B.C. Securities Commission - Street Wire
SEC credits BCSC in probing Maid Aide rig through P.I.
B.C. Securities Commission *BCSC
Shares issued 0 Jan 1 1900 close $.000
Monday Jan 14 2002 Street Wire
by Brent Mudry
The United States Securities and Exchange Commission has launched a civil prosecution of now-convicted Las Vegas lawyer Max C. Tanner, who used controversial Vancouver brokerage Pacific International Securities as a stock and money laundering conduit, and eight co-defendants in the Maid Aide boiler room penny stock rig job in 1998 and 1999. The SEC credited the British Columbia Securities Commission, the Federal Bureau of Investigation, the Department of Justice, the U.S. Attorney's Office for the Southern District of New York and NASD Regulation Inc. for their valuable assistance in cracking the Tanner case.
The SEC's Monday filing, in the U.S. District Court for the Southern District of New York, came the same day that lawyers for P.I. and nine current or former officers began a two-day hearing before the British Columbia Securities Commission, demanding full particulars of the BCSC's allegation the brokerage has been a popular haven for U.S. stock crooks for years, rolling out the welcome mat for numerous securities violators and felons, particularly in the conviction-prone OTC Bulletin Board market.
The SEC claims Mr. Tanner, 54, his right-hand man Dennis Evans, also of Las Vegas, brokers Kevin J. Ruggiero, 32, of Lyndhurst, N.J., and Michael Boston, 28, of Woodside, N.Y., both of Baxter Banks & Smith, a junky brokerage shut down by regulators, unlicensed Baxter brokers Alex Sheyfer, of Staten Island, N.Y., and Alexander Zalmenenko, of New York state, promoter Kenneth Kurtz, 33, and market maker Kevin Kirkpatrick, both of Salt Lake City, Utah, and former brokerage principal Mark A. Taylor Sr., of Tampa, Florida, conspired in a fraudulent pump-and-dump promotion of Maid Aide on the bulletin board, netting proceeds of at least $3.7-million. (All figures are in U.S. dollars.)
All five defendants in a parallel Maid Aide criminal case have been convicted guilty. Mr. Taylor and Mr. Ruggiero pleaded guilty to conspiracy to commit securities fraud, on Nov. 10, 2000, and April 16, 2001, respectively, while Mr. Kurtz pleaded guilty on Sept. 20, 2001, to filing a false income tax return. Mr. Tanner and Mr. Evans were convicted by a federal jury on Nov. 19, 2001, of conspiracy to commit securities fraud. Mr. Tanner was also convicted of money laundering for his offshore P.I. dealings.
While the criminal indictment detailed Mr. Tanner's use of a Pacific International account in the name of Delta Financial Resources Inc., his offshore Cayman Islands company, the SEC complaint reveals two other Maid Aide riggers used offshore accounts at a Canadian brokerage. Mr. Taylor controlled a Canadian brokerage account in the name of Gold Coast Investments S.A., in the exclusive offshore enclave of Alofi, Niue, while Mr. Ruggiero controlled a Canadian account in the name of Chios Investments Ltd., registered in the exotic offshore enclave of Gibraltar. While both accounts were believed to have used brokerages in Vancouver, it is not known whether P.I., or another local house, was used.
Mr. Tanner is the third Las Vegas-linked penny stock attorney in recent months to suffer career setbacks related to dubious penny stock dealings on Howe Street, the centre of dealings for the former Vancouver Stock Exchange. Herbert Jacobi of New York, who helped notorious Canadian fraudster Michael Mitton wire illicit proceeds to Panama in the H & R Enterprises rig job, pleaded guilty last October to buying stolen FBI records for Mafia-linked client Robert Potter, while Shawn Hackman of Las Vegas, who provided bogus H & R share opinion letters, was suspended in December amid allegations of misappropriating more than $700,000 from a client. (Although based in New York, Mr. Jacobi operated with Las Vegas penny stock law firm Chapman & Flanagan.)
