OSC admits discussing YBM with RCMP before allowing offering
But says police told staff it wasn't investigating company in Canada
Thursday, January 28, 1999
PAUL WALDIE and KAREN HOWLETT
The Globe and Mail
An executive at the Ontario Securities Commission acknowledged for the first time yesterday that staff discussed YBM Magnex International Inc. with the RCMP before allowing the company to raise $53-million in 1997.
But the RCMP told OSC staff it was not investigating the company in Canada, said Charlie Macfarlane, executive director of the OSC. He also said U.S. law enforcement officials refused to confirm whether they were investigating.
Mr. Macfarlane, who joined the OSC last August, was disputing a Globe and Mail story that said the OSC approved the $53-million financing by YBM in October, 1997, despite knowing about the police investigation.
"You tried to suggest that we knew there was an [RCMP] investigation under way which is totally wrong," he said in an interview yesterday. "We had no hard information that would lead us to believe that there were crimes going on anywhere with regard to YBM."
Mr. Macfarlane refused to answer any questions or comment on a meeting at the RCMP's Milton, Ont., headquarters on May 15, 1997, a year before the FBI raided YBM's head office. During that meeting, according to information obtained by The Globe, OSC staff first learned that the RCMP was reviewing allegations of money laundering at YBM.
The RCMP did not use the word "investigation," according to one source close to the situation, because that suggests a formal undertaking and YBM was a U.S. company. However, the source added, the RCMP raised concerns about YBM's alleged Russian mob connections.
As well, RCMP reports available on the Internet show it had been tracking YBM since at least 1995 and knew about links between Russian mob boss Semion Mogilevitch and Arigon Co. Ltd., a Channel Islands company founded by him and used to create YBM.
YBM, a Pennsylvania-based magnet maker and onetime high flier on the Toronto Stock Exchange, went into receivership last month amid allegations of direct links to Russian mob figures.
Shortly after the meeting on May 15, 1997, RCMP officers gave OSC staff a transcript of an interview with Len Lamourie, YBM's former Canadian manager and an RCMP informant at the time. Mr. Lamourie's transcript raised several concerns about YBM's operations including allegations that the company was not producing any product, another source said.
That same month, OSC staff informed Brenda Eprile, executive director at the time and Mr. Macfarlane's predecessor, about the RCMP's concerns about YBM, the sources said.
When asked about the memos and meetings, Mr. Macfarlane replied: "I'm not going to respond to that. . . . By the time we [approved the YBM financing], there was no more than very fragile and very flimsy allegations."
He also reiterated that the OSC took the unusual step of requiring YBM to get its 1996 financial statements reaudited to address concerns commission staff had about the company's North American sales. The new audit, by Deloitte & Touche, lowered the North American sales to $1.8-million from $13-million.
Mr. Macfarlane said Deloitte'swork created a "totally clean audit."
But sources say the OSC's approval of YBM's equity financing led to friction inside the OSC, with some staff satisfied with the new audit and others wanting to dig further into the company.
No sooner did YBM get the go-ahead to raise the equity in November, 1997, than the company was told it was under formal investigation by the OSC. Just four months later, Deloitte raised concerns about YBM's operations and alleged criminal activity. Last July, it resigned as the company's auditors.
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p.s. add up all the elements that existed and were known or knowable prior to the OSC's approval e.g. the findings of "Operation Sword" and the 1995 UK banning of mafia godfather Semion Mogilevich, the refining powder by-product hocus pocus, the RCMP review, the Len Lamourie statements etc. etc. -- and one finds a seriously dysfunctional regulatory body in place (with the classic tensions between staff who want to protect the public interest, and another side who are geared toward aiding issuers raise money in their particular jurisdiction despite such obvious alarms)
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