A reputed Russian mob boss and his associates at defunct YBM Magnex International Inc. illegally pocketed more than $25-million (U.S.) through the sale of YBM stock at "fraudulently inflated" prices, U.S. federal prosecutors allege in an indictment.
Semion Mogilevich, the driving force behind YBM, sold 2.1 million YBM shares held in an account at First Marathon Securities (now part of National Bank Financial Inc.) between mid-1996 and early 1997 for total proceeds of $12.1-million, the indictment claims. The proceeds were then transferred to an overseas bank account he controlled, it adds.
Mr. Mogilevich personally made $18.4-million from stock sales, bonuses and other compensation, including sales commissions, the documents say. His partner, Jacob Bogatin, YBM's chairman and chief executive officer, made $10-million.
The men profited "unjustly" from the sale of shares by falsely touting the company's business activities and financial performance, the document alleges.
The indictment comes five years after the FBI raided the Pennsylvania head office of YBM, a supposed industrial magnet maker with plants in Hungary and a listing on the Toronto Stock Exchange. Rumours that YBM was a front for the Russian mob began swirling in 1997.
The Ontario Securities Commission suspended the company's shares on May 13, 1998, the same day as the FBI raid. The shares last traded at $14.35 (Canadian) each.
Mr. Mogilevich, Mr. Bogatin and Igor Fisherman, YBM's European operating manager, also orchestrated a selloff of the shares in early 1998 through four brokerage accounts in Canada, including Griffiths McBurney & Partners, says the 45-count indictment, filed in Philadelphia.
The men then funnelled the proceeds of $21.1-million to related parties and entities to create the false appearance of commercial transactions at YBM, it alleges.
Mr. Bogatin, who was born in Russia but has been living in the United States for more than a decade, was arrested at his home in Richboro, Pa., on Thursday. He is being held at a federal jail pending a bail hearing on Monday.
Mr. Mogilevich, known variously as Simeon Mogilevitch, Semjon Mogilevcs and Shimon Makhelwitsch, remains at large. The Ukraine native was last believed to be living in Moscow but his whereabouts are unknown.
The indictment charges Mr. Mogilevich, Mr. Bogatin, Mr. Fisherman and Anatoly Tsoura with racketeering, money laundering, falsification of books and records, and a number of wire, mail and securities frauds.
The alleged multimillion-dollar fraud scheme was complex in scope, yet based on a shockingly simple axiom of fraudulent business: "Lure investors with glossy financial reports as bait, tell them what they want to hear, whether it's true or not," U.S. Attorney Patrick Meehan told reporters this week.
The share selloff alleged to have been orchestrated by Mr. Mogilevich and his partners took place in March, 1998, the same month YBM's stock price peaked at $20.15 on the TSE.
YBM's books and records were "cooked," with its financial statements containing bogus sales and inventory figures to create the false appearance the company had a viable customer base with significant sales, the indictment alleges.
Mr. Mogilevich and his associates began setting up brokerage accounts in Canada in 1994, shortly after YBM was incorporated in Alberta, the documents allege. They set up accounts in their own names and those of nominees, including investment clubs, at different brokerage firms, the documents say.