The SEC credits the BCSC's investigations staff for speedy service digging the dirt on the Tanner ring in Vancouver. "The BCSC was extremely useful in facilitating getting records from Canadian broker-dealers. They responded so quickly it was almost instantaneous," Karen Pennington, assistant regional director for the SEC's Northeast region, told Stockwatch.
By pure coincidence, the SEC's Tanner prosecution was launched on the first day of a two-day BCSC hearing on Pacific International's request for full particulars of the serious regulatory charges facing the firm. A decision by the tribunal is expected within three weeks, while a blockbuster 34-day hearing, is set to run from Sept. 23, 2002, to Jan. 24, 2003.
Defence lawyer Mark Skwarok, representing P.I. senior executive Larry McQuid, led the challenge arguments on Monday. P.I. director Germain Carriere, the president and chief operating officer of Montreal-based National Bank Financial Ltd., which holds an equity interest in P.I., is represented by Vancouver lawyer Gary Snarch, while another Howe Street lawyer, Don Sorochan, represents P.I., head Max Meier and all the other defendants.
Mr. Skwarok repeatedly argued that the BCSC's numerous allegations against P.I. and its officers, contained in an explosive notice of hearing issued last July, are too vague and lack sufficient detail to allow the brokerage to properly defend its fine reputation.
The list of dubious P.I. clients in the hearing notice includes such notables as bankrupt Vancouver promoter's Larry Kostiuk's old Mafia-linked pal Joe Garofalo, massive mortgage fraudster Shalom Weiss, bucket-shop pro Randolph Beimel, members of New York's fearsome Russian mafia, Gerald Burns, currently in pretrial jail in the U.S. related to the Cambridge International Bank and Trust scandal, his associate Angel Lorie, Regulation S abuser Salvatore Mazzeo, convicted stock felons Paul Harary, David Hesterman and ZZZZ Best's Maurice Rind, Members Service Corp. player Todd Moore and fellow American securities violators Jimmy Ray Carter, Anthony Elgindy, Richard Gladstone and Steven Keyser.
Stockwatch has also revealed and chronicled numerous SEC, regulatory and criminal prosecutions in recent years featuring P.I. as a convenient Canadian conduit for Mafia associates Phil Abramo and Phil Gurian, alleged French stock fraudsters and Torricelli probe figures Philippe Hababou and Marc-Armand "The Croc" Rousso, and others.
Pacific International and its officials now demand to know exactly what they did wrong in courting and servicing, whether knowingly or not, such a colourful cast of characters.
"What is it he should have done and didn't do, and why?" asked Mr. McQuid's lawyer Mr. Skwarok, in response to one BCSC monitoring allegation. "Is the suggestion these accounts were used for criminal activity?" asked Mr. Skwarok about another allegation.
In Monday's Maid Aide case, the SEC's latest prosecution featuring Pacific International as a key conduit for illicit penny stock dealings, the U.S. regulator claims Mr. Tanner, the Las Vegas lawyer, and his co-defendants defrauded hundreds of innocent investors of millions of dollars.
"The defendants gained control of a shell company, set up two boiler room operations, and directed unlicensed brokers to sell more than 475,000 unregistered MDAN shares to investors at artificially inflated prices using high-pressure sales tactics in exchange for undisclosed kickbacks," states Wayne Carlin, the SEC's regional director for the Northeast regional office, in the complaint.
The SEC notes that in September, 1996, Mr. Tanner and his associate Mr. Evans incorporated Maid Aide, which was purportedly a commercial and residential cleaning services company but in fact was little more than a promotional shell. On Sept. 30, 1996, the pair appointed Mr. Evans's house cleaner as Maid Aide's sole director, to serve as their front. The regulator claims the cleaning lady knew little or nothing about the company's business, except for signing papers at time to time at the direction of Mr. Evans.
A few months later, in November, 1996, Mr. Tanner and Mr. Evans placed 1.07 million penny shares, raising $10,760 for the company, to such investors as Mr. Tanner's son, and Mr. Evans's niece and father-in-law. Within a year, Mr. Tanner and Mr. Evans had effectively gained control of virtually all of Maid Aide's shares.
On Sept. 23, 1997, 42 of the original 44 investors flipped their 676,000 shares to Mr. Tanner at two cents a share, pushing his control to 976,000 shares, or 90 per cent of the total outstanding shares.
