Kerry, this has to be one of the most moronic posts in a long time. Possibly moronic enough to result in a visit from the FBI.
ragingbull.lycos.com
By: MS_MDHM_LONG $$$$$
04 Sep 2002, 08:31 PM EDT Msg. 52869 of 52877
Open Letter to the Shareholders of Medinah Minerals, Inc.
September 4, 2002
As most shareholders are aware, Mr. Les Price, Chief Executive Officer of Medinah Minerals, Inc. (Medinah) has been indicted and arrested in Florida, (subsequently released on cash bail) on one count of wire and securities fraud conspiracy, ten counts of wire fraud, two counts of securities fraud and one count of money laundering. Here is some background information and a few comments regarding the specific situation of Medinah.
In 1999 the U.S. Department of Justice (DOJ), using the Federal Bureau of Investigation (FBI), the United States Securities and Exchange Commission (SEC), the United States Postal Inspection Service, the Royal Canadian Mounted Police (RCMP) and the National Association of Securities Dealers (NASD), initiated an undercover investigation code-named “Bermuda Short”, a “Sting”, “designed to expose and prosecute those who attempt to engage in the fraudulent purchase and sale of stock of companies whose shares trade on the United States public markets”.
In the scenario of interest to Medinah, the FBI using “an undercover agent (“FBI UCA”) posed as a corrupt securities trader employed by the United States-based representative of a fictitious foreign mutual fund (“the Fund”). The FBI UCA would represent that the Fund had a number of investors who had invested millions of dollars. The FBI UCA claimed that he worked with two United States-based due diligence officers whose job was to research and approve which securities the undercover agent, as the Fund’s purported trader, would be allowed to purchase on behalf of the Fund and its investors. The FBI UCA also claimed that a purported manager of the Fund was corrupt and had knowledge of the undercover agent’s corrupt activities concerning the Fund. Two cooperating witnesses (collectively the “CWs”) also assisted in the undercover operation, posing as corrupt stock promoters who presented prospective stock purchase deals to the Fund.”
“The FBI UCA, along with the CWS, presented themselves as being able to arrange for the fictitious Fund to pay millions of dollars for large blocks of stock owned by some of the defendants and/or their companies at prices significantly above the actual market prices of the stocks. The Indictments allege that, in return for the Fund purchasing their stock, the defendants agreed to participate in an illegal kickback scheme in which proceeds from the stock sales to the Fund would be secretly kicked back by the defendants to the FBI UCA and others involved in the scheme. The amount of undisclosed kickbacks generally amounted to several million dollars and were to be paid using offshore corporate entities and bank accounts.” … “Ultimately, as noted above, the undercover investigation was conducted in such a way that resulted in no actual loss to any investor.”
On August 13, 2002, the FBI, as a result of this “sting” operation, arrested 58 individuals including Mr. Price.
As part of the due diligence conducted by Medinah at the very start of Medinah’s involvement with this “financing”, Mr. Greg Chapin, President of Medinah Minerals, held an initial meeting with the Fund in Boca Raton, Florida. This meeting lasted approximately two hours. (Mr. Chapin is a highly respected consultant with experience in a variety of business environments. In 1993, Mr. Chapin retired from the Los Angeles County Sheriff’s Department after heading its Organized Crime Gaming Unit and has also served as a session instructor to the FBI as well as State and Federal Justice Departments. Mr. Chapin has a Bachelor’s degree in Public Administration with graduate studies in Business Administration.)
According to FBI Special Agent Frank Figliuzzi, “The FBI undercover agent was posing as a fund manager. The fund was, of course, a complete fabrication, but it was ostensibly based in London, England. The agent said openly, “I am a corrupt fund manager. I would be more than happy to buy shares in your stock at inflated prices. You give me a kick-back, and your company will become a part of my investment fund, thereby grossly inflating the value of your company.”
At no time during the initial meeting with the Fund agent did he say or suggest to Mr. Chapin that the agent was corrupt. In fact, after the meeting and to insure that Medinah was dealing with honest people and to authenticate the Fund’s principals and money sources, a series of independent third party investigations were done to insure that no “red flags” were in evidence. The financiers came up “clean”. As it turned out, the reason there weren’t any flags was because the principals were either government employees or had had their history and public files “papered over” by the FBI to hide previous activities.
Upon receipt of the independent investigative reports, the Board of Directors gave, by corporate resolutions, authorization to Mr. Price to negotiate a financing deal with the Fund.
The deal that Mr. Price negotiated with the Fund, fully documented and approved by the Board of Directors and two independent lawyers, and the basis of the “Sting” charges, was the sale to the Fund, by Medinah, and out of their corporate treasury, of five (5) million Class B Preferred shares, par value $1.00 (preferred shares cannot be legally sold for less than par value). The gross value of the financing was therefore $5,000,000. The convertible preferred shares were for a term of four (4) years with the principle non-convertible for a minimum of one year and thereafter 1/3 per annum. In the event of a take-over offer for Medinah being legally made prior to the expiration of the four-year period, all the principle would be convertible.
