Part VI: CMKM hearing listens to octogenarian co-chairman Maheu
2005-06-16 21:02 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
by Lee M. Webb
CMKM Diamonds Inc.'s May 10 hearing before the U.S. Securities and Exchange Commission (SEC) listened to Las Vegas, Nev., businessman John E. (Ed) Dhonau testify on behalf of the pink sheet promotion before the company's trophy octogenarian co-chairman Robert Maheu took the stand.
Chief Administrative Law Judge Brenda P. Murray presided over the evidentiary hearing to determine whether CMKM's stock registration should be suspended or revoked for failing to file periodic reports as required by U.S. securities regulations.
Lawyers Leslie Hakala and Gregory Glynn presented the case for the SEC's enforcement division, which has the burden of proof in the proceeding.
Donald Stoecklein of the Stoecklein Law Group represented CMKM. Anthony DeMint, managing director of the Securities Law Institute, a company closely associated with Mr. Stoecklein, also registered an appearance on behalf of CMKM.
Bill Frizzell, a lawyer from Texas, was granted limited participation on behalf of a number of CMKM shareholders known as the Owners Group. During the proceeding, Judge Murray also gave Mr. Frizzell leave to cross-examine witnesses.
As part of its case, the SEC called six witnesses. The U.S. regulator led off with Neil Levine, an auditor hired by CMKM in January. Among other things, Mr. Levine testified that he had not been provided with any documents by the company, notwithstanding many requests, and had not even started the auditing process.
In something of a bombshell, Mr. Levine told the court that he was terminating his engagement with CMKM effective the end of the hearing. The auditor said that neither he nor his firm wanted to be associated with a company like CMKM.
After some brief testimony from SEC information technology specialist Christopher Wall, the U.S. regulator called the company's transfer agent, Helen Bagley, and then moved on to CMKM's latest accountant, Suzanne Herring.
Ms. Herring testified about her efforts to reconstruct the company's financial records, which were previously nonexistent. The accountant testified that CMKM had no revenues through the end of 2004 and the still spotty reconstruction indicated that the company had a $36.5-million accumulated deficit. (All amounts are in U.S. dollars.)
Rendal Williams, chief executive officer of associated company U.S. Canadian Minerals Inc., also testified for the SEC. Among other things, Mr. Williams said that CMKM's chief executive officer Urban Casavant had told him 10 or 12 times during 2004 that the company was close to filing its required SEC reports.
Rounding out its witnesses, the SEC called Mr. Casavant, reportedly the company's only officer. Mr. Casavant asserted his Fifth Amendment privilege against self-incrimination and refused to answer any questions.
The SEC then handed off to Mr. Stoecklein, who called Mr. Dhonau as CMKM's first witness.
Gut check
As reported in previous Stockwatch articles, Mr. Dhonau is a rather significant presence in a web of relationships involving CMKM.
Among other things, Mr. Dhonau's privately held Nevada Minerals has been involved in joint ventures with CMKM and closely associated U.S. Canadian Minerals. According to hearing testimony, he introduced Mr. Casavant to Mr. Williams.
Mr. Dhonau is the largest shareholder of U.S. Canadian Minerals and at one time he controlled at least 75 billion shares of CMKM.
Mr. Stoecklein asked Mr. Dhonau to explain the relationship between his Nevada Minerals and CMKM.
"Well, it has a couple different facets," Mr. Dhonau began. "My first involvement was through Canada.
"I met Mr. Casavant in November of '03 and he actually is the gentleman responsible for my involvement in acquiring claims up in the Saskatchewan Fort a la Corne area in the diamond claims.
"And currently I'm the operator of another entity that CMKM Diamonds owns in Ecuador called the American shaft."
"The diamond mines that CMKM owns in Canada, have you ever been an owner of any of those diamond mines?" Mr. Stoecklein asked.
"Of the diamond claims?" Mr. Dhonau asked in return, perhaps suggesting a correction.
"Yes," said Mr. Stoecklein. "The claims. Excuse me."
"Yes," Mr. Dhonau said. "On my first early flush of the diamond claims, I claimed approximately 500,000 acres during the early months of 2004."
"Is it fair to say you have a fair degree of knowledge in the mining claim area pertaining to these diamonds up in Canada?" asked CMKM's lawyer.
"I've spent some time studying it and talking to the government agencies up there, yes," Mr. Dhonau replied.
