IDA Rampart target Kasman abruptly fires defence lawyer
2002-09-24 18:12 PT - Street Wire
by Brent Mudry
Former Rampart Securities chairman and chief executive officer Barry Kasman, one of two Rampart executive hold-outs, has abruptly terminated his lawyer on the eve of a three-day Investment Dealers Association of Canada hearing which may cost, or greatly curtail, his controversial career in the brokerage industry. Mr. Kasman, who won a brief adjournment at the scheduled start of the IDA hearing on Tuesday, is expected to return Wednesday to identify his new lawyer, replacing Helen Daley, and the hearing itself is expected to be rescheduled to next Monday at the earliest.
In one of its harshest prosecutions ever, the IDA launched its case against Rampart and its executives on Aug. 2, 2001, scuttling the plans of parent Rampart Mercantile, a Canadian Venture Exchange promotion, to acquire BayStreetDirect, which featured Bay Street dignitaries Jim Beqaj and Richard Nesbitt, for $6-million.
The IDA, the self regulatory organization, booster and lobbyist for the brokerage industry, had quietly expressed concerns about Rampart Securities for more than four years, but its prosecution was launched just three days after Alec Popovic, a respected former RCMP commercial crime senior officer, began work in his new job as the IDA's vice-president of enforcement.
Mr. Kasman presided over Rampart since it acquired his Merit Investment, another trouble-plagued Bay Street brokerage, in 1997. Under Mr. Kasman's watch, Rampart was rife with compliance and capital deficiency problems dating back to its Merit acquisition, and served as a key conduit brokerage in numerous dubious OTC Bulletin Board promotions.
Rampart and Mark Valentine's Thomson Kernaghan, also shut down by regulators, were the only two Canadian brokerages named last month as key conduits in Operation Bermuda Short, a two-year undercover joint FBI-RCMP sting which snared 60 penny stock players, including 20 Canadians, either for agreeing to bribe corrupt fund managers to buy penny stock promotions or to launder drug money for operatives from Colombia's Cali cocaine cartel.
Mr. Kasman's sudden switch of lawyers comes six days after fellow Rampart senior executive Nicolas Tsaconakos, the now-defunct brokerage's former chief operating officer and chief financial officer, was fined $175,000 in a consent settlement with the IDA approved Sept. 17. Mr. Tsaconakos, who joined Rampart in September, 1999, also agreed to a lifetime bar on serving in any regulatory compliance or regulatory supervision position at any brokerage in Canada.
Former Rampart president Henry George Cole settled two months ago, agreeing to a $125,000 fine and severe restrictions, in a consent settlement approved July 23. Mr. Cole, a key Rampart executive since September, 1997, also agreed to a 10-year suspension from serving in any significant management position at any Canadian brokerage, all the way down to the assistant branch manager or compliance officer level.
In the wake of the IDA's uncollectable $3-million headline fine imposed Jan. 25 against bankrupt Rampart Securities, Mr. Kasman and Dominique Monardo, the chairman and CEO of parent Rampart Mercantile and former head of the brokerage, have yet to settle with the regulator.
Mr. Kasman arguably has the most to lose, as he was the key transition man from Merit to Rampart, and took the reins at the merged firm. (Mr. Monardo was a former auditor for Revenue Canada, now known as the Canada Customs and Revenue Agency.)
The IDA has chronicled capital and compliance deficiencies at Rampart Securities dating back to early 1997, just after Rampart Mercantile acquired Merit, a troubled, small 35-year-old Toronto-based brokerage which had taken a disastrous $1-million hit from offshore client accounts in a Vancouver-Calgary rig job. Rampart Mercantile bought Merit for just $1.2-million in August, 1996, and changed the brokerage's name to Rampart Securities in mid-1998.
In 1995, Merit's Toronto head branch took a million-dollar hit when regulators halted trading in Ultra Pure Water Systems (Canada) Inc., a wash-trading rig job involving controversial Vancouver promoter Gordon Brent Pierce. The Ultra Pure ring left $2.36-million in unpaid debits at seven brokerages when the Alberta Stock Exchange abruptly halted the stock in March, 1995, led by $960,000 in debits in UPW accounts handled by Merit broker Stephen Traub.
Although Mr. Pierce's behind-the-scenes Ultra Pure involvement was first revealed by Stockwatch in April, 1995, rumours of Merit's million-dollar hit had already been the talk of Howe Street and Bay Street. A number of Mr. Pierce's fronts, including Ultra Pure president Grant Atkins and Harvey Gorsuch, key players in the promoter's former Vancouver Stock Exchange disaster, Cost-Miser Coupons, opened or dealt in dubious offshore accounts at Merit, although Mr. Pierce was careful to keep his name off any public documents for Ultra Pure.
