not to rain on any parades, just FYI. Front page business section Ottawa Citizen today.
Safe Investing all.
Published today
Tuesday, 07 July 1998
- News
Banks' roller-coaster ride
Three technology companies associated with Jack Banks are at the
centre of lawsuits and investors' anger.
Bertrand Marotte reports.
Bertrand Marotte
The Ottawa Citizen
TORONTO -- Players in the high-risk world of speculative investing
rarely have all the answers about the stocks they buy into.
But even by the volatile standards of investing in unproven
ventures, shareholders who took a roller-coaster ride on three high-technology
companies associated with Jack Banks have seen a bewildering array of developments
accumulate over the years.
The former Toronto-based print-shop franchiser -- who also goes by
his original name of Jacques Benquesus -- was involved in the setting up and
promotion of three interrelated companies that have been the centre of lawsuits
and squabbles over proprietary technology.
The Internet-technology companies -- with which Mr. Banks is or
has been associated -- are Gaming Lottery Corp., Warp 10 Technologies Inc.
and Diversinet Corp.
All have seen their stock prices soar from penny-stock status, only to come
crashing down again, although Toronto-based Diversinet -- which is developing
security systems for commercial transactions on the Internet -- has bounced back
slightly.
Angry shareholders have been burning up the Internet chat lines
with furious comments about the dramatic fall in the share prices of the
companies, especially Gaming Lottery Corp., a virtual-gambling company now based in
the BritishVirgin Islands.
The 49-year-old Mr. Banks and his wife, Biba, have seen the value
of their shares in those and other related companies soar, dip and dive over the
past few years, but at one time the couple had an estimated paper worth of $500
million. Today, the value is a tiny fraction of that, and Mr. Banks says he is
scrambling to pay off $50 million U.S. in debt.
Gaming Lottery Corp. has pulled its listing off the Toronto Stock
Exchange after the TSE rejected Gaming Lottery's plan to pay a dividend
by issuing shares in its investment in Online International Corp.
The shares crashed to penny-stock status on the TSE in June, from
a 52-week high of $7.70 on April 23, on news of the TSE contretemps,
as well as another delay in the company's launch of its GalaxiWorld
Internet casino.
The stock continues to trade on the U.S. over-the-counter Nasdaq
market, but barely. In order to meet Nasdaq's minimum $1-U.S.-per-share trading
requirement, Gaming Lottery is consolidating its shares, which have been trading in the
65-cent range.
Gaming Lottery, of which Mr. Banks is president and chief
executive officer, reported a loss of $2.5 million U.S. in the first
quarter ended April 30 and a loss of $10 million U.S. in fiscal 1997.
First-quarter revenue was $222,748 compared with $482,322 a year
earlier.
In a 1995 interview, Mr. Banks was confident Gaming Lottery could
become a $1-billion-a-year-revenue company by 2000.
The Moroccan-born Mr. Banks, who says he came to Canada when he
was 16, now claims residence in Gibraltar but once listed Jerusalem as home and has
owned a house in Toronto.
He recently sold his 7.2-per-cent stake in Toronto-based Warp 10
-- a company that develops systems for sending high-resolution images
over the Internet -- saying he had to liquidate his position in
order to pay off some of his debt to Coutts & Co., a small British bank
with a New York office. (He retains an indirect stake in Warp 10 through
Le Print Express International Inc., a digital-imaging-shop franchiser.)
Warp 10 has also dropped to penny-stock status on the
over-the-counter Canadian Dealing Network. Two years ago it was trading
in the $20 range.
Toronto-based Diversinet Corp., which is developing security
systems for commercial transactions on the Internet, has fallen to the
$2.75 range on the CDN from its 52-week high of $7.75. But its price is
up from recent trading around $1.75. Mr. Banks has a 25-per-cent interest in
Diversinet.
Mr. Banks is nonplussed by all the fuss. He says he remains
confident the companies will prove to be winners once their respective
Internet technologies catch on.
The former CIBC bank-branch trainee, who left because he found it
"too boring, too slow," says he isn't breaking a sweat over his personal financial
difficulties and the state of the troubled companies.
