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1 SERGEY RUM YANTSEV, pro se1951 N Jones #G202 rg 2Eg 28 A % 2:1

2 Las V egas, N V 89 l08 ;

3 E-mail: [email protected] . ... %

Telephone: (702) 647-7925 . .( . . .?7 ' - .. .. - ' --- - - '

5UNITED STATES DISTRIC T COURT

6DISTRICT OF N EVADA

7

8

SECURITIES AND EX CHANGE Case No. 2-08CV 00437-LRH-RJJ9 COM M ISSION

'

Plaintiff, DEFENDAN T SERG EY10 uutuvxxvsEv 's

11 vs. M EM O M NDUM IN

O PPOSITIO N TO PLAIN TIFF12 CM KM DIAM ONDS, INC., et aI., SECURITIES AND EXCHANGE

Defendants. COM M ISSION'S M OTION FOR3

SUM M ARY JUDGM ENT14

15 Pursuant to Rule 56 of the Federal Rules of Civil Procedure, Defendant

16 Sergey Rum yantsev,appearingpro se, respectfully submits this M emorandtlm in

17 O pposition to the pending Plaintifcs M otion for Sum m ary Judgm ent, on file

18 herein, to demonstrate to the Coul't that there is a genuine issue of material fact in

19 this case that precludes the entry of ajudgment as a matter of law. This opposition

20 is based upon and supported by the Statement of Facts and Argument contained

21 herein, the pleadings and papers on file, Defendant's Declaration and the exhibits

22 attached hereto,and Defendant's argument that the Court m ay allow at the time of

23 hearing.

24 1. INTROD UCTION

25 Plaintiftl the Securities and Exchange Commission ((iSEC''), moved for

26 stzmmary judgment against Defendant alleging that he was Sçboth a inecessaor

1

Case 2:08-cv-00437-LRH-RJJ Document 163 Filed 12/28/10 Page 1 of 111

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1 participant' and isubstantial factor''' in the unregistered distribution of CM KM

2 stock, and therefore liable for violating Sections 5(a) and 5(c) of the Securities Act

3 of 1933 (Rsecurities Act''), 15 U.S.C.

4 In this M emorandum in Opposition to Plaintiff s M otion, Defendant argues

5 that

6 (a) there are material facts, which Plaintiff assel'ts to be undisputed,

7 that genuinely rem ain at issue'

8 (b) in its M otion, Plaintiff omitled material facts that, when viewed in

9 the light most favorable to D efendant, underm ine Plaintiff's claim

1 0 that Defendant w as a Gnecessary participant' and dsubstantial

1 1 factor' in the unregistered distribution of CM KM stock; and

12 (c) the Points and Authorities invoked by Plaintiff with respect to

13 Defendant in conjunction with remaining genuine issues of

14 material fad fail, in whole or in part, to support Plaintiff's claim

1 5 that it is entitled to judgment in its favor as a matter of law.

16 In this response, the term Sksubject securities'' refers to the shares of CM KMl 7 Diam onds sold by NevW est Securities Col-poration from accounts controlled by

l 8 John Edwards.

19 II. STATEM ENT O F FACTSI

20 A. Statem ent of Undisruted M aterial Facts Om itted in Plaintiffs M otion

21 l . Defendant never accepted delivery of the subject securities. (See

22 Exhibit 1, (Clkumyantsev's Response to First Set of lntel-rogatories''

23 No. 2).

24

25

26 1 All Exhibits are appended to the accompanying Declaration of Defkndant Sergey Rumyantsev,unless

otherwise noted.

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1 2. Defendant never purchased, sold, or othemvise passed title to the

2 subject securities (1d., No. 2).

3 3. Defendant never owned the subject securities (1d., No. 2).

4 4. Defendant never solicited the sale or purchase of the subject

5 securities (1d., No. 2).

6 5. Defendant never sought buyers of the subject securities (1d., No. 2).

7 6. Defendant never promoted sales of the subject securities (1d., No. 2).

8 7. Defendant never accepted orders to sell the subjed securities (1d.,

9 No. 2).

l 0 8. Defendant never served as a broker of record for the accounts of

1 1 Defendant Edwards, through which Defendant Edw ards sold the

12 subject securities (1dL , No. 2).

l 3 9. Defendant never directed sales of the subject securities (1dL , No. 2).

14 1O. Defendantnever set the terms and conditions of sale of the subject

l 5 securities (1d. , No. 2).

1 6 1 1 . Det-endantdid not benefit or gain financially in any direct or

l 7 meaningful manner from the sale of the subject securities (1d., No. 2).

18 12. Defendantnever published quotations in the subject securities in

l 9 any medium (ld. , No. 2).

20 l3. Defendantnever received instructions to transfer the proceeds of

2 1 sales of the subject securities (1d., No. 2).

22 14. Defendantnever instructed anyone to transfer the proceeds of

23 sales of the subject securities (fJ., No. 2).

