More on Mogilevich's business connections in US

More on Mogilevich's business connections in America

By Margie Burns

The back-story on the business enterprises of Semion Mogilevich that became YBM Magnex International began, according to public record including documents from federal courts in Canada and the United States in the 1990s in Canada and Pennsylvania. As with so much that has happened on Wall Street and other bourses lately, the blatant potential for problems at YBM apparently went unnoticed for years. The following is a short chronology:

On May 13, 1991, a private company named YBM Technologies was created in Richboro, Pennsylvania, listed with Jacob G. Bogatin as its president. Bogatin has since that time figured as one of multiple defendants in civil and criminal cases involving the Mogilevich business network.

In 1992, Mogilevich and others associated with the Solntsevskaya Organization--allegedly involved in weapons trafficking, nuclear materials trafficking, prostitution, drug trafficking, dealing in precious gems and money laundering--owned or acquired foreign corporations including a Russian company named Arbat International, a Channel Islands company called Arigon Company Limited and a Hungarian corporation named 'Kiss es Kaiser Kian Kit'. The combined entity became known as Magnex RT in 1992.

On March 22, 1993, a second company was created in Pennsylvania, YBM Magnetics in Hatboro PA, again with Bogatin as president. As the Pennsylvania state database for business entities shows, a third company, named YBM Magnex, was created, again in Hatboro, on February 10, 1994. Its president also was Yakov (Jacob) Bogatin.

The individuals controlling YBM Magnex purchased the assets of Magnex RT and the shares of Arigon in 1994, allegedly planning to take Magnex RT public indirectly.

On March 16, 1994, a company initially named Pratecs Technologies Inc. was incorporated in Alberta, Canada. The company issued a prospectus on July 18, 1994, to sell stock shares to raise money to acquire Canadian marketing and distribution rights from YBM Magnex, Inc. On Oct. 5, 1995, the company name was changed to YBM Magnex International, Inc., listed as located in Newtown, Pennsylvania. In its public filings, YBMI identified its core business as the manufacture and worldwide distribution of custom made, industrial magnets (hence the 'magnetics' and 'magnex' in company names). Its president was Bogatin.

About October 31, 1995, YBM 'merged' with YBM Magnex. The shareholders of YBM Magnex obtained approximately 94% of the common shares of YBM, which remained a public company, and YBM became the owner of 100% of the shares of YBM Magnex.

Stock in YBMI [YBM Magnex International] was traded on exchanges in Canada and the United States from 1994 to 1998.

On Jan. 19, 1996, YBM filed a final prospectus in Canada to issue 7,050,000 common shares and 1,768,750 share purchase warrants. On March 7, 1996, YBM was listed and its shares posted for trading on the Toronto Stock Exchange.

On April 29, 1996, Bogatin advised the YBM Board of Directors "of a proposal to relocate the Company's wholly-owned subsidiary, Arigon Co. Ltd. from the Channel Islands, U.K., to the Cayman Islands . . . to bring Arigon's operations closer to the Company's North American headquarters." Plaintiff also "advised that upon the completion of such move, Arigon's name will most likely be changed to United Trade Limited." [Bogatin v. Federal Insurance Company  CIVIL ACTION NO. 99-4441  2000 U.S. Dist. LEXIS 8632]

Bogatin also laid out YBM's plans to sell another subsidiary, a company based in Moscow named Arbat International, Inc. "The rationale for the [sale of Arbat] was that the Company's operations in Eastern Europe were difficult to supervise and exposed [YBM] to certain potential liability." Around the same time, the sale of Arigon Company Limited was arranged, as indicated by a letter from YBM's lawyers in London (England) on May 2, 1996. "YBM's London counsel stated that [Bogatin] had "asked me to arrange for the liquidation of Arigon Company Limited" and identified steps to liquidate the company.

Shareholders in Arigon including Semion Mogilevich agreed to assign the assets and liabilities of Arigon to another YBM wholly-owned subsidiary, United Trade Limited, effective April 1, 1996. In exchange, Mogilevich and the other Arigon shareholders were issued shares in United Trade. The agreement recites that "YBM is the legal and beneficial owner of the entire issued share capital of Arigon," and does not purport to extinguish YBM's rights in Arigon."

YBM filed a final prospectus on November 17, 1997, ultimately issuing 7,520,000 shares of stock. This included 3,520,000 shares sold for about $52 million and an additional 4 million common shares automatically convertible to 'Notes' with a face value of $48 million.

On May 13, 1998, the company was ordered to cease trading in Canada. An Organized Crime Strike Force of the U.S. Attorney's office in the Eastern District of Pennsylvania executed a search warrant and raided the YBM head office in Newtown, Pennsylvania.

On May 28, 1998, YBM was charged with criminal conspiracy to commit mail and securities fraud. The company rapidly fell, and on Dec. 9, 1998, YBMI was placed in Receivership by the Calgary court, with Ernst & Young, appointed as Receiver and Manager of the property of YBM.

