Investment fraud: Shell games

…Lackstein had reason to fear for how the net balance of his social contributions would soon be perceived. Indeed, the Canadian franchise partner of socially responsible Ben & Jerry’s…faces allegations of trying to survive the credit crunch by setting up naïve foreign investors to fall for unethical European brokers pushing worthless stocks.

Canadian Business magazine
May 6, 2009

Investment fraud: Shell games
When U.K. investors like Rachel James were talked into buying into private offerings, they thought they had a sure thing. They didn't. Now, their anger - and questions - are pointed at Canada.
Thomas Watson

Spring is known as a time of renewal, especially in the ice cream business. That’s something Gary Lackstein knew well as head of Montreal’s Amazing Scoop Shop Co. Inc., which landed the rights to develop a Canadian chain of Ben & Jerry’s outlets after the legendary company loved by hippies was acquired by Unilever PLC in 2000. Amazing Scoop went on to become a textbook example of smart entrepreneurship, even winning a starring role in a 2005 episode of CBC-TV’s Venture. According to a close friend, Lackstein, a dedicated husband and father of four, wasn’t a very religious Jew. But he had no problem skewing his business success with the tzedakah tradition of trying to improve the world—it fit with his compassionate nature. By all accounts, the entrepreneur in Lackstein set out to greet every cone season as enthusiastically as his philanthropic side took to social work, whether it was running a margarita bash to help destitute seniors or getting up to boogie with his wife, Jody, at a charity disco ball.

No more. Last summer, Lackstein tossed in the corporate towel in late September, with what Unilever calls an unexpected bankruptcy filing. The events that led to this act will likely never be fully explained. Neither will Lackstein’s sudden death at a cottage near Quebec’s Mont Tremblant ski resort on March 16. Local police have ruled out foul play. But whatever the details, as other leading community members in Montreal were preparing to help the Irish celebrate St. Patrick’s Day, the fire that once fuelled Lackstein’s passion for facing business and social challenges was extinguished for good. He was 46.

Neil Oberman might be able to help people better understand Lackstein’s life—if he was talking. For obvious reasons, the lawyer with Spiegel Sohmer in Montreal won’t confirm or deny reports that Lackstein sent him a note shortly before he died from unnatural causes. “I think that my client’s name and family should be left alone,” he says.

But Oberman, of all people, knows that Lackstein had reason to fear for how the net balance of his social contributions would soon be perceived. Indeed, the Canadian franchise partner of socially responsible Ben & Jerry’s—along with two other private Montreal companies: pavement management firm GIE Technologies Inc. and hotel services provider Wanderport Wireless Inc.—faces allegations of trying to survive the credit crunch by setting up naïve foreign investors to fall for unethical European brokers pushing worthless stocks.

The accusers include little old ladies such as Rachel James, an 85-year-old English pensioner who taught herself to scan and e-mail documents to assist this investigation. James became “very annoyed” last year after a charming Australian, working for a brokerage called Mount Royal Investments, convinced her to invest a portion of her life savings in GIE Technologies and Wanderport. Suspicions planted by her daughter eventually led James to ask her Australian caller if she was dealing with a boiler room. “I don’t want you to hate me,” she says her broker replied before vanishing along with his firm. He claimed to be based in Bern. Police traced his number to Spain.

Then there is Jennifer Mary Gaston, a 58-year-old widow in Northern Ireland. Better known as May Gaston, the part-time teaching assistant loves line dancing, her two grown kids, even her very old grumpy cat. But she has little regard for Canadian ethics. She claims Mount Royal brokers used bold-faced lies in 2007 to talk her into buying worthless shares tied to Amazing Scoop and GIE Technologies after the stock promoters caught wind of funds released from her late husband’s corporate savings program.

Lackstein’s backstory will do little to alleviate the grief of his friends and family. But it sheds light on the mounting costs attached to a brewing fundraising controversy that has at its centre a Montreal financier named Joel Cohen, along with certain insiders tied to Amazing Scoop, GIE Technologies and Wanderport. It also exposes a gaping hole in international investor protections, one that allows North American companies to do overseas what they would have a hard time doing on this side of the pond: aggressively target the dumb money.

