Double trouble
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How did a man revered for his devout philanthropy in Toronto's Sephardic Jewish community find himself at the centre of a vicious stock swindle?
Theresa Tedesco, Chief Business Correspondent, with files from Kim Hanson
Financial Post
Henry Ray Abrams, National Post
Stock promoter Jack Banks, right, emerges from a New York City court building following an appearance in September.
Bill Ingram, Palm Beach Post
Bobby Genovese, a polo-playing entrepreneur once described as one of South Florida's 10 most fascinating bachelors, was hired in the early 1990s by Jack Banks to promote his company, Laser Friendly Inc.
Jack Benqueses, once president of the Sephardic Kehila Centre, left, attended a reception in 1998 given at the Israeli Embassy in London to mark the 50th anniversary of Israel. The reception was also attended by Tony Blair, the British Prime Minister, far right.
Chris Bolin, National Post
JACK BANKS' LARGESSE: the Sephardic Kehila Centre in Thornhill, Ont.
Jack Banks sweated over every little detail on the blueprints. When he was satisfied, he went out with the plans in hand to look for the money to build his dream: a new synagogue and Jewish community centre. It was to be his gift to Toronto's Sephardic Jewish community and, perhaps privately, a monument to his piety.
In September, 1997, when the doors to the imposing three-storey Kehila Centre were finally opened to the public, everybody, including Jean Chretien, the Prime Minister, and Mike Harris, the Ontario Premier, certainly knew who to thank. Among the region's tightly knit Sephardic community, where Mr. Banks is renowned for his acts of generosity and devotion, the centre is affectionately known as the house that Jack built.
But it is safe to assume the dignitaries who lent their names to his big day were unaware of another house that Jack has built: a stock-market house, using an ever-changing array of companies that he and associates controlled. One after another, the companies' stock prices soared briefly, only to thud back to earth, by which time Mr. Banks and his associates had moved on, leaving behind a trail of debt, lawsuits and angry investors across the United States and Canada.
In his other life, respected community leader Jack Banks also has another name. To law-enforcement officials he is Jacques Benquesus, a 51-year-old stock promoter who has recently admitted to committing fraud on investors in the United States and, as a result, agreed to a ban that barred him from entering the United States, from working in the giant U.S. securities industry for five years, and from holding a controlling interest in a public company anywhere in the world.
Mr. Banks-Benquesus is a man of many houses but a man without a country. He says his roots are in Canada, where he lives with his wife Biba, their four children and three grandchildren. Mr. Banks owns two houses north of Toronto, but he hasn't paid taxes in Canada in years. His legal residence is a rental apartment in the British colony of Gibraltar, where he spent six days last year to meet the legal requirement for residency. He is said to have 22 properties in Florida, and when he isn't in that state he's living in Spain or Israel.
But even though Mr. Benquesus has been able to avoid the tax man, the law is starting to catch up with him. In September, he pleaded guilty to securities fraud in New York and agreed to pay US$1-million in fines and restitution. Now, the National Post has learned, Mr. Benquesus is under investigation by the Ontario Securities Commission for possible securities violations in Canada.
Wherever they set up to do business, Mr. Banks and his associates appear to have applied much the same formula for their elaborate stock-promotion schemes.
In a nutshell, they would take over obscure companies with puny stock prices and turn them into stock-market darlings by dressing them up as promising companies with engaging business plans. At the height of their trading, these companies had a combined stock market value of about $1.5-billion.
As each company was trolled by investors, it usually didn't take long for many to bite. But Mr. Banks always made sure to take care of his friends, so much so that one Toronto resident said some in the community referred to Mr. Banks as The Godfather. "People became very rich because Mr. Banks has the hand of gold. Whatever he touched made money."
Not everybody became rich. Not even most people. Just insiders like Mr. Banks, who had tied up the blocks of controlling shares for pennies, became multi-millionaires during the stocks' price run-up. Eventually the hype would subside and the price would plunge, but by then Mr. Banks would already have begun dumping his shares, leaving regular shareholders holding worthless paper.