Mr. Dhonau went on to testify that apart from its interest in 500,000 acres held by Nevada Minerals, CMKM had claimed approximately a million acres in Saskatchewan.
"Are you familiar at all with valuations of mining claims?" Mr. Stoecklein asked.
"Well, just through my own experience as being in a private company, we do a cost basis," said Mr. Dhonau. "I do know, you know, some companies go out and they get independent evaluations done by the core samples or findings that they actually get in their own soil samples."
"Is there any way for you to tell the Court today in terms of the value, because one of the issues we have here today is valuation," Mr. Stoecklein began. "Can you -- "
That drew an objection from Ms. Hakala.
"Mr. Dhonau is not an expert in accounting for mining claims or anything else," the SEC lawyer said.
"One of the issues we have here today is valuation?" Judge Murray queried.
"Yeah, yes, it is," Mr. Stoecklein said.
"I thought the issue was filing reports required by the SEC and whether or not they have been filed," Judge Murray said. "And if they hadn't been filed, what to do about it."
Mr. Stoecklein suggested that he should be given "a little leeway."
"I don't see why we can't get a little testimony in as to the viability of this company and in terms of its reporting capabilities," Mr. Stoecklein argued. "I mean, is it viable? I would think Your Honor would want to know that information."
"We just had the president, the chief executive officer of the company on the stand," Judge Murray said. "He refused to answer a question. The best source of information refused to answer a question."
CMKM's lawyer suggested that Mr. Dhonau was a more capable witness, "irrespective of the Fifth."
"No," Judge Murray decided. "I've tried to give you a lot of leeway. You're asking one gentleman to value the assets of another company and that's pushing it. I'll sustain the objection."
Mr. Stoecklein moved on to another line of questioning, drawing some rather lengthy answers from Mr. Dhonau that perhaps shed a bit of light on the extent of his mining knowledge.
"Mr. Dhonau, could you explain to the Court the relationship between Nevada Minerals and CMKM Diamonds and U.S. Minerals as it relates to the properties in Ecuador?" Mr. Stoecklein asked.
"Where there's similar relationships would be -- the only relationship that CMKM Diamonds has in Ecuador is the American shaft," Mr. Dhonau began. "Your Honor, it's a mine that has thirteen levels. It's the -- what they call the main corridor, the ore of province down there.
"The ore is brought up through -- to the surface through this equipment, this shaft, and from that it's taken over to U.S. Canadian to their Yellow River plant to be processed to be turned into gold for, you know, selling it to the open market down there."
"How do you handle the accounting of the gold that's processed through the ore through the American shaft?" Mr. Stoecklein asked.
"Minera Nevada is a subsidiary of my corporation," Mr. Dhonau said. "We had to have an operating presence by law in Ecuadorian business license and have accounting processes also in place. We have a bookkeeper and several assistants down there.
"Part of the process that they do is they get the ore loads out by the plant manager, the gentleman who is our geologist, at the American shaft.
"Once that ore is sent over to the Yellow River plant, it's also assayed and measured for weight and there's a report that's compiled.
"And once it goes through the grinding process -- it goes through a -- various steps of collecting the gold.
"Once it goes through the grinding process, it collects the free gold. That's also weighed and measured.
"And then the sand is created and the sands is put into a cyanide-sealed tank to be separated from the dirt process into gold.
"And all those are put in the reports that are surrendered to all three entities, Minera Nevada being the main gatekeeper of that paperwork.
"And once it's been turned into gold, then the contract that is between the two companies, the two public companies here, Minera Nevada and U.S. Canadian, they do a 50-50 gross revenue split, all for the goal each one taking care of their own expenses for their side of the process."
On further questioning, Mr. Dhonau testified that Minera Nevada handled the accounting functions for the Ecuador operation.
Mr. Stoecklein went on to ask whether there were any complexities involved and whether Mr. Dhonau had hired a specialist to handle the accounting.
"Oh, well, in Minera Nevada we actually have a gentleman that's our senior accountant," Mr. Dhonau said. "Here in the states, we call him a CPA. And he has, like I say, three assistants in helping him make sure we get these reports done.
"As far as complexity, the only complexity we've had, Yellow River has been going through a growth stage since the October purchase of the American shaft. It was unable to process the sands, and the sands have now collected on three different pieces of property owned by U.S. Canadian."
