-Caveat Lector- CRIMINAL LAW [01/29] Canadian regulators assailed for laxity on suspect firm TORONTO, Jan 28 (Reuters) - Canadian securities regulators are under fire after the downfall of YBM Magnex, a U.S. magnet manufacturer once cloaked in respectability but now accused of being a front for international money laundering. YBM won a listing in the prestigious Toronto Stock Exchange 300 Composite Index on Canada's largest bourse and a nearly C$1 billion market capitalization before its foundations started crumbling last spring after U.S. authorities raided its Pennsylvania headquarters. That's when YBM's alleged links to the Russian mob started to emerge, but it may be months before all the convoluted facts of that involvement come out. Last month, however, many serious allegations emerged in a forensic accounting report ordered by investors. YBM's board in December admitted that it expected the company to be indicted and that "there is good reason to believe that U.S. authorities will be able to marshal substantial, credible evidence of criminal wrongdoing." The more immediate question is how a firm connected with the underworld could dupe regulators and attract investment from major mutual and pension funds. "I think that's one of the central questions in this case. I don't know how the warning signs that people have mentioned in the newspaper didn't stop it from getting as far as it did," said a lawyer connected to one of the many class action suits filed in connection with YBM. The Ontario Securities Commission, Canada's largest securities regulator, is attracting critical glances for just that reason. "You know the hardest thing for anybody to discover in looking at something is fraud. It's hard because the very people that you're depending on for data are the ones that are (supplying the information)," OSC Executive Director Charlie Macfarlane told Reuters. The Newtown, Pennsylvania-based company -- now in receivership -- its executives, directors and its auditors have all been hit with U.S. and Canadian class action suits. The directors included former Ontario premier David Peterson and Owen Mitchell of brokerage First Marathon Inc. Documents trace the links between YBM and Russian mobster Semion Mogilevitch, whose organization is involved with everything from prostitution, to drugs, to murder. What is now emerging is that the OSC knew as far back as November of 1997 that there were serious doubts about the company but the regulator still rubber-stamped a C$53 million stock offering. In fact, YBM itself disclosed to the Alberta and Toronto stock exchanges before it was listed that there had been a British probe into its predecessor company, Arigon Co. Ltd., and its ties to Russian mob boss Mogilevitch. The Toronto Stock Exchange declined to comment on YBM. Those close to the case said, off the record, that they do not believe any of the parties connected with YBM -- securities regulators, stock exchanges, directors, auditors, underwriters -- did enough due diligence on the company. A press report this week alleged that the OSC knew about an investigation by the Royal Canadian Mounted Police into the company's affairs. Macfarlane said the RCMP denied that there was any probe going on at the time but he did concede that there were enough worrying allegations about YBM when it filed for its share issue that the OSC took the rare step of asking for a re-audit of 1996 results by a recognized accounting firm. "What came out of that was restated sales figures. But what came out of it was an absolutely clean audit. No flags raised by the auditor. Even though they restated them, the audit was clean," Macfarlane said. The watchdog qualified the company's share issue in November, apparently reassured by the clean bill of health from well-regarded accounting firm Deloitte & Touche. "I don't know exactly what (the commission) knew but based on what I did know, I believe they had enough information by November 1997 (to not qualify the issue)," said a source close to the case. "Clearly there was a big Deloitte issue and a big Deloitte problem. Secondly, I happen to personally believe there was an OSC issue." He said that while the RCMP may have been playing with the definition of "investigation", according to his information, the Mounties were looking at YBM's affairs by November 1997. The RCMP would neither confirm nor deny the existence of an investigation, then or now. A number of high-profile fraud cases in recent months, including the dramatic case of well-known theater producer Livent Inc's Garth Drabinsky, have tapped the commission's resources. The thinly stretched OSC has launched a hiring blitz to boost its staff by 50 percent to 315. The airing of its corporate dirty laundry has also placed Canada under a critical international spotlight. The class action suits focus on the auditors, particularly Deloitte & Touche, which was told by the OSC to investigate with a fine tooth comb, as well as board members and executives. Deloitte & Touche resigned as auditors in June 1998, after raising concerns in March 1998 about 1997 financial statements that YBM could not resolve. ($1=$1.52 Canadian) Last Updated: 01/29/99 02:02 EST Copyright 1998 Reuters Limited. All rights reserved. Republication and redistribution of Reuters content is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. http://legalnews.findlaw.com DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance—not soapboxing! These are sordid matters and 'conspiracy theory', with its many half-truths, misdirections and outright frauds is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRL gives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credeence to Holocaust denial and nazi's need not apply. Let us please be civil and as always, Caveat Lector. ======================================================================== Archives Available at: http://home.ease.lsoft.com/archives/CTRL.html http:[EMAIL PROTECTED]/ ======================================================================== To subscribe to Conspiracy Theory Research List[CTRL] send email: SUBSCRIBE CTRL [to:] [EMAIL PROTECTED] To UNsubscribe to Conspiracy Theory Research List[CTRL] send email: SIGNOFF CTRL [to:] [EMAIL PROTECTED] Om