The Ultra Pure case was the feature of a major probe by the commercial crime section of the RCMP. The Mounties capped up a 13-month criminal investigation in April, 1996, with a recommendation that charges be laid, but a Crown prosecutor subsequently "no-charged" the file, in a controversial decision. Mr. Pierce's long-time front, Mr. Atkins, is now busy with another dubious penny stock promotion, GeneMax, which targeted Vancouver brokerages Global Securities and Union Securities in a naked shorting suit on Sept. 4.
Although Merit head Barry Kasman had the misfortune of watching his firm sink after being torpedoed by at least one barely supervised broker and a number of dubious offshore accounts, he went on to head Rampart, which now finds itself accused of failing to supervise its brokers, verify identities of offshore account clients and other compliance troubles, including failing to take acceptable antimoney-laundering measures.
With Mr. Kasman at the helm, Rampart, like Merit before it, had the misfortune of attracting a number of dubious clients, none of whom are identified in the IDA's detailed 26-page notice of hearing.
The latest notable Rampart client to be flushed out is Jeffrey Ray Senger, 36, of West Palm Beach, Fla., who was arrested by the FBI on Aug. 14 in Operation Bermuda Short. In a 23-page grand jury indictment, returned on May 21 in United States District Court for the Southern District of Florida, and unsealed the day after his arrest, Mr. Senger faces a total of 28 counts in two separate wire, mail and securities fraud conspiracy.
Rampart is featured prominently in the first case, in which Mr. Senger faces 27 counts for masterminding the pump-and-dump rig job of Lifekeepers International, which included a small network of bribed brokers, from November, 1998, through March, 1999, which resulted in investor losses of $3-million. (All figures in U.S. cases are in U.S. dollars.) In the second, Mr. Senger was snared in Bermuda Short's bribed mutual fund manager sting, allegedly agreeing to pay a 50-per-cent kickback for an $8-million investment by the fictitious fund in Piccard Medical and International Stores.
If convicted, Mr. Senger faces maximum statutory terms of imprisonment of five years for each count of mail, wire and securities fraud conspiracy, 10 years for securities fraud, and 20 years for money laundering.
In a co-ordinated action, the United States Securities and Exchange Commission also named Mr. Senger in a civil complaint relating to a later pump-and-dump of Lifekeepers, from November, 1999, through February, 2000. His co-defendants in this action are broker Brad M. Nirenberg, 38, of Coral Springs, Fla., and Norman F. Piatti, 48, of West Palm Beach, Fla., the president and CEO of Lifekeepers.
The identity of Mr. Senger's employer should have caused a few red lights to go off in Rampart's compliance department. Mr. Senger controlled a branch of Baxter Banks & Smith, a junky U.S. brokerage later shut down by regulators. (In the unrelated Maid Aide case, Las Vegas penny stock lawyer Max Tanner and a number of licenced and unlicenced Baxter Banks brokers, virtually all since convicted, used Howe Street brokerage Pacific International Securities, facing a landmark British Columbia Securities Commission hearing Oct. 7, as a key conduit for illicit offshore trading. A second Canadian brokerage is also believed to have been used by the Maid Aide ring, but was never identified in court filings.)
The grand jury indictment claims Mr. Senger acquired large blocks of Lifekeepers shares from November, 1998, to January, 1999, directed Baxter Banks boiler room brokers to flog the stock in return for secret kickback commissions, manipulated the stock and dumped his shares through accounts at other brokerages, mainly Rampart and discount brokerage Charles Schwab.
"Once defendant Jeffrey Senger and other co-conspirators who are not named in this indictment finished liquidating their Lifekeepers stock, they would stop touting that stock and would cease offering further payoffs to the conspiring brokers for promoting and selling that stock to their clients. At that point, the conspiring brokers would generally stop soliciting customers to purchase Lifekeepers stock, and the market price for that stock would decrease substantially."
U.S. authorities claim that as a further part of the conspiracy, Mr. Senger's greased brokers agreed that they would not get paid by him if their brokerage clients sold their Lifekeepers shares before he gave the go-ahead. The indictment claims the brokers never told their clients their main motivation in touting Lifekeepers shares was the cash bribes Mr. Senger was paying them. Although Mr. Senger allegedly greased "numerous" dirty brokers, none of these unindicted co-conspirators are identified.
According to the indictment, between December, 1998, and January, 1999, Mr. Senger transferred 180,000 shares of Lifekeepers to a brokerage account in his name at Rampart, formerly known as Merit Investments. Starting a month earlier, he also deposited 285,000 shares into an account in his name at Charles Schwab. It is unclear when Mr. Senger opened his account at Rampart, and whether the brokerage's compliance staff ever wondered why a client in Florida would take such a keen interest in a brokerage in Toronto.
While Mr. Senger had a smaller initial position at Rampart, it dominated his selling. The indictment claims Mr. Senger dumped 208,500 Lifekeepers shares through his Rampart account, but just 15,000 shares through his Schwab account.
