OSC target Valentine's offshore front Lemmon flips

Canada StockWatch
by Brent Mudry
December 20, 2002

In a devastating setback for former Thomson Kernaghan head Mark Valentine, his trusted offshore front Paul Lemmon has flipped and cut a plea deal with the U.S. Department of Justice, in the first high-profile conviction in Operation Bermuda Short. In the second setback in recent days, Mr. Valentine's concerted bid to change his bail conditions faces strong opposition from the Miami prosecutor handling his case, despite the court representations made by his criminal defence lawyer.

Mr. Valentine, a trophy target in Bermuda Short, the joint RCMP-FBI undercover operation, recently filed a motion in United States District Court for the Southern District of Florida to modify his bail so he can return from South Florida, where he remains under house arrest with an electronic monitoring anklet and a curfew, home to Toronto to meet more easily with his assorted lawyers and business associates.

The Lemmon bombshell was made official on Wednesday, when Mr. Lemmon, who runs the Voyager Group in Bermuda, and his court-appointed lawyer Jack Goldberger made a brief appearance before Judge Wilkie Ferguson Jr. in Fort Lauderdale, Fla., to change his plea to guilty. Sentencing has been set for Feb. 21, 2003, although this date will likely change to follow Mr. Valentine's trial, which was recently rescheduled to start on March 24, 2003.

Mr. Lemmon, in custody since his arrest on Aug. 13, will be released on a $100,000 personal surety bond co-signed by his wife Darlene Lemmon and his father George Lemmon, and a $50,000 corporate surety bond. (All figures are in U.S. dollars.) Mr. Lemmon must also report once a week to the RCMP in his home province of New Brunswick, once a week by phone to the nearest U.S. Pre-Trial Services Office, and once a month in person to that office.

Mr. Valentine and Mr. Lemmon were trophy targets in Operation Bermuda Short, and undercover sting inspired by penny stock dealings through Bermuda and Mr. Valentine's legendary shorting prowess. Mr. Valentine was arrested on Aug. 14 at the Frankfurt airport in Germany, while the 59 other targets, including Mr. Lemmon and 18 other Canadians, were all arrested in U.S. soil.

Mr. Lemmon's plea agreement, signed by him, his counsel Mr. Goldberger and Assistant U.S. Attorney Roger Stefin, was signed and filed in court on Wednesday, and entered on Thursday. Mr. Lemmon has pled guilty to one count of conspiracy to commit wire and securities fraud, while the other two counts on his grand jury indictment will be dropped after sentencing. He pledges his full co-operation with authorities, and he will presumably have quite a bit to tell about how Mr. Valentine operates, especially in the disgraced broker's lucrative offshore shorting and death spiral financings.

Mr. Lemmon and Mr. Valentine were arrested in the main part of the Bermuda Short sting, which targeted numerous penny stock players snared by an undercover FBI agent, posing as a dirty fund manager for a fictitious $800-million mutual fund, and two co-operating witnesses posing as corrupt stock brokers, who set up millions of dollars of bribes to stuff the mutual fund with garbage penny stocks.

The Valentine-Lemmon indictment centres on three deals: C Me Run Corp., one of the companies in the stable of Mr. Valentine's close associate Cameron Chell, a controversial Calgary-based penny stock promoter, SoftQuad Software Ltd. and JagNotes.com Inc. The indictment claims that starting in late 2000, the dirty fund manager agreed to buy $9.4-million worth of C Me Run stock and $10-million worth of both JagNotes and SoftQuad stock from Mr. Valentine and Thomson Kernaghan, in exchange for Mr. Valentine and Mr. Lemmon agreeing to pay cash bribes or kickbacks of 25 per cent to 30 per cent to the undercover agent and two co-operating witnesses posing in their real-life roles of dirty stock promoters.

With Mr. Valentine and Mr. Lemmon taking the bait, the undercover FBI agent hooked his trophy catch with "test trades" resulting in the pair making initial stock bribe payments of $25,000 for C Me Run buying and $10,000 for SoftQuad buying. Both were charged with one count of securities fraud conspiracy, with a maximum penalty of five years in jail and a $250,000 fine, and two counts of securities fraud, with a maximum penalty of ten years in jail and a $1-million fine.