Gary Lackstein and Morrie Baker were supposed to be the next Ben and Jerry. Prior to 2000, Ben & Jerry’s Homemade Inc. didn’t have the Canadian production capacity to support a full-blown local chain, and it couldn’t import product due to dairy quotas. But after Unilever bought the company, it gained the ability to expand. That translated into a golden opportunity for Baker, who, in the mid-’80s, had convinced Ben Cohen and Jerry Greenfield to allow him to open a Canadian parlour. And so when Unilever bought the company, he seemed like a perfect fit as an expansion partner. In 2003, Baker joined forces with Lackstein, a wealthy Montreal businessman with experience in furniture and real estate. Armed with Lackstein’s money and Baker’s connections, they jointly set out to mimic the success of America’s favourite lefty capitalists, vowing to eventually open 100 Amazing Scoop locations.

Lackstein and Baker hit franchise shows and scoured the land for prime real estate. By 2005, they had eight stores—five in Ontario and three in Quebec. They also had a developing partnership with Vancouver-based Intrawest ULC to sell Ben & Jerry’s at its ski resorts. That year, on Venture, Baker called the business “my destiny.”

The company eventually opened 21 locations, each requiring $250,000 for startup. But in mid-2007, Amazing Scoop hit a financial wall. According to Baker, Lackstein took control after calling in his loans, then “invited Joel [Cohen] into the company as my replacement.” At this point, Baker says his role was reduced to assisting in the management of local operations. Shortly after, in November 2007, Amazing Scoop set out to raise cash overseas, via a US$2.9-million private placement.

That’s when the real trouble started.

Shareholders claim they were hounded by cold-callers who talked up a sure-thing opportunity to get in on the ground floor of a Ben & Jerry’s company about to explode in value due to an impending share flotation. They say nobody told them they had little chance of profiting from any public listing because they were about to pay a huge premium for their shares.

The one-page offering summaries issued by Amazing Scoop, GIE Technologies and Wanderport all describe a plan—which few retail investors would likely understand—to list shares on the Over the Counter Bulletin Board (OTCBB). According to Ralph Midkiff, a Houston securities lawyer (who holds the US$429-million world record for winning damages related to a stock scheme), there was no good reason for shareholders to expect to profit. Insiders, on the other hand, planned to profit no matter what from a flotation by taking in-the-money stock options equal to “no more than 15% of the total outstanding shares” with the exercise price limited to “no more than a 25% discount” to the prevailing stock price, according to the offering summaries.

David Roth, a violinist with Britain’s Allegri String Quartet for 30 years, invested £4,000 in Amazing Scoop early last year. He can’t really explain his motivation, but he is a fussy 73-year-old who doesn’t like being cold-called, and buying into what he thought was a safe offering seemed like a good way to get stock promoters to go away. According to the London resident, Mount Royal brokers—who also talked him into spending £2,000 on an offering tied to GIE Technologies—kept calling and calling, using knowledge of his investment history to keep him on the phone. He asked a financial professional to look the firm up, and it superficially checked out—meaning it had a website and an address in Switzerland. So, with limited information, Roth agreed to participate in the two Canadian-run offerings. When wiring his money to an Amazing Scoop bank account in Mount Royal, Que., he had no idea he was paying 25¢US per share for a stock issued with an undisclosed value of .001¢US.

“Who on earth is flogging this crap?” That’s how one finance veteran—the former co-manager of a US$9-billion hedge fund—reacted when asked to look over terms and conditions attached to the private placements. He got a good kick out of restrictions that prevent investors from ever selling their shares without management’s permission. “As if you’d ever see a bid,” he adds. But even that didn’t raise his eyebrows as much as the small print that noted less than 30% of the money raised would go to the actual companies. “Nice 70% commission and costs of the offering,” he said, not laughing. “I’ve never seen that before.”

Lorne Abony, one of Canada’s most respected entrepreneurs, who has run public companies in North America and the U.K., declined to comment on any specific deals. But he says any penny-stock offering aimed at retail investors that doesn’t describe management and includes total costs and commission as high as 70% is “ludicrous by generally accepted Street standards.”

Billionaire investor and governance guru Stephen Jarislowsky said: “You should go to a securities commission and ask what they think. Any retail guy who buys something like that is a goddamn fool. But that isn’t the point. There should be regulations to make sure that doesn’t happen….It just smells to high heaven.”

