Silver Star Energy probed for 'pump and dump' stock fraud
Market cops allege that at least five men closely involved in the company participated
David Baines
Vancouver Sun
Saturday, May 22, 2004
Vancouver's stock market cops have alleged that Silver Star Energy Inc., which is run from a suite of offices at the entrance to Granville Island, is a classic "pump and dump" stock fraud.
According to information sworn to obtain search warrants, investigators with Vancouver's Integrated Market Enforcement Team believe that at least five men who are closely involved in the company's affairs have participated in the fraud.
They include Vancouver geologist Robert McIntosh, who serves as Silver Star's president and chief executive officer, and certified management accountant David Naylor, who serves as the company's chief financial officer.
Also named as alleged co-conspirators are long-time Howe Street promoter Mario Aiello, who until recently served as Silver Star's secretary; Sak Narwal, the company's largest shareholder; and Scott Marshall, whose wife, Naomi Marshall-Johnston, is the second-largest shareholder.
The investigation is still in progress. No charges have been laid and the allegations have not been proven.
Members of Vancouver's IMET team began investigating Silver Star in February after The Vancouver Sun noted the huge gulf between the company's reported book value of about $15,000 US and its stock market value, which had rocketed to more than $200 million US on the OTC Bulletin Board in the United States.
The Sun also noted that Silver Star was heavily promoting its shares on the basis of some recently acquired oil and gas prospects. Among other things, the company was paying Long Communications Ltd. of Vancouver $15,000 per month for investor relations services.
Also, a U.S. newsletter called Winston's Growth Stock Advisor had published an enthusiastic report recommending the purchase of Silver Star shares. The newsletter disclosed that a company called Apollo Holdings had paid $505,000 US to prepare and distribute the report. It is not known who owns Apollo.
On Feb. 27, IMET members raided Silver Star's office at 302-1505 West 2nd Ave. and seized documents and computers.
Trading records were also obtained from two Vancouver brokerage firms, First Associates Investments Inc. (formerly Yorkton Securities) and Golden Capital Securities, which, according to U.S. trading records, have been heavy sellers of Silver Star stock.
In a 40-page information document sworn to obtain a search warrant, Det. Paul McNamara of the IMET team describes how a cadre of Vancouver residents believed to be acting as nominees for insiders acquired thousands of Silver Star shares at relatively cheap prices.
He alleges that company insiders, through hired stock touts and false press releases, boosted the stock price, at which point the shares were transferred from the nominees to the insiders and sold at much higher prices.
McNamara and fellow investigator David Zwarich conducted dozens of interviews and reviewed hundreds of documents to support their "pump and dump" thesis.
In the information, McNamara describes how Silver Star was originally in the business of operating automated teller machines. The person who ran the business, Mo Verjee, recruited two Royal Bank employees, 26-year-old Jamie Cirotto and 21-year-old Mamertino, to act as president and vice president, respectively.
Cirotto told the investigators that Aiello, who was a director of the company, made all the arrangements. "Cirotto just signed the papers making him president and a director and claims he did not really know what was going on," the information states.
During this period, a group of people were invited to buy shares at relatively cheap prices. One of those persons was Mirella Carnovale.
During an interview on Feb. 17, she told the investigators that she did not know how many shares she had bought or how much she had paid for them, or what she had done with them. She said the transactions were handled by her brother, Vince Carnovale, who worked as a broker at Golden Capital.
Two other investors, Dino Pecchia and Joseph Repole, said they had also bought shares, but refused to say how they were introduced to the stock or to whom they had sold the stock.
On Oct. 29, the company moved into the oil and gas business by purchasing two exploration properties from an Alberta numbered company, 1048136 Alberta Ltd. At the same time, Cirotto and Mamertino resigned and were replaced by McIntosh and Naylor, and Long Communications was hired to help promote the stock.
The information alleges that the five men named in the warrant and "other unidentified persons" failed to disclose the "close relationship" between Silver Star, 1048136 Alberta Ltd. and Long Communications.
The information states that McIntosh and Marshall are directors of the numbered company and Long Communications operated out of Silver Star's office at 302-1505 West 2nd Avenue. Also operating out of the same office was Beacons Gate Consulting Group Inc., whose directors are listed as Marshall and Narwal. According to Telus records, telephone service for Long Communications and Beacons Gate was billed to the Alberta numbered company.
"The principals of each company are intermingled to such an extent that they have full control over the activities at hand," the information states.
On Nov. 20, the stock was split 12 for one and the share price spiralled upward, topping $3 US by year end. On Jan. 5, it was split again, this time two for one, but the stock still surged to $1.80 US, providing original shareholders with the opportunity to make enormous profits.
During the subsequent raid on Silver Star's office, investigators recovered stock records indicating that on or about Oct. 29, when the company moved into the exploration business -- and just before the stock was split and the share price surged -- thousands of shares changed hands.
Records show that a share certificate for 40,442 pre-split shares in the name of Mario Zuolo was cancelled on Oct. 29 and the shares transferred to Golden Capital.
Zuolo told investigators he had bought the stock through Vince Carnovale at Golden Capital and sold them in December or January, but he refused to say how much he had made, the information states.
Similarly, a certificate for 25,276 shares in the name of George Santo was cancelled on Oct. 31 and transferred to Golden Capital. Santo told investigators he purchased the shares through friends, but refused to say who they were. He said he sold the shares about six months earlier, but refused to say who the broker was or how much he made.
Another certificate for 20,000 shares in the name of Luigi Funaro was cancelled Oct. 29, and the shares transferred to Golden Capital. Funaro later told investigators that he had bought the shares in the summer of 2002 for $3,000 or $4,000 and sold them in October 2003 for $1 or more each. He said he bought and sold them through Carnovale.
Investigators also found a cancelled share certificate in the name of Lesia Ozer, who worked for Aiello, and an Oct. 24 letter from Aiello asking the transfer agent to transfer the certificate into the name of LOM Nominees Ltd. in Bermuda.
In a later interview, Ozer told investigators that she had bought 150,000 shares for $150 in the fall of 2002. In August or September she asked Aiello to sell the stock. Aiello found a buyer and gave her $2,100. She said she did not know who bought the shares or that they had been transferred to Bermuda.
On Feb. 19, McNamara and Zwarich tried to interview Carnovale at Golden Capital, but he told them that his sister had advised him of their earlier visit and "as a result he contacted a lawyer who informed him not to speak to the police."
(According to B.C. Securities Commission records, Carnovale quit Golden Capital on Feb. 27 and no longer works as a broker.)
Investigators later found that large amounts of cash had been transferred out of client accounts at Golden Capital during November, December and January and transferred to the Greg Yanke Law Corp. in trust.
Among other transfers, $1,328,765 had been transferred from Zuolo's account, $1,060,310 from Santo's account, $479,106 from Funaro's account, and $65,000 from Mirella Carnovale's account.
According to U.S. trading records, Golden Capital and First Associates sold many more shares than they purchased.
"This significant sales imbalance may indicate the fraudsters or their nominees were delivering shares into their brokerage account for sale (the dump) to the unsuspecting public," the information states.
dbaines@png.canwest.com
© The Vancouver Sun 2004 |