U.S. sentencing involves a complex but specific formula of guidelines. In the Lemmon plea agreement, the U.S. government has agreed to recommend the court reduce his sentencing guideline level by three notches, and to recommend he be sentenced at the low end of the applicable guideline range.

In turn, Mr. Lemmon has agreed to co-operate fully with the U.S. Attorney's Office by appearing and providing truthful and complete information and testimony, and producing documents, records and other evidence when requested, whether in interviews, before a grand jury, or at any trial or any other court proceeding. While Mr. Lemmon must sing like a canary about Mr. Valentine, he must also sing about any other target, indicted or otherwise, that the U.S. Attorney's Office asks him to.

The onus, of course, is on Mr. Lemmon to be as helpful as possible, because the nature and extent of his co-operation will buy him the best final sentence. "If in the sole and unreviewable judgment of this office the defendant's co-operation is of such quality and significance to the investigation or prosecution of other criminal matters as to warrant the court's downward departure from the sentence required," the U.S. Attorney's Office may file a court motion arguing for a lenient sentence, states the plea agreement.

While the flipping of Mr. Lemmon is the worst setback for Mr. Valentine since the Ontario Securities Commission abruptly suspended him on June 17, he faces more bad news this week. Miami prosecutor Mr. Stefin firmly opposes Mr. Valentine's bid to change his bail conditions.

Recent court filings suggest Mr. Valentine's Miami lawyer, Michael Pasano, made a significant misrepresentation to court, although this may just be an innocent inadvertent mistake. "Defendant's counsel has discussed this motion with Assistant United States Attorney Roger Stefin who has advised Defendant's counsel that he has no objection to Mr. Valentine's bond conditions being amended as request," states Mr. Pasano in his six-page bond motion, dated Dec. 4.

This apparently came as some surprise to prosecutor Mr. Stefin, who is dead set against Mr. Valentine's conditions being modified.

"The United States objects to the motion," states Mr. Stefin in a Dec. 16 filing, entered on Dec. 17. "The defendant in his pleadings states that the government had no objection to his motion. This is incorrect," states a footnote.

"The defendant was released on a bond which called for electronic monitoring as an alternative to incarceration. While the bracelet may be inconvenient to the defendant, it still acts as one form of assurance -- albeit a small one -- that the defendant remains within the jurisdiction of the court," states Mr. Stefin in his opposing response.

"Stringent bond conditions were placed upon the defendant because he is a Canadian citizen of substantial financial means who poses some flight risk. Therefore the United States objects to the removal of the electronic bracelet at this time."

Mr. Stefin also states that for this same reason, the U.S. government opposes Mr. Valentine's request to travel outside the Southern District of Florida. "The United States requests that defendant's motion to modify conditions of his release be denied."

Among the character reference affidavits vouching for Mr. Valentine's fine character, designed to assure a Florida judge that the wealthy controversial broker is not a flight risk, is a glowing testimonial from Toronto immigration lawyer Mendel Green, Q.C., a lawyer for 40 years.

"LEXPERT, Canada's legal directory, pointed out that Mendel Green is considered 'the dean of immigration by Canada's immigration bar,'" states Mr. Green in in his curriculum vitae. Mr. Green is also the Honorary Vice Consul in the Consulate of The Republic of Moldava in Toronto.

"Mark Valentine became known to me about five years ago when he purchased my friend's country home on Lake Simcoe near Jackson's Point, Ontario. He became friends with one of my children and I met Mark at my son's home . . . I would see Mark on a daily basis," states Mr. Green.

"Mark impresses me as a father. He interacts with his children beautifully. He has inspired me, as one rarely sees today -- a father who is busy in his business life and yet spends quality time with his children."

The inspired immigration dean is also impressed that Mr. Valentine shows his wife, Stephanie Valentine, respect in public. "Mark has consistently demonstrated respect for his father, mother, father-in-law and mother-in-law. In today's world, it is a rarety to see this."

The immigration lawyer also notes the controversial broker has held fundraisers for the Children's Wish Foundation and raised "unprecedented" amounts. "I am a Director of the Board of the Mount Sinai Hospital Foundation in Toronto. He has made a generous gift to this establishment. I am active in the community in Toronto and Mark has always supported my charitable work."

A Florida judge must soon consider and decide whether Mr. Valentine is a man to be trusted to return from trips to Toronto.


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