On June 7, 1999, YBM Magnex International, Inc. pleaded guilty in the U.S. to a multi-object conspiracy to commit fraud. "This fraud was perpetrated by YBM through certain officers and directors who among other acts caused the company to disseminate materially false and misleading information to the investing public, to securities regulators, and to other stakeholders."

As the Superior Court in Ontario sums it up, "The total approximate loss to all persons who dealt in YBM shares is in excess of $360 million. The estimated loss to purchasers under the public offering pursuant to the 1997 Prospectus is more than $100 million. The estimated loss to persons who purchased shares in the secondary market is in excess of $250 million. . ."

Be it noted that YBM Magnex International was able to hire some very blue-chip or silk-stocking expertise. From the courts:

"The defendant Kenneth Davies . . . who resides in British Columbia, was a director of YBM. The defendant Michael Schmidt . . . who resides in British Columbia, was a director. Both were members of special committee #1 of YBM. The defendant Frank Greenwald . . . resides in Delaware, was a director and was a member of special committee #2. The defendant Harry W. Antes . . . resides in Pennsylvania and was a director who became Chairman of the board of directors in August, 1996. . . The defendant R. Owen Mitchell . resides in Ontario and was a director He was also a director and Vice-President of Investment Banking for the defendant National Bank Financial Inc., which acquired and merged with First Marathon Securities Limited. . The defendant David R. Peterson . . . resides in Ontario and was a director of YBM. He is also a partner in the defendant law firm, Cassels, Brock & Blackwell . . . The defendant Daniel E. Gatti . . . resides in Pennsylvania and was Vice-President, Finance and Chief Financial Officer of YBM. He was also an accounting manager with the defendant, Parente Randolph Orlando Carey & Associates . . . when that firm conducted YBM's initial audits in 1995. The defendant James J. Held ("Held") resides in Pennsylvania and was Vice-President, Business Development and Investor Relations of YBM."

Other defendants in the class action lawsuits include HSBC Securities (Canada), of HSBC; Scotia Capital Inc; and Canaccord Capital Corporation.

Not only was YBM able to hire some high-priced help in finance and law, it also was able to attract some valuable capital, again from highly respectable sources, as shown in the toniness of some former investors, now plaintiffs suing YBM:

"The plaintiff British Columbia Investment Management Corporation . . . and the other putative class members purchased some 3,520,000 YBM common shares at a purchase price totalling about $52,080,000 pursuant to the 1997 Prospectus. The issuance of the 1997 Prospectus also qualified the issuance to the plaintiff Royal Trust Corporation of Canada . . . in trust for two accounts managed by the plaintiff Connor Clark & Lunn Investment Management Ltd. . . . of 4,000,000 shares for a total purchase price of $48 million."

In retrospect, there is something remarkable in the attraction held by this company, given its specs. The President, Chief Executive Officer and a Director of YBM Magnex for almost all its short history was Mr. Jacob Rogatin (now, as mentioned, a defendant several times over). Another defendant, Igor Fisherman, of Kiev, Ukraine, was a Director and the Chief Operating Officer. A 'Central Group' calling the shots at YBM allegedly comprised Mogilevich, Fisherman, Bogatin, and the other Arigon shareholders, presumably in Russia.

Plaintiffs allege that Bogatin and Fisherman ("core conspirators") acted in concert with Mogilevitch and the shareholders of Arigon to defraud the shareholders of YBM. They further allege that each of the more respectable defendant individuals and firms was negligent and "so reckless as to be wilfully blind in the performance of his obligations and duties as a director or officer of YBM . . ."

The plaintiffs allege, in other words, that a massive conspiracy and fraud was perpetrated upon the investors in YBM by organized crime, with Fisherman and Bogatin allegedly intentional insiders in the scheme. The remaining defendants--directors and officers, legal advisors, auditors and underwriters—allegedly either knew "or should through reasonable due diligence have known, of the intended unlawful conduct by the intentional wrongdoers such that the fraud could have been prevented."

 The argument is understandable: "The plaintiffs allege that about November, 1995 articles began appearing in newspapers in Russia and Britain that linked leaders of Russian organized crime to YBM and/or its subsidiaries. . there were indications to the directors of YBM as early as August, 1996, of a significant risk that YBM was being used for unlawful purposes . . . it was known then that there was an ongoing criminal investigation of YBM by the US. Department of Justice. The plaintiffs allege that an investigation on behalf of the board of directors of YBM disclosed in January, 1997, that there was credible information that members of Russian organized crime were involved in YBM."

Admittedly the Moscowelement makes the YBM matter seem more colorful than it might otherwise. But setting aside differences of detail, some of the broader pattern resembles what has been seen elsewhere, too often, recently.

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