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  • The Naked Truth: A Blueprint For Corruption (Part Two) 1 comment
    Mar 17, 2010 7:22 AM | about stocks: GS, MS, C, LEHMQ, CS, BAC, JPM, FNMA, FMCC
    - Editorial Commentary -
    March 17, 2010 (FinancialWire) (By Mark Faulk) -- Editor’s note: This is the second of a series of excerpts from “The Naked Truth: Investing in the Stock Play of a Lifetime”, by Mark Faulk. Part one was published by FinancialWire(tm) on February 12, 2010 (at http://www.financialwire.net/2010/02/12/the-naked-truth-a-blueprint-for-corruption/). Faulk’s Book, released in 2008, it is a cautionary true story about a financial system rife with corruption, and predicted last year’s market meltdown. The subject of the book, CMKM Diamonds, Inc. (CMKX), eventually triggered a massive investigation involving the FBI, DOJ, IRS, and SEC, and led to numerous major lawsuits and multiple federal criminal indictments.
    Recall when Bear Stearns began to fall apart at the seams in March of 2008, triggering the SEC’s first emergency weekend meeting in over 30 years. Over the next few months, all of America, in fact, the entire world, watched in trepidation as our financial markets unraveled like a slow motion train wreck, one that the vast majority of Americans had been oblivious to until it was too late. Over the next few months, the train wreck began to pick up speed, prompting SEC chairman Christopher Cox to invoke a one-month ban on July 15, 2008 against naked short selling in 19 battered financial stocks, including Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Citigroup (NYSE: C), Lehman Brothers (OTC: LEHMQ.PK), Credit Suisse (NYSE: CS), Merrill Lynch (DOA, as in dead on arrival), Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Fannie Mae (NYSE: FNM), and Freddie Mac (NYSE: FRE). The emergency rule, designed to eliminate the illegal downward manipulation of those companies’ stock prices, stated that no one could short sell stock in those companies unless they had “borrowed or arranged to borrow the security” and that they settle the trade on the required settlement date. Of course, as usual, even that rule imposed absolutely no penalties for anyone who violated the rule.
    As you can see here, Faulk was warning us of the hazards lying ahead, long before that unraveling began:
    Chapter 39 – A Blueprint for Corruption (continued)
    The Pump:
    The key to a successful pump is simple – raise the excitement level until emotion supplants rational thinking in the investment decision-making process. The perpetrators often use message boards, misleading or bogus press releases, and a rumor mill that is tightly controlled and fed behind the scenes to set up one glorious run on the stock. The price goes to astronomical heights, pulling in more buyers as it increases to several times its original value. The perpetrators, however, are selling into the pump, dumping shares both on the way up, and later, on the way back down as well. Often they can dump shares at a huge profit on the way up, then overwhelm the buying pressure by shorting the stock at or near the peak and all the way back down to below its original price. Then, they create another buying frenzy by buying back the shares that they shorted at a fraction of the cost.
    In the case of CMKX, the pump was taken to new heights. It began with the usual posters planted to promote the company’s stock on other message boards, in particular PCBM. At the same time, Urban Casavant began to put out press releases that were filled with vague promises that were easily spun by the planted posters. It’s no coincidence that many of the most avid CMKX pumpers, including Wodan from the later infamous “Belgian connection,” had also pumped PCBM. They were the foot soldiers in this con, turned loose to spread rumors that always seemed to emanate from a secret source inside the company, a broker or banker, or someone else in the know. They appeared to possess inside information that gave them credibility on the boards and in the chatrooms. Some, like Accadacca, ultimately achieved guru status, with hundreds of followers who obediently spread their predictions and words of wisdom even further. Unfortunately, this was all orchestrated as well. The foot soldiers were purposely fed their information by those at the top. For example, Urban would put out a press release saying that the company was looking at merging with another company…but didn’t name the company in question. He didn’t have to name names. That was the job of the foot soldiers, who quickly let it leak that the company in question was none other than…PCBM. It was a process that was repeated for as long as there were shareholders gullible enough to believe it.
    CMKX and its shareholders alike coined hyperbolic catchphrases such as Urban’s legendary “Million Millionaires” pledge, and the subsequent “Stock Play of a Lifetime” and “Perfect Storm” catchphrases. The races were the ultimate promotional events, complete with photo ops featuring big names and celebrities like rock icon Sammy Hagar, who had no idea that he was being used to add glamour and luster to a scam. Nevada Secretary of State Dean Heller’s involvement with CMKXtreme, however minimal, sent a clear but misguided message to shareholders that the company had to be clean.
