Indicted stock trader Mark Valentine was part of a group pursuing an investment in a German brokerage firm involved in Frankfurt's controversial penny stock market when he was arrested last month as part of a sweeping FBI undercover investigation into stock fraud and money laundering.
According to associates, Mr. Valentine flew to Frankfurt in mid-August to join three other Canadian investors to consider acquiring a stake in a troubled local firm, German Brokers AG.
Peer Marzi, one of German Brokers' top executives, said Mr. Valentine visited the firm in August to do "a short due diligence" prior to a possible investment. Mr. Valentine was part of a group that included Robert Kubbernus, a Toronto-based Internet financier who has been associated with Mr. Valentine in previous ventures.
Mr. Valentine was drawn to German Brokers, associates said, because it is a market maker for stocks with dual listings in North American and on the German exchanges. The Neuer is a small version of Nasdaq's over-the-counter market, a New York exchange for emerging companies in which Mr. Valentine made and lost a fortune trading in technology ventures. In the wake of the Internet crash, most high-flying growth stocks on the Neuer now trade for pennies and some listed companies and member brokers have been tarnished by allegations of insider trading, accounting fraud and misleading shareholders.
Two months before Mr. Valentine's German trip, the trader was dismissed from Toronto broker Thomson Kernaghan & Co. Ltd.
His Canadian registration was also suspended by the Ontario Securities Commission for alleged stock manipulation.
Joseph Groia, Mr. Valentine's Toronto lawyer, declined to discuss his client's activities in Germany. Since Mr. Valentine was arrested in Frankfurt on Aug. 14 on behalf of the FBI, he has been detained in a prison at Weiterstadt, south of Frankfurt.
The former trader has waived extradition proceedings and sources familiar with the case said he could be escorted by U.S. Federal Marshals as early as this week to a U.S. federal court in Florida for a bail hearing. Regulatory sources said they expect Mr. Valentine to be allowed to return to Canada provided he meets certain bail conditions.
Mr. Valentine is one of about 55 people in the United States and Canada who were arrested as part of a three-year FBI sting, known as Bermuda Short, to investigate stock manipulation and money laundering. Specifically, Mr. Valentine has been charged with securities fraud for allegedly agreeing to pay a $7.8-million (U.S.) kickback to an undercover FBI agent posing as a mutual fund trader. In exchange, the undercover agent agreed to buy stocks of three companies owned by Mr. Valentine for $29.4-million.
According to sources, Mr. Valentine was unaware he had been a target of an FBI sting when he flew to Germany. He was arrested in Frankfurt's airport as he was preparing to board a flight to Toronto after several days of meetings in Germany.
Sources said the FBI had learned days earlier of Mr. Valentine's visit when he arrived in Frankfurt and his passport was scanned into a centralized police data base. The FBI requested that German officials detain Mr. Valentine on Aug. 14 because it wanted to simultaneously arrest all the suspects in the Bermuda Short case, despite their various locations.
Mr. Kubbernus, the Toronto financier, described Mr. Valentine's trip as "as a quick look" by "a great talent" at a potential opportunity in Germany. He said Mr. Valentine's interest was preliminary. "It was the beginning of something."
Mr. Kubbernus declined to discuss details of the potential investment, but said one of his many contracts with German Brokers is to attract potential new investors.
Dirk Freitag, another German Brokers executive, said that when he met Mr. Valentine this summer, he was introduced as "Mark" and described as a stockbroker from Canada. He said Mr. Valentine was only at the firm for two or three hours and wasn't necessarily interested in investing himself.
Mr. Freitag said he had no idea who Mr. Valentine was or that he faced OSC allegations.
German Brokers announced in July it was seeking to raise 4.5 million euros ($4.4-million U.S.) from investors.
The company has a controversial past as a promoter of high-tech firms and its own stock. At one point it sponsored a TV advertising campaign calling its own shares "the cheapest stock" on the SMAX, the mid-capitalization market on which German Brokers trades.