Judge Murray broke in, telling Mr. Dhonau that he had lost her with his last answer.
"Yellow River is the name of the Ecuadorian operation?" the judge asked.
"It's the processing plant owned by U.S. Canadian Minerals," Mr. Dhonau replied.
"And that fellow just said he just bought it in the beginning of 2004, I think," said Judge Murray, a reference to previous testimony from Mr. Williams.
"He bought the raw property," Mr. Dhonau said.
"He bought the raw property," Judge Murray remarked. "Well, with the raw property goes the processing plant; right?"
"Well, the plant got under construction in September," Mr. Dhonau replied.
"Oh, so there was no plant there?" Judge Murray asked.
"They had a Chilean mill, it's just a grinding process, to collect what they call free gold," Mr. Dhonau said. "And you can only get like 40 per cent of the actual gold out of the ore. You lose a lot of it through the process.
"So because of the American shaft and the ore opportunities in that region, U.S. Canadian started developing a more complex, sophisticated processing plant."
Mr. Dhonau went on to say that "the final phase of that turns on in the next week or so down there in Ecuador, the cyanide processing site."
Mr. Stoecklein returned to his direct examination, eliciting testimony from Mr. Dhonau that CMKM had invested approximately $1.2-million in the Ecuador operation.
Mr. Dhonau also explained that his company received "20 per cent of the revenue collected by CMKM Diamonds to supply the management team that runs the operation."
"Does CMKM have an outstanding or a defaulted liability with you today?" Mr. Stoecklein asked.
"We have served them with a default letter, yes, of which this past week Mr. Casavant and I have came to an agreement of which I'm going to take possession of the sands," Mr. Dhonau said. "I don't know the correct Ecuadorian term yet. Here we'd call it a UCC1, but we are going to take possession of the sands down there to collect the shortage that CMKM has failed to pay down in Ecuador."
"And that has cured, then, any default they had?" Mr. Stoecklein asked.
"There's roughly -- yes, we believe the value of the sands is far more than their debt as of this date," Mr. Dhonau said.
Upon being questioned by Judge Murray, Mr. Dhonau said that CMKM owed him approximately $180,000.
That completed Mr. Stoecklein's direct examination.
Mr. Frizzell did not have any questions for Mr. Dhonau, so Judge Murray invited Ms. Hakala to cross-examine.
"Mr. Dhonau, have you ever seen any financial statements from CMKM Diamonds?" Ms. Hakala led off.
"No, ma'am, I have not," Mr. Dhonau replied.
"Do you know when CMKM Diamonds will be able to file periodic reports?" the SEC lawyer subsequently queried.
"No, ma'am," said Mr. Dhonau.
Ms. Hakala then turned to a couple of questions about what might well be characterized as Mr. Dhonau's first chance encounter with Mr. Casavant.
"You said you met Urban Casavant in November of 2003; is that correct?" asked Ms. Hakala.
"That is correct," Mr. Dhonau said.
"Did you meet him at the slot machines?" asked the SEC lawyer.
"Yes, ma'am," Mr. Dhonau replied.
Ms. Hakala moved on to some questions regarding the revenue from the Ecuador operation, drawing from Mr. Dhonau that CMKM would only have received 80 per cent of the $45,000 or $60,000 representing its half of money reportedly generated in 2004.
"Did they get that?" Ms. Hakala asked.
"No, they did not," Mr. Dhonau said.
"Why not?" asked the lawyer.
"It was reallocated by Mr. Casavant's request to cover up -- they were short air compressors to fulfill the mining obligations to create a safe environment for the miners," Mr. Dhonau testified.
"You used to own 75 billion shares of CMKM Diamonds stock, didn't you?" Ms. Hakala asked further into her cross-examination.
"Yes, ma'am," Mr. Dhonau replied.
"What happened to that stock?" the lawyer asked.
"I surrendered them back to CMKM for a non-recourse note in December," Mr. Dhonau said, later adding that the note was for $2-million.
"Why did you do that?" Ms. Hakala queried.
"In light of the investigation and what I had discovered in November, I just felt it was best for my company and my own well-being to separate from the companies," Mr. Dhonau said.
"You no longer wanted to own shares of CMKM Diamonds?" asked the lawyer.
"That's correct," Mr. Dhonau said.
Judge Murray had some questions about the $2-million note.
"Did you cash it?" Judge Murray queried. "Did you cash it? You actually got $2.2-million?"