24 1 s.Defendant, in a supervisory capacity or othenvise, never signed off

25 on any new account applications for accounts, from which sales of

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l the subject securities took place (see Exhibit 2, ttRumyantsev OTR,''

2 105:23-106:12).

3 l6.Defendant, in a supenisory capacity or otherwise, never signed off

4 on any trade tickets evidencing transactions in the subject securities

5 (see Exhibit 2, tçRumyantsev OTR,'' 92:5).

6 l7.Defendant relied on Antony Santos, a principal of NevW est Securities

7 Corporation responsible for com pliance, to conduct inquiries with

8 respect to the sales of the subject securities (see Exhibit 3,

9 StRum yantsev Testim ony,'' 20:22-21:3, 35:9-35:1 3, 37:20-38:1 1, 40:6-

10 40:10, 41 :10-41:17, 57:17-57:22, 60:2-60:8, 61 :23-62:20, 63:3-63:7,

1 1 64:1 7-65:22, 75:1 1-76:1, 93:8-93:9, 108:17-109:24, 130:22-132:22,

12 153:6-1 56:3, 163:2-163:15, ).

13 l8.lkaymond Dillon, Senior Retail Supelwisor, directly supervised Daryl

14 Anderson (see Exhibit 3, dsRumyantsev Testimony,'' 160:7- 160: l 1 and

15 170:24-171 :4).

16 l g.Antony Santos supervised D aryl Anderson with respect to com pliance

17 matters (see Exhibit 3, RRumyantsev Testimony,'' 160: 12-1 60: 17 and

18 170:24-17 1 :4).

19 zo.Antony Santos and his fam ily owned and controlled approxim ately

20 the same percentage of NevW est Securities Corporation as Defendant:

21 approximately nine percent (see Exhibit 3, dtlkumyantsev Testimony,''

22 19:8-19:9 and 19:23-20: l).23 2 1 vGinger Gutierrez, Jam es Kinney, and Part--fim e M anagement, lnc.

24 sold a total of approxim ately 88.4 billion shares of unregistered

25 CMKM stock (see Plaintiff s Exhibit 1 at 19:21-20: 1.5).

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1 Securities Corporation (see Exhibit 4, çtltumyantsev's Response to

2 First and Second Request for Production of Documents'' No. 8).

3 Plaintiff argues that Defendant derived $34,552,28 in alleged i1l-

4 gotten gains from the sales of the subject securities (Plaintiff s Facts,

5 No. 98).

6 3. None of Defendant's securities Iicenses are current, as more than

7 two years lapsed since the tiling of Defendant's Uniform Termination

8 Notice for Securities Industry Registration in October 2007 (see the

9 accompanying Declaration of D efendant Sergey Rumyantsev and

10 httn:/+rockercheck.inra.org). Plaintiff argues that Rumyantsev holds

1 1 Series 4 (registered options principal), 7 (general securities

12 representative), 24 (securities principal), 27 (tinancial and operations

13 principal), 53 (municipal securities principal), sstequities trader) and

14 63 (state securities) licenses (Plaintiff's Facts, No. 9).

15 4. Defendant denied that he never took steps to investigate why Jefferies

16 & Company (idlefferief') stopped trading the tlow of CMKM stock

17 from NevW est (see Exhibit 5, dslkumyantsev Second RFA Response,''

18 No. 49). Plaintiff asserts that Defendant never took steps to

19 investigate why Jefferies stopped trading the tlow of CM KM stock

20 from NevW est (Plaintift''s Facts, No. 84).

21 5. Jefferies never acted as a clearing broker for N evW est Securities

22 Corporation; Jefferies was only a counter-party in securities trades

23 (see Exhibit 3, d'Rumyantsev Testimony,'' 45:8-57:9 and 97:23-99:24).

24 Plaintiff asserts that Jefferies was one of the two primal'y clearing

25 brokers through which NevW est introduced CM KM trades.

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1 6. NevW est Securities Corporation was obligated to pay per-ticket

2 clearing charged to its clearing tirms. The am ount of clearing charges

3 derived and paid from the sales of the subject securities was

4 approximately $66,360 (see Declaration of Defendant Sergey

5 Rumyantsev and Exhibit 6). Plaintiff argues that NevW est Securities

6 Corporation retained the fu11 amount of commissions not paid to Daryl

7 Anderson.

8 111. ARGUM ENT

9 A. Standard for Sum marv Judgm ent

10 Summary judgment is appropriate when the pleadings, affidavits, and other

1 1 supporting papers permitted by Rule 56 ofthe Federal Rules of Civil Procedure

12 dem onstrate that there is no genuine issue of m aterial fact, and the moving party is

13 entitled to prevail as a matler of law. Fed. R. Civ. P. 56(c); Celotex Corp. v.

14 Catrett, 477 U.S. 3 17, 322 (1986).

15 A court's role on summal'y judgment is not to weigh the evidence, make

16 credibility determinations, or decide which inferences to draw from the facts, but

17 instead to determine whether there is a genuine issue of triable fact. Anderson v.