Unilever—which agreed to live up to Ben & Jerry’s fair capitalism reputation when it purchased the iconic brand for US$326 million—isn’t thrilled to see this affair made public. But a year before Lackstein’s death, David Schwartz, associate general counsel for the Anglo-Dutch consumer product giant, raised the alarm over a stock offering with documents that seemed to be trying to convince investors they were buying stock issued by Unilever’s multimillion-dollar ice cream division, instead of risky unregistered shares tied to a struggling chain of Canadian scoop shops.

On March 14, 2008, Schwartz sent a letter to Baker. “We hereby request that you immediately withdraw the offering, provide us an opportunity to review all of the materials and otherwise comply with the terms of the franchise agreements,” he wrote. “Please contact me as soon as possible to provide further details regarding the offering, including its timing, geographic scope and investor profile.” According to e-mails between the companies, Unilever’s legal department was under the impression Amazing Scoop was following Schwartz’s instructions, but the questionable fundraising didn’t stop there. Unaware, Schwartz sent an e-mail last May, reminding Baker that under the franchise agreement Unilever needed to approve any offering documents and that it wanted Amazing Scoop officials to sign an indemnification agreement before they went looking for investors again. That didn’t happen.

Amazing Scoop got another letter, on Sept. 5, 2008, which was now addressed to both Lackstein and Baker (who had left the company two months earlier, taking one scoop shop with him after selling his stake to Lackstein for a dollar). This time, Schwartz claimed the Montreal firm was not living up to its contractual obligations and had “gone forward” with an unapproved offering. Unilever, he added, had been made aware—“through securities regulators in the United Kingdom”—that Amazing Scoop may have violated foreign securities laws “after high pressure sales tactics” were used to sell unlisted securities to Mair Conway, another British widow, then 82.

Schwartz demanded that Lackstein’s company “cease and desist” from offering securities “anywhere in the world.” Amazing Scoop was also directed to return any money it had raised and then provide Unilever with the names and addresses of everyone “contacted in connection with any offering.”

That didn’t happen, either.

By mid-September 2008, Unilever officials were convinced the “association of Ben & Jerry’s” with U.K. regulatory concerns over the Amazing Scoop offering was “very damaging to our reputation.” They claimed the Montreal company had generated grounds for termination of its franchise agreement. But before Unilever could figure out what to do next, Lackstein declared Amazing Scoop bankrupt on Sept. 25, 2008, creating a whole new issue. Dealing with the fundraising was put on hold as the multinational tried to keep five surviving Ben & Jerry’s locations in Canada up and running.

To date, nobody has officially informed Amazing Scoop shareholders that the Montreal company has gone under. That’s why a Scot named Sheila Smith was calling Amazing Scoop outlets just before Christmas. She had hoped to have only one thing to worry about at the time—the pancreas transplant she was slated to get over the holidays—but she lost that hope after being put in touch with Stéphane Lachance, a trustee with Montreal’s Demers Beaulne Inc., who is in charge of the Amazing Scoop insolvency.

The news Lachance has for shareholders isn’t great. For one thing, he isn’t aware of any overseas investors who could claim ownership of the Amazing Scoop under his stewardship. And even if the Montreal company had a list of foreign investors, creditors will scoop up the remaining $51,000 worth of its assets, leaving $1.6 million in debts unpaid.

When unregistered stocks are marketed in Canada or the United States by companies that don’t want to spend the time or money to offer prospectus-level information, established rules exist to help ensure novice investors do not take unexpected risks. As a result, private placement offerings of unlisted shares in North America are typically made to people who are clearly capable of evaluating the pros and cons associated with the operations in question. Professional investors. Company insiders. Suppliers. They are fair game.

But when targeting the general public, companies must be careful. According to Guy David, an Ottawa business lawyer, best practices call for detailed disclosure documents and the proactive screening of potential shareholders to make sure they are either sophisticated market players or so-called accredited investors—people who (alone or with a spouse) have a net worth exceeding $1 million or annual income of more than $200,000 ($300,000 with a spouse).

The courts, David notes, can come down hard on companies that simply rely on a clause inserted in purchase agreements that says signed forms are an indication that an investor is suitable to participate.

But the organizers of the Amazing Scoop private placement didn’t have to worry about Canadian rules or best practices, because it didn’t issue any shares in this country. In fact, no Canadian shares were sold at all. Instead, a Delaware-based parent company called Amazing Scoop Shop Co. Corp. was used to raise capital.

