Magnex million$: What, if anything, does Wayne Deans know that the public doesn't?
Wayne Deans, sometimes referred to as a "wily" or "savvy" money manager based in Vancouver, has told his, apparently faithful, followers: "YBM is a legitimate company that produces real products. This is not a Bre-X."
These words of Deans, portfolio manger of the Navigator Value Investment Retirement Fund, match published statements of other money managers whose funds are holding shares in YBM Magnex International Inc. YBM Magnex stock, a former TSE 300 high-flyer, hasn't traded since May 13 1998, the day that 60 agents for the FBI, IRS and other US Federal agencies raided the company's Pennsylvania headquarters as part of an investigation into suspected money laundering, securities fraud and customs and immigration violations.
On May 21, the day after the wily Deans made his pronouncement, mutual fund managers across Canada agreed, (in a private conference call arranged by the Investment Funds Institute of Canada), to devalue, once again, their YBM holdings to between CDN $1 and $3 per share. (Soon after the FBI et al sweep, these savvy money managers dropped YBM's quoted value to $5.00 - sharply below the last pre-raid trade price of $14.35 per share.)
The result of this second devaluation of the funds' YBM holdings was to peg the company's market value between CDN $44.2 million and $132.6 million - down from a March 1998 high of $895 million. Even more amazing is the realization that between CDN $762.4 million and $850.8 million can be erased from an issuer's market capitalization and money managers aren't seen to be raising serious questions about the company's affairs.
Years ago, when a stock promotion went sour on the Vancouver Stock Exchange, there was a real chance that public investors who'd lost money under questionable circumstances would not appear satisfied with the status quo. Today the game has shifted to the Toronto Stock Exchange and the big money managers call the shots. These managers and advisors seem remarkably content to not turn over loose stones on behalf of those investors whose money they employ.
One Bay Street fund company, holding hundreds of thousands of YBM Magnex shares, has told its friends and clients: "YBM Magnex has a legitimate magnet manufacturing plant in Hungary, which has been visited by numerous analysts, and has other legitimate operations. Deloitte and Touche did an extensive, four month long audit of the company's books before it listed on the TSE and uncovered no major irregularities. It is worth noting that the FBI has not publicly revealed why they are investigating YBM; the money laundering allegation is only speculation on the part of the press."
The last two sentences of this fund explanation are incomplete, inaccurate or false at best face (and can be revisited in a later article). Perhaps most significantly, they highlight that the fund manager's motivation is not to seek answers, but, rather, to deflect concerns and explain away serious problems surrounding a company in which they have buried their investors' dollars.
The first sentence in this particular fund alibi points to another due diligence breakdown.
It would be interesting to learn the identities of the numerous analysts said to have visited the Magnex Rt plant in Budapest - and to determine if they know as much about magnets as the numerous analysts who visited Busang knew about gold.
There has been no question as to whether or not there exists an actual plant in Hungary. And, since raising over $100 million in hard western currency, the Magnex group has, of course, been able to buy other physical facilities in the United Sates and the United Kingdom in 1997 and 1998. Unanswered questions, however, surround the level of legitimate representation as to what these facilities may create in terms of sales and profits (or losses).
Well before Deloitte and Touche refused to sign off on YBM Magnex's financial statements and it became publicly known, through an OSC notice, that the company's auditors were concerned that "one or more illegal acts may have occurred which may have a material impact on (YBM's) 1997 financial statements", there was reason to question the company's incredible reports of success.
In addition to probing the reality of the purportedly huge, and ever increasing, demand for permanent magnets in Russia, the Ukraine and Eastern Europe - among various issues - a prudent money manager or investor could have questioned the substance of the core business assets upon which the YBM Magnex stock promotion was founded.
Until relatively recent times when YBM Magnex acquired money-losing subsidiaries of legitimate companies in the U.S. and U.K., its sole magnet producing facility was the Magnex Rt plant located on Csepel Island in Budapest. Financial statements filed by Magnex Rt show that this enterprise along the Danube River is modest.
(Magnex's auditor in Hungary is a private individual, Istvan Kanyurszky.)
For the year ended December 31 1994, Magnex had sales of US $1,137,171 and incurred a loss after tax of US $660,568; for the fiscal year end 1995 Magnex sales totalled US $3,130,519 and the magnet company suffered a loss of US $1,168,571; for year end 1996 Magnex sales dropped to US $1,774,394 and the company recorded a small profit of US $21,631.
Thus, for the three years 1994 - 1996, Magnex Rt reported sales of US $6.04 million and recorded a loss after tax of US $1.81 million. During this same fiscal period, YBM Magnex, the parent of Magnex Rt, was reporting magnet sales of US $120 million and an operating profit of US $28.3 million. (During these years, relative to the U.S. dollar, the value of the Hungarian Forint fell dramatically. The official rate of currency exchange in 1994 was 111 HUF = US $1; in 1996 it took 160 HUF = US $1.)
One obvious question arises: since Magnex Rt, the core business of YBM Magnex in Hungary, is a marginal enterprise -- what accounts for the huge sales and profit figures that have been attributed to the public company's subsidiaries Arigon/United Trade and Arbat International over the years? Magnets?
Can this be answered by Wayne Deans or any of the other prudent fund managers or analysts who have been supporting YBM stock?
Can this be answered by YBM vice-president, Jim Held, (a Pennsylvania-based accountant) by way of his bartering explanation (e.g. Held has explained one transaction in which magnets were traded for small motors which were then swapped for food-processing machines which were next exchanged for cans of meat which were then sold for cash to a car manufacturer)??
Can this be explained by Semion Mogilevich, the Russian mafia godfather, who, together with associates, helped spawn Magnex Rt, Arigon and Arbat International???
It's fanciful to imagine that Bay Street's financial brains would balance their reputations on a mountain of Spam. So, surely, there is an answer more satisfying than the canned responses of various officials to date. |