1 8 Liberty Lobby, Inc., 477 U.S. 242, 249 (1986) at 255. Washington v. Haupert, 481

19 F.3d 543, 550 (7th Cir. 2007)' Payne v. Pauley, 337 F.3d 767, 770 (7th Cir. 2003).

20 Thus, a court in ruling on a summary judgment motion construes all facts in the

21 light most favorable to the nomnoving party and draws all reasonable inferences in

22 that party's favor. WW Sales (f Assocs. v. Coni-seal, Inc., 550 F.3d 605, 608-09 (7th

23 Cir. 2000).

24 An issue is genuine if evidence is produced that w ould allow a rational trier

25 of fact to reach a verdict in favor of the non-moving party. Anderson, 477 U .S. at

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1 248. The Coul4 must assume the tnlth of direct evidence set forth by the opposing

2 party. See Hanon v. Dataproducts Corp. 976 F.2d 497, 507 (9th Cir. 1992).

3 B. Plaintiff s M otion Icnores Facts That Are M aterial in Establishina That

4 Defendant W as Neither a t'Necessarv Participant' nor a tsubstantial Factor' in the

5 Unrezistered Distribution of CM KM Stock

6 In asserting its claim, Plaintiff invokes a num ber of authorities. ln

7 particular, Plaintiff references SEC v. Phan, 500 F.3d 895 (9th Cir. 2007). ln

8 Phan, the court fokmd Phan to be both a ''necessary participant'' and a ''substantial

9 factor in'' a resale of securities, thus satisfying the ''sold or offered to sell'' elem ent

10 of Section 5 of the Sectlrities Act. The specitk facts, on which that conclusion was

1 1 based, included such acts by Phan as choosing a transaction date, directing the

12 seller to sell the shares, providing a buyer, directing a Iawyer to draft a stock

13 sale contract, and instructing the seller where to send the proceeds (see Phan,

14 500 F.3d at 906).

15 The facts that Defendant did not direct sales of the subject secttrities (Fact

16 A-9 in the Statement of Facts above), did not set the terms and conditions of sale of

17 the subject securities (Facts, A-10), did not seek or solicit buyers of the subject

18 securities (Facts, A-4 and A-5), did not instruct anyone to transfer the proceeds of

19 sales of the subject securities (Facts, A-14) are material because they clearly

20 distinguish the actions of D efendant from those that sen'ed as the basis for the

21 Phan decision.

22 Plaintiff also invokes the authority of SEC v. Murphy, 626 F.2d 633 (9th Cir.

23 1980). In Murphy, the court upheld the ruling that found M tlrphy liable as a

24 participant in the offer and sale of unregistered securities because M urphy w as ûtthe

25 architect of gthel tinancing scheme'' as (dhe devised the corporate financing

26 schem e ..., prepared and reviewed offering m em oranda; he m et personally

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l with broker-dealers, investors and their representatives; and he spoke at

2 broker-dealer sales seminars'' Murphy, 626 F.2d at 637 and 652 (9th Cir. 1980),

3 emphasis added.

4 The facts that Defendant did not solicit the sale or purchase of the subject

5 securities (Facts, A-4), did not seek buyers of the subject securities (Facts, A-5),

6 did not promote sales of the subjec,t securities (Facts, A-6), and did not set the

7 terms and conditions of sale of the subject securities (Facts, A- 1 0) are material

8 because they clearly distinguish the actions of Defendant from those that

9 served as the basis for the M urphy decision.

10 The fact that Ginger Gutierrez, James Kinney, and Part--l-im e M anagement,

l 1 lnc. sold a total of approximately 88.4 billion shares of urtregistered CM KM stock

12 (Facts, A-21), ostensibly using broker-dealers other than NevW est Securities

13 Corporation, is material and raises a genuine issue with respect to Plaintiff s

14 claim that defendant was a lnecessary participant' in the unregistered distribution

15 of CM KM Stock.

16 C. There Are Genuine lssues of M aterial Fact with Respect to Defendant's

17 Role in the Searchina Incluirv into the Sales of CM KM Stock

18 Plaintiff argues that Defendant acted dlwillfully'' in violating Section 5, in

19 particular by failing to inquire suftkiently into the circumstances of the

20 transaction,citing Geiger v. SEC, 363 F.3d 48 1 (D.C. Cir. 2004) and Wonsover v.

21 SEC, 205 F.3d 408 (D.C. Cir. 2000), both drawing from Distribution by Broker-

22 Dealers ofunregistered Securities, Securities Act Rel. No. 4445, l 962 W L 69442

23 (Feb. 2, 1962), which established the %isearching inquiry'' standard.