If anything, investor protections for private placement offerings over US$1 million are even more stringent south of the border. As noted by Rod Hanner, a Florida-based private placement specialist, cold calling is never allowed, and targeted investors must be company insiders or have a high net worth, as well as a significant six-figure income, to avoid the need for prospectus-level disclosures. When dealing with Americans, companies are advised to always issue at least enough information for potential investors to make an informed decision, which means offering executive bios, a decent description of foreseeable risks and financial statements.

But in this case, the Delaware-based Amazing Scoop didn’t sell any shares to Americans or conduct any transactions in the States. It conducted what is known as a Regulation S offering, which technically allows U.S. companies—or Canadian firms with U.S. parents—to issue as much or as little information as they see fit while selling unregistered shares, provided the stock is sold offshore to non-Americans and not resold into the States for at least one year.

There are legitimate uses for Regulation S, a safe-harbour rule in the U.S. Securities Act that was designed to promote the export of American-style capitalism. And early abuses led U.S. lawmakers to amend the law in the ’90s. But according to Midkiff, it still supports a booming business for shady European stock promoters, who are often seen as a last hope by North American companies that can’t raise cash by fairly stating risks to investors back home. The brunt of this activity is aimed at consumers in the United Kingdom, where the Financial Services Authority (FSA) admits there is a relatively low level of financial understanding among the general public. Last summer, U.K. police estimated that stock promotion scams had taken local punters for at least half a billion pounds over the previous 18 months, leaving an alarming trail of suicides, wrecked marriages, bankruptcies and lost homes. Police consider that estimate conservative, because many victims are too embarrassed to cry foul. In July, after dealing with distraught people who took savings out of Northern Rock PLC, a recently nationalized British financial institution, and then lost the money to boiler rooms (which frequently gain access to personal investment histories), Steve Wilmott, chief superintendent of London’s fraud squad, told the Daily Mirror to forget about failing banks. Without a doubt, he said, boiler-room scams are “the biggest economic threat to ordinary British people of all time.”

Ramy Elitzur, a professor of financial analysis at the University of Toronto’s Rotman School of Management, points out that it is always “highly unethical” for any company to raise money by targeting naive individuals. Nothing about Regulation S allows securities dealers to mislead investors or violate laws in the U.K.—where the FSA requires all brokers to be licensed and adequately assess a buyer’s specific needs and attitude toward investing, while also providing an appropriate explanation of product offerings and related risks. But as Midkiff notes, there is little chance market watchdogs will act if unlicensed third parties operating in other countries simply talk British citizens into requesting to participate in a private offering of American stocks.

The threat of regulatory action appears to drop even further if an unethical Regulation S private placement is set up to raise money for non-American firms via American shells. “Then it becomes a law exam question,” says Joseph Groia, a Toronto-based expert in securities litigation.

As Lackstein was preparing to file his company’s bankruptcy last summer, this magazine was looking into complaints aimed at three seemingly unrelated Montreal companies that conducted overseas private placements with almost identical terms (not to mention forms and fonts). After obtaining a copy of Amazing Scoop’s offering, Canadian Business approached Lackstein to ask questions about his company’s limited and confusing disclosure. Through Oberman, Lackstein requested a meeting at a Toronto airport hotel last October. The purpose, Canadian Business was told, was to give Lackstein an opportunity to demonstrate he was not “a bad guy.”

The Montreal businessman spent most of the meeting conferring with his lawyer. No clear explanations were offered for how foreign investors ended up with Amazing Scoop share certificates (which appear to have Lackstein’s signature on them). Under the watchful eye of his lawyer, Lackstein issued “no comment” after “no comment” in response to a series of questions provided in advance.

When asked if he could offer anything in answer to the allegations against his company, Lackstein, red-eyed and clearly agitated, stated he simply set out with Baker to make kids happy and enrich shareholders along the way by building a great business that did justice to the Ben & Jerry’s brand. “I am a victim,” he insisted. He said Amazing Scoop had cost his family a fortune, and that all of the fundraising activities in question were directed by “a financial consultant named Joel Cohen.”

