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Date: Thu, 21 May 1998 08:55:03 -0700
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From: Sid Shniad <[EMAIL PROTECTED]>
Subject: The free market rules. Who needs regulation?
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The Globe and Mail Report on Business Thursday, May 21, 1998
Russian mobsters owned third of YBM shares
Firm says international crime ring boss
`never exercised control'; TSE removes
company from index
By Karen Howlett and Paul Waldie
A Russian mob boss and five associates owned just less than one-third of YBM
Magnex International Inc.'s shares in 1995, shortly after it went public on
the
Alberta Stock Exchange.
According to company documents filed with Alberta securities regulators,
Semion Mogilevitch, 51, owned 5.5 million shares of YBM. Five other
associates together held an additional 26.4 million shares.
Police investigators in at least six countries have accused Mr. Mogilevitch of
sitting atop a syndicate whose suspected illegal activities span the gamut
from
prostitution to arms and drug dealing, money laundering, extortion and murder.
Mr. Mogilevitch ended up as a shareholder in YBM because he was also a
shareholder and founding director of Arigon Co. Ltd., according to documents
filed in the Channel Islands and obtained by The Globe and Mail. Arigon was
formed in 1990 and bought a Hungarian industrial magnet plant a year later. It
was the company that got YBM into the magnet business.
The FBI and RCMP have alleged that Arigon is a money laundering operation
for Mr. Mogilevitch's group and two other Russian crime organizations -- one
based in Brussels called the Brandwain group and another headed by Sergei
Mikhailov, who has been in custody in Geneva since 1996, awaiting trial on
charges of membership in a criminal organization and money laundering.
In a statement issued late yesterday, YBM said Mr. Mogilevitch "never
exercised control over the company and has never had any involvement in [its]
management." It is not known whether his group still owns shares. YBM also
said that Mr. Mikhailov is not a shareholder.
A number of law enforcement agencies, including the FBI, searched YBM's
headquarters last week in connection with a criminal investigation. The
Pennsylvania-based company's shares were hit with a cease-trading order last
Wednesday by the Ontario Securities Commission. Another blow came
yesterday when the Toronto Stock Exchange said it will remove its shares from
the flagship 300 index tomorrow.
The criminal allegations surrounding individuals associated with YBM now date
back to at least 1994, the period when Arigon was in the process of taking
over
a predecessor company to YBM. At the time, police in London were
investigating Mr. Mogilevitch and his alleged mob activities. While no charges
were laid, he was barred from entering Britain, according to British media
reports.
Securities regulators in Alberta were aware of that police probe.
YBM was then known as Pratecs Technologies Inc., one of hundreds of junior
capital pool companies listed on the ASE. Through a reverse takeover, it
ultimately acquired the assets of a Pennsylvania company called YBM Magnex.
Arigon was a wholly owned subsidiary of YBM Magnex Inc.
In July, 1995, a few months before that transaction closed, Pratecs announced
that trading had been halted in its shares because of "allegations made in
London, England, against two individual shareholders of YBM Magnex."
Pratecs said in a news release that the allegations were aimed at two British
companies and their lawyers. "The companies are in no way related to YBM or
its subsidiary, Arigon," it said.
It added that all investigations against Arigon were dropped.
That explanation appeared to satisfy stock market regulators. After a six-week
halt in Pratecs shares, the ASE allowed Pratecs to merge with YBM Magnex, a
move that allowed the company to transform itself from a shell whose only
asset
was its stock exchange listing into a manufacturing concern with plants in
Hungary and Kentucky and, ultimately, a listing on the TSE in 1996.
"We had no part in the vetting of that transaction," Charles Blakey,
director of
market standards at the Alberta Securities Commission, said yesterday in an
interview. "It appears that there was an investigation going on in England,
but
nothing ever came out of that as far as any charges go."
Officials at the ASE were not available for comment.
After the transaction was completed in October, 1995, Mr. Mogilevitch and his
associates owned 31.9 million of YBM's 110 million shares outstanding. The
shares were subsequently consolidated five for one.
YBM has raised more than $65-million from Canadian investors and has a wide
following among institutions. Mutual fund companies own nearly 40 per cent of
the 44 million shares now outstanding. The shares last traded at $14.35 each.
Mr. Mogilevitch's mob organization includes 250 members and operates in the
United States, Russia and Israel, according to reports by the Royal Canadian
Mounted Police and the Federal Bureau of Investigation.
Since 1993, the organization has also developed links to the European
branch of
the mafia, the reports say.
"The central element of the Mogilevitch organization appears to be Arigon Co.
Ltd., a company based in the Channel Islands, which has offices in Budapest,
Moscow, Kiev, Tel Aviv and Los Angeles," said a 1995 report by the RCMP
based on information supplied by the FBI.
The group has ties to another Russian outfit called the Solntsevskaya
organization. It operates out of a suburb of Moscow and is headed by Mr.
Mikhailov.
Police say another criminal organization that uses Arigon as a front is
called the
Brandwain group. It is based in Brussels and is "reported to be the
godfather of
Russian criminal exiles in Belgium," according to a 1996 report by the U.S.
Customs Service.
The Brandwain group "is believed to be involved in narcotics trafficking,
money
laundering, extortion, murder and the smuggling of stolen auto parts into the
former Soviet Union," according to the U.S. Customs report.
FBI agents swooped down on YBM's head office last week and used a search
warrant to seize hundreds of documents, including those relating to Arigon, in
connection with the criminal investigation.
It is not known at this point whether the tentacles of the Russian mob
reach into
YBM, a company in the seemingly ordinary business of making magnets and
bicycles. Agencies involved in the probe along with the FBI -- the U.S.
Immigration Office, U.S. Customs Service and the Internal Revenue Service --
remain tight-lipped.
--
Michael Perelman
Economics Department
California State University
Chico, CA 95929
Tel. 530-898-5321
E-Mail [EMAIL PROTECTED]
