moving foward with its business."
The report also said YBM has "instituted significant modifications to the enforcement of corporate policy." However, no details were provided.
The investigation found "that adequate documentation of customers and suppliers did not exist, despite specific board of directors' direction that such records be kept and updated."
The report also said that "certain suppliers and customers may be utilizing tax strategies that would appear inappropriate if undertaken by a public company such as YBM."
Mr. Scala would not provide any details of the strategies.
The committee recommended that YBM "institute heightened oversight of its Hungary-based operations." Mr. Fisherman is a former head of the Hungary plant.
The committee also recommended that background checks "be a prerequisite to doing business with new Eastern European entities."
It also raised concerns about the "sustainability of the company's pricing policies, profitability and apparent market share" in the former Soviet Union. Management was also ordered to "prepare a detailed report highlighting the reality of these concerns and an action plan to address any potential problem areas."
The shares last traded at $14.35 on the TSE, down from a high of $20.15 in March. |