It was a brilliant albeit simple plan, and it worked over and over again with such companies as GalaxiWorld.Com Ltd. (formerly known as Gaming Lottery Corp. and Laser Friendly Inc.); Instant Publisher Inc. (now known as Diversinet Corp.) and Warp 10 Technologies Inc. (now BrandEra.com Inc.).
Mr. Banks made plenty of money on all of them. At one time, he and his wife had an estimated financial worth of as much as $450-million -- most of it concealed in offshore bank accounts. Unfortunately, most investors weren't as lucky as Mr. Banks. They lost it all.
But Mr. Banks, despite his very public posture of humanitarianism, never seemed to have much sympathy for those who lost money through investments in his companies. "Should I feel sorry [for investors who lost millions of dollars]?" he asked a Southam News reporter two years ago."I lost millions myself. I'm the biggest loser in this thing."
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When Jacques Benquesus arrived in Canada from Morocco 35 years ago, he knew little about his adopted country and had few contacts except for people in Toronto's Sephardic community.
Friends, however, were easier to find than a good job. The newcomer was young and inexperienced, so he tried an entry-level job at Canadian Imperial Bank of Commerce in Toronto. However, he found the work dull and he left after a short time.
Instead of a career in banking, he chose printing. And, in 1970, he opened a small print shop in Toronto.
It was his calling. By 1982, Mr. Banks controlled a chain of print shops called Print Three Franchising Corp., which managed three print shops in Toronto. In fact, he was doing so well he boldly proclaimed in the late 1980s that his print business would expand to 2,000 shops by 1995. (That never happened.)
In the mid-1980s, Mr. Banks and his wife, Biba, founded Laser Friendly, an outfit involved in the development and marketing of desktop publishing software known as Office Publisher. Years later, Mr. Banks decided to take Laser Friendly public and sought the help of Leonard Latchman, a senior partner at Yorkton Securities Inc. in Toronto, to help him raise money on the stock market.
Mr. Latchman, a Bay Street veteran of independent firms, would be sanctioned two years later by the OSC -- an event widely reported in the media -- in connection with the stock manipulation of four penny stocks unrelated to Mr. Banks.
The two men decided not to take Laser Friendly public at that time, but their initial meeting would prove fruitful.
Mr. Latchman, who is currently president of a small Bay Street investment dealer called Taurus Capital Markets Ltd., also had a wealth of connections in the financial world, where Mr. Banks was a relative stranger.
One of them was Richard Genovese, a 43-year-old multi-millionaire and a former executive at Vancouver-based Investor Relations Group Inc. who had previously worked in Yorkton's Vancouver office and LOM Western Securities. In 1989, Mr. Genovese left the Howe Street brokerage business and became an investor-relations executive with his younger brother Bobby. Bobby created IRG in 1987 and later left Vancouver to start another company in Florida.
When Laser Friendly finally did go public in 1992 on the Alberta Stock Exchange -- it switched over to the Toronto Stock Exchange in 1993 -- one of Mr. Banks's first acts was to put people he could trust on the company's board of directors. People such as Larry Weltman and Amram Assayag, Chief Rabbi of the Sephardic Rabbinate of Ontario. The pair would be constant business companions of Mr. Banks.
Mr. Genovese was one of the first people Mr. Banks turned to for help to promote Laser Friendly. Both Mr. Genovese and brother, Bobby, a polo-playing entrepreneur described by a Palm Beach, Fla., newspaper columnist in 1997 as one of South Florida's 10 most fascinating bachelors, were hired to make the company palatable to investors. And the Genoveses didn't let him down.
"It all clicked for them with Laser Friendly," said John Woods, editor of the Canada Stockwatch newsletter in Vancouver. "They found the right guy [in Mr. Banks]; a guy who could really move a stock."
