For new investors in the fun and wild penny stock realm, I guarantee most of them do not remember the infamous tale of CMKM Diamonds. Now 13 unlucky years later, there are still many shareholders with the belief they are going to be rich, millionaire rich, even though the SEC halted the trading in the company (CMKX) in October of 2005.
We all have witnessed a strong shareholder base with active investors. In this day and age, there is social media’s twitter and ihub in which hundreds of posts occur on the more popular securities, but to my 2 decades of experience I have never seen anything like I did with CMKX.
Over 40,000 investors fell victim to what could be the biggest penny stock scam ever, costing them in excess of $60 million. So what does a shareholder base of that size look like at a time when there was no facebook or twitter or even ihub? Well, just like any other excited investors, they used whatever tools and media streams they could to spread the word.
PalTalk, a chat board still alive and well today, was the go to hangout for investors. These chatrooms, run by active shareholders, could hold as many as 500 persons and would often be filled to the point you had to wait to try and get in, or a room reset would happen as a means to weed out those simply parked there but not actively listening. There were multiple rooms, some bigger than others, all dedicated to the diamond company yet different by means of personality, structure and belief level. These rooms lasted for YEARS. They were filled with gurus, expert DD’ers, DJ’s… a lil music never hurt here and there, and even lawyers that would breakdown the legal side of things. With a group this large and diverse, someone knew someone, or was an expert on something and added insight, wisdom, support, optimism or entertainment to the group. To my surprise, 13 years later, a few rooms still exist, the numbers have diminished as many have lost hope, chalked it up as a loss and a lessoned learned, but the remainder formed a bond and friendship along the way.
The PalTalk days were fun, as I stated, many friendships were made. People of all ages and walks of life were brought together by common goal to become rich as the .0001 stock was rumored to be bought out at 0.54/share and the diamond claims all around Debeers and Newmont and other who’s who in the mining industry led investors to believe they were apart of something big in Saskatchewan, Canada. The .54 rumor was mentioned by the CEO Urban Casavant, who was an active gambler in Las Vegas, whom also had a taste for mining and auto racing. It was at these races where the rumors began to flourish amongst the shareholder community as Urban had used drag races to spread the word about his diamond company. As the racing circuit traveled each weekend, the CMKX diamond covered dragster and CMKX billboard followed, gaining new investors along the way.
For many, this was the first company they ever invested in, and when pitched 54 cents was coming and you can buy shares at trip 1, not only did they buy, but they told family, friends and coworkers. Besides the races and PalTalk, the top message board at the time was RagingBull, and the word quickly spread there also, generating over 1000 posts a day and the birth of paid bashers. One basher got banned almost daily, but came back with a new name but only with a letter or number off. This user must have had to change his name hundreds of times so he or she could continue to post negatively around the clock (literally 24/7) about the ceo and company.
With all this happening, and with a share price so low, this was the first company I had witnessed trade in the billions of share volume per day. At that time, the volume ticker on the computer did not know how to compute that high of volume and would go negative after 999,999,999. This amount of volume was flowing in and the stock would not go up… it stayed at .0001. The data and transfer agent stated the outstanding share count was only 703 million shares, thus the “naked shorting” talk arose. Naked shorting was running rampant in the markets at that time and as the SEC seemed to turn a blind eye on the subject and even say there is no such thing, later court cases and laws revealed a different story.
Our stock market is supposed to be run on supply and demand. The more the demand the stock goes up, the more supply the price tends to fall. With naked shorting, a loop hole brokerage houses took advantage of, the house sold you the shares and placed a marker in your account, never going out to find the stock, thus the demand was not there, yet gave the impression there was an unlimited supply. The only way at the time to combat this evil doing and potentially catch them in a “short squeeze” was a cert pull. Shareholders quickly demanded to pull their shares out of the market and put those shares in their name versus street name. The cert pull was on and a lawyer out of Texas got involved and started calculating all the certs in hopes of proving the naked short with a cert count larger than the 703 million OS number. As the count reached over 500 million, I recall the lawyer becoming more and more hush hush and a final cert count was sealed I believe for court document reasons. Many shareholders could not get their certs. Many brokerages denied their ability to get a certificate (why?) and others had their shares wiped out of the accounts stating the firm deemed them as worthless. Scam or not, there are things that make one raise an eyebrow.
Rumors of this naked short and the purpose of CMKX was that of a sting operation headed by exCIA and right hand man to Howard Hughes “Bob Mahue”. Iron Bob or IBM the shareholders called him was believed to have sat down with all the brokerage houses and banks involved in the mess only to strike a deal with them that would resolve the naked shorting fiasco that had happened in the market and settle for their misdeeds. A willd amount of $3.89 TRILLION was said to have been collected and to be released to all companies that were naked shorted, but the majority of the funds were earmarked for CMKX shareholders. This fueled new rumors and new predictions of receiving more than 0.54 a share to now receiving $1-$9/share… again for a share most paid .0001 for. A lawyer by the name of Al Hodges, who represented a handful of shareholders, was leading the case to not only find the $3.89 trillion, but to get these funds released as soon as possible to the shareholders.
