post-holiday catch-up with YBM news articles:
Auditors resign from scandal-plagued YBM Magnex
By Sarah Edmonds
TORONTO (Reuters) - Deloitte & Touche Friday resigned as auditors of YBM Magnex International Inc. ,a troubled Pennsylvania company alleged to have ties to the Russian mob, saying YBM's 1997 results are unauditable because of ''error or fraud.''
The auditors' refusal to give the company's books a clean bill of health is the latest blow in a series of problems for YBM, a magnet and bicycle maker whose shares are listed on the Toronto Stock Exchange. The company is already under investigation by the organized crime unit of the U.S. Attorney's Office and by securities regulators in Toronto.
''We have concluded, based on the questions and issues which remain after our review of the report and the lack of competent auditable evidence, that it is unlikely that sufficient additional audit procedures could be performed which would reduce to an acceptable level the risk of material misstatement in YBM Magnex International Inc.'s financial statements for the year ended December 31, 1997 due to error or fraud,'' YBM quoted Deloitte & Touche as saying in a letter to the company.
Officials at Deloitte, one of the largest and most-respected accounting firms in the world, were unavailable for comment.
The firm's resignation followed the release earlier this month of a forensic audit, demanded by Deloitte, which cleared YBM of any wrongdoing and criminal acts.
The forensic audit also found no direct involvement YBM's affairs by Russian mobster Semeon Mogilevich, who is a shareholder in the company. Nor did the audit establish any involvement by organized crime figure Sergey Mikhailov.
According to newspapers, British criminal investigators said Mogilevich was using a Canadian-listed company to legitimize proceeds of organized criminal activities.
The Financial Post, a Canadian newspaper, cast doubt on the independence of the forensic report. It said the Philadelphia legal firm of Wolf, Block, Schorr & Solis-Cohen LLP, the counsel to the forensic investigators, was one of YBM's regular law firms.
Mounting allegations that YBM may be involved in shady dealings amount to another stinging blow for the Toronto Stock Exchange, already reeling from last year's Bre-X Minerals Ltd. gold fraud.
TSE-listed YBM has been under a cloud since May 13, when U.S. authorities, including the major crime division of the United States Attorney's Office, swooped on the company's Newtown, Pennsylvania, offices and seized its corporate records. The exchange suspended the shares the same day.
The company is also being probed by the Ontario Securities Commission for failing to reveal ''the existence, nature and extent of Deloitte's concerns in a timely manner.''
''The resignation of the auditors doesn't change the situation,'' said TSE spokesman Steve Kee. ''The common shares have been suspended from trading on the TSE by the mutual consent of the company and the exchange. Suspensions could be up to a year in length.''
He said the shares will not resume trading until the company has filed outstanding financial statements ''in acceptable form''. Also, before they can trade again, the Ontario securities regulator must rescind or withdraw any cease-trade order or restriction and all the conditions of the exchange must have been satisfied.
In its request for a forensic audit of YBM's affairs, Deloitte & Touche cited ''significant concerns'' about the reporting of the company's 1997 results.
The forensic report, commissioned by YBM from Pinkerton Investigative Services and supervised by a committee of independent directors headed by Owen Mitchell, a vice-president of Toronto-based brokerage First Marathon, found no evidence of wrongdoing or criminal ties.
But it did chastise the company for ''specific breaches of corporate policy and common business prudence with respect to certain European operations.'' It also demanded a tightening of business practices, including supervision of the company's Hungarian operations.
YBM lawyer Joseph Groia, of Heenan Blaikie, asserted that the Deloitte resignation has a silver lining. The fact that Deloitte did not back out of its audit opinion approving the 1996 results indicates that it is willing to put its name behind them, he contended.
''From my perspective, I actually think that this now gives the company a clear direction to go in. It still has a 1996 audit opinion and a large part of the concerns that were being raised by the securities commission were based on the 1996 audit,'' Groia told Reuters.
''I don't say that this is a perfect result for the company but I am certainly very happy with it. I would be happier if they had decided to stay on and audit but now at least the company has a clear direction.''
The company must now hire new auditors and get an audit opinion on the 1997 numbers. Groia asserted that he has seen the company's books and does not agree that it would be impossible for anyone to audit them.
YBM said its customer base and accounting practices have not changed since 1996.
''Since the 1996 audit stands at the moment, I would be extremely optimistic that when it was able to get a 1997 audit finished, it ought to be able to get its stock trading again,'' Groia said.
^REUTERS@ Reut16:32 06-26-98
(26 Jun 1998 16:31 EDT)
The Philadelphia Inquirer June 27 1998
Auditor quits Bucks magnet company
YBM Magnex said Deloitte & Touche had been unable to verify the firm's '97 financial statement.
By Lacy McCrary
INQUIRER STAFF WRITER
YBM Magnex International Inc., a Bucks County-based magnet maker, said yesterday that Deloitte & Touche had resigned as the company's auditor after being unable to certify the accuracy of YBM's 1997 financial statement.
Deloitte's resignation comes nearly three weeks after YBM reported the results of an independent probe of its operations that "found no evidence" of criminal acts by the company or its employees and no connection to Russian organized crime.
Deloitte had urged YBM to seek such a review of its Eastern European operations before it could certify its 1997 financial results. One of the auditors' concerns, according to the Ontario Securities Commission, was that "one or more illegal acts may have occurred which may have a material impact" on YBM's 1997 financial statements.