    While the races and billboards were building the excitement at street level, the press releases continued to feed the frenzy, and in some cases, led shareholders unknowingly into other scams. What seemed to be partnerships with other companies usually turned out to be introductions to a parallel con designed to bilk even more money out of unsuspecting investors. What looked like bonuses in the form of stock dividends from other companies were really just free samples designed to whet the shareholders’ appetites for that stock as well.
    Remember the CMKX agreements with UCAD? Over $15 million in CMKX shareholders’ money was pumped into UCAD. At the same time, Urban and Carolyn Casavant, and their children Wesley Casavant and Cindy Dwyer, along with Corrine Ward, received 600,000 shares apiece in return in late September of 2004. While CMKX shareholders were buying into UCAD at or near the high of $19 a share, Casavant and company (along with Rendal Williams and everyone else who had a piece of the action) were dumping their shares.
    Then, they repeated the same scenario over again. Casavant International Mining (NYSE:CIM), UCAD, SGGM, Nevada Minerals, and CMKXtreme were all created for the sole purpose of creating an illusion of legitimacy while stealing more money at every turn.
    Even the deal to transfer CMKX’s assets to Entourage Mining appeared to be just another way to deliver the shareholders to that company…where Urban and several of his family members already owned shares of stock. Send 50,000 shareholders to Entourage, pump that company, create a buying frenzy…and sell at the high.
    Finally, there were the “names” brought into the company to add fuel to the fire. Ex-SEC attorney Roger Glenn’s involvement at the height of the buying frenzy was perhaps the most significant catalyst that convinced thousands of shareholders to continue to buy stock at ten times the original price. Instead of saving the company from being delisted, Glenn issued seven opinion letters in a single month that allowed over 300 billion additional shares to be dumped into the market. Even the legendary Bob Maheu turned out to be nothing more than a high-profile diversion to keep the shareholders placated while the crooks pocketed their money. And all along, many shareholders continued to idolize Urban Casavant, who was eventually exposed as perhaps the biggest crook of them all.
    The pump worked so well with CMKX that it actually did take on a life of its own. The most avid shareholders, like Topogigio and Willy Wizard, were fed information that was dutifully passed on to others, while Sterling and The Green Baron’s Ed Miller were given preferential treatment because of their access to other potential investors through their message boards and chatrooms. In fact, CMKX even “promoted” the most dedicated believers to actual positions within the company, pulling both Andy Hill and Uncle Melvi from the ranks to handle investor relations. There is nothing more convincing than a pumper who truly believes.
    Even Kevin West began his epic journey in CMKX as a true believer in CMKX, in Urban Casavant and his dream of a Million Millionaires. Until his eyes were opened to the ugly reality of the situation, Kevin was at one time 100% convinced that the company was the Stock Play of a Lifetime.
    Battered Shareholder’s Syndrome:
    Once the mind defines something as absolute truth, it is difficult, and in many cases almost impossible to redefine that truth as a fallacy. The human brain needs things to be laid out in black and white, absolute truth on one side, easily defined lies on the other. To reach that conclusion, information is needed, and in the absence of factual information, any convincing and well-thought out rumor or theory will suffice.
    CMKX took it a step further by purposely feeding false information to the victims, thus creating a core group of shareholders who truly believed in the lie. Many of those same shareholders were convinced that God had led them to CMKX, making it practically impossible to shake their belief in the company and its charismatic leader. Even when warning signs began to appear, the shareholders had become too disoriented and confused by the conflicting information to make rational judgments about their investment. They had begun to question their own decision-making abilities, and taking no action whatsoever.
    The Dump:
    While the shareholders are being told to buy, buy, buy, those in control of the stock are in the sell, sell, sell mode. This is commonplace in the world of penny stocks, but it’s another technique that can be used in almost every stock in the market. On his show, “Mad Money,” former hedge fund manager Jim Cramer has described how he and others in the industry feed misleading and false information to the media about companies that were often household names. It was another tactic to manipulate the stock price so a profit could be made on a short sell. Other times, they would create rumors that would drive the price up if they held long positions in the company’s stock.
