A former executive of the securities custody firm co-owned by Canadian Imperial Bank of Commerce is under RCMP investigation over his alleged involvement in a penny stock scam police allege is linked to the Hell's Angels biker gang.
Alnoor Jiwan, former manager of CIBC Mellon Global Securities Services Co.'s Vancouver office, is under investigation for allegedly taking bribes in 1999 to issue bogus stock certificates and pocketing ill-gotten gains in a so-called pump-and-dump scheme involving defunct telecom firm Pay Pop Inc.
Bill Majcher, head of the RCMP's Integrated Market Enforcement Team in Vancouver, said his office has recommended to Crown prosecutors that charges be laid in connection with the scam. He also said individuals behind the scam have ties to organized crime.
"We have found some definitive links between the entire Pay Pop scam and the Hell's Angels criminal organization," he said.
A CIBC spokesman declined to comment yesterday.
CIBC Mellon, a joint venture of CIBC and Pittsburgh-based Mellon Financial Corp., is Canada's second-largest transfer agent. Custodians provide a dull but crucial service that keeps securities markets running smoothly, holding stocks on behalf of investors and recording trades and holdings.
Mr. Majcher said the former CIBC Mellon executive's alleged involvement in the scam undermines the integrity of the custodial business. "It causes us great alarm because [custodians]are perfectly placed to be conduits for any misconduct."
The RCMP charges would follow sanctions levied by the U.S. Securities and Exchange Commission against a number of individuals associated with Pay Pop, including Mr. Jiwan.
In August, Mr. Jiwan was banned from participating in any penny stock offering and ordered to pay back ill-gotten profit totalling $130,375 (U.S.).
Cheryl Ficker, a spokeswoman at CIBC Mellon, said the company is co-operating with the RCMP. The firm dismissed Mr. Jiwan in October, 1999.
Mr. Jiwan could not be reached yesterday.
The case dates to 1998, when Robert Zaba, a stock promoter based in Vernon, B.C., acquired control of Pay Pop, a Nevada shell company listed on the loosely regulated NASD bulletin board.
In its civil complaint, the SEC alleged that Mr. Jiwan accepted bribes, consisting of Pay Pop shares, in exchange for having CIBC Mellon serve as the firm's transfer agent and issue stock certificates for 75 million shares that created the false impression the stock complied with U.S securities laws.
On two separate occasions, Pay Pop's lawyer advised Mr. Jiwan that he was violating securities laws, the complaint alleges. "Jiwan at all times knew, or was reckless in not knowing, that his conduct was illegal," the complaint alleges.
Once the certificates were issued, Mr. Zaba and others then sold the shares on the open market in a "pump and dump." In such schemes, a broker promotes the stock, drives the price up and then bails out, causing the value of the shares to fall to a point at which they're worthless.
The scheme was "choreographed" by Mr. Zaba and Daryl Desjardins, the company's president, who received illegal profit of more than $3-million, the complaint says.
Ms. Ficker said the Pay Pop matter is not related to a separate investigation by the SEC into a former employee who gave out data on stockholdings.
The Wall Street Journal reported this week that a CIBC Mellon clerk got baseball and hockey tickets and cash payments of $50 to $100 per tip.
Ms. Ficker confirmed yesterday that a former employee made "inappropriate" disclosures of investor holdings. She said the company notified the SEC as well as Canadian securities and banking regulators about the matter last summer. The SEC, in turn, has launched a wide-ranging probe into the custodial business.
Industry observers said yesterday the probes are bound to lead to closer scrutiny and regulatory oversight of the stock transfer business.
CIBC Mellon, a leader in the global custody business, has 2,000 clients and administers about $577-billion in assets. It was formed in 1996 when CIBC and Mellon Bank combined their Canadian institutional trust and securities custody business in a 50-50 joint venture company. At the time, a CIBC spokeswoman said the business is an important "relationship builder" for the bank that could attract customers for more profitable services.
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