Miltec was simply a small part of a massive and elaborate international
stock scam with links to the Mob that had been operating for years. Among
the crooked players in the wider international scam snared in an early
roundup by law enforcement agencies was Salvatore Mazzeo, who operated a
small New York brokerage firm that flogged stocks linked to promotions by
the Gambino and Genovese crime families before running afoul of regulators
and, perhaps more significantly, some other Mob-linked stock promoters. In
a plea-bargain deal, Mr. Mazzeo pleaded guilty on Oct. 30, 1997, to
attempted enterprise corruption, a felony punishable by up to 15 years in
prison. While Mr. Mazzeo would probably have drawn far less than 15 years
in prison because of the plea bargain, he was never sentenced. While
awaiting sentencing at home, he apparently died of natural causes in July
of 1999. Mr. Mazzeo was 41 years old.
About three months after Mr. Mazzeo's untimely death, two of his
acquaintances, Albert Alain Chalem and Meyer Lehmann, would also be dead,
though they certainly did not die of natural causes. While Mr. Mazzeo, with
links to the Gambino and Genovese families, was acquainted with Mr. Chalem
and Mr. Lehmann, reportedly connected to the DeCavalcante crime family, the
relationship was apparently strained on occasion. Indeed, during a visit to
Mr. Mazzeo's brokerage firm in 1994, Mr. Chalem, accompanied by Mr.
Lehmann, reportedly jammed a revolver against Mr. Mazzeo's head to indicate
his displeasure at not being paid for some stocks that they had been
peddling through Westfield.
On Oct. 25, 1999, a gun was used much more brutally against Mr. Chalem and
Mr. Lehmann. The two stock promoters, rumoured to have been co-operating in
a police investigation, were found shot to death in a home in Colts Neck,
N.J., a suburb of New York. The gunshot wounds inflicted on Mr. Chalem were
particularly gruesome, inviting speculation that the murders were a message
from the Mob regarding the punishment for providing law enforcement
agencies with information about the involvement of organized crime in stock
frauds. In light of the grisly mutilation of Mr. Chalem, that message may
have been, "Hear no evil, see no evil, speak no evil." Among other wounds,
Mr. Chalem was shot in the ears, eyes and mouth.
Imagis Technologies Inc - Street Wire
Imagis adds execs as stock price stalls
Imagis Technologies Inc NAB
Shares issued 17,287,410 Apr 15 close $2.90
Tue 16 Apr 2002 Street Wire
Also Imagis Technologies Inc (U:IGSTF)
DEEP DISCOUNT
by Lee M. Webb
Imagis Technologies Inc., a Vancouver-based biometric player, added three
new executives to the company last week. Neither the executive appointments
nor the earlier announcement of an order from a Mexican company for
Imagis's biometric wares caused much market excitement. In recent trading,
Imagis shares have been changing hands as much as 58 per cent below the
52-week high of $5.66 recorded early last month.
Imagis soared to $5.66 in heavy trading on the Canadian Venture Exchange
(CDNX) on March 6 in the wake of a pair of widely misinterpreted and
misreported news releases involving an obscure Boston-based investment
firm, the Pembridge Group. Imagis also set a new high in OTC Bulletin Board
trading in the United States and on the Frankfurt Exchange in Germany on
speculative excitement over the misinterpreted announcements. In
particular, a weasel worded March 6 news release issued by Pembridge was
misconstrued as a $4.10 (U.S.) per share buyout offer for Imagis. The
National Post and CBC Newsworld both subsequently reported that Pembridge
had made an offer of $90-million (U.S.) for Imagis and The Boston Herald
served up a similar buyout story.
Since March 7, the same day that the National Post and Boston Herald
published the buyout tale, Canada Stockwatch has consistently reported that
Pembridge has not made an offer for Imagis. Stockwatch's account was
independently corroborated by The Vancouver Sun on March 27, one day after
the National Post again reported that Pembridge had offered $4.10 (U.S.)
per share for Imagis. Notwithstanding the fact that Imagis and Pembridge
included links to inaccurate media reports of a buyout offer on their Web
sites, the new independent market regulator, Market Regulation Services
Inc., shrugs off the brouhaha, claiming that Imagis is not responsible for
media interpretations of the company's news releases.