In 1995, Laser Friendly made several acquisitions and moved south to the Nasdaq small-cap market so it could tap into the huge pool of U.S. investors. At the same time, Laser Friendly was reborn as Gaming Lottery, a company that printed and supplied tickets for lotteries, bingo and charitable gaming markets in Canada and the United States. The company's board remained the same, though Rabbi Assayag was now referred to on company documents as a "spiritual leader."
To help spread the word about its expansion plans to industry analysts and investors, Gaming Lottery once again hired the Genoveses. The promotional methods were elaborate and powerful. IRG generated high-profile publicity for Gaming Lottery by schmoozing with analysts, who told the story to institutional investors and journalists. The Genoveses also tapped into their vast network of brokerage buddies to talk up the stock with their clients. And sources say IRG also organized so-called boiler rooms from which hundreds of telemarketers informed potential investors about stocks, without crossing the regulatory barrier against soliciting purchases. Gaming Lottery's stock price hit a high of $12.88 in 1995 from a low of $4.05, and ended the year at $9.88.
Despite the fanfare, investors found Gaming Lottery could not walk the talk.
Angry shareholders took their case to court, alleging the company failed to make several publicly announced acquisitions and a US$22-million private placement that the company had built into its revenue projections.
In 1996, Silva Run Worldwide Ltd., a company based in the British Virgin Islands, alleged in a statement of claim that Mr. Banks and Gaming Lottery had defrauded the two major shareholders of Silva Run when he sold them about US$22-million worth of Gaming Lottery shares based on the bogus financial projections.
"Gaming Lottery and Banks were aware that they had fraudulently and materially oversstated the financial prospects of Gaming Lottery in repeated public disclosures and advertisements regarding revenue and earnings projections," the court documents claimed. As a result, the company was alleged to have "created a misleading impression of a company that was making successful acquisition after successful acquisition and growing at a rate that was certain to attract the interest of potential common stock." That lawsuit is still pending.
"IRG was hired and it performed adequately," said a source familiar with the situation.
"If management of the company had delivered, then I think it would have been a whole new ball game."
By 1997, Gaming Lottery's stock price crashed to a low of $3.30 and the TSE rejected the company's plans to pay a public dividend to investors using money to be raised by issuing shares in one of Mr. Banks' privately held companies.
In the wake of the lawsuits, Gaming Lottery voluntarily delisted its stock from the TSE and the Canadian Dealing Network in 1998 -- only to resurface the next year as Gibraltar-based GLC Ltd.
The new company's stock was listed on the Nasdaq national market, and began a quick ascent in 1999 amid news it was setting up an online Internet casino called GalaxiWorld.com. Once again, the money poured in. The stock skyrocketed to a high of US$17 but closed the year at just less than US$1.50. Again, millions were won and lost and, in December, 1999, GalaxiWorld .com delisted from Nasdaq.
But that was not the end of the matter. Last February, Messrs. Banks and Weltman were indicted by a grand jury in New York on charges that they had artificially inflated their company's stock. According to the New York indictment, Specialty Manufacturing, one of the acquisitions made by the company in 1995, was a division of a Washington state paper lottery company that is regulated by the state gaming commission. The two men were alleged to have completed the acquisition "without obtaining the required regulatory approval to operate a paper lottery company," which was a "material fact" not disclosed to Gaming Lottery's creditors and investors. As a result, the district attorney claimed these actions "artifically inflated the value of Laser Friendly's stock and the stock price paid by investors" because everyone was led to believe the necessary regulatory approval had been secured.
Messrs. Banks and Weltman were arrested on a Friday evening, but instead of being arraigned immediately they chose to observe the Sabbath in New York's city jail on Ryker's Island. On Sunday, they emerged for their first appearance before a judge.
During three weeks of hearings on whether the two accused would be freed on bail, their lawyers pleaded with the court to allow them to be moved under house arrest to a home in the Orthodox Jewish community in Brooklyn. The request was denied and the ensuing legal proceedings turned into the longest bail hearing ever in New York County history.
