Brokerage employees swept up in stock manipulation probe

At least three brokerage employees have been swept up in a stock ma­nipulation probe involving Visa Gold Explorations Inc., the tiny treasure hunter at the centre of a wide-ranging search of Bay Street firms by police.

Police and regulators also hinted yesterday at the possible involvement of organized crime in the trading of shares in the com­pany, which searches for sunken treasure off Cuba's coast.

"The investigation is ongoing and we want to ensure that orga­nized crime does not jeopardize our markets," RCMP Chief Super­intendent Ben Soave said yester­day.

He declined to comment on specifics of the case, as did other law enforcement officers. One of the five agencies in the probe is the Combined Forces Special En­forcement Unit, a joint police group whose mandate is "to un­cover, investigate, prosecute and disrupt criminal organizations."

Regulators were alerted to Visa Gold by officials at Toronto-Dominion Bank, according to sources, who said officials at the bank's brokerage unit noted suspicious trading patterns in the stock.

One source noted that TD was very active in the stock, although they added the bank maintains a large clearing operation, meaning it could have been settling trades for smaller firms rather than exec­uting trades itself.

Derek Reid, an equity trader at Brant Securities Ltd. , a small Toronto stockbrokerage, is among 13 individuals named in search war­rants in connection with the inves­tigation, according to industry sources.

The sources have seen the search warrants executed Wednes­day in a high-profile sweep of 13 brokerages.

Two brokers at Desjardins Securities Inc. - Matthew Noah Coleman and Ivan Djordjevic - are also named in search warrants, the sources said.

Mr. Reid could not be reached for comment yesterday.

Keith McMeekin, chief execu­tive officer of Brant Securities, would not discuss details of the in­vestigation or comment on Mr. Reid.

But he said the firm would co-operate in any investigation.

Mr. Coleman, who previously worked at Dundee Securities Corp.  and the now defunct Taurus Capital Markets Ltd., said he has not been contacted by anybody in connection with the probe, but declined further comment.

Mr. Djordjevic also worked at Taurus, as well as Rampart Securities Inc., another defunct firm that was fined $3-million last year by the Investment Dealers Associa­tion of Canada for a number of regulatory breaches. The IDA shuttered Rampart in August, 2002, and most of the firm's cus­tomer accounts, along with many of its brokers, were transferred to Desjardins.

Industry sources said the ma­nipulation alleged involved a clas­sic form of market rigging known as wash trading.

A group of conspirators typi­cally use several brokerage accounts to establish artificial price levels in a stock and a false appearance of public participation.

Visa Gold is listed on the TSX Venture Exchange, but its shares have been suspended since last December.

Its stock price peaked at $1.15 on Nov. 2, 2000, shortly after the company was listed on the Venture Exchange. But the price de­clined sharply after that, amid thin or no volume most days.

They last traded at 5 cents.

Police who searched the firms were seeking trading records and other documents relating to trades in Visa Gold.

The lion's share of the question­able trading went through Brant Securities and Taurus Capital, according to sources served with the warrant.

Police are probing about $25-million worth of trading in the company over a four-year period, sources said.

Police arrived at all the firms, including Brant and Taurus, at 3 p.m. Wednesday and gave them 21 days to turn over the trading-re­lated documents.

Graeme Harris, a spokesman at RBC Dominion Securities Inc., said police notified the firm ahead of time that it intended to serve the firm with a warrant.

In some cases, it appears police spent hours sifting through files and trading records.

Other firms served with search warrants include: National Bank Financial Inc., Dundee, Canaccord Capital Corp. , Brawley Cathers Ltd. , Yorkton Securities Inc. , the now defunct Buckingham Securities Corp., Rampart and Research Capital Corp.

The warrants do not indicate that the brokerage firms them­selves are complicit in the alleged manipulation, a police official said.

Paul Frustaglio, the president of Visa Gold, is among the 13 individ­uals named in the warrants, along with three of his business associ­ates, according to sources.

Frank Guido, one of the associ­ates and president and CEO of Dura Products International Inc., a maker of materials used in decks and floors, said he was informed by one of the brokerage firms that his name was on the warrant, although he said he has not been formally notified by police or regu­lators.

Mr. Guido said he was puzzled that he was included among the list of 13 individuals. But he con­firmed that he once bought $7,000 worth of Visa Gold stock, which he said he sold for a loss. He said the stock was recommended to him by Robert Zuk, another individual whose name appears in the war­rants.

Mr. Zuk's brother, Michael Zuk, was at one time the CEO of Dura. And Mr. Frustaglio at one time sat on Dura's board.

Mr. Guido added that another person appearing on the warrant, Paul Diveiros, was an acquain­tance of Robert Zuk's.

Visa Gold began in 1997 as the brainchild of Sethu Raman, a Toronto businessman who has been exploring for gold and copper in Cuba for years. Mr. Raman got the idea for the company after reading about Cuban history during a trip to that country.

Mr. Raman negotiated a deal with the Cuban government for permission to search for wrecks and created Visa Gold in 1997.

He approached his friend Doug Lewis, a former federal cabinet minister, to run Visa.

Visa went public in 1999 through a reverse takeover involv­ing Aubet Explorations Ltd. A year later, Taurus Capital, the defunct brokerage, arranged a $2-million financing.

But according to Mr. Raman, tensions mounted between Mr. Lewis and a group of investors, in­cluding Mr. Frustaglio, who joined the company at the time of the Aubet takeover. Mr. Lewis and the others clashed frequently, Mr. Raman said. "There was a person­ality conflict. They couldn't get along."

The feud boiled over in January, 2000, after Mr. Lewis did a televi­sion interview about Visa. "The guys [investors]complained that he didn't really come out and promote the company in the inter­view." Mr. Lewis quit a few days later.

Mr. Lewis confirmed that he left the company over a disagreement about its direction.

"In December, 1999, and Janu­ary, 2000, I had some concerns as to the direction the company was taking and decided that it would be in my best interests to leave as an officer, a director and a share­holder," Mr. Lewis said yesterday.

Mr. Raman said the company has struggled financially for years and Mr. Frustaglio has used his own money to keep Visa afloat.

Mr. Raman, who owns 180,000 Visa shares, said he has few dealings with the company beyond serving as a director. He added that he knew nothing about the allegations surrounding the stock trades. Mr. Frustaglio could not be reached yesterday but Mr. Raman said he spoke with him.

"He hasn't gotten anything yet, nobody has contacted him," Mr. Raman said referring to the inves­tigation.

Mr. Frustaglio "was surprised [by news of the searches]and his impression was that this had nothing to do with the company, just some individuals they are going after for their trading. He was kind of upset that this is going to affect the company's business."