On Jan. 23, 2008, Russian mob boss Semion Mogilevich was finally captured by police in Moscow. Mogilevich, not a household name, was one of the world’s most dangerous fugitives, pursued by law enforcement of several nations, including the FBI.
Leaving aside the drug trade, illegal weapons trafficking, nuclear materials trafficking, prostitution, and dealing in precious gems, the FBI wants Mogilevich for “a multi-million dollar scheme to defraud investors in the stock of YBM Magnex International ... that included inflating stock values, preparing bogus financial books and records, lying to Securities and Exchange Commission officials, and offering bribes to accountants.” Mogilevich and associates were indicted on 45 counts of racketeering, securities fraud, wire fraud, mail fraud, and money laundering.
While in dollars the fraud alleged against Mogilevich is dwarfed by the $50 billion Ponzi scheme of Bernard Madoff, Mogilevich has the distinction of being considered, in the time-honored phrase, armed and dangerous. Allegedly he hired contract hitters to try to kill a Village Voice reporter who wrote about him. Yet he lived openly in Moscow, at large, for years until his arrest.
Mogilevich’s criminal enterprises operated on both sides of the Atlantic:
“... between 1993 and September of 1998, Semion Mogilevich headed and controlled the Mogilevich Enterprise ... a network of companies in over twenty different countries which orchestrated a sophisticated scheme to defraud investors in YBM stock. The scheme was allegedly funded and authorized by Mogilevich. This complex network of corporations was set up to create the illusion that YBM was engaged in a profitable international business, primarily the industrial magnet market ...”
Yet as with so much on Wall Street and other bourses lately, the blatant potential for problems at YBM seemingly went unnoticed for years.
The network that became YBM Magnex International began, according to public record including court documents, in Canada, Europe, and Pennsylvania. Three previous versions of the company were founded in Pennsylvania, according to the state database (www.corporations.state.pa.us):
• YBM Technologies in May 1991, in Richboro;
• YBM Magnetics in March 1993, in Hatboro; and
• YBM Magnex in February 1994 in Hatboro. The president of each company was Yakov (Jacob) Bogatin.
Meanwhile, in 1992, Mogilevich and associates in Russia combined several foreign corporations into an entity known as Magnex RT, and in March 1994, a company named Pratecs Technologies Inc. was incorporated in Alberta, Canada. The company issued a prospectus in July 1994 to sell stock to buy YBM Magnex. In October 1995, the Pennsylvania company became YBM Magnex International, Inc., in Newtown. YBM Magnex International identified its core business as the manufacture and worldwide distribution of custom-made industrial magnets (hence the “magnetics” and “magnex” in company names). Its president was Bogatin.
In October 1995, YBM “merged” with YBM Magnex. In January 1996, YBM filed a prospectus to sell stock in Canada, and YBM shares began trading on the Toronto Stock Exchange the following March. Over 1996, through complicated transactions involving subsidiaries in Great Britain, the Cayman Islands and the US, Bogatin created another YBM entity named United Trade, owned by Mogilevich and other Russian shareholders. The transactions apparently were ratified by boards of directors and registered in paper records in the host countries.
YBM ultimately issued 7,520,000 shares of stock. Little in company history indicates commerce in precision magnets, though Mogilevich and his peers did employ quite a few bodyguards. On May 13, 1998, a strike force from the US Attorney’s office in the Eastern District of Pennsylvania raided YBM headquarters in Newtown.
In May 1998, YBM was charged with criminal conspiracy, was de-listed on the Canadian stock exchanges, and rapidly went bankrupt. It pleaded guilty in the US in June 1999 to conspiracy to commit fraud. The Superior Court in Ontario totaled losses to investors “in excess of $360 million.”
Press in Russia and Britain began linking Russian organized crime to YBM in 1995; the FBI investigated the company in 1996; an internal investigation disclosed involvement of organized crime in 1997. Yet YBM was able to hire silk-stocking expertise. Its directors included a vice-president of investment banking for National Bank Financial, which acquired another bank during the period; a partner in the law firm Cassels, Brock & Blackwell; and an accounting manager with Parente Randolph Orlando Carey & Associates, which conducted YBM’s initial audits in 1995.
Shareholders in the US and Canada have attempted class-action lawsuits, alleging massive conspiracy and fraud by organized crime; and failure of reasonable due diligence by the more respectable defendants—directors and officers, legal advisors, auditors and underwriters. Other defendants include HSBC Securities of Canada and the accounting firm Deloitte and Touche. YBM also attracted highly respectable capital. Former investors, now plaintiffs, include British Columbia Investment Management Corporation ($52,080,000 worth of stock) and Royal Trust Corporation of Canada ($48 million).
The attraction wielded by YBM is remarkable, given its specs. Bogatin was its president, its CEO and a director. Another defendant, Igor Fisherman, of Kiev, was a director and the Chief Operating Officer. Mogilevich, Fisherman, Bogatin and the other Arigon shareholders, presumably in Russia, comprised an alleged “central group” calling the shots at the company.
While the association with Russian mobsters heightens the luridness of the YBM track record, the big picture has been seen elsewhere, too often, recently.
Mogilevich is living proof that the new administration should not sweep the past under a rug without investigation—and that indeed, as Vice President Joe Biden said, US relations with Russia should be “reset.”
Margie Burns is a Texas native who now writes from Washington, D.C. Email margie.burns@verizon.net. See her blog at www.margieburns.com
From The Progressive Populist, March 15, 2009
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