On March 25, Imagis announced that Raymond James Ltd. had been retained as
a financial advisor "to assess all strategic alternatives available" to the
company, including "a publicly announced going-private proposal" from
Pembridge. The Imagis news release studiously avoided any claim regarding a
buyout offer, as did Raymond James's vice-president of investment banking,
Clifford Mah. "Like I say, it's a proposal from Pembridge," Mr. Mah told
Stockwatch on March 26. "The price contemplated is $4.10 (U.S.) per share.
Until we go through it in more detail, it would be inappropriate for me to
comment."
By March 26, Imagis's stock price had tumbled to $4.18, well off its
52-week high recorded less than three weeks earlier and even further off
the approximately $6.50 represented by the $4.10 (U.S.) per share
"contemplated" in the still murky Pembridge proposal. "Yeah, a pretty steep
discount," Mr. Mah remarked when asked for his thoughts on the faltering
share price. "Obviously the market is discounting, discounting greatly,
until more information comes out. You know, I can't comment on why it's
(doing) that. I think a lot of it has to do with, you know, where it
trades, a highly speculative shareholder base, and that's creating a higher
discount."
The discount to the imagined Pembridge offer has since become even steeper.
On April 8, Imagis announced that Pembridge had agreed to provide the
company "with a 60- to 90-day period to evaluate, consider, or complete
certain potential strategic alternatives before continuing to engage in
discussions regarding Pembridge's proposal to take Imagis private, or to
make a potential strategic investment." The obscure Boston investment
firm's seemingly gracious, if vague, concession evidently burst the
fast-buck fantasies of some speculators caught up in the misconceptions
regarding a buyout offer. The stock fell to $3.50 on the news of the
extension and lost even more ground before the week was out.
The April 9 announcement of an order from T.C. Vilsa SA of Mexico for
Imagis's computerized arrest and booking system (CABS) and its ID-2000
facial recognition system did not halt the slide in the stock price. "CABS
and ID-2000 facial recognition will be installed at a police facility
located in one of the largest states in Mexico," Iain Drummond, Imagis's
president and chief executive officer reported. According to the news
release, which did not contain any financial details, installation is
expected to be completed by June.
Imagis added another FBI veteran to its roster on April 10, announcing the
appointment of Charles Giannetti as the company's regional director in
Washington, D.C. The company already boasts Oliver "Buck" Revell, a 30-year
veteran and renowned former associate deputy director of the Federal Bureau
of Investigation, as its chairman. According to the news release, Mr.
Giannetti spent more than 25 years as a special agent for the FBI in roles
that included involvement in organized crime investigations, security
clearance and counterterrorist issues. Mr. Giannetti's appointment did not
generate any market enthusiasm; nor did the announcement of two more
appointments the following day.
On April 11, Imagis announced the appointment of Murray Jamieson, formerly
with Telus Communications and Telus Mobility, as vice-president of product
development and services. According to the news release, Mr. Jamieson holds
"an associate degree in arts and sciences from Capilano College." Like
several other colleges in British Columbia, Capilano College offers an
associate degree in arts and an associate degree in science in programs
that require the completion of a certain number of university transfer
courses within a five-year period; however, it is not clear that any B.C.
college offers a combined associate degree in arts and sciences.
In addition to being credited with an associate degree in arts and
sciences, Mr. Jamieson is tagged as "a key contributor to Telus Mobility
realizing a $430-million EBITDA (earnings before interest, taxes,
depreciation and amortization) on revenues of $900-million in 2001." Mr.
Jamieson is not the first person to have his B.C. telecommunications
background touted by a CDNX company, as former fans and followers of the
now defunct Howe Street promotion, stox.com Inc., may well recall.
