SEC Charges Fourteen
Defendants In Scheme
To Issue And Sell Unregistered CMKM Diamonds Stock
U.S. Securities and Exchanbge Commission
April 7, 2008 / Litigation Release No. 20519
Securities and Exchange Commission v. CMKM Diamonds, Inc., et. al, United States District Court for the District of Nevada, Civil Action No. 08- CV 0437
The Securities and Exchange Commission today filed a civil injunctive action against fourteen defendants involved in the alleged illegal issuance and sale of unregistered stock of CMKM Diamonds, Inc., purportedly a diamond and gold mining company located in Las Vegas. With assistance from a transfer agent and an attorney, allegedly CMKM fraudulently issued hundreds of billions of shares of purportedly unrestricted stock to John Edwards, the scheme's mastermind, and his nominees, as well as to the nominees of Urban Casavant, the company's chief executive officer. The Commission alleges that as Casavant generated demand for CMKM stock through fraudulent promotion of the company, Edwards, 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 Casavant to support his extravagant lifestyle. Allegedly, Edwards profited by about $26.4 million from sales through a single broker-dealer, Casavant profited by about $31.5 million, and Casavant's nominees profited by about $6.3 million.
The Commission'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. According to the complaint, these issuances were based in large part on both written authorizations and attorney opinion letters prepared by Brian Dvorak, CMKM's lawyer, which were often facially inadequate, suspect, and inconsistent. Allegedly, 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. Edwards, his nominees, Kathleen Tomasso and Anthony Tomasso, and Casavant's nominees, James Kinney and Ginger Gutierrez, then allegedly deposited the certificates with various broker-dealers and sold the shares into the market. NevWest Securities Corporation 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. Meanwhile, Casavant allegedly generated investor interest in CMKM by using false press releases, Internet chat boards, and "funny car" race events across the country. The complaint alleges that this promotion was extremely successful, and about 40,000 investors purchased CMKM stock during the period of the fraud without knowing that Casavant ran the company from his house in Las Vegas, and that CMKM's primary activity was to issue and promote its own stock.
The Commission charged CMKM, Casavant, Edwards, Gutierrez, Kinney, the Tomassos, 1st Global, Bagley, NevWest, Anderson, Rumyantsev, Santos, and Dvorak with violating Section 5 of the Securities Act of 1933 by participating in an unregistered distribution of securities. The Commission also charged CMKM and Casavant with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. In addition, CMKM is alleged to have violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Casavant is alleged to have violated Rule 13b2-1 under the Exchange Act. Finally, the Commission charged Casavant with aiding and abetting CMKM's violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, as well as violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a 13 thereunder for which CMKM was previously found liable in an administrative proceeding.
The Commission seeks a permanent injunction against all defendants. The Commission also seeks an accounting, disgorgement with prejudgment interest, and civil penalties against Casavant, Edwards, Gutierrez, Kinney, the Tomassos, 1st Global, Bagley, NevWest, Anderson, Rumyantsev, Santos, and Dvorak. In addition, the Commission seeks a penny stock bar against Casavant, Edwards, Gutierrez, Kinney, Anthony Tomasso, Kathleen Tomasso, Bagley, Anderson, Rumyantsev, Santos, and Dvorak. Finally, the Commission seeks an order prohibiting Casavant from acting as an officer or director of any public company.
The Commission acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) and the Saskatchewan Financial Services Commission.
The Commission's investigation is continuing.
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