Documents link YBM to Russian mafia (here's another article - I'm not so good with posting URLs - they change or disappear over time...)
Saturday 16 May 1998 - The Vancouver Sun
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Documents link YBM to Russian mafia
Company is under investigation by various U.S. agencies and the Ontario Securities Commission.
David Baines, Sun Business Reporter, with files from Adrian du Plessis Vancouver Sun
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(Ownership web revealed).
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While it was going public on the Alberta Stock Exchange in 1995, YBM Magnex International Inc. was linked to alleged money-laundering operations with the Russian mafia.
But after a six-week trading halt, ASE officials cleared the company to
resume trading.
The stock price soared and the company moved to the Toronto Stock Exchange where it became a favorite of some of Canada's top analysts, underwriters and mutual fund managers.
The love affair came to a crashing halt Wednesday when about 60 agents from the Federal Bureau of Investigation, U.S. customs and immigration service and the Internal Revenue Service raided the company's headquarters in Newton, Pa.
The Ontario Securities Commission -- citing the raid and evidence of
criminal activity uncovered by the company's auditors -- issued a cease trade order, freezing nearly $650 million worth of YBM stock certificates.
The purpose of the U.S. investigation has not been officially revealed, but the Philadelphia Inquirer quoted an unnamed law enforcement officer as saying it relates to allegations of money-laundering, securities fraud, and customs and immigration violations.
According to documents obtained by The Vancouver Sun, the founders of YBM and its subsidiary companies are alleged to be high-ranking members of Russia's most notorious mafia gangs.
Their current links, if any, to the company are not known. YBM
vice-president James Held said Friday he is "not knowledgeable enough" on YBM's original shareholders to comment.
He said he would make inquiries and call back, but did not respond by press time.
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According to disclosure documents filed with the Alberta Securities
Commission, YBM went public in 1995 by acquiring an ASE-listed shell company called Pratecs Technologies Inc.
The transaction was structured in two stages. First, Pratecs would acquire Canadian rights to distribute products of YBM Magnex Inc. of Pennsylvania. Then it would acquire all of YBM's outstanding shares.
According to disclosure documents, YBM owned Arigon Company Ltd. of the Channel Islands which, in turn, owned Magnex RT of Budapest and Arbat International of Russia. Magnex was the main operating company. According to unaudited statements, it had sold $20.6 million US worth of magnets in 1993 and earned $1.8 million US in net income.
Of this amount, $4.3 million US, or about one-fifth of the company's sales, was said to have been generated in Canada. There was, however, no evidence that any sales had actually been made in Canada.
To complete both stages of the transaction, Pratecs would issue 110 million shares at a deemed price of 20 cents to the shareholders of YBM, putting them firmly in control of the public company.
According to disclosure documents, the largest shareholder would be Jacob Bogatin, then YBM's group vice-president and now YBM's president and CEO. Bogatin purportedly holds two science doctorates from universities in Russia.
Others YBM shareholders who would receive large blocks of Pratecs stock included Semeon, Titania and Mila Mogilevitch. Together they would receive 16.5 million of the 110 million shares.
According to a May 1995 FBI report. Mogilevitch is a high-ranking member of the Russian mafia.
"Semion (Note: Russian names are often spelled differently when translated to English) Mogilevitch runs an extensive prostitution operation out of the Black and White Nightclubs in Prague and Budapest. Foreign law enforcement agencies have documented Mogilevitch's prostitution operation as the centerpiece of his operations in Europe," the report states.
The report notes that Eurasian criminal organizations use false
documentation "to facilitate travel or residency in furtherance of criminal activities. Many of Semion Mogilevitch's lieutenants and Mogilevitch himself hold Israeli citizenship and carry Israeli passports."
More crucially for YBM shareholders, the report also linked Mogilevitch to Arigon:
"A number of individuals associated with Semion Mogilevitch in the Los Angeles area received wire transfers from Arigon Ltd. The use of
individuals to receive small deposits may be a method by which Mogilevitch is disguising larger transactions from criminal proceeds.
The use of residential addresses for a number of front companies in Los Angeles is another indication of money laundering."
Other YBM shareholders who received large blocks of Pratecs stock included Semion's ex-wife, Galina Grigorieva; Konstantin Karat; Anatoly and Tania Kulachenko; and Alexei and Valentina Alexandrov. No background information on these people was provided.
The transaction, which would turn the shell company into an active
business, was sponsored by Yorkton Securities in Calgary.
Signing on behalf of Yorkton was Michael Prew, a Yorkton vice-president and former chair of the ASE board of governors.
On June 22, 1995, before the second stage of the transaction was completed, Pratecs "voluntarily" halted trading due to information it had received on an unnamed subsidiary company. The nature of that information was not disclosed to shareholders.
Days earlier, CTK National News Wire (a Czech news agency) reported that members of two Russian gangs -- Solntsevskaya, based in Moscow, and Solomonskaya, operating in Ukraine and Israel -- had met in the U Holubu restaurant in Prague on May 31, 1995 to celebrate the birthday of a high-ranking gang member.