    Piling on:
    In stock fraud, everyone wins…that is, everyone except for the shareholders. The brokers are raking in record revenues and multi-million dollar bonuses from the sale of stock, and even more when they don’t have to deliver it. The market makers receive a fee as the middleman whether the trades settle or not. The transfer agents profit from keeping track of the shares and issuing certificates, even if the company dumps 703 billion shares into the market. Attorneys issue questionable opinion letters, accountants play fast and loose with the rules, paid promoters hype, message board posters pump, and the captured media dutifully either praises or bashes the companies. And every one of them makes a profit from hefty fees, shares of stock, or both. With help from all of the above, hedge funds and/or company insiders manipulate the stock price up and down at will to fit their current position.
    Burying the Body:
    To perpetuate the perfect fraud, the evidence must be destroyed. Once the con artists have finished milking the shareholders dry, the company will most likely conveniently fail to file one form or another with the SEC, or violate some obscure rule. In all likelihood, the SEC will simply bury the body and all the evidence with it.
    Like many other penny stock scams, CMKX was designed to fail from the very beginning. The very same fraudulent business deals that were set up to fuel the pump had built-in mechanisms that guaranteed their failure once they outlived their usefulness. Missed payments voided existing contracts and returned assets to the original owners. Eventually, devoid of any value whatsoever, the company was supposed to either be delisted by the SEC and left to die or bankrupted from the built-in mountain of debt. It was only the intervention of Kevin West and Bill Frizzell that short-circuited the process.
    The same scenario is being repeated over and over again on a continual basis. If the company dies, then the evidence dies with it. The records are destroyed, the money trail is obliterated, shares in brokerage accounts are wiped clean, and short sellers are free and clear.
    Risk, Uncertainty, and Ignorance:
    Ignorance is not necessarily a reflection of a lack of intelligence on the part of the investor. It is more often a lack of information, which is usually by design, and an excess of misinformation, which is always by design. When it comes to investing, what one doesn’t know can not only hurt them, it can be financially fatal.
    Misinformation, on the other hand, is something that is often nearly impossible to sort out from fact. Investors need to educate themselves to recognize the techniques commonly employed by con artists trying to steal their money. Otherwise, sooner or later, they will find themselves in the same boat as the shareholders of CMKX, and millions of investors like them, hoping that a miracle will turn their investment into prosperity. Until the regulators do a better job of policing the stock market in general, and particularly the world of penny stocks, “buyer beware” will continue to be the golden rule of investing.
    Mark Faulk, author of “The Naked Truth: Investing in the Stock Play of a Lifetime”, (http://www.thenakedtruthbook.com/) and editor of The Faulking Truth (http://www.faulkingtruth.com/ has written over 150 articles on the topic of financial reform and naked short selling since 2004, and has logged hundreds of hours in radio and television interviews. For over five years, he and a small group of dedicated activists have been educating America about the imminent danger of allowing rampant fraud to continue. In his very first article on The Faulking Truth website on March 19, 2004, he coined the phrase “financial terrorism”, which has come to epitomize the culture of greed that dominates Wall Street. His articles have been reprinted or excerpted in numerous major publications, including The Huffington Post and Financial Wire, and financial journals such as the prestigious Capco Journal of Financial Transformation. In the fall of 2009, he will complete work on a major documentary about financial fraud, due to be released in December, 2009.
    FinancialWire(tm) is committed to serving the financial community through true journalism and providing relevant resources to investors. Standards-based, independent equity research on numerous public companies is available through the Investrend Research Syndicate (http://www.investrend.com/reports) written by FIRST Research Consortium (http://www.investrend.com/FIRST) member-providers. Free annual reports and company filings for companies mentioned in the news are available through the Investrend Information Syndicate (at http://investrend.ar.wilink.com/?level=279). FinancialWire(tm), in cooperation with the Investrend Broadcast Syndicate, also provides complete, daily conference call and webcast schedules as a service to shareholders and investors via the FirstAlert(tm) Network’s “FirstAlert(tm) Daily” (http://www.financialwire.net/news-alerts/).
    FinancialWire(tm) is a fully independent, proprietary news wire service. FinancialWire(tm) is not a press release service, and receives no compensation for its news, opinions or distributions. Further disclosure is at the FinancialWire(tm) website  (http://www.financialwire.net/disclosures.php). Contact FinancialWire(tm) directly via inquiries@financialwire.net.

    Disclosure: No positions.
    Stocks: GS, MS, C, LEHMQ, CS, BAC, JPM, FNMA, FMCC
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  • damdivaz
    , contributor
    Comment (1) | Send Message
     
    I just realized I have a ton of shares from back in the day. I have moved several times since then and do not know who to contact about what happened with them. Would you or anyone know how to do this? Thank you!
    16 Jan 2012, 06:40 PM Reply Like
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