24 The facts that Defendant did not directly supelw ise any seller of the

25 subject securities, and Daryl Anderson in particular (Facts, A- 1 8 and A-19), and

26 that the principal in charge of compliance at NevW est Securities Corporation

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l performed a searching inquiry (Facts, A-17) are material because they clearly

2 distinguish the actions of Defendant from those that senred as the basis for both the

3 Geiger and Wonsover decisions. Defendant notes that, based on publicly disclosed

4 facts and circumstances, in Geiger and in another action brought by the SEC (see

5 John A. Carley, lnitial Decision 6, lnitial Decision Release No. 292, Adm in. Proc.

6 File No. 3-1 1626 (July 18, 2005)), several parties found to have violated Section 5

7 of the Securities Act operated under the supelwision of the president, chief

8 executive officer, and chief compliance officer of a small broker-dealer, whom the

9 SEC never even charged with Section 5 violations.

10 Plaintiff also quotes Geiger out of context thus making a misleading

1 1 representation. Plaintiff argues that içRum yantsev clearly gave Edwards a Sblank

12 check' to trade CMKM stock'' citing Geiger (Ttby giving gsalesmanj Geiger a blank

13 check, ghead traderl Kirby abandoned even the pretense of due diligence.'')

14 (M emorandum of Points and Authorities in Support of Motion by Plaintiff

15 Securities and Exchange Commission for Summ ary Judgm ent Against Defendants

16 lSt Global Stock Transfer, LLC, H elen Bagley, Sergey Rum yantsev and Brian

17 Dvorak at 14:23-14:26). The facts and circumstances of Geiger were materially

18 different from those of this action. The role of Kirby and the meaning of the

19 term ttblank check'' in Geiger provide no basis for drawing a parallel with this

20 action. The decision in Geiger clearly established that Kirby directly purchased

21 securities for the account of an entity he controlled and paid for the purchase

,

22 by signing a blank check (see Gelger v. SEC, 363 F.3d 484 (D.C. Cir. 2004)).23 Defendant's role in this action is in sharp contrast to that of Kirby in Geiger (Facts,

24 A- 1, A-2, and A-3). Giving Plaintiff the benefit of the doubt and assuming that it

25 used the term tlblank check'' m etaphorically, the am okmt of due diligence

26

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1 performed by Defendant, NevW est Securities Corporation, and its principals still

2 remains a matter of genuine dispute (see Facts, A- l 7, B-4, and B-5).

3 lt also rem ains a m atter of dispute whether Defendant took steps to

4 investigate why Jefferies stopped trading the tlow of CM KM stock from NevW est

5 (Facts, B-4), which investigation could be reasonably construed as part of a

6 searching inquiry.

7 D. There Are Genuine lssues of M aterial Fact with Respect toRelief Souaht

8 bv Plaintiff

9 Notwithstanding the Defendant's assertion that he did not violate Section 5

10 of the Securities Act, there remain genuine issues of material fact with respect to

1 1 relief sought by Plaintiff were this Court to rule in Plaintiff s favor.

12 None of Defendant's securities Iicenses are current, as more than two

13 years lapsed since the filing of Defendant's Uniform Term ination Notice for

14 Securities lndustry Registration in October 2007 (Facts, B-3). This fact is material,

15 because re-qualification requirem ents constitute a barrier to entry into the

16 securities profession. A consideration of such barrier to entl'y is pertinent to the

17 discussion of whether there is reasonable likelihood of future violations by

1 8 Defendant and, hence, whether a pennanent injunction or a penny stock bar is an

19 appropriate sanction.

20 Defendant is gainfully employed outside of the securities profession and has

21 absolutely no intention of ever re-entering the securities profession (Facts, A-

22 22). Based on this fact, it is entirely tmlikely that Defendant will ever be in a23 position to com m it future violations.

24 Defendant acted in good faith relying on Antony Santos and Raymond

25 Dillon as they exercised their supervisory duties with respect to Daryl Anderson

26 (Facts, A-l 8 and A-19). Defendant, in a supervisory capacity or otherwise, never

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1 signed off on any new account applications for accounts, from which sales of the

2 subject securities took place (Facts A- 15). Defendant, in a supeNisory capacity or

3 othem ise, never signed off on any trade tickets evidencing transactions in the

4 subject sectzrities (Facts, A-16). These facts make it a matter of dispute of exactly

5 what alleged actions of Defendant could be constrtzed as iGknow ing,'' lGrepeated,''

6 and timultiple.'' The claim that Defendant's alleged violations w ere ûdknow ing,''

7 içrepeatedy'' and itmultiple'' is at the heart of Plaintiff s assertion that it is entitled to

8 injunctive relief and imposition of civil penalties against Defendant.

9 The amount of disgorgement sought by Plaintiff also rem ains genuinely in

10 dispute. Disgorgem ent is an equitable rem edy that requires a violator to give up

1 1 wrongfully obtained protits causally related to the proven wrongdoing. See SEC v.

12 First Cj/&, Fin. Cory, 890 F.2d 12 15, 1230-32 (D.C. Cir. 1989)* see also Hateley v.

13 SEC, 8 F.3d 653, 655-56 (9th Cir. 1993). lt returns the violator to where he would

14 have been absent the violative activity. Based on this standard and the evidence

l 5 presented by Defendant (Facts, A- 1 1 , B-1, and B-2), the amount of disgorgement

16 sought appears excessive, unreasonable, and arguably punitive.

