Here is some news related to Montello:
Controversial Howe Streeters on YBM board
David Baines, Sun Business Reporter Vancouver Sun
Among the directors of YBM International Magnex Inc., --the Toronto Stock Exchange company suspended on May 13 amid allegations of Russian mafia connections -- were two Howe Street promoters.
Michael Schmidt of Burnaby and Ken Davies of White Rock sat on YBM's board with such Bay Street luminaries as former Ontario premier David Peterson and Owen Mitchell, vice-president and director First Marathon Securities.
Schmidt and Davies are founding directors of the Alberta Stock Exchange shell company that acquired YBM, a Pennsylvania-based magnet maker, thereby giving it an instant listing.
YBM's sales and earnings ballooned, its share price soared and the company soon graduated to the Toronto Stock Exchange, where its market capitalization swelled to nearly $1 billion, placing it among the TSE's top 300 companies.
Why Schmidt and Davies were retained as directors is not clear. Both have had controversial dealings on Howe Street and have little to recommend them as directors of what was, by all appearances, an emerging blue-chip industrial.
Last Wednesday, The Sun described how Schmidt served as official tout for one of the Vancouver Stock Exchange's most infamous issues, Technigen Corp., from 1989 to 1991.
Shortly after Schmidt joined the firm, Technigen's president, Lawrence Nesis, was turfed from the B.C. stock market for misrepresenting the company's affairs.
Rather than quit the company, he simply moved its listing to Nasdaq in the U.S., where, with Schmidt's assistance, he continued to hype the company's fortunes. Among other things, he issued huge revenue and earnings projections that never came close to being realized.
In 1992, Schmidt left Technigen and, two years later, joined the board of an Alberta shell company called Pratecs Technologies Inc.
Pratecs then acquired YBM Magnex, whose main operating subsidiary was Magnex RT of Budapest.
To acquire the company, Pratecs issued 110 million shares to YBM shareholders. Those shareholders included Semeon Mogilevitch, a high-ranking member of the Russian mafia, and an associate, Konstantin Karat.
Schmidt was given trading authority over a private investment club, partly owned by Karat, that owned several hundred thousand shares. In an interview with The Sun, Schmidt refused to answer any questions about his role as a director of YBM or trading facilitator for the investment club.
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Another founding director of Pratecs was Ken Davies of White Rock.
According to YBM's disclosure documents, he was president of several private companies including International Diamond Syndicate, Redavid Hair Care Products Inc. and Pacific Coast Fish Oil Processing and Sales Inc.
Davies was also listed as former president of VSE-listed Golden Rainbow Resources and a principal of ASE-listed Montello Resources, both based in Vancouver.
According to VSE records, Davies became president of Golden Rainbow in 1992, when it was a nearly-dead VSE company trading at pennies.
Patrick Power, a former VSE floor trader was hired to conduct investor relations for $3,500 per month.
The company then announced it would pay $50,000 to acquire a half interest in Redavid Hair Care Products, a private company engaged in "the manufacture and sale of hair-care products." No information was provided on Redavid's sales and earnings, or who owned it.
The company also announced it would lend $135,000 to International Courseware Distributors, a private company "engaged in the publishing of government-accredited learning materials." International Courseware was an affiliate of VSE-listed Canadian Educational Courseware, whose directors included Power's brother, Daniel.
In April 1993, Davies stepped down as president in favour of his 25-year-old daughter, Jeannine, who had no background in public companies aside from several months working an assistant to her father's broker, David Baker at Union Securities.
Within months, the Redavid and the International Courseware deals collapsed and the company wrote off the $70,000 it had advanced to these firms.
By year end, it was clear the company was going nowhere, so Jeannine Davies, Ken Davies and Patrick Power resigned their positions and left the firm as they had found it, a nearly-dead VSE company trading at pennies.
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The trio then turned its attention to Montello Resources. Power (who was now Jeannine Davies' fiance) became president. Jeannine was appointed a director and Ken Davies signed on as a consultant for $5,000 a month.
The company acquired a series of mineral properties in Western Canada in exchange for blocks of 50,000 and 100,000 shares. Most of these properties were eventually abandoned and written off.
In early 1997, the company staked four million acres of diamond claims in the Buffalo Hills area of Alberta.
Redwood Resources, another ASE-listed company, obtained an option to acquire a half interest in the property by, among other things, agreeing to buy two million newly-issued Montello shares at 50 cents each.
According to disclosure documents, a finder's fee of $125,000 was paid jointly by Montello and Redwood to 19421936 Investment Holding Corp. of Grand Cayman. The beneficial owner of this company was not disclosed.
Power said the finder's fee was paid to David Baker, Ken Davies' broker at Union Securities. "He was the only person I had contact with," Power said in an interview last week.
Redwood's manager of investor relations, Tony Vandersloot, confirmed the fee was paid to a numbered company.
"As far as we were concerned, we were paying the money to David Baker. He was definitely the negotiation man for that deal. He was the guy we were dealing with in terms of the finders' fee. Whether he's the guy behind the numbered company, I'm not sure.
Brokers, however, are not allowed to receive such fees, a rule Power said he was not aware of.
In an interview, Baker denied he received a fee: "No I didn't. I don't know what you are talking about, okay?" he said before hanging up.
Compounding the mystery is the fact that Ken Davies has previously identified 19421936 Investment Holding Corp. as one of the offshore vehicles he uses to conduct business.
Asked what Davies does for Montello, Power replied: "He's just a consultant. He basically gets the word out for us."
John Kaiser, a stock analyst based in San Francisco, says Montello has reasonable exploration property, but is wary of its management.
"Montello has a history of producing conflicting stories, which is why I have always been cautious about the company," he writes in his latest newsletter.
"Part of the problem has been the company's practice of retaining 'consultants' who say things to investors that have a slant markedly different from what management is prepared to say for the record."
Power admitted that Davies "tends to get over-excited at times" but says he is generally good for the company.
Investors are clearly not overly excited about this company. It closed Monday at 35 cents.
On March 13, stock market investigator Adrian du Plessis, writing about YBM in Canada Stockwatch, provided some less-than-flattering background details on Schmidt and Davies. At the time, YBM was trading at $19, just under its all-time high.
For Kaiser, the article was a clear signal that du Plessis -- who later revealed YBM's mafia connections -- had dug up some troubling information on the company.
"I had no doubt that this story was going to have an unhappy ending," Kaiser said in an interview.
For Peter Sklar, a hugely enthusiastic stock analyst at Nesbitt Burns, which had purchased millions of dollars of YBM shares for clients, the article had quite a different implication: By depressing the stock price, it had created a buying opportunity.
"Even if the allegations [against Schmidt and Davies] prove to be largely true, this would not change our view on YBM's stock," wrote Sklar in an April 2 report.
On May 8, YBM announced it would seek an extension for filing its 1997 audited financial statements. The stock price began to unravel.
Unknown to investors, YBM auditors had found evidence of criminal activity within the firm and had suspended its audit.
On May 12, Sklar changed his recommendation from a "buy" to a "hold."
The next day, FBI agents raided the company's head office and the Ontario Securities Commission issued a cease trade order. Trading is still halted. |