(Scott Blue, the visionary founder, promoter and chief publicist of the
stox.com fantasy, was credited with leading the development of several new
services offered by Canadian telephone companies and touted as the
"architect of BC Tel's ADSL based Internet Service entitled 'The Multimedia
Gateway.'" Among other things, Mr. Blue was also credited with developing
"the content and the partnering strategy for BC Tel Sympatico Internet
Service." In 1998, Mr. Blue focused his visionary talents on stox.com,
proclaiming that the Howe Street promotion was on a mission to become the
dominant disseminator of financial information in the world.
Mr. Blue's tall tale was taken up in a number of predominantly flattering
media accounts, including a feature report in Canadian Business in April of
1999. Investors were much taken with the story, too, as were several
brokers who were flogging the stock. In December of 1999, stox.com closed a
$14-million special warrant financing at $3.50 per special warrant and by
March of the following year the former penny stock was changing hands for
as much as $12.75 per share. That lofty price collapsed as reality pressed
upon Mr. Blue's visionary claims.
Stockwatch also followed the stox.com saga, paying more attention to
details than to flattery and noting, among other things, the company's
exaggerated claims, dubious alliances, partnerships, touted contracts,
paltry revenue, burn rate and questionable accounting practices. While
evidently enjoying and contributing to the superficial coverage of other
media sources, stox.com was reluctant to respond to Stockwatch queries.
"You would have a better chance of asking me to light myself on fire and
dance down Howe Street screaming I love Stockwatch than getting me to
answer your questions," stox.com spokesman David Pellizzari advised a
Stockwatch reporter in May of last year.
Mr. Pellizzari was one of two employees at stox.com's upscale and
rent-delinquent Vancouver offices on Oct. 5, 2001, when the company pulled
the plug on its operations. Bailiffs showed up the same afternoon to start
seizing assets, but the ever-vigilant CDNX was a bit slower to act. The
CDNX halted trading a week later with the stock changing hands for two
cents and then suspended the company on Nov. 16, 2001, "for failure to
maintain tier maintenance requirements.")
Joining Mr. Jamieson as part of Imagis's revamped management team is Earl
van As, appointed director of marketing. Prior to joining the Vancouver
biometric company, Mr. van As served as director of marketing for
Multiactive Software Inc., a provider of customer relationship management
software. In the halcyon days of the frothy high-tech market, Multiactive
briefly flirted with an $8 stock price in March of 2000 before executing a
protracted slide. The company lost $17.8-million last year and, in less
than active trading, Multiactive has recently been changing hands for less
than 25 cents per share.
While most seasoned investors might not expect news of executive
appointments to generate much market excitement, many Imagis followers seem
puzzled by the recent sharp drop in the stock price. Investors who had
their appetite for the biometric player whetted by some interesting
snippets served up by Mr. Drummond during his address to a dinner audience
at Vancouver's Sutton Place Hotel on March 13 might be even more perplexed
at the stock's performance.
SUTTON PLACE HORS D'OEUVRES
As previously reported by Stockwatch, at the March 13 dinner meeting
organized by the B.C. Technology Industries Association, Mr. Drummond told
the audience of approximately 100 people that Pembridge had indeed made an
offer to buy Imagis, setting the price at $4.10 (U.S.) per share. Evidently
the Pembridge confusion extended to the senior management of the company
inasmuch as Sandra Buschau, Imagis's vice-president of investor relations,
told Stockwatch on March 6 that no offer had been made. On March 27, Rory
Godinho, a securities lawyer and Imagis director, also claimed that no
offer had been made, according to a report by David Baines of The Vancouver
Sun. In any event, Mr. Drummond offered the Sutton Place crowd a
conflicting account. "So anyway, we're in the process at this point in time
of having an offer on the table and we've got 30 days to respond," Mr.
Drummond said.