"A note," Mr. Dhonau explained.
"A note," said Judge Murray. "Have you foreclosed on the note?"
"No, ma'am," said Mr. Dhonau. "It's not due until December."
Ms. Hakala returned to her cross-examination.
"What did you discover in November that made you no longer want to own shares of CMKM Diamonds?" the SEC lawyer wanted to know.
"It was just the -- it was a personal emotional reaction off of what was happening to the investigations," Mr. Dhonau said.
"Can you elaborate on that?" Ms. Hakala asked.
"It was just nothing more than a -- a gut feel of myself and -- and after my deposition, I felt it was best for my company to stand alone as a private corporation," Mr. Dhonau said.
"And no longer wanted to own shares of CMKM Diamonds stock?" Ms. Hakala asked.
"Correct," said Mr. Dhonau.
Ms. Hakala passed the witness back to Mr. Stoecklein for a short redirect.
After eliciting testimony from Mr. Dhonau that Mr. Casavant had told him that he wanted to be a reporting company, CMKM's lawyer tried to get back to the subject of valuation by using a different approach.
"Have you put a value on your mining claims in Canada?" Mr. Stoecklein asked.
"I know where I wish they would be valued at one day," Mr. Dhonau ventured. "Oh my -- to give you the answer, I am on a cost basis only on that particular thing, but I have invested in Canada based on the information that I gathered as I testified earlier."
"I assume you haven't had an offer to sell those claims?" Mr. Stoecklein asked.
"No, I have not," said Mr. Dhonau.
Mr. Stoecklein had no further questions, so Mr. Dhonau was excused.
Greybeard champion
Mr. Stoecklein next called Mr. Maheu to testify on behalf of CMKM.
As previously reported by Stockwatch, Mr. Maheu's long and interesting career included a stint as an FBI agent, some undercover work, cut-out work for the Central Intelligence Agency, private investigation work and approximately 10 years spent working for billionaire Howard Hughes before he was fired in 1970.
The 87-year-old Mr. Maheu is clearly held in very high regard by CMKM's faithful followers. Indeed, he is their latest champion. The approximately 50 CMKM shareholders who attended the administrative proceeding awaited his testimony with great anticipation.
After the witness was sworn in, Mr. Stoecklein asked Mr. Maheu to state and spell his name for the record. He then turned with a request to Judge Murray.
"Your Honor, for purposes of not putting his personal address on the record, I'd rather not ask him that question because I do have concern with the Internet and everything with his personal address," Mr. Stoecklein said.
There was no objection from the SEC, so Judge Murray let it pass.
Mr. Maheu told the court that he had joined CMKM's board of directors as co-chairman in early February at the request of Mr. Casavant.
"I'm a little curious now, in terms of CMKM Diamonds, why you would have taken the position of coming on as a board member," Mr. Stoecklein subsequently prompted.
"Well, I've always been challenged -- I mean intrigued with challenges and difficult assignments," Mr. Maheu began. "I'm also interested in the plight of stockholders wherever they may be.
"I happen to have lived my life in such a way that I've never feared a full background investigation, and I thought that I could make a contribution."
"What background would you have that you believe would help this company, CMKM Diamonds, to do anything in terms of corporate management?" Mr. Stoecklein asked.
"Well, I understand the necessity of a publicly held company to be compliant," Mr. Maheu said. "And I'm not a novice in the world of being in compliant -- of an entity being in compliant.
"I had the privilege 50 years ago to set up the security and compliance divisions of the Small Defense Plant Administration. It was an entity that had been structured by the government to help start-up companies and small businesses.
"I learned very early on that you cannot help the ills of a small company or any company just by flowing money in their direction. I learned the value of compliance. And I made sure that the Small Defense Plant Administration was always in compliance.
"By that, I mean if, in fact, we made a contribution to a small business, we made sure that the money was used within certain parameters."
"What was the job that Mr. Casavant expected from you as a board member?" Mr. Stoecklein asked.
"I don't know exactly what he expected from me, but I can tell you what I told him," said Mr. Maheu. "That if I took on this assignment, I would surround myself with a team that would hopefully clear up mistakes of the past that might have been made, and that I would insist that from hence on that the company be responsive and comply with all regulatory agencies."
"Did you have any apprehension about joining the board of a company that had been under an SEC investigation?" Mr. Stoecklein asked.