17 ln its motion, Plaintiff argues that Defendant's alleged ill-gotten gains

18 derived from his ownership stake in NevW est Securities Corporation. That

19 argument remains in dispute because Defendant did not benefit or gain

20 financially in any direct or meaningful manner from the sale of the subject

21 securities (Facts, A- 1 1), as he never received any portion of the proceeds of

22 sales of the subject securities based on his share of ownership of NevW est

23 Securities Corporation (Facts, B-2). Defendant previously provided to Plaintiff

24 evidence docum enting al1 sources of his com pensation from NevW est Sectzrities

25 Corporation, none of w hich w as tied to his share of ow nership of NevW est

26 Securities Corporation (Facts, B-2). The presented evidence clearly established

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1 that Defendant's annual salary of $36,000 remained unchanged during the relevant

2 timeframe (2002-2005). Neither the salary nor the commissions, which Defendant

3 received from transactions neither directly nor indirectly connected to the sales of

4 the subject securities (Facts, A-22), had any basis in Defendant's ownership stake.

5 NevW est Securities Corporation was a corporation w ith approximately 80

6 shareholders (Plaintiff s Facts, No. 10) and canied out no direct or indirect

7 distributions to its shareholders through dividends or otherwise during the

8 relevant timeframe.

9 Plaintiff also estim ates that NevW est Securities Corporation retained

10 $383,914.20 from the proceeds of the sales of CMKM stock. That estimate is

1 1 materially different from Defendant's own estim ate, which is approximately

12 $300,000.00 (Facts, B- 1). Also, in the Final Judgment entered by default against

13 Defendant NevW est Securities Corporation on December 4, 2009, (Docket No.

14 136), this Court ordered NevW est Securities Corporation to disgorge $275,000,

15 representing $2,575,000 in sales comm issions less $2,300,000 NevW est Securities

16 Corporation paid to Daryl Anderson. The amount of $275,000 was not determined17 by this Court but based on the SEC'S estimate. The Coul't found that $275,000

18 was (6a reasonable approximation of NevW est's profits from its violations.''

19 Of material importance is the fact that NevW est Securities Corporation was

20 under the obligation to pay per-ticket charges to its clearing firms (Facts, B-6). It

21 was not a m atter of choice but a contractual obligation to pay at least the

22 estim ated amount of $66,360 to Computer Clearing Service, Inc. for clearing the

23 sales of CM KM stock. Building upon the argum ent in Hateley v, SEC, 8 F.3d 653,

24 655-56 (9th Cir. 1993), Defendant argues that the amount of sales commissions

25 from the sales of CM KM stock deemed retained by NevW est Securities

26 Corporation should be reduced accordingly.

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1 The amount of disgorgement sought is also in question in light of the Final

2 Judgment entered by this Court against Defendant Anthony Santos ptlrsuant to his

3 Consent on February 9, 2010. (Docket No. 140.) Santos and his family owned and

4 controlled approximately the same percentage of NevW est Securities Corporation

5 as Defendant: approximately nine percent (Facts, A-20). The Coul't ordered that

6 Santos, who similarly to Defendant did not benetit or gain tinancially in any direct

7 or indirect manner from the sale of the subject securities, was liable for

8 disgorgement of $4,745.70. The disgorgement that Plaintiff seeks from Defendant

9 is more than seven times greater than that amount.

10 1v. CONCLUSIO N

1 1 For the reasons stated above, and for any other reason that the Court may

1 2 deem just and proper, Defendant Sergey Rumyantsev respectfully requests that the

13 Court deny Plaintifcs motion for summary judgment.

14

15 Dated: Decem ber 28, 2010. Respectfully stlbmitted,

l 6

1 7

1 8 Sergey Rumya ev, De ndant pro se

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1 SEC v. CM KM DIAM ONDS, INC., et al.

United States District Court - District of Nevada

Case No. 2:08-CV-00437-LRH-RJJ (LA-3028)3

CERTIFICATE OF SERVICE4

5 l certify that this document was served on the follow ing via electronic and U .S.mail on December 28, 2010:

6

M olly M . W hite

K aren M atteson

8 Securities and Exchange Com mission

5670 W ilshire Boulevard, 1 1th Floor

Los Angeles, California 90036-3648

10 E-mails: [email protected] & mattesonk@secagovAttorneysfor the SEC1

12 llwing M . Einhorn, Esq.

Law Offices of lrving M . Einhorn1 3 17 l 0 10th Street

14 M anhattan Beach, CA 90266

Email: [email protected] Defendant gohn Edwards

16M ark S. Dzarnoski, Esq.

17 Gordon & Silver,Ltd.

3960 Howard Hughes Parkw ay, Ninth Floor8

Las V egas, N V 89 l69

19 Email: [email protected] Helen Bagley and 1st Global Stock Transfer lJ.c0

21 Urban A. Casavant

RR 5 Site 16 Box 29

22 Prince Albert,Saskatchewan S6V 5R323 Canada

Email: [email protected]

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1 John W esley Hall, Jr.

