IDA bans, fines Kasman; one Rampart client still in jail
by Brent Mudry
November 19, 2002
Barry Kasman, the controversial former chairman and chief executive officer of now defunct Rampart Securities, has been effectively thrown out of the industry by the Investment Dealers Association of Canada. In a negotiated settlement, Mr. Kasman has agreed to a $200,000 fine and a lifetime ban on serving in any regulatory compliance or regulatory supervision role at any brokerage in Canada, although he is not precluded from going back to work as a broker.
The Kasman penalty tops the negotiated settlements of Rampart former executives Nicolas Tsaconakos, fined $175,000 and banned for life on Sept. 17, and Henry George Cole, fined $125,000 and banned for 10 years on July 23. The IDA also imposed an uncollectable $3-million headline fine against Rampart on Jan. 25, three months after a Rampart bankruptcy trustee was appointed by the Ontario Superior Court of Justice.
In an eight-page settlement agreement released Tuesday, Mr. Kasman admitted management responsibility for scores of deficiencies, irregularities and other serious problems at Rampart dating back to 1997, soon after it acquired his Merit Investment, another trouble-plagued Bay Street brokerage. Under Mr. Kasman's tenure, Rampart failed IDA reviews of sales compliance, financial compliance and regulatory capital in 1997, 1998 and 1999, even after Rampart was notified in 1998 that its sales compliance troubles had been referred to the enforcement division of the slow-moving IDA for formal investigation.
Meanwhile, the latest Rampart client to face his own troubles, Jeffrey Ray Senger, arrested Aug. 14 in Operation Bermuda Short, remains in a Florida jail after losing a bail appeal based on flight risk and a chief magistrate's ruling of "clear and convincing evidence" he is an "economic danger to the community." Mr. Senger's Rampart dealings are featured in 19 of his 27 counts of masterminding the pump-and-dump rig job of Lifekeepers International. (Mr. Senger faces 22 counts of securities fraud, four counts of conspiracy and four counts of money laundering in connection with two fraudulent stock manipulation schemes.)
There is no suggestion that Mr. Kasman or anyone else at Rampart had any idea Mr. Senger was anything but a fine upstanding citizen and a good client of the Toronto brokerage.
Recent court filings in United States District Court for the Southern District of Florida show Mr. Senger was under investigation by U.S. authorities since early 1999, during the early stages of his Lifekeepers promotion, for his activities at Baxter Banks, a notorious boiler operation. U.S. securities regulators received more than 200 complaints related to the flogging of Lifekeepers shares by Mr. Senger's boiler room brokers at Baxter Banks.
Mr. Senger, based in West Palm Beach, Fla., was evidently a fan of Canadian brokerages. "He had two accounts in Canada that were at Rampart and Union Securities. Both of those accounts were closed when Canada -- they are brokerage accounts, and both of them were closed when Canada changed their law and apparently precluded U.S. citizens from holding brokerage accounts," stated Miami defence lawyer Samuel Rabin in a detention hearing soon after Mr. Senger's arrest. (Canada has not changed any laws on foreign clients of brokerages, but the practice has come under increasing scrutiny by Canadian securities regulators in recent years.)
While Rampart collapsed a year ago, Mr. Senger continued to fly to Toronto on business, although his recent brokerage contacts or dealings are not identified. On Jan. 30, in a conversation taped by Bermuda Short agents, Mr. Senger said he had just gotten back from a business trip to Toronto. "He says that, 'Rick and I,' Rick being his brother and him, 'had been making money faster than we can count it,'" Assistant U.S. Attorney Rolando Garcia told the judge. Customs records also show Mr. Senger entered the U.S. from Toronto twice in late July, a few weeks before he was arrested at his home in Florida.
Before his Bermuda Short arrest, the longest time Mr. Senger spent behind bars, the only stretch noted in his bail hearing, was a six-week stint for failing to appear on a DUI, or driving under the influence, charge. "I did 45 days in jail for that," Mr. Senger recently told a Miami judge.
Several Lifekeepers co-conspirators were charged in a separate grand jury indictment last year, while Mr. Senger was a key target of Bermuda Short FBI undercover agents. (His recent Bermuda Short indictment rolled in the Lifekeepers charges.)