Friends of Mr. Banks in Toronto backed him. Rabbi Assayag, who had been a board member of Gaming Lottery in the mid-1990s when many of the transactions relating to the U.S. indictments took place, wrote to Judge Bernard Fried of the New York Supreme Court imploring him to release Mr. Banks during his bail hearing. But it did no good. Nor did the entreaties of Edward Greenspan, a friend and prominent Canadian criminal lawyer whose services Mr. Banks retained.
Eventually, Mr. Banks was released into the custody of two New York detectives and escorted from Ryker's Island to the Benjamin Hotel in Manhattan. But that was only after his good friend Sam Serruya, patriarch of the family that founded yogurt maker Yogen Fruz World-Wide Inc. (now Coolbrands International Inc.) posted a US$5-million bond using funds from a $12-million numbered account controlled by the Serruya family trust. Michael Serruya, his son, had been a board member on one of Mr. Banks's companies.
While wealth could post his bail, all the money in the world couldn't spare Mr. Banks the humiliation of admitting to a crime. During the court proceedings, John Moscow, the U.S. assistant district attorney, described Messrs. Banks and Weltman as men who "commit fraud for a living. They do it well. They get a lot of money out of it."
In the indictment, both Mr. Banks and Mr. Weltman were charged with two counts of first-degree grand larceny involving US$32-million from the New York-based branch of a British bank and an additional count of securities fraud.
A plea agreement approved by Judge Fried in late September allowed both of the accused men to plead guilty to one count of securities fraud each and to pay a total of US$1-million in fines and restitution. The plea bargain also prohibits the businessmen from ever holding a direct or indirect controlling management share in any public company and from entering the United States for five years. Those restrictions could seriously crimp Mr. Bank's business style.
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That court appearance in New York may not be Mr. Banks's last. Angry investors have launched a series of lawsuits in Ontario and the United States against Mr. Banks as well as a number of his affiliated companies. And the OSC is just beginning to probe his actions.
In spite of what investors think of him or his guilty plea in court, Mr. Banks does not think he has done anything wrong. At least that was the case a few months ago in New York.
"It's very important for me to clear my name and the family name," he told Judge Fried, "I am not a criminal ... the community looks up at me and a lot of people look [up] at me ..."
Mr. Banks declined requests for interviews. Mr. Greenspan, his lawyer, says Mr. Banks refused to comment because "he has been dismayed on more than one occasion" about media reports involving him that "have been unfair and misleading." As a result, Mr. Greenspan said, his client will not participate in this article.
How Mr. Banks feels about the New York conviction now is a moot point. Most of his personal and business associates either refused to comment publicly about his financial dealings or have developed amnesia about the man. "He's had his own problems and issue and I don't want to get involved," said Marvin Igelman, a business associate of Mr. Banks, adding that Mr. Banks "has done a great deal of philanthropic work."
In a brief interview last week, Bobby Genovese would say only: "I haven't got anything good to say and I don't have anything bad to say. I just don't want to be associated with the guy."
In the end, some will remember Jack Banks, who performed selfless acts like building a synagogue. And some will remember Jacques Benquesus, who hastily puffed up companies from nothing and used them to entice investors into giving him millions of their dollars.
THE SPECTACULAR RISE AND FALL OF JACK BANKS' PUBLIC COMPANIES:
INSTANT PUBLISHER INC. DVNT, in dollars
Instant Publisher Inc. was established in 1993 through a reverse takeover of Lombard Consolidated Resources Inc. Jack Banks was a controliing shareholder of Instant Publisher, a seller of high-end printers. The firm first traded on the Canadian Dealing Network (only listing on Nasdaq in 1995). Mr. Banks named personal associates to the board: Amram Assayag, Chief Rabbi of the Sephardic Rabbinate of Ontario; Larry Weltman, Instant Publisher's executive vice-president; and Michael Serruya, whose family is one of two controlling sharholders in CoolBrands International Inc. (formely YogenFruz World-Wide Inc.) From its inception, Vancouver stock promoter Bobby Genovese began to publicize the company through Investor Relations Group Inc. and, later, BG Capital Group Inc.