"No," said Mr. Maheu.
"You didn't know about the investigation before you joined the board, didn't you?" Mr. Stoecklein asked rather awkwardly.
"Well, no, I knew there were problems, but that did not bother me," Mr. Maheu said. "I've been there before."
"But let me ask the question again," Mr. Stoecklein suggested. "Did you realize when you joined the board that there was, in fact, an SEC investigation?"
"Oh, yes, I did," Mr. Maheu said.
Mr. Maheu went on to testify that he was being paid $40,000 per month as a board member.
"A month?" Judge Murray queried.
"A week," Mr. Maheu replied, then corrected himself. "A month. Month. I'm sorry. I'm -- I was trying to get a raise."
"You did," Judge Murray quipped. "You did."
Following that exchange, Mr. Stoecklein picked up his direct examination.
"You mentioned a moment ago of the reasons why you joined the board," Mr. Stoecklein said. "What has been accomplished, in your mind, in terms of compliance?"
"I think that we have put together a team that has complied with my request and I hope that the work product that we're producing now will be evidence that we have tried," Mr. Maheu replied.
Judge Murray had some questions regarding that testimony.
"Could I just ask, have you been in the courtroom and heard the testimony of some of the prior witnesses?" the judge asked.
"I have not, Your Honor," Mr. Maheu replied.
"Well, would it surprise you that -- and counsel correct me if I'm wrong -- that some of the prior witnesses have said in the period since you joined after February of 2005, that they requested data, books and records from the company and were not able to get them as of yesterday or today?" Judge Murray asked.
"I'm not familiar with that testimony," said Mr. Maheu.
"How can they have -- if I'm correct that they did so testify, and the record will say whether they did or they didn't, how can they have given that testimony if you're sitting here and telling me that since February your team has made all these great forward progress towards fulfilling the reporting requirements?" Judge Murray queried.
"To my knowledge, they have furnished the information that we have requested," Mr. Maheu said. "I'm not aware of the testimony to which you refer."
"Who's 'we have requested?'" asked Judge Murray.
"That I have requested," Mr. Maheu said. "It was my duty to request it and I have requested it."
As Judge Murray continued, Mr. Stoecklein attempted to intervene, suggesting, among other things that people do not generally go to a board member who had just joined the company a short time ago in order to obtain documents from several years ago.
"But he says he's been on the board since February and he's shaping the company up," Judge Murray said.
"That's correct," Mr. Stoecklein said.
"And, yet, the accountants have been looking for information since February and this is May and they haven't been getting the information and he doesn't know anything about it," Judge Murray said.
"Are you suggesting that Mr. Maheu would have that information from three years before he joined the company?" Mr. Stoecklein asked the judge.
"Well, he should know that the accountants were looking for it and haven't been able to get it," Judge Murray said.
"Am I correct that you were unaware that accountants have been asking for information since February, March, and April and haven't been able to get it from the company?" Judge Murray asked the witness.
"I was unaware -- I was not unaware that they were asking for the information," Mr. Maheu said. "But I was unaware that the information was not progressing."
With that answer to the judge, and perhaps somewhat surprisingly, Mr. Stoecklein said he had no further questions for Mr. Maheu.
Mr. Frizzell rose to ask a few questions on cross-examination.
Among other things, Mr. Frizzell elicited testimony that Mr. Maheu had known CMKM's lawyer Mr. Stoecklein for about 15 years. He also testified that financial and reporting work was done in Mr. Stoecklein's offices, in addition to legal work.
"When you said you met with people, you met with people other than Mr. Stoecklein; did you not?" Mr. Frizzell asked.
"Yes, I did," Mr. Maheu replied.
"And do those people actually do accounting things and auditing type things?" Mr. Frizzell queried.
"They didn't do it in front of me, but we certainly had discussions," said Mr. Maheu.
"And you discussed with them things that you felt like needed to be done; is that correct?" the lawyer asked.
"Everything that had to be done in compliance with the regulatory body, yes," Mr. Maheu said.
Mr. Frizzell later asked Mr. Maheu to provide the names "just a few" of the companies for which he had served as chairman or some other board position. As it turned out, it was a short list.
"Well, I'm chairman of the board of the Da Vinci Franklin," Mr. Maheu said.
"What kind of business is that?" Mr. Frizzell asked.
"It's a fund that we have to aid small and start-up businesses," Mr. Maheu replied.
