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C3D features controversial Vancouver promoter
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Wednesday Nov 3 1999
HOWE ST. GRADUATE BIG ON THE BULLETIN BOARD
by Brent Mudry
While C3D Inc. is anxious to dispel media linkage to two stock promoters shot to
death in an execution-type hit a week ago in a New Jersey mansion, the highflying
and not-yet-reporting OTC Bulletin Board company traces directly back to
Vancouver. C3D legal director Michael Goldberg points out that Vancouverites
must be tired of their city's stock-world reputation, earned by the Vancouver
Stock Exchange, the exchange formerly known as the Scam Capital of the World,
and he suggests that C3D may be the big winner to recover the city's image. "Hey
guess what, Vancouver did a good one," Mr. Goldberg told Stockwatch on
Wednesday, en-route home to Florida after a busy day on Wall Street.
Mr. Goldberg disputes any link between C3D and Internet stock promoters
Maier Lehman, a former broker with alleged bucket shop A.S. Goldmen, and his
partner Albert Chalem, murdered Oct. 25. The double-homicide has been a
major news event, and the New York Times reported on Saturday that C3D
shorts, who told investigators that Mr. Chalem was helping them, feared that he
and Mr. Lehman had been killed as a result.
"We have never retained any promoters ... we have no idea who they are ... they
were not stockholders, and coming from a former prosecutor, I've dealt with the
media a lot," says Mr. Goldberg. The C3D official, now 50, notes he served as a
homicide prosecutor in Philadelphia before an internship stint with the U.S.
Attorney's office in Washington.
"I didn't even know about this so-called murky world of penny stocks" before the
Times article, says Mr. Goldberg. The lawyer suggests that "the unfortunate
circumstance of our stock symbol probably ending up on a piece of paper in
someone's office" may be all there is to the media speculation. He points out that
C3D is a real company with more than 60 employees, of which 40 are senior
scientists, all with PhD's and at least half of them are double-PhD's. "It is unfair for
anyone who thinks this is a bullshit company, excuse my French," Mr. Goldberg
told a Canadian reporter.
Both Mr. Goldberg and John Swanson, a New York publicity agent retained by
C3D, are quick to point out that C3D's "revolutionary" optical data storage
technologies were vindicated in their debut Oct. 4 at a press conference in Israel.
Both men point out that a Reuters reporter legitimized the company and gave it
mainstream credibility in a favourable report. (In an unrelated deal several years
ago, now-banned Vancouver promoter Terry Alexander gave an exclusive entree
to his mystery Saudi Arabian sheik to a Reuters reporter just as his Arakis Energy
promotion was about to collapse.)
Mr. Goldberg says that all his fine scientists are very upset that their company has
been associated with murky penny-stock dealings. "I wish I had some dirt to give
you, but I can't," says the former homicide prosecutor.
While Mr. Goldberg knows of no dirt, he is more than happy to credit Phil Garratt
and Clair Calvert, both of Vancouver, with much of C3D's success so far. "I have
only nice things to say about these guys ... I hope they can make a lot of money on
this deal," says Mr. Goldberg.
Although C3D has made no detailed regulatory filings yet, its stock has been a
stellar performer on the bulletin board in recent months. The thinly-traded issue
began trading in late April at less than $3 (U.S.) a share and peaked at $25.88
(U.S.) on Oct. 18. The stock has become quite volatile in recent weeks, falling 30
per cent to bottom out at $17.50 (U.S.) in a six-day stretch ending Oct. 26, then
bouncing back to $23 (U.S.) two days later. The stock closed Wednesday at
$18.69 (U.S.), recovering from a fall to $16.06 (U.S.) in the wake of
unfavourable media coverage.
While Mr. Garratt and Mr. Calvert may not be household names on Wall Street,
they are certainly well known on Howe Street, the centre of dealings on the VSE.
Both Mr. Garratt, a controversial stock promoter from Australia, and Mr. Calvert,
who left the brokerage industry three years ago, are perhaps best known in
Vancouver for Mr. Garratt's Cycomm International, previously known as Sonatel
Communications. The Cycomm file is particularly well-known by investigators
with the Ontario and British Columbia securities commissions, who delved deeply
into Mr. Garratt's dealings.
In one of the highest-profile regulatory scandals in Vancouver in decades, British
Columbia's finance minister called an inquiry in August of 1994 into the B.C.
Securities Commission's controversial approval of an $8.75-million Cycomm
financing prospectus. (The biggest mutual fund buyer in the Cycomm financing was
Altamira Investments of Toronto, which subsequently had the misfortune of
watching its star fund manager Frank Mersch get suspended and fined for lying to
regulators about his secret personal trading in shares of another Vancouver
promotion, Robert Friedland's Diamond Fields Resources.)
In the affair, dubbed Holley's Folly, then-B.C. Superintendent of Brokers Dean
Holley receipted prospectuses for both Cycomm and Cam-Net Communications
Network, overruling the well-evidenced objections of his investigators, his senior
staff and himself. After some spirited behind-the-scenes negotiations with
Cycomm's lawyers, Mr. Holley flip-flopped and gave his thumbs-up, on the
condition that Mr. Garratt be forced to step down as president. (In a
flavour-of-Vancouver coincidence, a C3D shell founder resides in the same luxury
waterfront condo tower that a former Cam-Net chief executive, a fugitive from the
FBI, is holed up in.)