At first glance, Cohen is exactly the kind of guy who should be called in to help save a failing business. As a moneyman, the 30-something Concordia University commerce grad (class of ’97) has helped raise more than $100 million for various ventures. He has served numerous companies as an executive. On the governance front, Cohen sits on the boards of three publicly traded Montreal companies: energy products maker ICP Solar Technologies Inc. (OTCBB: ICPR), biotech firm IntelGenx Technologies Corp. (TSXV: IGX) and Buzz Telecom Services Inc. (TSXV: BZZ). (Cohen is also CFO of Buzz.) In addition to investment banking experience at Canaccord Capital back in the dot-com days, Cohen’s bio as a director highlights his credentials as a chartered financial analyst and a stint as an MBA instructor at McGill University.

Eric Mongeau, a lawyer who represents Cohen out of the Montreal office of Stikeman Elliott LLP, says his client has been involved in “no wrongdoing whatsoever.” He sent a letter in late September last year to warn this magazine to respect the financial consultant’s “irreproachable and favourable” reputation. He also questioned the ethics of Canadian Business, claiming its reporter “failed to respect the basic standards of his profession” by setting out to manufacture an investor “horror story,” casting Cohen “as a villain,” using “speculations, innuendos, falsities, and outright lies,” without ever seeking an explanation or even raising the boiler-room allegations with his client.

For the record, however, Cohen was given a chance to comment. As well, according to Delaware state records, he was CEO, president and a director of the Delaware-based Amazing Scoop that sold shares to raise money for Lackstein’s company, while also claiming it owned exclusive rights to sell Ben & Jerry’s ice cream that Unilever insists it never owned, at least not directly. Toronto-based Equity Transfer & Trust Co., a transfer agent, is also holding certificates for millions of shares in the U.S. shell—certificates that Cohen signed as president and secretary of the company in early 2008.

After Cohen did not return calls, Canadian Business managed to reach him in early September. He insisted he could not imagine why his professional activities would come up in any journalistic investigation into boiler-room allegations. That’s despite the fact his name has appeared on overseas online chat groups where angry shareholders talk about their beefs with Amazing Scoop, GIE Technologies and Wanderport. As well, three British investors—pensioner James, supply chain manager Colin Platt and artist Martin Richman—say that they complained directly to Cohen about being misled by Mount Royal or Sterling Manhattan, another stock promotion outfit that vanished last year. Both of those organizations are on Britain’s official list of unauthorized overseas brokerage firms operating in the U.K. and posing “a high degree of risk to consumers.”

And according to FSA spokesperson Abi Jones, “it is illegal for a company not authorized by the FSA to sell [and/or] promote shares to U.K. consumers.”

Of all this, Cohen pleaded ignorance. But he did acknowledge during the September 2008 phone interview that he was dealing with Richman, the U.K. artist, who feels ripped off after a promised public offering tied to GIE Technologies failed to take place. Cohen dismissed that as a soon-to-be-resolved private matter, which didn’t rate media attention. “What I can tell you,” he said, “is that if you speak to Martin in the next four or five weeks, he’ll tell you he is very happy, thank you very much.”

Despite Cohen’s assurances, Richman isn’t a happy camper. When it comes to GIE Technologies, he imagines all concerned “hung, drawn and quartered,” with any remnants displayed at the entrance to some Canadian MBA course. When feeling more positive, he is willing to assume company insiders didn’t actually set out to mislead anyone when they initiated a US$4-million Regulation S private placement to raise capital back in late 2007. But after his experiences as a foreign investor, the best his dreams can offer anyone involved is confinement to the dark, dank bowels of a slave ship, where they are forced to row for “the next 15 years or so, whilst perhaps I could wave occasionally via a video link.”

One can’t blame financial desperation for Richman’s attitude or predicament. He hasn’t much income, but he is the first to admit he doesn’t fit his professional archetype—“Although I can get peckish of an evening, and do have a few unsuitable social habits,” he says, “being starving, praise the good Lord, is not one of them.” Lack of brain power also wasn’t at fault. The London resident is clearly intelligent. And while nobody would ever mistake him for Gordon Gekko, his early career as a light man for Pink Floyd, Jimi Hendrix and the Ramones made him at least somewhat streetwise. After all, the 59-year-old did try saying “no, thank you” when first cold-called by someone who claimed to be with Sterling Manhattan in New York. The “financial adviser” aggressively touted a chance-of-a-lifetime opportunity tied to GIE Technologies—the pavement management arm of Le Groupe Conseil GIE, an engineering group run by Quebec entrepreneur Charles Abikhzer.

