YBM Magnex used by mob to bilk investors
Officials from YBM Magnex admitted Monday in a U.S. court that the company was created for the sole purpose of committing securities fraud.
The company's connection to organized crime emerged Monday in government court documents as YBM officials pleaded guilty in Philadelphia to a securities fraud charge The company also admitted that one of the people involved in the scam was an organized crime figure from Budapest.
YBM Magnex was based in Pennsylvania, but was said to have plants in Hungary that produced magnets and bicyles. It traded on the Alberta and the Toronto stock exchanges until trading was halted last May.
Documents filed in the U.S. court suggest Canada was chosen for the scam because company officials believed securities regulations here are more lenient.
The company's stock began trading at $0.10 a share and reached a high of $20 a share before the house of cards collapsed a year ago. Until then, the company had enjoyed a smooth ride through Canada's stock exchanges.
YBM got its start on the Alberta Stock Exchange in 1994 and from the outset it received the support of some high-profile people.
Former Ontario premier David Peterson was a director of the company, as was Owen Mitchell, a vice-president of First Marathon Securities. With supporters like these, it was an easy move to the Toronto Stock Exchange 300 Index in 1996, where YBM quickly became a favourite recommendation of analysts.
When trading in its shares was halted, the company had raised about $890 million-- and Canadian individuals and institutional investors had ended up with 40 per cent of the company's shares.
Unable to trade its shares, YBM went into receivership last December. Since then only about $90 million has been recovered.
After pleading guilty, YBM agreed to pay a $3 million fine and to help the bankruptcy court in Alberta identify company assets that might be used to pay back defrauded shareholders.