Lloyd McKenzie, the former supreme court judge selected for the 15-month
Cycomm inquiry, did a masterful job in his final report by missing his mandate,
dismissing extensive evidence, exonerating the BCSC and attacking stock market
whistle-blower Adrian du Plessis, who resigned as a BCSC investigator over the
commission's questionable handling of the file. Mr. du Plessis has since retired
from his dirty-stock-sleuth career after winning a National Newspaper Award in
Canada for breaking the story of YBM Magnex International, the Russian
money-laundering play which featured reputed mobster Semion Mogilevitch, a
player in the Bank of New York money-laundering scandal.
"The mountain of evidence speaks for itself," the unrepentant Cycomm investigator
told a reporter after Mr. McKenzie released his report. Public investors and
several of Canada's top mutual funds lost millions of dollars on Cycomm shares
soon after the BCSC's controversial approval. The shares, priced at $3.50 in the
financing, fell to $1 six months later.
If C3D proves to be a great tech-stock success story, it will mark a significant
vindication for Mr. Garratt after his Cycomm/Sonatel career of ropeless, floatless,
self-propelled crab traps and assorted non-existent electronic devices. Vancouver
Sun reporter David Baines noted that Mr. Garratt told Sonatel shareholders in
1987 that the company was on the verge of "revolutionizing" the fishing industry
with an automatic fishing device.
The next year, Mr. Garratt shifted his promotional pitch to touting the PL 2000, a
revolutionary device to convert party lines into single phone lines. Once again, "the
actual revenues were zero," Mr. Baines reported.
With two flops in hand, the indefatigable promoter turned his talents to pitching the
Ad-Zapper and the Ad-Swapper, two more devices allegedly invented by
fraudster Dieter Blum, the creater of the PL 2000. The zappers and swappers
purportedly allowed hotels to replace television commercials with their own
advertising content. Although Cycomm shares ran to $8.25 in 1998, once again,
product revenues were negligible to nil.
In a particularly unfortunate development for Mr. Garratt, his much-vaunted
scientist Mr. Blum was later exposed as a fraud. The pseudo-scientist claimed to
have degrees from the University of Basel in Switzerland and Roosevelt University
in Belgium. In reality, Mr. Blum was a high-school dropout with a lengthy criminal
record for fraud-related offences, and he was serving time behind bars in a B.C.
prison during his purported European academic career.
Mr. Calvert was a key broker for Mr. Garratt during this period. In trading
investigated by the OSC and later reviewed by the BCSC, Mr. Garratt accounted
for 95 per cent of the total Sonatel trading volume one month. The Sun reported
that most of Mr. Garratt's stock was acquired by T.C. Coombs, which
redistributed it to its clients. Mr. Calvert, a broker at Continental Securities, later
merged into Yorkton Securities, handled both sides of Mr. Garratt's trades. T.C.
Coombs later had the misfortune of being shut down by London regulators.
In one of the more intriguing twists in the Cycomm affair, shares of Cycomm and
Rare Earth Resources, an affiliate, were purchased through P.O. Box 423 in
Geneva Airport, the same post box used as a conduit for shares in Asil Nadir's
Polly Peck scandal. Although the Serious Fraud Office of Britain mounted a major
investigation into Polly Peck, Mr. Nadir skipped off to Cyprus where he remains
beyond the reach of British regulators.
With Mr. Garratt's Cycomm affair in the past, he and Mr. Calvert now emerge as
the main players behind C3D, forming the shell and handling most of the
public-float shares. C3D's Mr. Goldberg, the former homicide prosecutor, is not
shy of giving credit to the pair. "We bought a shell from a Miami securities law firm
... it had a clean history, which is why we chose it," says Mr. Goldberg.
The C3D executive notes that Mr. Calvert set up the shell, and he thinks Mr.
Garratt came on board after. Mr. Goldberg is particularly impressed with Mr.
Garratt. "I've found him to be an honourable guy," he says.
Mr. Goldberg notes that Mr. Garratt and Mr. Calvert raised $3-million (U.S.) for
this clean shell. He also confirms that while C3D has about 14 million shares
outstanding, the public float is a little less than three million shares, and the Garratt
group accounted for virtually all of this. The other 11 million shares are restricted
shares, for the vend-in of the technology. "None of us guys have any free-trading
stock," Mr. Goldberg points out.
While Mr. Goldberg says that Mr. Garratt and Mr. Calvert have been "nothing but
gentlemen," he points out that C3D retained outside counsel to do extensive due
diligence on the deal and the players. "Vancouver deals do not always have the
best reputations ... we have very able counsel from a very large and prestigious
firm, and they pretty much checked it out from asshole to elbow," says Mr.
Goldberg. It is not clear if the busy lawyers bothered checking any media clippings
on Mr. Garratt and Cycomm.
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