A number of these indicted Lifekeepers associates were also fond of Canadian brokerages as stock and money laundering conduits. In July, 1998, South American native Valentin Fernandez, through a nominee, opened an account at controversial Vancouver brokerage Pacific International Securities under the name Kuatro Ltd. In February, 1999, Mr. Valentin, again using a nominee, opened an account in the name of Dominion Investments at First Marathon Securities in Toronto. His brother, Juan (John) Fernandez, who controlled a branch of Baxter Banks, and four other Baxter Banks brokers were also indicted.
(Pacific International and First Marathon are both now controlled by National Bank Financial of Montreal. Pacific International is currently in the early stages of a landmark hearing by the British Columbia Securities Commission, which claims it attracted and serviced far more than its Howe Street share of dubious clients. The BCSC citation notes Pacific International was named in a conduit in numerous U.S. indictments, but Mr. Fernandez and his fellow Lifekeepers riggers were not on this list. National Bank Financial is currently fighting an Ontario Securities Commission prosecution over the underwriting of magnetic Russian mob promotion YBM Magnex International by First Marathon.)
In late 1998 and early 1999, Valentin Fernandez sold 1.3 million shares of Lifekeepers and another rig job, BIZ Holdings Inc., through his Dominion Investments accounts, and used his nominee to wire $2.66-million from these brokerage accounts offshore to Barclays Bank in Nassau, Bahamas, to another Dominion Investments account. (All Senger figures are in U.S. dollars.) Similarly, he sold 190,000 shares of BIZ through his Kuatro account at Pacific International in Vancouver and wired almost $354,000 from this account offshore to a Kuatro bank account at Barclays in Nassau.
Valentin Fernandez faced eight counts for his Canadian wires offshore. Six were for wire transfers from First Marathon in Toronto: $250,000 on Jan. 25, 1999, $320,000 on Feb. 19, 1999, $175,000 on Feb. 24, 1999, $145,000 on March 3, 1999, $93,000 on April 7, 1999, and $150,000 on April 20, 1999. The other two were for wires from Pacific International in Vancouver: $31,352 on April 7, 1999, and $213,881 on May 7, 1999.
These Canadian wires offshore were all made while Lifekeepers was under increasing investigation by U.S. authorities, but Mr. Senger was undeterred.
"For example, in February of 1999, the State of Florida paid a visit to his Baxter, Banks & Smith office and told him their concerns about Lifekeepers, and basically he closes that operation, and instead of running another boiler room, he pumps Lifekeepers stock using E-mails, press releases and a web site campaign," prosecutor Mr. Garcia told the court.
"In June of 1999, the FBI begins its investigation. The FBI interviews Senger's brokers there at Baxter, and that gets back to him, and we know this because he has a meeting with the undercover agent and the co-operating witnesses."
Lifekeepers was just one of numerous dubious deals Mr. Senger worked on, according to U.S. authorities. (Mr. Senger retained defence lawyer Mr. Rabin on Oct. 14, 1999, soon after the arrest of Monty Myler, a very close friend and Lifekeepers business associate who later flipped and copped a plea. As part of their sentence deals, Mr. Myler and the Valentines were barred from doing any sort of telemarketing work in the future.)
Despite knowingly being under investigation for Lifekeepers, Mr. Senger lined up another penny stock deal, to buy the BIZ shell. "It turned out that the owner of that shell contacted the FBI, and they sent an undercover agent to pose as the boyfriend of the shell corporation (owner)," states Mr. Garcia. "The undercover FBI agent basically kind of stalls him, and essentially the FBI is able (sic) to afford any pump of that stock."
"He continues. In June of 2000, he moved his operation to Georgia to escape the heat, as he puts it ... there he does another deal," Mr. Garcia told the court. In this deal, Mr. Senger sold a $300,000 or $400,000 private placement of Design Pallets, a shell owned by an associate.
"And while he is doing this deal, this Design Pallets deal, he was also pumping the Piccard Medical stock, doing these E-mails and false press releases and bribing the undercover agent and the co-operating witnesses in the sting, and we know that the Design Pallets deal based on recorded taped conversations that the defendant has with the undercover agent and the co-operating witness," the prosecutor told the judge.
In September of 2000, the National Association of Securities Dealers shut down Mr. Senger's office in Georgia, and that same month he brought the "eye store deal" (Piccard) to the undercover agents and co-operating witnesses in Bermuda Short.
