Document omits YBM director's role
Michael Schmidt's job as manager of investor relations for Technigen not mentioned in disclosure.
David Baines, Sun Business Reporter
The Vancouver Sun Thursday June 4 1998
When Michael Schmidt was named as a director of the Alberta shell company that eventually became YBM International Magnex Inc., there was no mention that he had served as chief tout for one of Vancouver's most infamous public companies.
Disclosure documents filed with the Alberta Securities Commission describe Schmidt, one of five founding directors of Pratecs Technologies Inc., as an "independent businessman" and a realtor with Realty World, a job he still holds.
Nowhere is there any mention of his role as manager of investor relations for Technigen Corp., a company whose antics have been chronicled in 42 different stories in The Vancouver Sun, as well as articles in the Financial Post, The Globe and Mail, and Maclean's magazine.
Schmidt, who continued to serve on YBM's board even after it graduated to the blue-chip company of the Toronto Stock Exchange's top 300 listings, refused last week to answer questions about his role in the Technigen affair, but the public record is clear enough.
Technigen was a Vancouver Stock Exchange-listed company that was developing a golf simulator machine. Players could hit a tethered golf ball and watch its flight simulated on a video screen. This way, players could play an entire course without going outdoors or taking a single step.
On April Fool's Day, 1987, Technigen president Lawrence Nesis announced the firm had "finalized" agreements to sell $116 million worth of the machines to a Swiss company called Corporacion Relacio.
The price of the stock soared to $16 before freelance stock-market
investigator Adrian du Plessis learned that Corporacion Relacio was
actually a Panamanian-registered company represented by Charles Stuart, an Ontario man who had been jailed twice for mining scams and banned from trading stock in British Columbia for life.
Three weeks later, du Plessis attended the company's annual general meeting at the Hotel Vancouver and was met by Schmidt who, at the time, was a shareholder but held no official position with the company.
"He came to me and gripped my hand like a vise, squeezing it exceptionally hard, and said, 'Why are you doing this to the company?' " says du Plessis.
As events unfolded, the sales to Corporacion Relacio never did materialize and the stock collapsed.
On Sept. 28, 1987, Maclean's columnist Diane Francis wrote a column about Technigen entitled, "A strange way to run a company."
"This machine, called the GS 2020 is being billed by its promoter,
Technigen Corp. of Vancouver, as part of Canada's high-tech future. If it is, goodness help us," she wrote.
She said Technigen's public releases "stretched the imagination" and
chastised VSE officials for not taking the the company to task.
"Of course, the golf simulator may end up being the greatest thing since sliced bread, but as long as exchanges do not uncover questionable practices and rely on the press to do so, investors lack protection. Worse yet, the potential exists for precious capital to be diverted from real economic activity and into puffed up promotions."
Undeterred by the adverse publicity, or any regulatory intervention, the company continued to promote the golf simulator.
Anxious to keep abreast of the company's affairs, John Woods, editor of Canada Stockwatch, created a fictitious person, Buddy Miletich of El Toro, Calif., and asked the company to put him on its mailing list.
On Jan. 10, 1989, "Buddy" received a return letter from Schmidt that
included some promotional material:
"In reality, Joytec [Technigen's subsidiary] has created the fourth
generation of golf simulators, a golf simulator so technologically advanced and simple to operate that it rivals the sophisticated aircraft flight simulators that the Joytec experience is based on," it stated.
It predicted the machine would take the world by storm: "In Japan, groups of 20 machines will form 'golfeterias' in shopping malls and dedicated buildings. Caribbean cruise ships will carry their own golf courses on the aft deck."
Included were testimonials from "the gallery," including one that stated, "May be the best thing since sliced bread," a quote attributed to Maclean's magazine.
Francis was furious. In an Feb. 8, 1989 column in the Financial Post
entitled, "Technigen is a disgrace to the VSE," she complained that the quote was taken "wildly out of context."
"Frankly, it's one of the most objectionable items I have come across in my two-year crusade against Vancouver excesses," she said.
She said she called Schmidt to find who was responsible and he had replied, "I really don't know. You should know. You're the investigative reporter. You tell me and I'll tell you if you are correct. We're certainly not going to help you write the garbage that you do write."
Then he told Francis, "This is not a current article, you understand. It
has not been distributed to people since 1987."
This was clearly false: Schmidt had sent it to "Buddy" just one month
earlier.
The company continued to promote the golf machine, announcing on June 21, 1989, "the successful launch in Japan by Technigen, Marubeni Corp. and Sony Corp. of the Japanese production version."
While it looked like smooth sailing on the surface, there was much turmoil below deck.
On Aug. 4, 1989, the VSE announced Technigen would be delisted from the exchange at the company's request, but would continue to trade on Nasdaq in the U.S., where it was co-listed.
The reason for the delisting did not become apparent until Nov. 20, 1989, when Nesis admitted to the B.C. Securities Commission that -- between September 1986 and April 1987 -- the company had issued several news releases "which it ought to have known were misrepresentations."
Nesis was prohibited from trading shares in B.C. for 18 months and barred from acting as a director or officer of any B.C. public company for three years.