"Okay," said Mr. Frizzell. "Another company, please?"
"I have been an advisor to other companies," Mr. Maheu said. "I have no recollection of being -- of having been on the board of other companies."
Before passing the witness, Mr. Frizzell drew from Mr. Maheu that he believed he would be able to assist CMKM in filing its required reports.
Ms. Hakala's cross-examination was pointed, to say the least.
"Do you have any background in mining?" Ms. Hakala asked.
"No, ma'am," Mr. Maheu replied.
"Do you believe that CMKM should promptly file its periodic reports?" the SEC lawyer asked.
"I most assuredly do," Mr. Maheu said.
"When do you anticipate those reports will be filed?" the lawyer queried.
"As quickly as we can," said Mr. Maheu.
"Can you set a date by which those reports will be filed?" asked Ms. Hakala.
"As soon as they are ready, ma'am," Mr. Maheu answered.
"Can you set a date by which those reports will be ready?" she asked.
"I cannot," said Mr. Maheu. "But I assure you that I will do my best to comply with your request. I feel here that we have a partnership of sorts, I mean the government and we have a partnership to save these stockholders, and I will do my best to do that."
"You referred to a team," Ms. Hakala said. "Who is your team?"
"My team is Don Stoecklein and the group that he had put together," Mr. Maheu said.
"Do you know the names of the other people in that group?" Ms. Hakala asked.
"Yes, I do," said Mr. Maheu.
"What are those names?" Ms. Hakala queried.
"Mr. Anthony DeMint," Mr. Maheu began. "Suzanne and I cannot remember her last name. And -- and the lady who will be testifying after me, an attorney. I cannot -- "
"You don't remember her name?" Ms. Hakala asked.
"Yes, I do remember her name, but I just cannot remember it right now," said Mr. Maheu.
"Does CMKM Diamonds have any offices?" the lawyer continued her questioning.
"I'm sorry?" Mr. Maheu queried.
"Does CMKM Diamonds have any offices?" Ms. Hakala repeated.
"Not to my knowledge," said Mr. Maheu.
"Does CMKM Diamonds have any employees?" the lawyer asked.
"I am told that they do, yes, ma'am," Mr. Maheu replied.
"Who are those people?" Ms. Hakala asked.
"I do not know those people," Mr. Maheu said.
"How many employees does CMKM Diamonds -- " Ms. Hakala began
"I do not know," Mr. Maheu said.
Ms. Hakala went on to ask Mr. Maheu what he knew about CMKM's employees.
"Well, I hope that they're doing their work," Mr. Maheu said. "I mean, I know that they're employees in Canada. They're -- "
"How do you know that?" Ms. Hakala interrupted.
"Sorry?" Mr. Maheu replied.
"How do you know that?" the lawyer repeated.
"I was told that," Mr. Maheu said.
"By whom?" came the next question.
"By Mr. Casavant," Mr. Maheu replied.
"How many employees in Canada?" Ms. Hakala queried.
"I do not know," Mr. Maheu said.
"How much are they paid?" the lawyer asked.
"I do not know," came the response.
"How long have they worked for the company?" she asked.
"I do not know," Mr. Maheu said.
"What do they do?" Ms. Hakala continued.
"I hope they do their work," Mr. Maheu replied.
"What kind of work do they do?" Ms. Hakala quizzed. "What kind of work do they do?"
"I -- they -- they're supposed to work on the properties," Mr. Maheu said.
"Do you know what kind of work they do?" the lawyer pressed on.
"No, I do not," Mr. Maheu said.
The pace of the cross-examination changed as Ms. Hakala referred Mr. Maheu to press releases issued by CMKM that contained claims about financial reporting and bringing the company into compliance with U.S. securities regulations.
In response to a series of questions, Mr. Maheu acknowledged that he did not know what prior progress had been made with respect to those claims or much else about those news releases issued before he joined the company.
As the questions continued, Mr. Maheu proposed that they turn to a press release that he had issued on Feb. 15, shortly after joining the board of directors.
Ms. Hakala rather quickly embraced that suggestion, asking Mr. Maheu to read the first sentence out loud.
"CMKX is currently working toward completing an audit of its financial statements and the preparation of the necessary SEC filings," Mr. Maheu read out from the Feb. 15 news release. "Investors and -- "
"That's enough," Ms. Hakala interrupted. "You're welcome to continue reading. My questions are about that first sentence. It says here that CMKX is working towards completing an audit.
