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Russia: Money Laundering Firm Dropped From Canadian Stock Exchange

  • Carol Macivor



Ottawa, 17 December 1998 (RFE/RL) -- A U.S.-based company which has been accused of being a money laundering operation for East European and Russian organized crime groups has been removed from Canada's major stock market, the Toronto Stock Exchange.

The exchange de-listed the shares of YBM Magnex International Inc. after the firm went into receivership (bankruptcy) last week.

The company, which says it manufactures magnets and bicycles, is headquartered in the U.S. state of Pennsylvania but was started in the western Canadian city of Calgary, Alberta.

YBM was worth close to $625 million last May when agents of the U.S. Federal Bureau of Investigation raided its headquarters in a money laundering investigation.

Two men said to be Russian mafia chiefs, Semion Mogalevitch and Sergei Mikhailov - who recently was released from jail in Switzerland - have been linked to the company through a series of shell companies that span the globe from the British Channel Islands to Hungary.

Last Friday, a class action suit was filed against YBM in Philadelphia and a lawyer acting for Canadian shareholders, Harvey Strosberg, says he is considering a similar suit in Canada "where 98 per cent of YBM stock was sold and listed under Canadian regulations and where 99 per cent of the shareholders reside," including major pension and mutual funds.

Among those charged in the U.S. suit are two prominent Canadians: former Ontario premier David Peterson and Owen Mitchell, vice-president of Marathon Securities Ltd., the brokerage firm which actively promoted YBM shares and helped guide the company onto the Toronto Stock Exchange's leading index of 300 companies. Both men sat on YBM's board of directors.

Documents filed in the U.S. class action suit say YBM's "only successful business is the laundering of criminal proceeds." The 55-page complaint alleges that YBM's directors used "an elaborate scheme to defraud investors," and that they hid YBM's association with the Russian mafia and its troubling business deals from shareholders.

One example involves a series of oil sales in Eastern Europe and the addition of a mystery powder that was said to save steps in refining oil.

YBM acknowledged last week that the oil trades, which routinely accounted for up to one-quarter of its stated revenue, may have been completely bogus. "Despite repeated requests, a company investigator was never provided with adequate evidence of the existence of the diesel oil or the legitimacy of these transactions."

In 1996, YBM said it bought crude oil and then added a powder - called neodymium, which was salvaged from materials used in the production of magnets - to cut refining costs. The treated oil was sold to Ukraine under a long-term contract. At the time, YBM claimed that the more magnets it sold, the more powder by-product it produced. However, this past summer, the board of directors was told the powder is unconnected to magnet production.

Joseph Groia, a former Ontario stock exchange investigator hired by YBM as part of its own internal investigation, said after visiting a plant in Budapest that YBM was "unable to show how the powder was used in the refining process, when the powder was added to the oil or even when and where the company acquired title to the crude oil it went on to sell." In fact, he says, "no physical inventory" of oil has been found."
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