FBI arrests star Canadian trader

 

By JANET McFARLAND, BARRIE McKENNA and PETER KENNEDY
Friday, August 16, 2002

 

Toronto, Washington and Vancouver High-flying Canadian stock broker Mark Valentine has been arrested in Germany after a two-year FBI sting operation into stock fraud and money laundering.

The massive undercover operation, code named Bermuda Short, has resulted in charges against Mr. Valentine and dozens of others, including former Vancouver lawyer and financial consultant Martin Chambers and five other Canadian residents.

FBI officials in Miami said Mr. Valentine was arrested on Wednesday at the Frankfurt airport under a provisional warrant, and remains in German custody. FBI spokeswoman Judy Orihuela said officials intend to seek his extradition to the United States.

"We want him extradited," Ms. Orihuela said. "We wouldn't go to the trouble of arresting him if we didn't want him back here."

Late Thursday, an RCMP spokeswoman also confirmed that the RCMP in Toronto have arrested two people in connection with the complex fraud case, but said no details including the names of those arrested could be released because the matter is covered by a publication ban.

Details of the investigation were unveiled Thursday by a coalition of law enforcement agencies including the Federal Bureau of Investigation, the RCMP, the U.S. Securities and Exchange Commission, the U.S. Postal Inspection Service and the National Association of Securities Dealers.

In announcing the charges, Marcos Daniel Jimenez, U.S. Attorney for the Southern District of Florida, said the case demonstrates the need to act against corrupt corporate directors and securities brokers who violate their duties and "take unfair advantage of the market and the public so as to illegally enrich themselves."

The 58 individuals charged include executives of public companies, stockbrokers, stock promoters and controlling shareholders of public companies.

The FBI said its undercover probe involved two separate sting operations.

In one, involving 20 separate indictments, the FBI created a fictitious foreign mutual fund and had an agent pose as a corrupt securities trader working for the fund company. He approached business executives and stockbrokers and proposed a scheme in which he would be able to get his fund company to purchase large blocks of stock at prices significantly above market rates, making huge profits for the executives who participated. In return, the undercover agent asked for secret kickbacks of proceeds from the sales.

The illegal kickbacks were to amount to several million dollars in each case, and were to be paid to offshore corporate bank accounts. The FBI said the cases were handled in a way that caused no actual loss to investors, but said they involved $200-million (U.S.) in attempted fraudulent stock sales.

The other schemes saw an FBI and an RCMP agent pose as members of a Colombian drug cartel seeking to launder proceeds from cocaine sales. In total, corporate executives and financial professionals agreed to launder $1.4-million in funds. The FBI said the money was represented as the first part of a long business relationship that would eventually involve many millions more.

Mr. Valentine, former chairman of Toronto brokerage firm Thomson Kernaghan & Co., was charged along with Paul Lemmon, the founder and managing director of Voyager Group Ltd., a Bermuda-based financial services company. They are charged with conspiracy to commit wire, mail and securities fraud.

The case against the men involves three companies in which Mr. Valentine is alleged to have owned and controlled a majority of the shares: C-Me-Run Inc., SoftQuad Software Ltd. and JagNotes.com Inc. All three traded on the U.S. over-the-counter market at the time of the alleged frauds.

The FBI alleges that Mr. Lemmon and Mr. Valentine conspired to sell stock in the three companies for a total of $29.4-million in return for paying a secret kickback of $7.8-million to the phony mutual fund trader and his other phony accomplices within the fund company.

The indictment also alleges that Mr. Lemmon and Mr. Valentine were to cause securities brokers to receive kickbacks in return for helping to manipulate the market price of the three companies by selling their stock to unsuspecting clients.

Mr. Valentine's Toronto lawyer, Joseph Groia, said Thursday he had read the U.S. indictment but would not comment on his client's arrest, nor whether he will oppose extradition. He said Mr. Valentine is hiring a U.S. lawyer to handle the charges, and said he could not comment on any of the FBI allegations.

"At the moment, all we have is very sketchy information, and it's just way too early for anyone to respond," Mr. Groia said.

Mr. Valentine was one of the richest players on Bay Street during the Internet stock boom, and was hired at the then-thriving firm in 1994 at the age of 24. He quickly climbed to the top, and reshaped the firm as a specialized technology brokerage and investment banker.

He has been prominent in the news this spring and summer because he is under investigation by the Ontario Securities Commission for matters relating to his work at Thomson Kernaghan. The OSC said Mr. Valentine had created "a culture of conflict and non-compliance" at Thomson Kernaghan through a variety of investments and financings. He was suspended by the brokerage firm, which is in the process of winding down and going out of business.

Meanwhile Thursday, the FBI and RCMP also named six British Columbia men in other charges related to their Bermuda Short sting.

Les Price of Vancouver is charged with conspiracy to commit wire fraud, 10 counts of wire fraud, two counts of securities fraud and one count of money laundering. At the time, he was chief executive officer and a major shareholder of Medinah Minerals Inc.

The indictment alleges he agreed to pay a $1.5-million kickback in return for inducing the fake mutual fund to pay $5-million for five million shares of his company. He is also accused of conspiring to artificially inflate the market price of Medinah by making illegal payments to brokers who would sell shares to unwitting clients.

In another case, John Purdy and Ronaldo Horvat of Vancouver, and Harold Jolliffe of Duncan, B.C., and Calgary, are charged with one count of conspiracy to launder money and eight counts of money laundering. They were principals of Bolivian Hardwood Corp.

Kevan Garner of Vancouver and Mr. Purdy are charged with one count of conspiracy to launder money and two counts of substantive money laundering. The indictment says the two men were stock promoters and principals of Vancouver-based firms Garner Purdy Venture Capital and Diacom Ventures Inc.

They are accused of laundering funds purported to be the proceeds from the sale of cocaine. The maximum penalty for the charges is 20 years.

Public documents list Mr. Garner as the former director or shareholder of numerous publicly traded companies. This week, a news release announced his appointment as director and CEO of Vancouver-based Whistler Inc., which has said it is developing a range of fuel cell products including a fuel-cell-powered golf cart.

Mr. Garner is also charged along with Martin Chambers of Vancouver in another case involving the same phony Colombian cocaine cartel. Mr. Chambers is charged with conspiracy to launder money and with money laundering. Mr. Chambers was arrested by FBI officials last week while trying to board a flight in St. Louis.

The indictment seeks the forfeiture of all personal property involved in the money laundering, including a Royal Bank account under the name of Mystar Holdings Ltd., which is controlled by Mr. Chambers.

Mr. Chambers, 63, has a long history of legal problems. In 1981, he was charged with conspiracy to import cocaine to Vancouver from Miami. A decade later he and Vancouver financier Paul Deyong were involved in buying and selling large quantities of cigarettes though A.H. Riise Ship Chandlers.

More recently, he was described in court documents as the controlling mind behind six real-estate projects that borrowed nearly $27-million from investors in Eron Mortgage Corp., which had its licence frozen in 1997 by the B.C. Securities Commission.

Criminal charges were laid against Brian Slobodian and Frank Biller, the two principal officers of Eron, after thousands of mainly elderly investors lost $220-million.