Diamonds Aren't Forever
The SEC charged 11 people, and three companies, for allegedly conspiring to illegally issue and sell unregistered stock in a diamond and gold company — raking in $64 million for themselves from 40,000 investors. The SEC complaint against CMKM Diamonds alleges the company fraudulently issued 622 billion shares of purportedly unrestricted stock to the scheme's mastermind, John Edwards. Then, the CEO, Urban Casavant, pumped up the CMKM stock using false press releases, Internet chat-board postings and events across the country.
What Casavant's press releases, board postings and other marketing materials failed to mention was that he ran the company from his house in Las Vegas, and that, in fact, his company's primary activity was to issue and promote its own stock.
“The allegations in this case highlight the significant investor harm that results from abuses in the penny-stock market,” said Rosalind Tyson, acting regional director of the SEC's Los Angeles office. “Although CMKM's stock sold for well under a penny a share, the defendants were able to reap millions in profits by conspiring to flood the market with billions of unregistered shares while falsely promoting CMKM's value,” said Tyson.
According to the SEC, Edwards made off with $26.4 million from sales of his shares, Casavant made $31.5 million and the others made a combined total of $6.3 million.
Bayou Hedgie Gets 20 Years
Samuel Israel III, CEO of the hedge-fund group, the Bayou Funds, was sentenced to 20 years in prison in April for fraud and misappropriation of investor funds. The Bayou Funds collapsed in 2005 after nearly 10 years of fraudulent operation — the SEC estimates $450 million had been deposited in the funds over the 10 years. Israel was ordered to pay $300 million in restitution to investors. In September 2005, Israel and his cohorts, CFO Daniel Marino, and another man, James Marquez, pled guilty to investment advisor fraud, conspiracy and mail fraud charges. For 10 years the men managed to convince people the funds were doing exceedingly well despite never once achieving a year-end profit. In 2003 they claimed four of the funds made a combined $43 million profit; in fact, the funds had lost $49 million. By 2004, most of the funds' money had been transferred into Israel's accounts, unbeknownst to investors, where it was used to invest in fraudulent prime bank-note trading programs and for his personal use. New York District Judge Colleen McMahon told Israel at sentencing, “People who commit crimes while wearing a tie do not get a break.” In January, Marino and Marquez were sentenced to 20 years and 51 months in prison, respectively.