"When this press release was issued, had CMKM ever even started its audit?"
"I read that differently," Mr. Maheu began. "I read that they are working toward completing. Whether the start was pre this or they intended to do it the next day, I don't know, but I read it differently. I'm sorry about that."
"Has an audit of CMKM Diamonds' financial statements even started?" the lawyer asked.
"I'm sorry?" Mr. Maheu said.
"Has an audit of CMKM Diamonds' financial statements even started?" Ms. Hakala repeated.
"As of now?" Mr. Maheu asked.
"Yes," said the lawyer.
"I assume it has, yes," Mr. Maheu replied.
"On what basis do you think that?" Ms. Hakala asked. "Why do you think that?"
"Because that was my impression," said Mr. Maheu.
"What was the basis for that impression?" the lawyer pressed.
"That I have been told that, yes, an audit had been started," Mr. Maheu answered.
"Who told you that?" asked Ms. Hakala.
"I believe it was Doug -- Don Stoecklein," Mr. Maheu replied.
Ms. Hakala referred the witness to another exhibit.
"Mr. Maheu, have you ever seen a general ledger for CMKM Diamonds?" the SEC lawyer asked.
"No, I have not," Mr. Maheu said.
"Do you know how much CMKM Diamonds has in the bank?" she asked.
"No, I do not," Mr. Maheu replied.
"Do you know what the liabilities of CMKM Diamonds are?" Ms. Hakala asked.
"No, I do not," the witness answered.
"Do you know what the assets of CMKM Diamonds are?" Ms. Hakala continued.
"No, I do not," Mr. Maheu said. "Not -- no, I do not."
Before bringing her cross-examination to a close, Ms. Hakala drew from Mr. Maheu that he did not know what had been done with $3-million allegedly received from U.S. Canadian Minerals or $5-million allegedly received from St. George Metals Inc., nor did he know how shareholders or the investing public could find out what happened to that money.
In a short redirect, Mr. Stoecklein revisited the Feb. 15 news release containing the claim that the company was currently working toward completing an audit.
After drawing a confirmation that Mr. Maheu was not an accountant, Mr. Stoecklein suggested that the first sentence of the news release should have stated that CMKM was working towards completing an audit of its financial statements.
"That is correct," Mr. Maheu agreed.
"And did you understand that CMKX retained the services of an auditor in early January to prepare that audit?" Mr. Stoecklein asked.
"Yes, I learned that, yeah," said Mr. Maheu.
Mr. Maheu also testified that he understood that Suzanne Herring had been retained by Mr. Stoecklein's law firm to prepare financial statements to allow the audit to proceed.
Mr. Stoecklein said he had no further questions, but Judge Murray had some closing questions of her own.
"Okay," Judge Murray said to Mr. Maheu. "I want you to understand that sometimes I have to be blunt. Okay?
"Could you explain to me why I might think that they hired you and paid you $480,000 to give some color of legitimacy to this operation? In other words, you evidently have an esteemed reputation.
"So did that thought ever cross your mind, that this company brought you in just to make it look like there was some legitimacy to it and paid you this amount of money?"
"First of all, Your Honor, I've only been paid, so far, $80,000," Mr. Maheu began, receiving an acknowledgement from the judge. "And I would like to believe that, yes, that my background -- and I repeat.
"I can stand any, any full background investigation that any entity can do based on I already have.
"And I think that having spent a lifetime trying to be in that position -- and I do have a great record in business -- that, yes, I would like to believe that they would have hired me for my past experience."
"Has it ever crossed your mind that you're being used?" Judge Murray asked.
"I don't think so, Your Honor," Mr. Maheu said. "No."
With that, Mr. Maheu was excused.
Stockwatch will review the testimony of the final witness in a following article.
The saga continues.
Comments regarding this article may be sent to lwebb@stockwatch.com.
(More information regarding CMKM Diamonds and associated companies can be found in Stockwatch articles dated Oct. 21, 2003; June 22; Sept. 16 and 24; Oct. 1, 15 and 20, 2004; Feb. 11, 14, 18, 22 and 23; March 1, 3, 4, 7, 14, 15, 16 and 21; and June 6, 8, 9, 10, 13, 14 and 15, 2005.)
Ref: stockwatch.com.
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