Chell Group's chairman nabbed in boiler room raid

by Brent Mudry
Canada StockWatch
December 18, 2002

In the latest setback for Chell Group Inc., one of Mark Valentine's favourite penny stock promotions, chairman and long-time director Adrian P. Towning has been arrested in a joint Canada-U.S. crackdown on allegedly fraudulent cross-border telemarketing schemes. Mr. Towning, who replaced founder and controversial promoter Cameron Chell as chairman of Chell Group this summer, was arrested and charged on Nov. 15 after an investigation by Canada's Competition Bureau. Mr. Towning and his associates were targeted in a civil complaint the same day by the United States Federal Trade Commission in a parallel American probe.

Mr. Towning and his associates face charges under Canada's Competition Act and Criminal Code in a telemarketing operation which flogged business directories, credit card suppliers and office toner suppliers which were never ordered and often never delivered. The FTC and the Competition Bureau co-operated in the joint probe, assisted by the United States Postal Inspection Service and the Connecticut Attorney General's Office.

Federal officials claim Mr. Towning and his associates employed 400 telemarketers in a series of boiler rooms in Ontario and Quebec. The group's U.S. bank accounts and other assets have been frozen by court order in U.S. District Court for the Northern District of Ohio.

The telemarketing charges come 4-1/2 months after Chell Group announced on July 1 that Mr. Towning was named chairman in a shakeup it described as a "realignment of its senior management team to more efficiently deal with its operating plan, M&A activity and regulatory management." Company founder and namesake Mr. Chell was stripped of his management control, but kept on board as chief technology strategist.

Although not noted in Chell Group's upbeat press release, a week earlier, on June 24, the Ontario Securities Commission released an unflattering statement of allegations against Mr. Valentine, a long-time close associate of Mr. Chell who ruined Thomson Kernaghan, a once-respected Bay Street brokerage.

The OSC cited Mr. Valentine's handling of dubious domestic and offshore dealings in three of Mr. Chell's promotions: Chell Group, C Me Run Corp. and Jawz Inc. Another Valentine close associate, Bermuda-based offshore functionary Paul Lemmon, played roles in various Chell promotions. (Mr. Chell is a former director and shareholder of VC Advantage Ltd., the general partner of VC Advantage Fund Limited Partnership, which are two of the prime Valentine-Kernaghan entities probed by the OSC.)

Meanwhile, a two-year RCMP-FBI joint undercover probe, inspired by penny stock dealings through Bermuda and Mr. Valentine's legendary shorting prowess, dubbed Bermuda Short, was gearing up for an intricate arrest operation. On Aug. 14, Mr. Valentine and Mr. Lemmon were among 20 Canadians of 60 parties arrested in the Miami-based operation.

Mr. Chell has his own baggage. The former broker with McDermid St. Lawrence Securities in Calgary was kicked out of the industry in November, 1998, in a consent settlement with the former Alberta Stock Exchange featuring a five-year ban, strict supervision for two years if he returned, and a $25,000 (Canadian) fine. Mr. Chell was also charged under the Criminal Code of Canada with knowingly causing his assistant to forge a client's account-opening signature. "While the evidence creates a strong suspicion, the inconsistencies and conflicts in the assistant's testimony, the great passage of time and the acknowledged memory lapses all leave some doubt," ruled the Alberta judge, who acquitted Mr. Chell in September, 1999.

With the Valentine revelations casting a cloud over Mr. Chell, Mr. Towning was tapped to become Chell Group's chairman this summer. Mr. Towning knows the company well, having served as a director since 1994 and he was a member of its audit committee.

In its regulator filings, Chell Group describes Mr. Towning as a "private, independent investor in several companies involved in the communications industry." Chell Group notes he served as director of some of these companies, including Medical Communications Corp. from 1994 to July, 1996. Medical Communications filed for bankruptcy protection on May 14, 1996, got a court-appointed trustee on July 11, 1996, and was officially dissolved five days later. The only other detail Chell Group provides on Mr. Towning is the disclosure that between 1983 and 1989, he founded and managed a company called Anglo-Massachusetts Investments Inc., which had offices in Boston and London, and was involved in "providing financial advice to Europeans."

Mr. Towning is also an associate member of the Chartered Institute of Secretaries and Administrators of London, according to a filing by an unrelated company. "After qualifying, he spent a number of years with an independent investment bank in the Bahamas where he specialized in estate planning, corporate and trust management and investment portfolio consultancy," states the filing.

