40,000 investors lose $64m in CMKM Diamonds stock scheme

The Securities and Exchange Commission has filed charges against CMKM Diamonds, accusing the former junior explorationist of fraud in a $64 million scheme.

RENO, NV - 

CMKM Diamonds was a penny stock that rarely traded above 2 cents a share, run out of a living room in the gambling Mecca of Las Vegas, Nevada.

Yet, the pink-sheet listed company, which claimed to be in the diamond and gold business, would develop a devoted shareholder following that ultimately lost millions of dollars, who were fooled by the power of promotion.

CMKM claimed it had acquired several Saskatchewan mining claims in the Fort a la Corne area. According to a complaint filed by the SEC this week, the actual mineral value of those claims was obscured by a scheme that might have astonished even P.T. Barnum in its scope and breadth.

Company CEO Urban Casavant managed to take in $53 million selling 259 million shares from 2003 to 2005. The SEC says he generated investor interest by using false press releases, distributing news stories in which an investment pitch has been inserted, utilizing Internet chat boards (especially PalTalk), and entering "funny car" race events across the U.S.

He even managed to convince a former top executive for billionaire Howard Hughes, Robert Maheu, a former FBI agent, to serve as co-chairman of the CMKM board and as chairman of the audit committee.

The SEC filed a civil suit this week in U.S. federal court against 14 defendants involved in the reportedly illegal issuance and sale of unregistered stock of CMKM Diamonds. The commission claims that John Edwards, the scheme's mastermind, Urban Casavant and their nominees sold their shares into the public markets for at least $64.2 million in profit, "much of which was paid to Cassavant to support his extravagant lifestyle." The SEC believes Edwards profited by $26.4 million through sales from a single broker-dealer, Casavant profited by about $31.5 million, and Casavant's nominees pocketed about $6.3 million.

The agency said 40,000 investors purchased CMKM stock from January 2003 through May 2005 without knowing Casavant actually ran CMKM out of his house, and that the company's primary activity "was to issue and promote its own stock." In court documents filed in Las Vegas, the SEC blamed "the combination of false information about the company and substantial trading volume, facilitated by sales in an unregistered distribution" for inducing these investors to buy the stock.

Canada StockWatch reported in 2004 that Hal Engel of WillyWizard.com, a financial news media investor's hub, "was an early cheerleader" and promoter of CMKM, as well as The Green Baron group, which called CMKM "the stock plan of a lifetime." Christian Traders also spread the good word about CMKM. A virtual chat room called Sterling's New Classroom on PalTalk was crowded to overflowing with its contingent of CMKM shareholders, according to StockWatch.

Casavant even literally formed an investment "vehicle", CMKXtreme. This team of motorbike, truck and funny car races traveled across the United States to a series of monthly races, advertising CMKX, CMKM's stock symbol. Ironically, car race fans would prove a lucrative audience for the erstwhile promoters to pluck clean. "Hundreds of CMKM shareholders attend the races and visited the CMKM-sponsored tent, where they could study a map of CMKM's alleged mineral claims, watch a video loop of CMKM's purported drilling work, and meet and greet Casavant and his family," according to the SEC.

CMKM's transfer agent, 1^st Global Stock Transfer, which was owned and run by Helen Bagley, "issued sheaves of unlegended stock certificates," which the SEC says were deposited by Edwards and others with various broker-dealers, including NevWest Securities Corporation and its employees, Anthony Santos, Sergei Rumyantsev and Daryl Anderson, who sold the shares into the market.

"Promptly after selling CMKM stock, Edwards and the others wired the proceeds to a series of bank accounts, providing large sums to Casavant, and used the money for various purposes including paying gambling debts, investing in real estate, and generating more shareholder interest," according to the SEC.

As New York Times Chief Financial Correspondent Floyd Norris noted in September 2006, CMKM even managed to wring a considerable amount of publicity by hiring Robert Maheu, the former FBI agent who worked as chief of Nevada operations for Howard Hughes. However, Maheu later told an administrative law judge that he did not know how many employees CMKM had or what they did. He had admitted he had never visited the company's offices, therefore, presumably never visiting Casavant's Las Vegas home.

On March 3, 2005, the SEC ordered a 10-day trading suspension and began an administrative proceeding to revoke the registration of CMKM stock. Ironically, individuals behind the CMKM fraud continued to sell stock the day after an evidentiary hearing made public substantial negative information about the company. By October 2005, the commission revoked the registration of CMKM stock, effectively ending public trading.

Urban Casavant currently lives in Canada. John Edwards is a British Citizen who no longer lives in Las Vegas, but still conducts his business activities through several dozen corporate entities, according to the SEC.

Ginger Gutierrez served as Casavant's personal assistant and secretary. James Kinney sold substantial quantities of CMKM stock and transferred a large part of the proceeds to Casacant-controlled accounts through Part-Time Management, a shell corporation he jointly controlled with Gutierrez.

Boca Raton, Florida, couple Anthony and Kathleen Tomasso acted as nominees for Edwards and sold CMKM stock on his behalf.

Brain Dvorak, now living in Boulder, Colorado, served as the Las Vegas attorney for CMKM, and "prepared hundreds of bogus opinion letters supporting the issuance of purportedly unrestricted CMKM stock" and also operated the now defunct website www.144opinionletters.com, according to the SEC.

From the period of November 2002 through 2005, the SEC says CMKM increase the number of its authorized shares five times, from 10.5 billion to a stunning 800-billion shares.

By March 2007, Casavant resigned all of his roles at CMKM and appointed a shareholder to take his place. The SEC says the company "currently has no operations or assets of significant value."

Last month, Kevin West, now CEO, President and Chairman of CMKM Diamonds, wrote in a shareholder letter, "I must say that my seven months as interim CEO was not a good experience. ...The facts uncovered since accepting the job as permanent CEO have also proven quite a different story to the ones I was being told [by Casavant and Michael Williams] and a whole new set of facts came to light."

West said he has made contact with many of the law enforcement agencies and regulatory bodies investigating the company. He also provided numerous files and documents "which contained information that I believe may be of some help to government investigators. It should come as no surprise that there are criminal investigations and SEC enforcement investigations that have been ongoing in CMKM for several years now."

He warned that current and potential future shareholders should not hold hope for an eventual payout from these investigations and legal actions.

"While it is our plan to eventually return to a trading status of some kind, we cannot even contemplate becoming publicly traded in any form until we can build a real business that has tangible assets, a full board of directors, a management team and a business plan that has foreseeable revenues. In other words...a real business," West declared. The company is now operated out of Texas.

Meanwhile, on April 7, the SEC charged CMKM, Casavant, Edwards, Gutierrez, Kinney, the Tomassos, 1^st Global, Bagley, NevWest, Anderson, Rumyantsev, Santos and Dvorak with violating Section 5 of the Securities Act by participating in an unregistered distribution of securities. CMKM and Casavant were also charged with violating the antifraud provisions of the Securities Exchange Act. The commission also charged Casavant with aiding and abetting CMKM's violations of the Securities Act.

The agency seeks a permanent injunction against all the named defendants, and numerous other orders and prohibitions. The commission said its investigation is continuing.

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