13 1 1 S. Broadway2 Little Rock

,Arkansas 72202-4843

3 e-mail: [email protected]

Attorneyfor Defendant Brian flvtprtz/c

5 Kathleen Tom asso

9580 Lake Serena Drive6 Boca Raton

,FL 33496

Email: t'[email protected]

8 Anthony Tomasso

9580 Lake Serena DriveBoca Raton, FL 33496

i0 Email: [email protected]

11 Anthony Santos

12 6965 N orth Durango Drive, Suite 1 1 lf -381

Las Vegas, NV 891491 3 Em ail: Am s

[email protected]

N evW est Securities Corporationl 5 c/o Anthony Santos

j6 6965 North Durango Drive, Suite 1 1 15-381Las Vegas, NV 89149

17 Email: Am [email protected] 8

Douglas E. Griffith, Esq.

19 Kesler & RustM clntyre Building, 2nd Floor

20 68 S. M ain Street

21 Salt Lake City, U T 84 10 l

Email: [email protected] Daryl Anderson

23

Eric N . K lein, Esq.24 Eric N

. Klein & Associates, P.A.

25 1200 N . Federal Highw ay, Suite 200

Boca Raton, FL 33432

26 Email: [email protected]

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1

M ichael R. Bakst2 PM B 702

3 222 Lakeview Avenue, #160

W est Palm Beach, FL 334014 [email protected]

5

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Se g Rum ntsev

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l SERGEY RUM YANTSEV, pro se

1951 N Jones //G2022 L

as V egas, N V 89 108

3 E-mail: [email protected]

Telephone: (702) 647-7925

5UN ITED STATES D ISTRICT CO URT

6DISTRICT OF NEVADA

7

8SECURITIES AND EXCHANGE Case No. 2-08CV00437-LRH-RJJ

9 coM M lssloN'

l intiftl DECLARATION OF DEFENDANTa10 SER G EY RU M YANTSEV IN

11 vs. SUPPOR T OF M EM O RANDUM

IN OPPOSITION TO PLAINTIFF12 CM KM DIAM ONDS, INC., et aI., SECURITIES AND EXCHA NGE

Defendants. COM M ISSION'S M OTION FOR3

SUM M ARY JUDG M ENT1 4

l 5

16 1,Sergey Rumyantsev, declare pursuant to 28 U.S.C. j 1746 as follows:

17 l I am one ofthe defendants in this action, appearing pro se. l have

18 personal know ledge ofthe following facts and could and would testify competently

19 thereto.

20 2. Attached as Exhibit l is a true and correct copy of Defendant Sergey

21 Rumyantsev's Response to Plaintiff Securities and Exchange Comm ission's First

22 Set of lnterrogatories to Sergey Rum yantsev served on December 24,2008.

23 3. A ttached as Exhibit 2 is a true and correct copy of relevant pages of

24 the transcript of investigative testim ony of Sergey Rum yantsev taken under oath

25 before the National Association of Securities Dealers, Inc. fn the Matter t?/-

26 NevWest Securities Corporation taken on January 26, 2005, a self-regulatory

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1 organization proceeding based on many of the same facts and circumstances as this

2 action.

3 4. Attached as Exhibit 3 is a true and correct copy of relevant pages of

4 the transcript of investigative testim ony of Sergey Rumyantsev taken under oath In

5 the Matter ofcMKM Diamonds taken on April 13, 2006 as part of Plaintiff s

6 investigation preceding this action.

7 5. Attached as Exhibit 4 is a true and correct copy of Defendant Sergey

8 Rumyantsev's Answer to SEC'S First and Second Requests for Production of

9 Documents Pursuant To Rule 34 served on October 12, 2008 (redacted to prevent

10 disclosure of personal identifying infonnation such as Defendant's Social Security

1 1 Number).

12 6. Contemporaneously with the service of Defendant Sergey

13 Rumyantsev's Answer to SEC'S First and Second Requests for Production of

14 Documents (Exhibit 4), Defendant, pursuant to his Response No. 8, provided

15 Plaintiff with a detailed record of NevW est Securities commissions, a share of

16 which he received in addition to his salary during the period from January 1, 2002

17 though October 12, 2008 (the document consisted of 252 pages and, because of its

18 size, is not attached as an exhibit hereto). The detailed record evidenced that

19 Defendant shared in a comm issions pool totaling $992,334.24 and earned during

20 the period from January 2, 2002 to M ay 30, 2007, N one of the colnm issions

21 derived from the sales of CM KM stock by John Edwards.