The terms of the Class B Preferred shares are as follows: convertible on a 4 for 1 basis (one preferred share can be converted into 4 common shares thereby giving the owner a deemed acquisition cost of $0.25 per common share after conversion), redeemable at $1.00 per share (the owner can give back the preferred share to the Company and receive $1.00 per share at the end of four years) and a dividend rate of 10% of the par value per share (or $500,000 per annum on the investment of $5 million).
If one wishes to play with figures and upon conversion, the fund would be receiving a block of common shares directly from treasury at $0.25 and taking into account the 10% dividend payable annually for the four year term (10% or 2.5 cents per year for four years equaling a total of 10 cents), were netting out at a cost of 15 cents per common share at the end of 4 year period. Considering that the money raised by the sale of the preferred shares was to be used by Medinah to continue development of the Alto de Lipangue gold/copper project, we would suggest that this transaction was a good business decision by the Fund and not at all an “absurdly large premium that the Fund was to pay for the stock (sic)”.
As the structure of the Medinah/Fund financing is the basis for this so-called “fraud”, where’s the problem? The Fund was receiving treasury common shares (real shares) at a possible net 15 cents per share and the current shareholders were getting development progress on the Alto de Lipangue project. It’s a business decision as to whether the Fund would accept or reject the deal - not a “fraud”.
According to the indictment, “Price agreed to pay a $1.5 million undisclosed kickback to Huard, the FBI UCA and others in return for their inducing the Fund to pay $5 million for 5 million shares of MDMN stock.” What is their definition of “stock”? We can only hope that Mr. Jimenez and the DOJ are more knowledgeable about the law than they are about the difference between a preferred and a common share. As shown above, there is a tremendous difference between common shares trading at 7 cents per share and convertible preferred shares being sold at $1 dollar per share.
As is common with both convertible debenture and convertible preferred share financings, the gross dividend money to be paid is placed in a trust account with the interest earned on this trust money accruing to the Company. In this case, $2 million would have being placed in trust with $500 thousand annually being returned to the owners in the form of a cash dividend (assuming no conversion of preferred shares into common). This would leave an unencumbered $3 million to be used by Medinah for the development of the property. Is the cumulative annual dividend for three years the so-called $1.5 million “kickback”?
As a result of the FBI’s fraudulent actions, every shareholder of Medinah has been financially hurt. After having the closing of the “financing” dragged on forever and therefore having the common share price drop from 7 cents per share to 2 cents per share during this time (and down to 0.004 cents after the news of Mr. Price’s arrest), it hardly seems true when Mr. Marcos Daniel Jimenez, U.S. Attorney for South Florida, notes, “the undercover transactions were structured in such a way that no private investors lost money, because the deals never actually came off.” …. “The stocks themselves are not on major exchanges and rarely trade”.
I guess he doesn’t count the investment of the current shareholders and the fact that the FBI, during their “sting”, had no regard for the financial health of Medinah.
During his news conference announcing the arrests, Mr. Jimenez said the Justice Department would not hesitate to prosecute corrupt corporate officers and securities brokers “who violate their duties and try to take unfair advantage of the market to illegally enrich themselves.”
This then begs the question, “How does Mr. Price personally benefit from his “illegal” activities?” If he knowingly involved himself in a fraud, how did Mr. Price expect to receive a benefit from his “illegal conduct”? What and where would have been the benefit to Mr. Price? These questions conveniently remain unanswered by the FBI and Mr. Jimenez.
A recent article in the Wall Street Journal had this comment. ”Short sellers can play a valuable role in law enforcement, scouring financial statements for fraud and blowing the whistle to other investors and investigators”, says Ronald Long, former head of the SEC’s Philadelphia Regional Office. But when pursuing their tips, “I would hold my nose”, he adds, because he feared “being fed false information and having an investigation send a small company’s stock into a tailspin.”
Is this what happened to Medinah Minerals? Who “fingered” Medinah as a target and why?
While we can’t speak about the other companies involved in the “sting”, shareholders of Medinah should feel very aggrieved that the U.S. Government didn’t do their homework and would mistreat their Company in this egregious manner.
Russell K. Godwin
President
RGM Communications Inc.
The foregoing is just but a small sampling of the inconsistencies and “failures of logic” present in the Press Release by the FBI, public comments by FBI Special Agents and the news conference held by Mr. Jimenez. All the quoted information and discussed information is freely available from public sources, the Medinah Minerals web site or the management of Medinah.
Here's the original FBI PR.
fbi.gov |