Abikhzer is also chief executive of GIE Technologies, which markets itself on the web as a leading-edge infrastructure play. The company claims to have spent $10 million developing a motorized photocopier that can take digital images of road surfaces (picture a high-tech Zamboni), using technology licensed from the National Research Council of Canada. (GIE Environment Technologies Ltd., a sister company also run by Abikhzer as president and CEO, is a soil decontamination outfit whose stock trades for pennies on the TSX Venture Exchange. It has a history of regulatory cease-trade orders for failing to file financial data on time. It recently released Q1 results that noted revenue soared to “a staggering $404,840.” And it called 2008 “a blockbuster year” after posting earnings of just $119,808, or .6¢US per share.)

According to Abikhzer, Cohen acted as a consultant when GIE Technologies raised funds selling unregistered stock in its parent company, a Florida-based shell called TAMI Technologies Corp. The offering shared many of the terms and conditions that featured so prominently in the Amazing Scoop stock issue, including the 70% minimum cost of sales. Professional investors say TAMI’s plan—to reward investors by taking a no-name Florida shell to market during a global financial meltdown—was probably always worth about as much as TAMI’s currently worthless stock, which was issued with an undisclosed valuation of .1¢US to investors expecting to get stocks worth what they paid: 20¢US per share.

Richman is among those investors because Sterling Manhattan kept calling, and the artist, as one Canadian pal notes, is “a trusting soul who probably never learned the difference between a stock and a bond.” After being convinced TAMI would provide him with a bank account that lived up to his name, Richman paid US$50,000 for hundreds of thousands of shares that came with a paper value of a few hundred bucks—and no market value whatsoever. He and other investors insist they thought they were getting a safe opportunity to get in on an impending public offering. They say they were offered no information on management, nor any detailed financial history. They say nobody ever explained how TAMI shareholders would profit from growth at GIE, or what risks they were taking, or the premium they were charged to take them. They say no one adequately explained the offering’s terms and conditions. “There was,” Richman says, “no indication of any sense of gamble or even uncertainty about the investment. No warning of possible loss.”

After getting the artist to invest US$10,000, Sterling Manhattan called back to argue he was wasting the opportunity at hand. And that’s why he was heading to the bank while his Sterling Manhattan investment adviser was preparing to disappear, along with any chance the artist had of quickly paying back the US$40,000 loan he was convinced to take out to buy more TAMI shares. He wired the money to David Price, an escrow lawyer in Maryland, who acknowledges he collected money for TAMI, which lists Abikhzer as its chief executive.

When the Quebec businessman was first asked to comment last September, he acknowledged he signed the share certificates that ended up overseas. He also acknowledged TAMI’s stock was sold by “people that were hired in Europe.” But he claimed ignorance of the details. Indeed, when asked exactly how his company’s stock was being sold, he said: “Well, that question you could ask Mr. Joel Cohen. He is our counsellor, so he could tell you exactly how he did it.” (Before going silent last September, Cohen told Canadian Business to talk to Abikhzer if it wanted more details about TAMI.) Asked if he was concerned by allegations that his company’s shares were sold by unethical operators in the U.K., Abikhzer replied: “I don’t know…I don’t know them.”

Shortly after Canadian Business started asking questions, GIE Technologies decided it was time to update investors. On Sept. 29, 2008, on the company’s website, Abikhzer offered his “deepest apologies” for not communicating with TAMI shareholders earlier. He then explained that markets had soured after the offering was successfully closed early last year, so management decided to be “vigilant and wait.”

By this time, TAMI shareholders were online, too, using U.K.-based investor discussion boards to compare notes about Sterling Manhattan and Mount Royal. Noting those firms’ vanishing act, they concluded TAMI wasn’t the sure thing described by promoters and advised one another to report the matter to regulators and Operation Archway, the official U.K. police boiler-room squad. The online group led Canadian Business to James, the “very annoyed” British pensioner, who says she was told by Mount Royal in June 2008 that analysts were predicting a rapid doubling in shareholder value because GIE Technologies had won lucrative contracts to rebuild China after earthquakes struck last year. James further insists that Cohen told her he was aware of Mount Royal early last year, when the pensioner says his concern was actually that “I hadn’t put all my money in GIE.”