"I'll manage. It's not the first time. I've gone up and down in my
almost 30 years in business," he said in a recent telephone interview
from the Virgin Islands.
"Should I feel sorry for (the investors who lost millions of
dollars)? I lost millions myself. I'm the biggest loser in this thing."
Gaming Lottery has been hit with several lawsuits, including a
two-year-old suit still winding its way through Ontario Court's General
Division, in which Swiss Bank Leu is suing the company over a
certificate for 2.5 million shares in Gaming Lottery's predecessor
company, Laser Friendly Inc.
Gaming Lottery says it agreed to "rent" out the certificate for
$300,000 U.S. a year to help other companies bolster their books.
But the bank says the certificate -- created with TSE approval --
ended up being used as collateral by Guido Franz-Josef Bensberg, a
German national who gave a Vancouver address but who has since
disappeared, to secure a personal loan that the bank says he ran out on.
Bank Leu lost $5 million U.S. and wants to sell the shares or be
compensated by Gaming Lottery, but the latter insists the certificate
was never meant to be cashed in and claims it, too, was a victim of a
fraud.
"My review of the correspondence suggests that both your client
and my client are 'victims' of unscrupulous conduct on the part of
Bensberg and his colleagues ," Stephen Troster, the Toronto lawyer
for Gaming Lottery, says in a court-filed letter to Bank Leu's representative.
The company and its principals deny any wrongdoing and have filed
a statement of defence.
In a separate suit, two Mexican investors allege in documents
filed in 1996 in U.S. District Court for the Southern District of New
York that Gaming Lottery and another company run by Mr. Banks at the time,
Instant Publisher Inc., defrauded them by selling them shares worth
$25 million U.S. in a plan designed to evade the registration requirements of the U.S.
Securities Act.
Mr. Banks is named in the suit under his name, as well as three
other monikers: Benquesus, Besquesis and Banques. Also named as a
defendant, for allegedly serving as an intermediary, is Mr. Banks'
and Gaming Lottery's bank, Coutts & Co. Those accusations, too, are
being fought in court.
Two years ago, when trouble first hit Gaming Lottery, Warp 10 and
Diversinet's predecessor company, Instant Publisher Inc., Mr. Banks
and his right-hand man, Larry Weltman, resigned their directorships
and executive positions in each of the companies, except for Gaming
Lottery. (Mr. Weltman is now executive vice-president and chief financial
officer of Gaming Lottery.)
Yet it appears Mr. Banks continued to take part in decision-making
at Diversinet.
A former president of Diversinet, Mr. Banks was directly involved
in a fight last September over proprietary software technology with
partners in Diversinet's Israeli subsidiary.
He signed a letter, addressed to an Israeli partner with whom
Diversinet was feuding, and spoke on behalf of Diversinet's board.
In an interview posted on the Internet in April, Diversinet
president Nagy Moustafa said Mr. Banks "has no role with the company
other than being a regular shareholder. Mr. Banks has no say in any of
the executive decisions and probably could not even tell you exactly
what the technology does."
Mr. Banks said in the interview with Southam News he helped out at
the board's request, "for 30 or 45 days," during a time of upheaval and transition at
Diversinet.
His letter is copied to Warp 10 president Marvin Igelman and to
Leonard Latchman, president of Toronto investment dealer Taurus Capital
Markets Ltd., which has underwritten and promoted stock issues for
Banks-related companies.
Questioned about any involvement of family members at Warp 10, Mr.
Banks replied that he had no family working there. When pressed,
he acknowledged that his sister-in-law, Michelle, is the executive
assistant to Mr. Igelman at Warp 10.
Another Warp 10 employee, Sol Assayag, is the son of Amram
Assayag, the chief rabbi to the tiny Orthodox Sephardic Jewish community
north of Toronto and a director of Gaming Lottery and former
director of Diversinet. (In Gaming Lottery's 1996 management information circular,
Amram Assayag is listed as a "spiritual leader.")
Mr. Banks is a benefactor and president of several Sephardic
organizations, including the Sephardic Day School, the Orthodox
Sephardic Synagogue and the Sephardic Kehila Centre, all in the Toronto area. |
