Entourage Mining sues CMKM Diamonds

by Stockwatch Business Reporter
With files from Lee M. Webb.
Canada StockWatch
August 30, 2007

CMKM Diamonds Inc., a defunct pink sheet promotion that once boasted a staggering 703.5 billion outstanding shares, is being sued by its former saviour, Entourage Mining Ltd., for breaching an Oct. 20, 2005, property agreement. Entourage is also suing 101047025 Saskatchewan Ltd. for breaching the same agreement.

In the deal, Entourage would issue 33.88 million shares to the numbered company in return for an 80-per-cent interest in CMKM's Smeaton mineral project in the Fort a la Corne area of Saskatchewan. CMKM (presumably getting the shares from the numbered company) would distribute 30 million shares of Entourage to the shareholders of CMKM.

Entourage alleges that CMKM did not distribute the Entourage shares to CMKM shareholders as required by the deal. It also alleges that the numbered company reneged on the deal by not co-operating with Entourage's geologists, not providing enough information to file an NI 43-101 report and letting the mineral claims lapse.

Entourage wants a court order forcing the numbered company to give Entourage its shares back and a declaration that the numbered company broke the contract. Failing that, it wants damages from both the numbered company and CMKM for breach of contract.

Entourage also alleges that CMKM broke a separate agreement signed on the same day. In return for 15 million shares of Entourage, Entourage would receive CMKM's option to the Hatch Lake property. CMKM was supposed to distribute the shares to its shareholders, but did not. Entourage wants CMKM to return the 15 million shares; if it cannot have that, it wants damages for breach of contract.

Nick Kambas represents Entourage. None of the allegations have been proven in court.

A convoluted past

This is closer to the last chapter of CMKM's history than the first. The October, 2005, agreements with Entourage should have started the winding up of the company. The agreements coincided with CMKM's dropping of its appeal of the U.S. Securities and Exchange Commission's decision to revoke the company's registration on July 12, 2005. The SEC had suspended the company in March, 2005, after two years of failure to file financial statements and annual reports. After a hearing in May of 2005, the SEC argued that revoking the company's registration -- after evidence the company was an egregious, repeat securities violator -- was the only way to protect future victims. After unloading its remainings assets, the company planned to divide up whatever it had left among its shareholders.

Before the SEC revoked the company's registration, shareholder Bill Frizzell tried to introduce evidence that illegal short selling was responsible for the company's misfortunes. Mr. Firzzell also alleged that the SEC was conspiring to conceal the illegal short sales. The judge in the case thwarted his attempt, ruling that any short selling was irrelevant in a hearing about the adequacy (or lack thereof) of the company's filings.

Although its predecessor companies traded around $3.50 in 2000, CMKM traded for hundredths of a penny or less for most of 2004 and 2005. On one day of trading in 2004, 39 billion shares of the company traded. The frenzy had little to do with the company's assets or prospects, which consisted of nothing more than lightly explored mining claims and mineral options. By CMKM's reckoning, it had 703.5 billion shares issued, although Mr. Frizzell claimed there were hundreds of billions of shares that had been sold short, possibly trillions.

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