You must remember this...
"How can you close me up? On what grounds?" Humphrey Bogart (Rick Blaine)
"I'm shocked, SHOCKED, to find that gambling is going on in here!" Claude Rains (Capt. Renault)
"Your winnings, sir," Rick's croupier to Capt. Renault
"Oh, thank you very much. Everybody out at once!" Capt. Renault
from the script for Casablanca
Investors pointing fingers as YBM fades
Member of TSE 300
By SANDRA RUBIN
The Financial Post
Investors holding $635-million of stock in YBM Magnex International Inc. lashed out at regulators and auditors yesterday in the wake of the company's stunning admission it expects to be indicted in a U.S. organized crime probe and its shares are unlikely to ever trade again.
As details emerged about how far out of control the Philadelphia-area magnet maker's business really was, shareholders grappled with the fact they are now holding worthless stock.
As first reported in the National Post, YBM's key Eastern European subsidiary was involved in several troubling transactions "which have the indicia of money laundering."
"This is a writeoff for everybody," said one small shareholder. "I think there was a period where everyone hoped it wasn't as bad as it turned out to be. I guess it's clear now that we can't believe one statement this company ever made."
Bob Bertram, senior vice-president at Ontario Teachers Pension Plan Board, said he is upset that YBM made it on to the Toronto Stock Exchange's benchmark 300 index, usually reserved for bigger, stabler companies.
"I can only be disappointed in the sense that this stock was in the index," said Mr. Bertram. Teachers' bought the stock for its own index fund and is now stuck with 1.6 million shares.
"I would have thought that, because it's on the TSE index, that it should have had some substance."
He said the giant fund will look at taking part in any class-action suit filed in YBM's rubble.
One shareholder after another asked how Deloitte & Touche LLP could have performed the high-risk re-audit of YBM's 1996 business, and come up with a clean bill of health.
YBM admitted in Tuesday's statement that the U.S. Attorney's Office is believed to have marshalled "substantial credible evidence of criminal wrongdoing."
"Cases like YBM show there needs to be a better auditing, maybe auditors should take a little more responsibility for what they do," said one institutional investor holding more than 200,000 YBM shares.
"It's a difficult situation, there's a lot of stress involved, in terms of who did the analysis, or lack thereof."
Deloitte has not made any statement since resigning as YBM's auditor in June. It even refused requests to meet with YBM's new directors, installed in September after institutional shareholders led by shareholder adviser Wesley Voorheis seized control of the board
Mr. Voorheis, YBM's chairman until the board quit en masse Tuesday night, declined to comment yesterday on where things went wrong.
"Now that I have no ongoing role in this, I have been asked to maintain a low profile," he said.
Houston lawyer Paul Yetter, who has been watching YBM for shareholders, said it's time insiders started talking about what went wrong.
"Investors have waited seven months for the company to admit the truth," said Mr. Yetter.
"Now it's time for Deloitte, First Marathon and the other promoters of this company to accept responsibility for their part in this scandal."
First Marathon Securities Ltd., which was co-lead underwriter of a 1997 issue of YBM shares, said it was "dismayed" at YBM's statement.
"We're obviously dismayed that events have come to this pass," said Michael Walsh, senior vice-president. "If the information they've announced is correct, it appears management of the company and perhaps others were hiding things from their shareholders and their board, and other people.
"It's shocking, that's a good way of describing it."
Griffiths McBurney & Partners, the other co-lead underwriter, denied reports that Bay Street brokerages knew of allegations back in 1997 that YBM was somehow linked with the Russian mob, but dismissed them as unfounded rumour.
"The facts as disclosed in [YBM's] press release speak for themselves," said Eugene McBurney. "I don't think any investment dealer, if he had known of these facts, would have gotten involved at the time. There's no question about that.
Mr. McBurney added that he could not recall from memory details about what he knew at the time of the public offering without checking his due diligence notes, now stored with counsel, Fogler, Rubinoff.
In its 12-page report revealing it expects indictments, YBM said a forensic inquiry conducted by Miller Tate & Co. revealed deep problems in the company's Eastern European division.
The report, which was presented to the board on Friday, confirmed there were troubling goings-on at United Trade Ltd., the company's key Eastern European subsidiary.
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