Richman also reports having had numerous conversations in 2008 with Cohen, who initially put him at ease. But after growing tired of waiting for a refund that Richman says Cohen repeatedly promised, the artist took his beef to Abikhzer. In an e-mail last November, Richman insisted it was time for some answers. Abikhzer wrote back to say he was disturbed by any allegations of misconduct, since the TAMI share issue was designed to be “directed to high net worth individuals” by brokers who were supposed to have “previous business relations” with potential investors.

As far as GIE Technologies knows, he added, the brokers had no known ties to “boiler rooms.”

Abikhzer scolded Richman for talking to the media. The artist was advised that TAMI conducted a Regulation S offering in which all information released by the company was “accurate in nature.” Richman was also brought to task for not understanding that company officials could claim they were misled, since small print in the purchase application signed by investors contained “a declaration by you that you have investment experience necessary to understand this investment and the financial wherewithal to enter into this investment.”

The artist responded with another letter, telling Abikhzer that “there is rarely this much smoke without some fire.” He noted GIE Technologies was free to allay his concerns by actually naming the people it hired to market TAMI overseas. And he made it clear that he was prepared to talk to the media even further unless “a suitable way forward” was found, because he still believed the Montreal engineering group or people working on its behalf targeted “ill-informed, but innocent people.”

The next day, Richman received an offer to negotiate in a letter from Marc Leiter, another Montreal lawyer with Spiegel Sohmer, which represents TAMI. Expecting a settlement, Richman engaged London lawyer Richard Lilley. But the talks broke down, partly, Lilley says, because the company’s lawyers seemed to have no idea how much money was at stake. The other problem, Lilley adds, was the obvious fact that a settlement would not stop Canadian Business from publishing this story.

If bad luck could pay the bills, Wanderport Wireless would not be in the hands of creditors today. As a technology service provider to niche hotels, it was once a promising venture run by Canadian entrepreneur Dennis Stacey—who made headlines in 2004, when he created a wireless hot spot in the Mojave Desert to assist the launch of SpaceShipOne, the first private space mission funded by Microsoft co-founder Paul Allen. In mid-2006, Wanderport Wireless engaged in preliminary discussions to go public via a reverse merger with Temtex Industries Inc., a U.S. fireplace company with a Pinksheet listing. According to internal company documents, the deal quickly fell apart due to undisclosed legal issues at Temtex, which then changed its name to Wanderport Corp. and started marketing itself as a company similar to Wanderport Wireless.

In March, 2007, the rogue Wanderport Corp. put out a press release claiming to be a Quebec company. Announcing it was now trading under its “new ticker symbol WDRP,” it even quoted one of Stacey’s business partners at Wanderport Wireless. Since then, the firm appears to have specialized in confusing investors. It recently billed itself as a U.S. holding company focusing on LED lighting. Last December, it was an airline services play. In November, it was making “key investments in biotechnology start-up companies.” The month before, it was focused on U.S. banking. And last June, it was making major oil and gas acquisitions in Russia. Enough said.

Attempting to clean up the legal mess left over from the failed Temtex deal put Wanderport Wireless in dire financial straits. By October 2007, the company was forced to suspend payments to creditors, who were willing to provide time for a restructuring. Stacey resigned as CEO and a director, and Joel Cohen signed on as the new chairman and consulting chief executive. According to Stacey, who was asked by creditors to stick around as a director, Cohen came aboard boasting he “knew some people in Spain” who could get the company funds—despite the fact that it had struck out with institutional investors in North America. Insiders admit Cohen said the commissions would be expensive. But few questions were asked, Stacey says.

The Montreal firm’s parent, a shell called Wanderport Communications and Media Inc. that was incorporated in the state of Washington, conducted a US$3-million Regulation S private placement. As with the TAMI and Amazing Scoop private placements, U.K. investors say Wanderport shares were aggressively marketed by stock promoters who indicated the firm would soon be servicing every hotel in America. Retail investors paid 20¢US for shares in a failing company that were issued without a prospectus at an undisclosed value of .1¢US per share.