In its resignation letter, a portion of which was released by YBM yesterday, Deloitte & Touche said that "questions and issues" remained and that the "risk of material misstatement" in YBM's 1997 financial statements "due to error or fraud" was unacceptable.
YBM spokesman Guy Scala said that the company was "extremely disappointed" by Deloitte's decision but that "business is continuing as usual. "
In May, trading in YBM stock on the Toronto Stock Exchange was suspended by the Ontario Securities Commission after the agency learned that Deloitte & Touche had raised serious concerns about the firm's business practices and had urged an investigation into its dealings in Russia and Hungary.
Scala said YBM would seek to retain "a new auditing firm willing to take on the '97 audit so we can resume trading. We feel confident we can find a replacement."
Steve Kee, a spokesman for the Toronto Stock Exchange, said trading in the company's stock would remain suspended for the time being.
"The suspension continues until the company files the outstanding financial statement in an acceptable form or the cease-trading order is rescinded by the OSC," Kee said.
In May, YBM's headquarters in Newtown Township, Bucks County, was raided by dozens of federal agents as part of what one law enforcement source said was an investigation into allegations of money laundering, securities fraud, and customs and immigration violations.
The company makes magnets for industrial and consumer uses and does a substantial amount of its business in Russia and Ukraine.
ASSOCIATED PRESS July 1 1998
MAGNEX MISERY
Pa. magnet maker dumped by auditor, probed by feds
(All dollars U.S. unless written out as Canadian.)
By JENNIFER BROWN Associated Press Writer
NEWTOWN, Pa. (AP)
A Pennsylvania magnet maker that climbed to the top of the Canadian stock market is now facing a federal investigation and allegations by its former auditor of ""errors and fraud'' in its 1997 financial report.
Trading has halted indefinitely on stock of YBM Magnex, based in a Philadelphia suburb. The company's value has plummeted to a fraction of its $600 million peak since the U.S. Attorney's Office in Philadelphia said they were investigating YBM's business practices and financial reports dating back to 1993.
The meteoric rise and fall of YBM has caused serious soul searching by Canadian investors still reeling from the catastrophic failure of Bre-X.
Once considered a darling of the Canadian stock market, YBM rose from penny trading on the wildly speculative Alberta Stock Exchange to the top 300 of the prestigious Toronto Stock Exchange.
Questions dogged YBM about its skyrocketing sales of bicycles and industrial magnets and founding investors, including one reputedly tied to the Russian mob. Still, the company was valued at more than $430 million when trading halted in May.
On May 13, YBM's Newtown headquarters were raided by more than 60 agents of the Federal Bureau of Investigation, Immigration and Naturalization Service, Internal Revenue Service and U.S. Customs Service.
On the same day, trading was halted by the Ontario Securities Commission, citing concerns by YBM's auditor, Deloitte & Touche LLP, that ""one or more illegal acts may have occurred which may have a material impact on the 1997 financial statements.'' Deloitte had requested an independent review of the 1997 report.
The review by New York-based Pinkerton Investigation Services found no illegal activity, YBM said June 3. But the company said it reprimanded its chief operating officer, Igor Fisherman, for what Pinkerton said were violations of corporate policies.
At that time, the company also acknowledged that Semeon Mogilevitch, a suspected organized crime leader in Hungary, was a significant founding investor.
Last week, Philadelphia-based Deloitte resigned.
"The special investigation failed to answer all the questions and resolve all issues raised during the audit, and failed to provide competent auditable evidence regarding certain 1997 transactions,'' Deloitte said in a release.
The auditor said 1997 financial statements were tainted by ""errors and fraud.'' Deloitte officials declined to elaborate.
"We are extremely disappointed by the actions of Deloitte & Touche,'' YBM spokesman Guy Scala said. He noted that Deloitte did not question 1996 financial reports that it signed off on, though YBM's accounting practices haven't really changed.
YBM officials are optimistic it can hire another independent auditor before the Ontario Securities Commission's Aug. 10 hearing to make permanent YBM's temporary cease trading order, Scala said.
YBM would be banned from the exchange if a permanent cease trading order is issued. Regulators in Alberta and British Columbia traditionally follow suit.
Deloitte's announcement further eroded YBM's stock value, which fell 29 percent from a peak in March to close in early May at 14.25 Canadian dollars a share, or $9.78 a share, giving the company a market capitalization of more than $430 million.
Since then, YBM holdings have been devalued by Canadian mutual funds to be worth less than $2, putting the company's worth at between $30 million and $90 million.
Disturbing to some is that repeated red flags were seemingly ignored - despite the collapse of the Calgary-based Bre-X in May 1997.
Investors lost more than $3 billion when Bre-X Minerals, which sold stock in a supposed gold bonanza in the Indonesian jungle, turned out to be a hoax. Bre-X stock had soared from penny-stock status to more than $200 a share, then became virtually worthless.
"The key issue is to what extent could YBM and Bre-X be prevented. To what extent should regulators and the Toronto Stock Exchange have been more diligent," said Steve Foerster, associate professor of finance at the University of Western Ontario.
"As a Canadian investor I find it embarrassing ... They are exceptions but unfortunately they happen to be high-profile exceptions."
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