Mr. Drummond dished up several more interesting Imagis appetizers,
including a comparison with Visionics Corp., widely acknowledged as a key
biometric player. "Visionics is valued, some believe, at something like
$300-million (U.S.) or $400-million (U.S.) and our technology is better;
and they believe that if Visionics is worth that, then we must be worth
that as well," he said. Mr. Drummond did not identify just who held that
belief, nor did he offer any independent support for the suggestion that
Imagis's technology is better than Visionics's technology. It is not clear
that Imagis has ever participated in independent tests of its biometric
technology such as those conducted by the International Biometric Group or
the U.S. Department of Defense. Visionics and a number of other biometric
companies have participated in such independent tests, with mixed results.
Beyond the belief vaguely attributed to "some people," Mr. Drummond did not
elaborate on why anyone would value Imagis, which lost $3-million on
revenue of $2-million last year, at as much as $400-million (U.S.).
Imagis's president also served up some upbeat comments regarding the
company's position in facial recognition technology market, downplaying the
competition. "So, for the company out there, we've got two competitors,"
Mr. Drummond reported. "In the whole of the world, there's two competitors.
One is called Viisage (Viisage Technology Inc.), which came out of doing
driver licence photos in the States, and another one, which is making quite
a fuss around here, called Visionics out of New Jersey. We see them as our
primary competitor. I don't want to go into great detail, but I do want to
emphasize that there are significant differences in all this. They've made
a lot of fuss and spent a lot on publicity. The underlying technology that
Imagis is using here, we believe, uses significantly more modern
mathematics and this stuff we're using here wasn't around six or seven
years ago. It works in a much more flexible and detailed fashion. It's just
to say that we believe we are very well positioned in the market."
In its regulatory filings, including filings with the U.S. Securities and
Exchange Commission (SEC), Imagis is much more circumspect regarding claims
about its position in the market and its competition. "The markets for
arrest and booking systems, and facial recognition software are highly
competitive," the company cautions in its most recent annual report.
"Certain of the Company's competitors have substantially greater financial,
technical, marketing and distribution resources than the Company," Imagis
goes on to note. Moreover, while Mr. Drummond claims that Imagis has only
two competitors "in the whole of the world," there are dozens of companies
in the competitive facial recognition technology market. The International
Biometric Group, for example, lists 14 facial recognition technology
vendors, including Imagis. The Biometric Consortium, which serves as the
U.S. government's focal point for research, development, evaluation and
application of biometric technology, offers a more extensive list of 31
facial recognition technology companies.
Mr. Drummond also treated the Sutton Place audience to an account of some
of the deployments of Imagis's technology, including an installation at
Pearson airport in Toronto. "Pearson was the first airport in North America
to have a facial recognition system installed; and at Pearson they had
almost immediate success," he said. "Now let me emphasize, at Pearson all
they wanted to do was they wanted to identify bad guys coming into the
country," Mr. Drummond went on, explaining that the system was used for
arrivals when an immigration officer might have doubts about a person's
identity. "So this is when you move off to one side," he said. "They ask
for your name, they don't believe what your name is, so they use our
technology to try and determine who you are. In fact, about 15 to 18 months
back they had a major success. They caught a major drug trafficker coming
in from the States. They identified him using this technology; they
arrested him and turned him away."
Imagis's president also sketched the company's involvement in a British
project to combat child pornography. The project was announced on Nov. 29,
2001, when Imagis reported that it was developing an application based on
its facial recognition technology with Serco PLC that would be deployed by
Britain's National Crime Squad. "We've just finished a delegation over from
the U.K. from the National Crime Squad and once this is operational, in
about midyear, then this will spread not only across the U.K., but across
the G-8, across Interpol, and eventually across the world," Mr. Drummond
told his dinner audience.
(Britain's National Crime Squad (NCS) may be familiar to many investors for
its role in investigating international fraud, including international
stock scams. In December of 1999, Stockwatch conducted several interviews
with NCS representatives, including Detective Constable Martin Woods, in
connection with a massive international stock scam with links to Canada.