The wire service said the restaurant "is the seat of Arigon Cs., daughter company of Arigon Ltd."
It said Czech police raided the meeting because it had received an
anonymous tip that Mogilevitch, described as boss of one of the gangs, was to be murdered. Police said that two large refrigerating vans had been parked outside the restaurant, possibly for the removal of dead bodies.
Two hundred people were detained during the raid, but all were eventually released without indictment.
The wire service said a team of British police specialists subsequently
went to Prague: "Their stay was connected with the arrest of British lawyer Charles Churchwald in May who was suspected of laundering $80 million gained by the Russian organized crime by means of the British Arigon Ltd. company."
On June 6, 1995, the High Court of Justice in London issued orders freezing the assets of Arigon and several people who were allegedly shareholders of Arigon.
They were Adrian Churchward (correct) and YBM shareholders Galina
Churchward (nee Galina Grigorieva, who was reportedly Mogilevitch's former wife), Mogilevitch and Konstantin Karat.
There were also allegations that two other YBM shareholders -- Anatoly Kulachenko and Alexei Alexandrov -- had criminal convictions in the Ukraine.
It was this court action that caused ASE officials to halt trading, but the allegations were eventually dropped, the freeze orders lifted and trading in the ASE company resumed without any public disclosure of disclosure of what the allegations were about or who was involved.
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As part of its corporate reorganization, Pratecs consolidated its shares on a five-for-one basis, then proceeded with a stock offering of 7,075,000 shares at $2 each underwritten by First Marathon Securities and Griffiths McBurney & Partners.
Four months later, First Marathon vice-president Owen Mitchell, who
certified the prospectus on behalf of his firm, became a director of YBM.
That prospectus contained audited statements for 1992, 1993 and 1994. Those statements revealed that during 1993 the company hadn't sold any magnets in Canada.
This contradicted the company's earlier assertion that Canadian sales had totalled $4.3 million US. There was no attempt to resolve that discrepancy.
On Nov., 3, 1995, the company announced that the acquisition of YBM Magnex and stock offering had been completed. That meant that Mogilevitch and the other YBM shareholders had received their 110 million shares (22 million post-consolidation).
On Nov. 26, 1995, Edinburgh-based Scotland on Sunday, published an article entitled, "Western businesses bought as front for Russia mafia."
"In a bid to widen its share of western markets," the article stated, "the Russian mafia has moved is forward money-laundering operational bases to central Europe, flooding laundered money from criminal activities into the new democracies."
"According to Budapest police officers investigating the affairs of the
Magnex electronics firm, Budapest and Prague have become the focal point of Russian mafia money-laundering operations because of easy access, the weakening of traditional institutional structures and the great protection afforded to the depositors by commercial banks," said Scotland on Sunday.
"Police also claim that Mogilyevich (correct) has several 'action men' who worked mafia operations in Central and western Europe. One of them was named as Igor Anatolyevich Tkacsenko, who has been linked to a series of serious crimes in region, but as the witnesses observe the rule of 'omerta' (code of silence), he cannot be brought to book."
The article continued: "According to both Budapest and Moscow police, one of the key figures behind the money-laundering is Sergei Mikhailov (who is) head of Moscow's dominant crime syndicate, the Solntsevo gang."
In November 1996, a well-regarded Russian magazine, Ogonyok, published the names of Russian "godfathers," known to be living in Budapest, who have been accused of money laundering and other crimes by the Russian authorities.
One was Mikhailov, who was said to have helped establish Arigon, Magnex and Arbat.
Mikhailov was arrested in Geneva on Oct. 15, 1996, and charged with money-laundering, visa violations, illegal real estate dealings and being a member of a criminal organization. He has been in custody ever since.
After YBM went public, it reported rapidly increasing sales. Last year, the OSC raised questions about the company's 1996 audited financial statements and asked for a re-audit to confirm its reported sales and the identity and ultimate location of its customers.
That re-audit, conducted by Deloitte & Touche in Pennsylvania, confirmed the total sales figures but found that instead of selling $13.6 million US worth of magnets in North America, as previously reported, it had sold only $1.8 million US.
The re-audit also discovered that YBM had given $5.2-million US worth of diesel oil to an unnamed party. Payment was not to be made until the oil had been consumed by end users.
Why the company made such an arrangement, or why it was dealing in diesel oil was never explained.
These adjustments did not deter analysts such Nesbitt Burn's Peter Sklar or First Marathon's Kaan Oran, who continued to recommend the stock.
In March, the company issued unaudited statements showing that 1997 sales had jumped 53 per cent to $138 million US and net income nearly doubled to $25.6 million.
The stock soared to a high of $19.90, raising the company's total stock market value to $900 million.
Then, on May 8, the company announced it would seek a 45-day extension in filing its 1997 audited statements.
The stock crumbled to $14.35 by Wednesday.
Then, 23 minutes after the FBI raid began, the company asked the TSE to halt trading. Later that day, the OSC issued a cease-trade order revealing that Deloitte had uncovered evidence of criminal activity within the firm and had suspended its audit. |