In 1995, Instant Publisher was the subject of glowing articles in such prestigious U.S. business magazines as Fortune, which predicted that company sales would soar to about $68-million and its stock would likely double from its price of about $8.75 (or $35 on a split-adjusted basis) a share.
1. The stock hit a high of $11.38 (or $45.52 split-adjusted) in September, 1995, at which point Mr. Banks and his wife had a combined stake in the company valued at $278-million. Over the next two years, forecast sales failed to materialized and the company fell short of plans to introduce new products. The result was a collapse in Instant Publisher's stock price 65 cents (or $2.60 split-adjusted) a share. Adding to the company's troubles were a series of contract disputes and lawsuits. In one case, Instant Publisher was named in a suit that alleged Mr. Banks and Gaming Lottery Corp. had defrauded investors; the case is continuing.
2. In June of 1996, Mr. Banks resigned as chief executive and company director; Rabbi Assayag, Mr. Weltman and Mr. Serruya also left the board.
3. In February, 1997, Instant Publisher changes its name to Diversinet Corp., and took a new focus in Internet security.
4. By August, 1998, Mr. Banks announced he was his block position in the company to repay personal debts. Mrs. Banks, however, remained a sharholder in the company, with a 4.11% stake as of December, 1998.
Diversinet, which raised capital with help from investment dealer Yorkton Securities Inc., is now headed by Nagy Moustafa and a new management team. Current company officials deny and relationship with Mr. Banks. "To Diversinet's knowledge, Mr. Banks has not appeared...as a registered shareholder since 1998," the company said in a statement.
WARP 10 TECHNOLOGIES YRN, in dollars
Warp 10 Technologies Inc. was established by Jack Banks in 1994 as a privately held company that aimed to develop systems for sending high-resolution images over the Internet. Its board of directors consisted of Mr. Banks and Larry Weltman. In 1995, the firm amalgamated with former oil and gas company Grand Empire Explorations Lts., and listed publicly on the Canadian Dealing Network. In 1996, it listed on Nasdaq.
Warp 10 proceeded to raise $12-million in private placement and equity investments with the help of investment dealers Taurus Capital Markets Ltd. and Griffiths McBarney & Partners, according to company officials. Mr. Banks and his wife Biba, were major shareholders of the comapny through wholly owned subsidiaries they also controlled. Warp 10's president was Marvin Igelman, a close associate of Mr. Banks.
1. Warp 10 stock reached a high of $24 a share in 1996, giving it a market capitalization of more than $500-million In July, 1996, Mr. Banks resigned from the company's board, although he continued to be a major shareholder through Le Print Express International Inc., another company owned by him and his wife.
2. In 1997, Warp 10 changed its business focus from provider of so-called high-speed network service to digit assest management. Through that year the stock traded at an average price of $2.15 a share.
3. In 1998, Mr. Banks announced he would sell his 7.2% stake (1.83 million shares) in Warp 10. "Unfortunately, due to my personal debt problems, I've been forced to sell my Warp 10 position at a time when the company is forging a leadership position in the emerging digit imaging market," he said. At the time, the stock was trading at about $2.30 a share.
4. By Sepetmber, 1999, Warp 10's stock price had plummeted to the $1.50 range. Mr. Banks and his wife were major shareholders in Warp 10 until November, 1999, when they sold a 13.43% stake.
Warp 10 changed it name to BrandEra.com in January. Mr. Igelman, who remains president of the new company, said in an interview that "Mr. Banks is not involved with the company now and is not promoting it. To our knowledge, we don't have him as a shareholder."
Source: Bloomberg News; Research: Dennis Anderson
© Financial Post 2000; ttedesco@nationalpost.com |