Mr. Senger did not wait long to whisk off his illicit loot. "From in or about December, 1998, through in or about March, 1999, defendant Jeffrey Senger wire transferred approximately $529,000 from his securities brokerage account at Rampart Securities into a bank account under the name C&S Capital at Republic Security Bank," states the grand jury indictment.
Rampart is featured in no less than 19 of Mr. Senger's 27 Lifekeepers counts, all relating to single specific transactions, including 17 of the 21 share-sale counts and the sole two money laundering counts. These latter two charges, entitled, "financial transactions with proceeds from specified unlawful activities," including a $115,600 wire from Mr. Senger's account at Rampart on Jan. 20, 1999, and a similar $120,000 wire on Feb. 9, 1999, both to the C&S Capital bank account.
Around the same time as Mr. Senger's Lifekeepers pump and dump, he was also getting involved in Piccard and International Stores, the two promotions which led to him being snared in Bermuda Short. The indictment claims Mr. Senger acquired large blocks of both these stocks between January, 1999, and August, 2000. The brokerages Mr. Senger used in these two deals are not identified.
Mr. Senger was apparently one of the first Florida targets of Bermuda Short. Similar to Lifekeepers, Mr. Senger allegedly began a pump-and-dump conspiracy for his Piccard and International Stores positions in June, 2000. Around this time, Mr. Senger had his fateful meeting with the undercover FBI agent posing as an operative for a dirty fund manager. That July and September, Mr. Senger allegedly paid kickbacks of $12,500 and $10,000 to the undercover agent for small "test trades" of these two stocks, in preparation for the supposed $8-million financing, which never materialized.
Bermuda Short's Mr. Senger was hardly the only dubious client attracted to, and serviced by, Rampart during this period. Rampart was also a key conduit in two other unrelated U.S. penny stock promotions which caught the eyes of U.S. authorities: Rajiv Vohra's 1997-98 rig job of New Directions Manufacturing, and the early-1998 pump-and-dump rig job of Mountain Energy by a ring including California penny stock lawyer Marc R. Tow.
Mr. Vohra is best known as the former partner of controversial West Vancouver stock promoter Rene Hamouth in the Penway Explorers scandal, a high-profile Canadian penny stock manipulation a decade ago which featured Vito Rizzuto, the top Canadian mafioso who is dubbed the John Gotti of Montreal. Both Mr. Hamouth and Mr. Vohra were acquitted in 1993 after a criminal trial in Toronto, and there is no suggestion that either have had any business dealings with any Mafia figures since.
(Mr. Hamouth denies ever having been a partner of Mr. Vohra, ever being involved in any promotion featuring Mr. Rizzuto and ever having heard of the Mafia figure. Mr. Vohra relocated from the Toronto suburb of Scarborough a few years ago to the penny stock haven of Fort Lauderdale, Fla.)
This January, the SEC won an $843,000 court award against Mr. Vohra, who made illicit proceeds of $500,000 with partner Sean Healey in the New Directions case. Ina consent settlement in April, 2001, Mr. Healey was fined $146,000 and banned for five years.
The Mountain Energy case was much bigger. That ring made at least $3.6-million in illicit profits trading shares through Merit, which changed names to Rampart during the promotion, according to the SEC. The Ontario Securities Commission is believed to have played a key supporting role assisting the SEC in its lengthy investigation.
In consent settlements in September, 2001, Mountain Energy players George W. Guttman and Joseph M. Blumenthal, both of Brooklyn, N.Y., were ordered to pay disgorgement of $1.35-million. Mr. Blumenthal, fined $350,000, also agreed to a permanent bar from participating in future offerings of penny stocks. Mr. Guttman, fined $1-million, agreed to a penny stock bar with liberty to reapply after five years.
Mr. Guttman worked as a broker at a series of U.S. firms between 1980 and 1996, when he began working as a consultant for a number of OTC companies, which later included International Casino Cruises Inc., Mountain Energy's predecessor. In 1999, Mr. Guttman was permanently barred by the National Association of Securities Dealers from association in any capacity with any member firm, for making unauthorized transactions in a client's account. In June, 1999, he pleaded guilty in the Southern District of New York to a felony charge of making false statements to the SEC.
Most of the Mountain Energy group's millions of shares were funnelled into and laundered through Rampart and Merit, in accounts of a series of dummy companies, including Mr. Guttman's Growth International and C. Saw Investments Ltd. Shares were also deposited in the name of Merit itself, which held the shares on Mr. Guttman's behalf.
While these three cases have not been noted in the IDA's Rampart prosecution so far, more client and compliance surprises may emerge once Mr. Kasman's hearing unfolds. IDA enforcement staff expect to introduce as exhibits 13 bankers' boxes full of documents relating to Rampart, its compliance department and external reviews.
bmudry@stockwatch.com |