For years and years this went on. Rumor after rumor that a payday was coming. Popular shareholders from the tight knit investor group soon passed from illness or old age, members of the company including the CEO himself passed too. It is sad to see investors not live long enough to get closure on this saga. Rumors and delays and court cases come and go and are still going on to this day. In fact, August 2018, next month the DOJ (Department of Justice) is set for a trial and a few sentencings in September. The DOJ has slowly unraveled an elaborate scheme that includes money laundering and the selling of illegal unregistered shares. As with shareholders, many of the key culprits also passed away before being brought to justice. 13 years, and still to this day, many believe that all of the legal matters going on at the moment are to create the illusion to the public that justice was done and the non disclosure settlement payments will follow after. Only in pennyland does stuff like this happen.
It is my belief that there was dirty stuff going on all around. I believe the firms knew of the scheme by the shell owners and saw the certificates attempted to be registered from restricted to free trading and naked shorted the stock. I think there were multiple wrongs going on and no one is getting more than a slap on the wrist while the biggest losers in all this if there is not a settlement of any sort are the shareholders who will have lost everything. The questions I have are why didn’t the SEC stop this racket sooner and deny there was no such thing as naked shorting. Why were the brokerage houses allowed to naked short the stock and illegally convert restricted stock into free trading? Last, why weren’t the culprits brought to justice sooner as its been 13 years and still no closure.
Here is more on the case.
United States v. Brian Dvorak et al (CMKM)
Case number: 2:09-CR-00132-RLH-RJJ
The public is reminded that an indictment contains only charges and is not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.
Brian Dvorak, Ginger Gutierrez, James Kinney, and Nickolaj Vissokovsky
Scheduled Court Hearings
Calendar Call – August 20, 2018 at 1:30 p.m.
Jury Trial – August 28, 2018 at 9:00 a.m.
Sentencing – September 17, 2018 at 9:00 a.m.
Sentencing – September 17, 2018 at 9:30 a.m.
(Nickolaj Vissokovsky will not get a court date until he makes his initial appearance in Nevada)
U.S. District Court – Las Vegas, NV
A false rumor has circulated that confuses the criminal prosecution in the District of Nevada (United States v. John Edwards, et al., 2:09-CR-00132-RLH-RJJ) with a civil suit out of the Central District of California that has now been dismissed (David Anderson, et al., v. Christopher Cox, et al., 8:10 –CV-00031-JVS-MLG). There are many variations of this rumor. However, in short, the Anderson civil case is not related to the Edwards criminal case. In Anderson, the plaintiffs allege that the SEC and other agencies of the U.S. Government conducted a sting operation against “illegitimate brokers, dealers, market makers, hedge funds, and other persons and entities that had engaged in naked short selling of CMKM Diamonds Inc. stock.” Anderson Rev. First Amended Complaint, p. 17, para. 48. Essentially, the Anderson case involved allegations against an entire industry. In contrast, the superseding criminal indictment in the Edwards case charges a more clearly defined group of defendants: insiders at one company (CMKM) and people who enabled them.
Additionally, in the course of investigating and litigating the Edwards criminal case, government personnel in the District of Nevada have not encountered any evidence indicating that a government agency conducted a sting operation against naked short sellers of CMKM stock. Government personnel in the District of Nevada have also not come across any evidence of any settlement fund (much less any settlement fund with trillions of dollars) potentially available to pay possible claims of CMKM shareholders. The criminal investigation in the District of Nevada resulting in the United States v. John Edwards, et al., indictment involved no sting operation.
We hope this statement clarifies the differences between United States v. John Edwards, et al., with the facts alleged in David Anderson, et al., v. Christopher Cox, et al. The public is reminded that defendants are innocent until proven guilty. Thank you.
On March 24, 2010, the grand jury returned a sealed Second Superseding Indictment which added the following defendants: Jeffrey Turino, Nickolaj Vissokovsky and Jeffrey Mitchell. In addition, several new charges were added, alleging that certain defendants engaged in a conspiracy to conduct an enterprise engaged in a pattern of racketeering activity, a conspiracy to sell unregistered securities and to commit securities fraud and a conspiracy to commit money laundering. On May 6, 2010, the Second Superseding Indictment was unsealed.
The superseding indictment in United States v. Edwards, et al., alleges as follows: the defendants combined and conspired to perpetrate a fraud involving the issuance and sale of CMKM stock over a period of several years. Hundreds of billions of shares of CMKM stock were sold to thousands of investors during that span. Investors in CMKM are invited (but not required) to complete the following questionnaire. The questionnaire solicits information pertaining to this case for purposes of enabling prosecutors to confer with and receive information and opinions from victims of the CMKM scheme. Please note that while the completed questionnaires will not be publicly accessible, relevant information may be disclosed to the court and/or defense counsel in accordance with the Federal Rules of Criminal Procedure and other laws.
Disclosure: PSInvestor was not compensated for the mentioning of the diamond company, but does have a position from long long ago.