In 1999, Stockwatch began investigating complaints received from investors
from countries around the world with respect to Miltec Technologies Inc.,
an Ontario-based company trading under the auspices of the Canadian Dealing
Network. The stock was flogged to Canadian investors, many of whom filed
complaints with the Ontario Securities Commission (OSC), primarily by
boiler room operations such as Toronto-based Taylor Thompson Securities
Inc. using cold call and hard sell tactics. On Dec. 16, 1999, Taylor
Thompson terminated all of its brokers, citing bad press from Stockwatch as
the reason for issuing the pink slips just a week before Christmas.
According to several of the investors who filed complaints with the OSC,
the regulator considered the matter a dead issue after Taylor Thompson
shuttered its operations and trading in Miltec was suspended. As it turned
out, two years later the OSC would be investigating another brokerage firm
that had flogged Miltec. On Oct. 11, 2001, the OSC issued a notice of
hearing in the matter of Arlington Securities Inc. and Samuel Arthur Brian
Milne for allegedly engaging in principal trading of securities at
excessive markups. Miltec was among the stocks that Arlington had been
foisting off on gullible investors.
Miltec was also flogged by a number of shady offshore brokerages such as
Mercantile Capital Securities Ltd., claiming to be an investment bank and
brokerage firm headquartered in the Turks and Caicos Islands, and Sterling
and Stone Asset Management, operating out of a number of offshore enclaves
including the Bahamas. Other offshore purported investment firms
participated in the scam as "rescue rooms." The so-called rescue rooms
would contact the bilked investors after the share price of companies like
Miltec collapsed, offering to purchase the worthless shares at fantastic
prices on the pretext that they were acting on behalf of a third party that
wanted to take control of the company. The catch was that the
already-bilked investor holding the worthless shares would have to forward
a substantial "good faith" deposit pending completion of the transaction.
In another variation, the transaction would involve purchasing shares of
another company with the proceeds, topped up, of course, with some
additional money from the investor. Investors who fell for the rescue room
pitch simply ended up losing even more money.
Miltec was simply a small part of a massive and elaborate international
stock scam with links to the Mob that had been operating for years. Among
the crooked players in the wider international scam snared in an early
roundup by law enforcement agencies was Salvatore Mazzeo, who operated a
small New York brokerage firm that flogged stocks linked to promotions by
the Gambino and Genovese crime families before running afoul of regulators
and, perhaps more significantly, some other Mob-linked stock promoters. In
a plea-bargain deal, Mr. Mazzeo pleaded guilty on Oct. 30, 1997, to
attempted enterprise corruption, a felony punishable by up to 15 years in
prison. While Mr. Mazzeo would probably have drawn far less than 15 years
in prison because of the plea bargain, he was never sentenced. While
awaiting sentencing at home, he apparently died of natural causes in July
of 1999. Mr. Mazzeo was 41 years old.
About three months after Mr. Mazzeo's untimely death, two of his
acquaintances, Albert Alain Chalem and Meyer Lehmann, would also be dead,
though they certainly did not die of natural causes. While Mr. Mazzeo, with
links to the Gambino and Genovese families, was acquainted with Mr. Chalem
and Mr. Lehmann, reportedly connected to the DeCavalcante crime family, the
relationship was apparently strained on occasion. Indeed, during a visit to
Mr. Mazzeo's brokerage firm in 1994, Mr. Chalem, accompanied by Mr.
Lehmann, reportedly jammed a revolver against Mr. Mazzeo's head to indicate
his displeasure at not being paid for some stocks that they had been
peddling through Westfield.
On Oct. 25, 1999, a gun was used much more brutally against Mr. Chalem and
Mr. Lehmann. The two stock promoters, rumoured to have been co-operating in
a police investigation, were found shot to death in a home in Colts Neck,
N.J., a suburb of New York. The gunshot wounds inflicted on Mr. Chalem were
particularly gruesome, inviting speculation that the murders were a message
from the Mob regarding the punishment for providing law enforcement
agencies with information about the involvement of organized crime in stock
frauds. In light of the grisly mutilation of Mr. Chalem, that message may
have been, "Hear no evil, see no evil, speak no evil." Among other wounds,
Mr. Chalem was shot in the ears, eyes and mouth.