22 7. Attached as Exhibit 5 is a true and correct copy of Defendant Sergey

23 Rumyantsev's Response to Plaintit-f Securities And Exchange Com mission's

24 Second Set of Requests for Adm issions served on December 5, 2008.

25 8. Attached as Exhibit 6 is a true and correct copy of Computer Clearing

26 Services, Inc. schedule of Proposed Correspondent Charges for NevW est

2


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1 Securities Corporation delivered via electronic mail to D efendant Sergey

2 Rum yantsev on or about Febrtlary 25, 2004, which 1 retrieved from that part of

3 electronic mail archive records of NevW est Securities Corporation that is still

4 available to m e.

5 9. Plaintiff provided evidence that Jolm Edwards' sales of CM KM stock

6 totaled 17,028,849,996 shares before NevW est Securities Corporation started to

7 clear his sales tlu-ough Computer Clearing Services, lnc. (see Exhibit l to

8 Declaration of Edward M . Brady in Suppol't of M otion by Plaintiff Securities and

9 Exchange Com mission for Sum maly Judgment Against Defendants 1St Global

10 Stock Transfer LLC, Helen Bagley, Sergey Rumyantsev and Brian Dvorak).

11 Based on total sales of 254,040,542,1 12 shares, the number of shares cleared

12 through Com puter Clearing Services, Inc. was 237,01 l ,692,1 16.

13 10. Computer Clearing Services, lnc. charged NevW est Securities

14 Corporation per-ticket clearing fees. For ex-clearing transactions the fee was $28

15 per ticket (see Exhibit 6). To the best of my recollection the system limitation on

16 the clearing ticket size was 99,999,999 shares. Based on that limitation, the

17 estim ated number of clearing tickets processed pursuant to the sale of

18 237,0 l 1,692,1 16 shares was at least 2,370. Thus, at $28 per ticket, the amount of

19 clearing fees charged and collected by Com puter Clearing Services was at least

20 $66,360.

21 l l . Defendant is not presently and has not for the past thirty-eight m onths

22 been associated with any securities broker-dealer. None of Defendant's securities

23 licenses are current, as m ore than two years lapsed since the tiling ofDefendant's

24 Uniform Term ination Notice for Securities lndustry Registration in October 2007.

25 This assertion is based on the knowledge of fact and confinned by a report that can

26 be obtained from httpr//brockercheck.fnra.ora.

3


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1 12. Lacking knowledge of specific rules that may support this assertion,

2 Defendant finnly believes that a1l of his securities licenses and certitications have

3 expired.

4 13. Regardless of the fact that Defendant has long since exited the

5 securities profession, Defendant sincerely assures that he will never engage in

6 conduct that may constitute a violation of Section 5 of the Securities Act.

7 14. Defendant is gainfully employed outside of the securities profession

8 and has absolutely no intention of ever re-entering the securities profession.

9 l declare under penalty of perjury that the foregoing is tnle and correct.

10 Executed on December 28, 2010, in Las Vegas, Nevada.

11

12

13 Sergey Rum ntsev, efendant pro se

1 4

15

l 6

1 7

18

1 9

20

2 1

22

23

24

25

26

4


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l SEC v. CM KM DIAM ONDS, INC., et al.

United States District Court - District of Nevada

Case No. 2:08-CV-00437-LRH-RJJ (LA-3028)3

INDEX OF EXHIBITS4

5 Exhibit Description Page

o.

6 1 Defendant Sergey Rtzmyantsev's Response to Plaintiff 6

7 Securities and Exchange Commission's First Set of

lnterrogatories to Sergey Rumyantsev served on Decem ber8 24

,2008.

2. Relevant pages of the investigative testimony transcript of 57

Sergey Rum yantsev before the National Association of

10 Securities Dealers, lnc. ln the Matter ofNevWest SecuritiesCor oration taken on Janua 26, 2005.1

3. Relevant pages of the investigative testimony transcript of 65

12 Sergey Rumyantsev ln the Matter ofchiKM lliamonds takenon A ril l3, 2006.3

, ,. D efendant Sergey Rum yantsev s Answer to SEC s First and 89

14 Second Requests for Production of Docum ents Pursuant To

Rule 34 served on October l2, 2008 (redacted to prevent5-isclosure ot personal identifying infonnation such as

16 Defendant's Social Securit Num ber .5. Defendant Sergey Rum yantsev's Response to Plaintiff 1 12

1-/ S ities And Exchange Commission's Second Set ofcur

1 8 Re uests for A dm issions served on Decem ber 5, 2008.

6. Computer Clearing Services, lnc. schedule of Proposed l2019 con-espondent Charges for NevW est Securities Corporation

24) delivered via electronic m ail to Defendant Sergey

Rum antsev on or about Februa 25, 2004.2 1

22

23

24

25

26

5


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EX H IBIT 1

Rumyantsev Declaration, Page 6


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1 SERGEY RUM YANTSEV, pro se