Then, in November of 2000, Mr. Senger got involved in a foreign currency boiler room called Stratus. "In his recorded conversations, he is selling foreign currency options using a Bahamian clearing firm called Suvix. Well, FBI Agent John Munet who is in the courtroom here, made a visit to Suvix in the Bahamas, and it wasn't a trading firm. It didn't employ traders. It wasn't in the business of buying options. It consisted of one employee there who was simply typing up trade confirmations," states the prosecutor.
A few months later, in February of 2001, Mr. Senger introduced the undercover Bermuda Short FBI agents and the two co-operating witnesses to other unindicted co-conspirators setting up another stock fraud. "They eventually did do the same kickbacks as Senger, but it was a different deal," states Mr. Garcia.
The court also heard of Mr. Senger's involvement in several other dubious penny stock promotions, including Internet Stock Market Resources and International Stores.
The court also heard that between November, 2001, and February, 2002, Mr. Senger generated more than $270,000 from the sale of shares of five penny stocks through his brokerage account at SAL Financial Services Inc.: Direct Wireless Communication Inc., Ivoice Inc., Knowledge Networks Inc., Micro Laboratories Inc. and Xtreme Webworks.
"Prior to Senger's sale of those stocks, unauthorized spams (mass unsolicited Internet E-mails touting the stocks) were sent. Senger was one of the largest sellers of those stocks during that time frame. The large volume of sales caused the price of those stocks to plummet," states one court filing. "The SEC office in Boston, Massachusetts, and the NASD office in Washington, D.C., have initiated investigations concerning the potential manipulation of those stocks."
Defence lawyer Mr. Rabin argued that everything was blown out of proportion. "The government talks about, 'Well, we think that he is engaged in widespread fraud.' They have talked to you today about, I guess they have mentioned five, 10 companies in total," Mr. Rabin told the judge. "He has probably since 1988 in the past 14 years that he has been involved, in the 14 years that he has been involved, Judge, he has probably been involved in over 100 companies."
After several heated detention hearings, Mr. Senger remains in jail, with his trial set for next February.
"Your Honor, our main concern, frankly, is the risk he poses. As recently as August 6th, in an undercover video meeting he indicates to the agent and the co-operators that he and (brother) Rick had four deals rolling now, and they had six million shares, and they would keep everything in family names," prosecutor Mr. Garcia told the judge.
During this taped conversation, Mr. Senger scoffed at the authorities. "They can still make the argument that I've been an ongoing criminal enterprise but there's been periods when I can show I took time off," Mr. Senger laughed.
The judge also heard evidence Mr. Senger travelled to Venezuela in September, 2001, and spent three days on Margherita Island, which is just off the coast. While defence lawyer Mr. Rabin described this island as "a place like Ft. Lauderdale for spring break," Mr. Senger may have had more in mind than some fun in the sun.
"In an August 6, 2002, tape recorded conversation with the CWs (co-operating witnesses), Senger stated that he was thinking of opening a room on Margherita Island and selling offshore investments. During that conversation, Senger asked the CWs if he could bring deals to a broker-dealer that the CWs were purportedly going to open in Florida," states prosecutor Mr. Garcia in a court filing.
"Senger stated that he could bring back some of his ex-guys and they could call Europe, 'who's going to know.' Senger said that he had people who would buy his paper on the open market."
Mr. Senger, meanwhile, is trying to claim indigent status in court, even though he spent $45,000 on a Rolex watch at Hamilton Jewelers on Feb. 28, talked on July 30 of plans to build a 7,400-square-foot home, and frequently bragged on tape of his offshore prowess.
"In October, 2000, Senger introduced an individual to the UCA (undercover agent) and CWs that could facilitate the hiding of money in Panama. In a video recorded meeting, this person stated that you can get a Panamanian passport in your true name, change your name through the courts in Panama and they reapply for a new passport in the fictitious name," states the U.S. Attorney's office in a filing.
"Once you did that, you could do your banking in Panama without tracing the money to you. During the meeting, Senger stated that he had a Panamanian account with one million shares of stock in it." Evidence also shows that during the Lifekeepers promotion period, a corporate bank account controlled by Mr. Senger received $100,000 from British West Indies Securities and $34,000 from BKG Co., an offshore company in the Turks and Caicos Islands. At his detention hearing, Mr. Senger claimed to have bank account in the Bahamas with a balance of $2,000 to $3,000 and a brokerage account in Bermuda valued at about $150,000.
[ RGM Short Selling Home page ]