Mr. Towning now has some new credentials for his resume. He was charged in Canada in the telemarketing scheme, along with associates Charles Hamouth, Todd Ivison, Francis Loo and James Lynes, all of Toronto, and Albert Mouyal, Ricardo (Rick) Aquino and Atilla (Kris) Jausz, all of Montreal. Also charged are 1230704 Ontario Inc., doing business as Hanson Publications Inc., 3579573 Canada Inc., dba Associated Merchant Paper Supplies Inc. and Fourniture de Papier Associated Merchant Inc., and 1018961 Ontario Inc., dba Copier Supply Centre Inc., along with several other affiliated companies.

In its civil complaint, the FTC claims Mr. Towning, Mr. Hamouth and Mr. Mouyal have served as owners and officers of Hanson, Hanson-Quebec and Associated Merchant Paper Supplies. "Acting alone or in concert with others, (they) formulated, directedl, controlled or participated in the acts and practices set forth in this complaint," states the court filing.

The FTC claims that since at least 1997, the Towning-Hamouth-Mouyal group engaged in a plan, program or campaign to sell business directories and office suppliers such as printer rolls for automated credit cards machines, machine ribbons, counterfeit detection pens and credit card machine cleaners, by interstate phone calls throughout the U.S.

The boiler room phone chimps misled victims, mostly small companies and non-profit organizations, into believing goods had been ordered when they were not. The phoners used various pretexts, including posing as legitimate or regular suppliers of such items. Most times, victims, or marks, did not know about the cost of the purported Yellow Pages clone directories until they received invoices for $300 (U.S.).

While Mr. Towning's criminal charges and U.S. civil charges are a setback for Chell Group, they also came at an unfortunate time for an unrelated company, Armagh Group Inc., a budding penny stock promotion in its formative stages. This fall, Mr. Towning was named as one of two directors, and served as the company's designated contact and his Toronto address served as the official corporate address. On Nov. 18, three days after the charges, Mr. Towning resigned "for personal reasons."

On Nov. 26, the Armagh shell completed a reverse takeover of OVT Inc., dba SmartVideo, in exchange for 12 million convertible preferred shares and 1.2 million common shares. Three men were named directors and each hold identical four-million-share allotments: Richard E. Bennett Jr., Robert J. Walters and William R. Dunavant, the latter serving as director of business development.

The company describes Mr. Dunavant as an "experienced sales and marketing executive and entrepreneur specializing in the creation of large volume sales within niche markets." "In each of his four previous ventures, he has taken underdeveloped companies and has built them into lucrative businesses."

Mr. Dunavant is no stranger to intriguing promotions. The troubled horse shampoo mogul was described by Forbes magazine in 1996 as a "persuasive scoundrel who plundered the company." The company in question was Straight Arrow, Mr. Dunavant's self-acclaimed biggest success story. In a variation of a classic "bust-out," Mr. Dunavant took control of the family-run horse shampoo firm in 1989 and expanded the market to humans, while allegedly milking the company dry.

Even Forbes initially fell for Mr. Dunavants new pitch of "Mane 'n Tail" in 1994. In a flattering 1994 puff piece, the business magazine noted Tane Harwood, a Houston-based rodeo-rider-turned-advertising-executive, was excited with her "softer, thicker, shinier and so much easier to brush" hair. "I've got two bottles of Mane 'n Tail in my bathroom," Ms. Harwood confessed.

Two years later, Forbes, in an editorial mea culpa, admitted it failed to "spot the whiff of fakery" and exposed Mr. Dunavant in quite unflattering terms. "A Pennsylvania court has found Dunavant, 44, guilty of awarding himself millions in excessive compensation, siphoning off company funds to cover personal expenses and diverting Straight Arrow assets," stated Forbes writer Michelle Conlin.

In 1999, articles by MSNBC on May 5 and Miami Herald reporter James McNair on June 7 note Mr. Dunavant jumped from horse shampoo to high-tech video compression technology. At a computer pornography convention in Las Vegas in 1997, the entrepreneur, then the president of Summus Technologies, an affiliate of Verinet, told a San Francisco Chronicle reporter that Verinet's software was great for fast porno site downloads. "People want to see it, do it and get out of a site fast," Mr. Dunavant told the reporter. A year later, the Mane 'n Hair and porno pitchman hooked up with controversial Howe Street stock promoter Rene Hamouth in Corsaire Inc., renamed Net Command.

In 1999, Mr. Dunavant was back in the news as the president of Net Command. The SEC issued a 10-day trading halt of Net Command shares on June 11, 1999, freezing the stock at $15 (U.S.), a market capitalization of $210-million (U.S.). The stock fell sharply when trading resumed. (Although Rene Hamouth formerly lived in Eastern Canada, there is no known relation between him and Charles Hamouth of Toronto, the telemarketing prosecution target.)

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