Authorities in Germany have arrested Mark Valentine, the suspended former chairman of Canadian investment dealer Thomson Kernaghan. He faces charges relating to a massive securities fraud and money-laundering scam that has resulted in indictments against 58 people.

In a joint investigation involving the RCMP, the FBI, the U.S. Securities and Exchange Commission, and the National Association of Securities Dealers, the FBI said it set up a sting operation using an undercover agent and a fake mutual fund. The agent approached corporate executives and securities brokers and offered to buy large quantities of shares at inflated prices from them in exchange for a kickback.

A total of 20 separate indictments were handed down as part of the fake mutual fund scam. No investors lost money in the sting, but the alleged fraud could have topped $200 million US. At least five, and possibly up to 16 Canadians, are reported to have been caught in the FBI sting.

Mark Valentine
Mark Valentine

The FBI alleges that Valentine conspired to sell off shares in three companies he controlled – C-Me-Run Inc., SoftQuad Software Ltd. and JagNotes.com Inc. – to the fake fund for $29.4 million US in exchange for paying the fund a $7.8 million US kickback.

Valentine has been indicted on charges of securities fraud and conspiracy. He could face up to 10 years in jail if convicted of the fraud charge and five years on the conspiracy charge. The FBI has said it will seek the extradition of Valentine from Germany to the United States.

In a second sting, the FBI posed as Colombian drug dealers looking to launder cocaine money. Company executives and money managers caught in the scam had agreed to launder up to $1.4 million US. Valentine was not charged as part of that sting operation, but four Vancouver men have been charged.

Once a big name in the brokerage industry, 32-year-old Valentine was suspended by Thomson Kernaghan earlier this year. He is alleged by the Ontario Securities Commission to have cultivated "a culture of conflict and non-compliance" at the brokerage. Valentine is barred from capital markets until Jan. 31, 2003. The OSC case against Valentine has yet to be proven in court.

Thomson Kernaghan was suspended by the Investment Dealers Association of Canada on July 11, citing a capital deficiency and failure by the firm to maintain internal controls to complete securities transactions promptly. The IDA also ordered the investment dealer to immediately stop dealing with the public. Thomson Kernaghan is now in the process of shutting down its operations.