THE FINANCIAL TIMES OF LONDON
WEDNESDAY AUGUST 19 1998
Americas
YBM: Hearings into finances postponed
By Edward Alden in Toronto
The Ontario Securities Commission has postponed indefinitely hearings into the finances of YBM Magnex International, the industrial magnet maker, raising the possibility that the company's shares may never trade again in Canada.
The OSC said late on Tuesday that hearings would not be held until YBM files audited financial statements, and added that a temporary cease-trade order issued in May would remain in place until hearings were concluded.
The company's auditors, Deloitte & Touche, resigned in June saying they could not ensure that the company's 1997 financial results were free from error and fraud.
YBM has since tried unsuccessfully to find a new auditor. Its business operations span North America, eastern Europe and Russia and only a handful of large international accounting firms would have the capabilities to do such a thorough audit.
Company officials did not return calls yesterday. Joseph Groia, YBM's Toronto lawyer, referred all questions to the company. YBM said last week that it continued to review its business operations in eastern Europe to address some of the concerns raised by the auditors.
YBM's market value reached about C$900m (US$600m) earlier this year, and the company was still worth more than C$600m when trading was halted at C$14.35 a share by the OSC on May 13. If the stock does not resume trading, the resulting losses would make it the second biggest stock market fraud in recent Canadian history, behind only the C$6bn collapse of Bre-X Minerals last year.
Several of the company's executives and directors are also reported to have sold large volumes of stock just before trading was suspended in May.
The full story behind YBM's downfall remains murky. The company was raided by the US Federal Bureau of Investigation in May as part of a criminal investigation, though no charges have been laid. One of the company's founders and large shareholders, Semion Mogilevitch, a Ukrainian-born financier, was barred from the UK in 1995 following an investigation into alleged money laundering activities involving Russian organised crime.
The OSC late last year undertook a due diligence investigation of YBM, but ignored warnings from industry experts that the company had attributed almost a quarter of its 1996 revenues to a procedure for extracting sulphur from oil that technical experts said had never been used commercially, and may not even exist.
A former Ontario premier, David Peterson, who was on the company's board of directors, resigned last week. YBM's chief operating officer Igor Fisherman, who was accused in an internal company investigation of significant breaches in corporate policy and common business prudence, also agreed to step down.
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