While this was in the works, Mr. Tanner and Mr. Evans were talking with the principals of CFE Enterprises Inc. of Brooksville, Fla., which had as its main assets a gravel-hauling subsidiary, CFE Trucking, and a dormant bulletin board listing.
By January, 1998, Mr. Tanner and Mr. Evans had a preliminary deal with Mr. Ruggiero, Mr. Taylor and Mr. Kurtz to work the stock. Mr. Ruggiero and Mr. Taylor were principals of Baxter Banks & Smith, and G.L. Barrett & Associates Securities, respectively, two boiler rooms which later dominated Maid Aide trading. "The group also agreed that telemarketers, working through BBS boiler rooms, would market Tanner's MDAN shares to the public," states the SEC complaint.
Maid Aide trading debuted at $6 a share on March 2, 1998, through Mr. Kirkpatrick, a market-maker with Olsen Payne & Co. of Salt Lake City, with BBS's boiler-room phone chimps drumming up interest. Two separate BBS boiler rooms began touting the stock, with one supervised by Mr. Ruggiero and Mr. Boston and the other supervised by Mr. Sheyfer and Mr. Zalmenenko.
The boiler-room operations followed the script of Penny Stock Rig Jobs 101. "The telemarketers concealed their true identities and the fact that they were not registered with the commission or licensed by the NASD by posing as Ruggiero and Boston. In exchange for allowing the telemarketers to assume their identities, Ruggiero and Boston received kickbacks equal to 5 per cent of the total MDAN sales proceeds generated," states Mr. Carlin in the complaint.
The hired phone chimps lured their cold-call victims with claims the stock would "go through the roof" and "double in six months" while they peddled more than 550,000 shares, although they forgot to mention the more than $570,000 in kickbacks they were greased with.
Mr. Kirkpatrick, the Salt Lake market maker, was tight in the loop, often receiving calls before the market open from Mr. Ruggiero regarding the script for the day's trading. "Kirkpatrick and Ruggiero also had regular discussions regarding the sales made through the BBS boiler rooms and co-ordinated Kirkpatrick's purchases and sales so that transactions were prearranged and executed at artificially inflated prices," states the SEC.
Mr. Kirkpatrick was evidently quite a pro. From March through August, 1998, as he was steadily ramping up his quoted bids from $5 to $8.50 a share, the Salt Lake market maker quoted bids greater or equal than those by other market makers a whopping 88 per cent of the time.
Subtlety, however, was not one of Mr. Kirkpatrick's strong points. His bids were often an eyebrow-raising $1.50 higher than those posted by other market makers.
Pacific International, the Vancouver brokerage fighting to defend its reputation, was chosen by Mr. Tanner, the Las Vegas lawyer, in October, 1996, when he opened an account under the name of Delta Financial. (While the SEC and the feds were able to figure it out, now-convicted lawyer Mr. Tanner, however, did not show up as an owner or authorized person of the offshore Delta account when P.I. did its own internal review, according to a source familiar with the case.)
"At Ruggiero's instruction, Tanner sold blocks of MDAN shares from the Delta account to Kirkpatrick," states the SEC. Mr. Ruggiero instructed Mr. Tanner on the price to sell the blocks for.
By March 15, 1999, Mr. Tanner had sold more than 300,000 shares through Delta's Pacific International account, for proceeds of more than $2.1-million. The Las Vegas lawyer paid the boiler-room chimps' commissions directly to Mr. Ruggiero, who distributed these proceeds of crime.
"As of July, 1998, Tanner had wired at least $1.1-million in commission proceeds to accounts maintained by Ruggiero," states the SEC. Between March and July, 1998, Mr. Tanner also wired a total of $127,000 to accounts controlled by Mr. Sheyfer and Mr. Zalmenenko, the unregistered brokers who ran the second Maid Aide boiler room.
Other secretive offshore accounts at a mystery Vancouver brokerage were soon to follow Mr. Tanner's lead.
(c) Copyright 2002 Canjex Publishing Ltd. canada-stockwatch.com
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