The Securities and Exchange Commission has charged 11 individuals and three companies, alleging they conspired to illegally issue and sell unregistered stock in a purported diamond and gold mining company and “lined their pockets with more than $64 million from 40,000 investors nationwide.”
The SEC complaint alleges that CMKM Diamonds, Inc., with assistance from a transfer agent and an attorney, fraudulently issued hundreds of billions of shares of purportedly unrestricted stock to the scheme’s mastermind. The complaint also alleges that CMKM’s chief executive officer Urban Casavant generated investor interest in the company through false press releases, Internet chat boards, and “funny car” race events across the country without disclosing that he ran the company from his house in Las Vegas and that CMKM’s primary activity was to issue and promote its own stock.
“The perpetrators of this massive scheme include several securities professionals and an attorney,” said Linda Chatman Thomsen, director of the SEC’s Division of Enforcement. “Today’s action demonstrates that we will aggressively pursue individuals who ignore their obligations as gatekeepers to our markets and instead collude with their clients to violate the federal securities laws.”
Rosalind R. Tyson, acting regional director of the SEC’s Los Angeles Regional Office, added, “The allegations in this case highlight the significant investor harm that results from abuses in the penny stock market. Although CMKM’s stock sold for well under a penny a share, the defendants were able to reap millions in profits by conspiring to flood the market with billions of unregistered shares while falsely promoting CMKM’s value.”
The SEC’s complaint charges CMKM, the broker-dealer and transfer agent involved, and 11 individuals including Casavant. The SEC allege that John Edwards, described by the as “the mastermind of the scheme,” was living in Las Vegas and others sold their unregistered shares into the public markets for a profit of at least $64.2 million, much of which was paid to Casavant to support his extravagant lifestyle. The complaint alleges that Edwards profited by approximately $26.4 million from sales through a single broker-dealer. Casavant profited by approximately $31.5 million, and others Casavant recruited profited by approximately $6.3 million, according to the complaint.
The SEC’s complaint, filed in U.S. District Court for the District of Nevada, alleges that from January 2003 to May 2005, CMKM improperly issued up to 622 billion shares of purportedly unrestricted stock. These issuances allegedly were based in large part on both written authorizations and attorney opinion letters prepared by Brian Dvorak, CMKM’s lawyer, which were often inadequate, suspect, and inconsistent. Nonetheless, the complaint alleges that based on these faulty documents, CMKM’s transfer agent, 1st Global Stock Transfer LLC, and its owner, Helen Bagley, issued stacks of stock certificates without restrictive legends.
The SEC’s complaint alleges that Edwards, his associates Kathleen Tomasso and Anthony Tomasso, and Casavant’s cohorts James Kinney and Ginger Gutierrez then deposited the certificates with various broker-dealers and sold the shares into the market. NevWest Securities Corp. and its employees, Anthony Santos, Sergei Rumyantsev, and Daryl Anderson, are alleged to have sold more than 259 billion shares of CMKM stock for Edwards, despite numerous red flags indicating a massive unregistered distribution.
The SEC charged all of the aforementioned participants with violating the registration provisions of the federal securities laws. In addition, the SEC charged CMKM and Casavant with violating the antifraud and various reporting, record keeping, and internal controls provisions.
The SEC seeks a permanent injunction against all defendants and an accounting, disgorgement with prejudgment interest, and civil penalties against all of the defendants except CMKM. In addition, the Commission seeks a penny stock bar against each of the individuals and an order prohibiting Casavant from acting as an officer or director of any public company.