Meanwhile, the investigation of the complex international stock scam
involving offshore companies and crooked brokerage firms continued, with
law enforcement agencies and securities regulators from a number of
countries participating in the probe. That investigation led to the
indictment of a number of alleged fraudsters, including Harry Bloomfield, a
Montreal lawyer and honorary counsel for Liberia, and Stuart Creggy, a
British magistrate. In an April 25, 2001, press release announcing the
indictments of Mr. Bloomfield and Mr. Creggy, Manhattan District Attorney
Robert Morgenthau expressed his thanks to Detective Constable Woods and the
NCS for their assistance in the investigation.)
In addition to sketching Imagis's involvement with the NCS project and the
deployment of the facial recognition technology at Pearson airport, Mr.
Drummond also treated the Sutton Place diners to some upbeat comments
regarding the company's gross margin. "Critically, I prefer to expense my
development costs as they are incurred, which I see as a conservative way
of doing things," Mr. Drummond remarked. "That means that the direct cost
of a sale is the cost of the CD. So, if I'm selling something as I did
recently in California for about $1.8-million, notionally my cost against
that is a few dollars. Of course, it's not really like that; you have to
sit people down and do a bunch of things, but the gross margin last year
was over 90 per cent."
Insofar as "recently" is a relative term, it is not at all clear when Mr.
Drummond made a $1.8-million sale in California. However, Imagis did land a
California contract worth approximately $1.8-million about two years ago.
On May 15, 2000, the company announced that it had been chosen, along with
Orion Scientific Systems Inc., to provide an integrated imaging-based law
enforcement solution by the Alameda county sheriff's office. Imagis
reported that its share of the $2.65-million contract would be $1.2-million
(U.S.), which is approximately $1.8-million (Canadian). If there has been a
more recent $1.8-million sale, Imagis certainly has not been giving it much
play.
While rather vague about the timing of his $1.8-million California sale,
Mr. Drummond was somewhat more specific about a future event. Specifically,
Mr. Drummond offered his Sutton Place audience some guidance with respect
to Imagis's expected first-quarter revenues. "In the first quarter of this
year we'll do almost as much as we did in all of last year, so it's jumping
up quite rapidly," Mr. Drummond remarked.
Imagis shareholders troubled by what many perceive as an extremely deep
discount to the valuation of $4.10 (U.S.) trotted out by Pembridge and
touted as an offer by Mr. Drummond might wish that the revenue guidance
offered to the small group of Sutton Place diners be extended to the wider
market through a company news release. Meanwhile, after plunging to $2.37
last Friday, Imagis recovered some ground. Trading on April 15 was less
volatile; with 154,700 shares changing hands on the CDNX, Imagis closed at
$2.90.
Comments regarding this article may be sent to lwebb@stockwatch.com.
(More information regarding Imagis Technologies is available in Canada
Stockwatch articles published on March 7, 11, 15, 25, 27 and 28; and April
2 and 9, 2002.)
(Readers wishing more information regarding stox.com are referred to
Stockwatch articles published Jan. 19, 1999 (under the company's former
symbol SIS); April 8 and Nov. 12, 1999; Feb. 3, 4 and 29; March 15; April
20; July 7; Nov. 10, 20, 21, 24 and 29; Dec. 4, 5, 6, 8, 13 and 22, 2000;
March 2 and 21; April 2, 5 and 25; May 3, 7 and 24; June 1, 7 and 15; July
4 and 23; Aug. 14, 23 and 31; Sept. 12, and 27; and Oct. 3, 10, 12 and 18,
2001.)
(Canada Stockwatch articles regarding Miltec Technologies Inc. were
published on Nov. 24; and Dec. 3, 9, 10 and 17, 1999.)
(c) Copyright 2002 Canjex Publishing Ltd. stockwatch.com |
