Mr Bogatin,
Correct me if I read your post wrong, but you seem to blame Adrian du Plessis for your shareholders' recent misfortunes. According to the story below, the stock-buying victim at Griffiths McBurney was kept in the dark not by Mr du Plessis, but by (1) YBM's management; (2) brokers whose due diligence was performed in the spirit of the three monkeys; (3) regulators who knew about your problems and allowed trading to continue until a more diligent regulator (the FBI) did something.
YBM Magnex International Inc -
Questions abound on Bay Street
YBM Magnex International Inc
YBM
Shares issued 44222901
1998-05-13 close $14.35
Friday May 15 1998
GRIFFITHS' MILLION-SHARE BLOCK, A DELAYED HALT AND A
CONFERENCE CALL
by Brent Mudry
One of the many whodunnits in YBM Magnex International's last day of trading Wednesday on the TSE involves Griffiths McBurney & Partners' million-share cross less than an hour before the FBI raided the magnet maker. The current value of this $14.25 million block is anyone's guess, but mutual fund managers have put a theoretical base value of $5 million on the cross, leaving the buyer (or buyers) with an instant loss of at least $9.25 million. The timely trade -- timely from the
sellers' point of view -- came a day after Canadian regulators made the decision to halt the stock, but, unfortunately for the buyers, this decision was not immediately implemented.
The timing of the trade is sure to cause comment. YBM shares opened at $13 at 9:30 am Wednesday, and the Griffiths million-share-cross went through five minutes later, at $13.25. With the large overhang out of the way, the stock started rising. YBM shares reached $14.15 at by 10:30, when five dozen federal agents, from the FBI, the U.S. Customs Service, the U.S. Immigration Office and the International Revenue Service, barged into YBM's headquarters in Newtown,Pennsylvania. The Toronto Stock Exchange did not halt trading until 23 minutes later, at 10:53, at the urging of the Ontario Securities Commission. The OSC followed with a cease trading order, effectively suspending the stock until further notice.
While it first seemed the Canadian halt was based on the FBI raid, in reality, the decision by the OSC to cease-trade the stock was made at least a day earlier, on Tuesday. "We knew it was coming a day before," Charles Blakey of the Alberta Securities Commission told Stockwatch. It remains unclear why the OSC stalled for a day and what, if anything, it knew about the U.S. Attorney's Organized Crime Strike Force four-agency probe into YBM. The FBI and the Customs Service were granted their search warrant, sealed in court, on May 6, when the stock traded at about $17. Based on the 23-minute delay in halting the stock and Mr Blakey's remark, it appears likely the halt was based on YBM's week-old disclosure of Deloitte's discomfort letter, and not directly on the FBI probe. On May 8, coincidentally two days after the sealed FBI warrant was signed, YBM itself revealed the existence of Deloitte's April 20 discomfort letter to the OSC. The OSC claims it never received this letter and related documents until 9 pm on Tuesday, after repeated requests to YBM. Presumably unaware of the 60-agent force about to strike in Pennsylvania, the Ontario regulator let the stock trade for more than an hour the next day, before halting it. It is not known exactly when or if the OSC received any investigatory alert from Deloitte, prior to the package received at 9 pm on Tuesday. OSC officials continue to refuse to even confirm or
deny they are investigating YBM. Deloitte's North American pokesperson, Ellen Ringel, based in Deloitte's "national" office in Wilton, Connecticut, was unable to confirm when her firm first alerted Canadian regulators. Also apparently unaware of what was coming, Griffiths, a big booster of YBM, was preparing to clean up a million-share block that was hanging over the market. The depressing overhang was no secret to Canadian fund managers on Tuesday, although the identity of the timely seller is. It is not known whether the block was picked up by a single buyer, or a number of Griffiths clients, or whether the brokerage took all or part of the stock for itself. One firm that was definitely not involved was Connor Clark and Lunn, the Vancouver-based pension fund manager now taking the biggest hit on the YBM debacle. "We saw it but we don't know who it was," analyst Kaan Oran told Stockwatch. Mr Oran, a big booster of YBM as a First Marathon analyst, moved over to Connor Clark, YBM's biggest institutional holder, about a month or so. "I cannot comment on YBM," the new Connor Clark employee told a reporter. Connor Clark bought more than $48 million of YBM five-year debentures in a private placement last August, convertible at $12 per share. In a statutory filing made at the same time, Connor Clark stated that it held 6.53 million shares on behalf of clients' funds and accounts, fully-diluted. At the time, this worked out to a 16.09 per-cent stake in YBM, fully-diluted. The debentures would convert into four million shares, indicating Connor Clark had purchased 2.52-million shares prior to this private placement.
Although pension fund manager Connor Clark was so heavily exposed, it opted to stay out of the 20-strong conference of mutual fund managers on Thursday, which set a $5 to $7 value on the stock. The post-raid pow-wow was hosted by the Investment Funds Institute of Canada. The call was supposedly restricted to mutual fund managers, but one pension fund "snuck in there," according to IFIC spokesman John Caszel. He refused to identify the firm, or one other pension fund which contacted IFIC for a post-call briefing, but he confirms that Connor Clark was not involved.
Faced with an opening range of "zero to $14.35," the fund managers hammered out a consensus of $5 to $7. IFIC said the fund managers worked from YBM's own financials and "reports issued by the analysts." Mr Caszel added, "there had to be some kind of basis" for a valuation. Based on this information, the fund managers ascribed a value of $225 million to $315 million on YBM, down from its peak market cap of $900 million.
(c) Copyright 1998 Canjex Publishing Ltd. canada-stockwatch.com
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