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Gold/Mining/Energy : YBM Magnex Intl Sees Revenue Growth 30-35%/Yr In MagnetOp -- Ignore unavailable to you. Want to Upgrade?

To: saif who wrote (130)	5/24/1998 1:14:00 PM
From: Adrian du Plessis	Respond to of 314

Canadian stock dealing reputation takes a knock By Edward Alden and Scott Morrison in Toronto Canada's reputation as a haven for questionable stock dealings has received further reinforcement, this time over a Toronto Stock Exchange listed company that may have been used as a conduit to launder the proceeds of Russian organised crime. YBM Magnex Interna-tional, a Pennsylvania-based industrial magnet and bicycle manufacturer, was dropped from the TSE 300 index of blue-chip companies this week and may be de-listed. But many critics are wondering just how the company entered the elite index in the first place. YBM, whose headquarters were raided last week by the US Federal Bureau of Investigation as part of a criminal investigation headed by the organised crime division, is drawing comparisons with Bre-X Minerals, the largest fraud in Canadian stock history. Like the Bre-X case, in which an obscure Calgary gold company milked investors for C$6bn (US$4bn), critics are asking how YBM managed to amass a market value of nearly C$1bn without regulators raising questions about its operations or some of its principal shareholders. YBM is thought by Canadian and US authorities to be directly linked to Semion Mogilevitch, a powerful financial figure. Mr Mogilevitch held 5.5m of 120m shares issued in YBM when it went public in 1995 through a reverse acquisition by Pratecs Technologies, a shell corporation on the Alberta Stock Exchange. Identical shares were owned by Titania and Mila Mogilevitch, but it is not known if they are directly related to Mr Mogilevitch. YBM at the time also owned Arigon, a Channel Islands incorporated company which British police suspected was a money laundering operation for Mr Mogilevitch. Arigon's assets were frozen in 1995 by a London court on application by the Crown in the United Kingdom. That led Alberta officials to halt trading, but the allegations were dismissed by the London court and trading resumed without details of the allegations ever being revealed. YBM acquired its Toronto Stock Exchange listing in May 1996 and the rapid rise of the stock, which hit C$20 this spring, propelled it into the TSE 300 in April 1997. Adrian du Plessis, an independent stock market investigator who first raised questions about YBM, believes regulators should have blocked the company from listing publicly back in 1995. A second opportunity was last autumn, he said, when the Ontario Securities Commission (OSC) ordered a re-audit of the company's 1996 financial report. The auditors re-adjusted the company earnings to show that just US$1.8m of its US$90m in sales, not the US$14m originally claimed by the company, were in North America. The other US$88m in sales was in difficult-to-trace transactions in Russia and eastern Europe. YBM had sales of US$138m in 1997 in Europe and North America, according to unaudited statements. About 40 per cent of YBM stock is owned by Canadian mutual fundholders. John Carson, TSE senior vice-president of market regulation, says the exchange was aware of the 1995 allegations, but says they are unsubstantiated and that Mr Mogilevitch's links to the firm are tenuous. Fingers are also being pointed at the Toronto brokerage houses that heavily promoted the stock. As in the Bre-X case, some brokerages held shares in YBM at the same time their analysts were touting the stock. Two firms, First Marathon Securities and Griffiths McBurney, were granted options to buy YBM shares at a discount in 1995, and subsequently issued regular buy recommendations for the stock. "[Brokerages] raise money for firms and definitely have an interest in servicing the corporate issuer," says Bill Reidl, president of Fairvest Securities, which advises institutional investors. "It's well-known in the industry that some firms are raising money for corporate issuers." Mr du Plessis says such dealings will continue unless Canada creates a national securities regulator to replace the current system of provincially regulated exchanges, which often fail to share information with one another. Canada is the only major industrialised country without a national regulator, says Jeffrey MacIntosh, a University of Toronto expert in securities law. But he said that even with a tighter regime it was often tough to distinguish the good from the bad apples. After the fact, people often criticised them for missing what in retrospect seemed obvious. Larry Waite, who heads the enforcement branch of the OSC, says the commission has been short of staff to investigate allegations. But he says resources have been increased substantially since the Bre-X debacle, and the commission has more active investigations under way than a year ago. The Financial Times (London) May 23 1998