If Nesis had wanted to keep his company on the VSE, he would have had to resign as president and director. By listing exclusively on Nasdaq, he would escape B.C.'s regulatory noose.
Nesis, however, put quite a different spin on the matter. He said the
delisting was prompted by "the increase in trading activity and market
support being generated in the U.S., and the expense and complexity of being listed on two exchanges."
If Nesis' misconduct caused Schmidt any chagrin, it wasn't obvious. Schmidt continued in his role as Technigen's manager of investor relations until at least November 1991. Meanwhile, he was granted options to buy a total of 275,000 shares at prices ranging from 30 to 35 cents.
The company never lived to Nesis' or Schmidt's billing, however. In
October, 1989, when Schmidt was firmly ensconced as manager of investor relations, the company issued some extremely bullish projections.
During 1990, revenues would reach $19.5 million and net earnings $3.3 million. Within two years, revenues would jump to $84 million and net profits to $13.8 million.
Actual results, however, fell far short. By 1992, revenues had increased to only $212,000 ($83.8 million less than the company had projected) and instead of earning $13.8 million, it lost $2.2 million.
By early 1992, Schmidt apparently had left Technigen.
His involvement with Technigen represents his only significant
participation in a public company but there was no reference to it in
Pratecs' disclosure documents when it went public in 1994 and acquired YBM.
Guy Scala, YBM's vice-president of sales and marketing, wasn't sure what qualified Schmidt to be a director of a junior public company, let alone one that had graduated to the TSE 300.
"I would say he was familiar with the market there and was available for the company's guidance," he said in an interview last week.
YBM, a manufacturer of high-energy magnets, had its head office in
Pennsylvania. YBM owned Arigon Ltd. of the Channel Islands which, in turn, owned Magnex RT of Budapest, the company's main operating subsidiary, and Arbat International of Russian.
To acquire these companies, Pratecs issued 110 million shares to YBM's 31 shareholders including Semeon Mogilevitch, later identified as a top-ranking member of the Russian mafia and founder of Arigon, Magnex RT and Arbat.
Disclosure documents show that Schmidt, as well as serving as a Pratecs director, would have trading authority over a private entity called Anix Investment Club of Budapest, which owned 718,000 shares.
"Trading on behalf of Anix Investment Club is done by Mr. Schmidt at the direction of the partners," the company stated.
Anix's partners included Igor Fisherman, now YBM's chief operating officer, and Konstantin Karat, a long-time associate of Mogilevitch.
In May 1995, British authorities initiated legal action against Karat and
Mogilevitch in connection with an alleged scheme to launder $80 million US through Arigon. The following month, Alberta Stock Exchange officials learned of the legal action and halted trading in Pratecs shares.
Within several weeks British officials, due to lack of cooperation from
Russian authorities, dropped their allegations and ASE officials resumed trading.
Nevertheless, British officials deemed Mogilevitch persona non grata and prohibited him from entering the U.K.
As a Pratecs director, Schmidt would presumably have been aware of the legal action. However, he refused to answer any questions about his role as a trading facilitator for Karat, or what he knew about the company's alleged links to Russian mafia figures.
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someone on a Fund Library ( fundlibrary.com ) YBM discussion thread questioned the role of regulators in this messy affair - and whether Alberta must shoulder some blame along with Ontario...
as this article from today's edition of the Vancouver Sun illustrates, there could have been more viligant screening measures by Alberta regulators overseeing the public launch of Pratecs/YBM. The theory behind JCPs or "blind pools" is that their primary asset upon listing will be the track record of their directors and officers.
The track record of this director speaks for itself. And he was not alone - questions could have been raised about others involved from the company's public inception.
The question about ASE/ASC responsibility, however, may be most loudly answered by the failure of Alberta regulators in mid-1995 to address the very serious issues surrounding the British intelligence investigation into suspected Russian mafia money laundering by godfather Semion Mogilevich, his associate Konstantin Karat, and others through Arigon Co. - the Channel Islands entity which spawned YBM Magnex.
Since the FBI, IRS et al raid of YBM Magnex's head office in Pennsylvania on May 13 1998, defenders of the company have emphasized that no prosecutions resulted from the 1995 investigation. That is a fact - but hardly represents full, true and plain disclosure.
It's been noted, by the police and the media, that the prosecution did not proceed in the U.K. because of a lack of assistance from Russian authorities and a technical failing in British money-laundering laws.
Perhaps more significantly, in the context of Canadian due diligence, every company controlled by Semion Mogilevich was closed down, and all bank accounts, both national and international within the jurisdiction of the UK were closed down. His entire organization was believed by police to have withdrawn from UK shores. Finally, on August 10 1995 Britain's Home Secretary signed an order barring Mogilevich from entering the United Kingdom.
So, at precisely the same time that one nation was shutting down Mogilevich and kicking him out, another - ours - was allowing the godfather and his associates to set up a public company listed on the ASE.
Does Alberta bear any blame for this? The answer is obvious.
Just as the answer is obvious as to the blame that Ontario regulators must shoulder for failing in their review(s) in subsequent years.
Of course, there's also the Bay Street brokerage analysts, mutual fund managers and advisors and other industry participants who, either, failed to perform adequate due diligence, or, chose to ignore these problems and keep them hidden from the public. |