According to internal sources, Cohen unexpectedly resigned his executive positions at Wanderport Wireless and its U.S. parent on Sept. 16, 2008, shortly after Canadian Business began looking into the share offering.

To date, nobody has officially told investors that creditors seized the rudderless company’s assets last year and have now employed a lawyer to go after the money that was raised and then paid out as commissions to stock promoters.

Stacey, who is now trying to rebuild his career in Victoria, insists he was kept in the dark about investor complaints. But as far as he knows, he says, Cohen was solely responsible for “finding, doing due diligence on and ultimately hiring the firms” used to raise funds.

Everybody involved with Amazing Scoop, GIE Technologies and Wanderport denies any link to boiler-room-type activities targeting U.K. investors. There is certainly no evidence of any contractual relationship between these companies and Sterling Manhattan or Mount Royal; it would, in fact, be strange if such contracts did exist, as neither Sterling Manhattan nor Mount Royal appear to exist as legal entities. Nevertheless, according to offering documents, somebody or some group received astronomical commissions to market the questionable Regulation S private placements designed to raise money for these Montreal organizations.

Unilever officials remain in shock. “The past year,” says Rob Michalak, Ben & Jerry’s director of social mission, “has been complex, difficult and, in the end, tragic. At a very human level, we are all affected when people suffer in any way from the complicating circumstances of a difficult story such as this.” When Unilever was ordering its Canadian partner to stop using the Ben & Jerry’s brand to attract British investors, the Anglo-Dutch company had no idea the shares that raised FSA concerns were actually issued by a Cohen-run American shell. Unilever, Michalak reports, is now considering all legal options, and stands ready to co-operate with any regulatory or law-enforcement action.

Speaking to investors as a Wanderport director, Stacey suggests “contacting the SEC and hiring a Canadian law firm to look into the matter might be a good idea….The most important thing is that people involved in these schemes be found and prosecuted accordingly so that they cannot continue to prey on the public and the small companies they manipulate.”

Through his lawyer, Mongeau, Cohen has declined requests to explain his role in the GIE, Wanderport and Amazing Scoop offerings. Mongeau also wrote a letter to Colin Platt, who, along with Richman and other shareholders, is hoping to launch a class-action suit. On Dec. 9, 2008, Mongeau ordered Platt to leave Cohen out of any “personal issues” he may have after investing a total of about US$100,000 in Amazing Scoop, TAMI and Wanderport. Mongeau noted his client “does not currently consult for” the Montreal companies, never solicited investors and didn’t participate in any decision-making by shareholders.

Platt, who claims Cohen spoke to him as an executive or IR representative of all three companies numerous times last year, responded to Mongeau by saying it was Mount Royal that introduced him to the Montreal financial consultant.

Foreign shareholders of TAMI, Wanderport and Amazing Scoop can’t believe regulators haven’t done more. In these sorts of cases, John Heine, an SEC spokesperson, says “we are not in a great position to rule if somebody is out of bounds.” Securities watchdogs in Washington and Florida said this kind of mess wasn’t something they would be inclined to clean up. Delaware regulators declinedto respond to a request for comment.

Over at the FSA, which is obviously aware of unauthorized operations that pushed questionable offerings of unlisted stocks tied to Canadian companies, spokeswoman Jones says recovering money in these types of cases is the “exception, not the norm.” Part of the problem, she notes, is the fact that the FSA’s jurisdiction doesn’t cover foreign stocks, which is why British authorities recently called on other national regulators to domore in the fight against international boiler rooms. Quebec’s Autorité des marchés financiers actually claimed jurisdiction, but there was little indication its spokesperson understood that the Montreal companies in question raised money overseas by issuing U.S. stocks via a Regulation S offering.

The good news, if there is any in all this, is that none of the investors in this tale is considering drastic action to deal with losses, although Platt playfully talks about flying to Canada to negotiate a refund with “a bat.” Good lessons have been learned. Smith lost US$30,000 last July, when she says an outfit called Fidelity Capital Research—another firm on the FSA’s list of unauthorized brokerages—called her pushing Amazing Scoop shares, claiming the company was going to be the “next Google” because Unilever had just bought out Ben & Jerry’s. But she did receive a pancreas transplant over the holidays (after getting a new kidney in 2005). “It was the best Christmas present imaginable,” she says, “and made me realize that there are far more important things in life than money.”

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