1951 N Jones //G2022 L

as Vegas, N V 89108

3 E-mail: chaptak@embarçmail.com

Telephone: (702) 647-7925

5UN ITED STATES D ISTRICT CO URT

6DISTRICT O F NEV ADA

7

8SECIJRITIES Ar EXCHANGE Case No. 2-08CV00437-LRH-RJJ

9 COM M ISSION'Plaintiff, DXFENDANT SERGEY

10 RtiM vAxTsEv 's RESPONSE TO

11 vs. PLXINTIFF SECURITIES ANDEXCH ANG E CO M M ISSIO N'S

12 CM KM DIAM ONDS, INC., et al., FIRST SET OF

Defendants. INTERROGATORIES TO3

SERG EY RUM YANTSEV14

15 -ROPOUNDING PARTY: PLAINTIFF UNITED STA I-ES SECURITIES AND

16 EX CHANGE COM M ISSION

17 RESPONDING PARTY: DEFENDANT SERGEY RUM YAN TSEV

18 SET NO.: ONE

19

20

21

22

23

24

25

26

EXHIBIT 1

I



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1 Pursuant to Rule 33 of the Federal Rules of Civil Procedure, Defendant

2 Sergey Rumyantsev (HDefendant'' or GRumyantsev'') responds to Plaintiff

3 Securities and Exchange Commission Cplaintift'' or tccommission'') First Set of

4 lnten-ogatories as follow s:

5 Defendant objects to Plaintiff s First Set of lnten-ogatories because it

6 contains twenty-six (26) written interrogatories. Pursuant to Rule 33(a)( l),

7 tûlujnless otherwise stipulated or ordered by the court, a party may sen,e on any

8 other pal'ty no more than 25 written interrogatories, including al1 discrete

9 subparts.''

10 Defendant objects to the ftdetinitions'' in Plaintiff s First Set of

1 1 Inten-ogatories to Sergey Rumyantsev to the extent they purport to impose

12 obligations on Defendant beyond the obligations im posed by the Federal Rules of

13 Civil Procedure. ln responding to Plaintiff s First Set of lnterrogatories to Sergey

14 Rum yantsev, Defendant will respond in accordance with his obligations as set

15 forth in the Federal Rules of Civil Procedure.

16 Defendant objects to these contention interrogatories as premature because

17 discovery is still at an early stage. D efendant has not yet completed discovery and

18 may discover additional facts that may be responsive to one or m ore interrogatory.

19 Pursuant to Rule 26(e) of the Federal Rules of Civil Procedure, Defendant

20 expressly reserves his right to amend or supplem ent its responses to the First Set of

21 Inten-ogatories to Sergey Rumyantsev.

22

23 INTER RO G ATO RY NO . 1:

24 State a1l facts that suppol't YOUR contention that ''gtlhe securities at issue

25 were in fact, exempt from registration and eligible for sale under the given facts

26

EXHIBIT 1

2



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l and circum stances'' on page 14 of Defendant Sergey Rumyantsev's Answer, which

2 was tiled on M ay 9, 2008.

3

4 RESPON SE TO INTERROGATORY NO . 1:

5 Based on Defendant's information, belief, and understanding of the

6 Interrogatory, Defendant responds as follows'

7 The securities at issue were represented by certificates without a restrictive

8 legend. A restrictive legend is a statem ent placed upon a stock certiticate stating,

9 am ong other things, that the stock is not registered with the Commission pursuant

10 to Seotion 5 of the Securities Act and that an ownership interest in the stock

1 1 represented by that certificate cannot be sold or transferred absent registration or

12 the existence of a valid exemption from registration.

13 Defendant Edwards controlled the accounts at NevW est through which the

14 securities at issue were sold. NevW est's searching inquiry established a belief that

15 Defendant Edwards was not the issuer of the securities at issue. NevW est's

16 searching inquiry further established a belief that Defendant Edwards was not an

17 affiliate of the issuer of the securities at issue.

18 Defendant NevW est Securities Corporation ($çNevWest'') contacted

19 Defendant 1St Global Stock Transfer LLC (4t 1S' Global'') to verify that the

20 certificates representing the securities at issue were validly issued and unrestricted.

21 1S' Global vouched in writing for al1 certificates representing the securities at issue.

22 Upon inquil'y, lSt Global also stated that none of the securities at issue came into

23 Defendant Edwards' control as a result ot-transfers from aftsliates of the issuer. 1St

24 Global further indicated that it issued the certificates representing the securities at

25 issue on the basis of attorney opinion letters.

26

EXHIBIT 1

3



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1 NevW est promptly deposited a1l certiticates representing the securities at

2 issue with its clearing firms W ells Fargo lnvestments Correspondent Services and,

3 later, Computer Clearing Services, Inc. W ells Fargo lnvestments Correspondent

4 Services and Com puter Clearing Services, Inc. accepted the securities at issue for

5 deposit and allowed subsequent sales presumably in compliance with their own

6 policies and procedures.

7 NevW est's clearing firms deposited the securities at issue with The

8 D epositoor Trust Company. The D epository Trust Company accepted the

9 securities at issue for deposit and allow ed subsequent transfer of ownership

10 presumably in com pliance with its own policies and procedures.

11

12 INTERROGATO RY NO. 2:

13 State all facts that support YOUR contention that ''DEFENDAN T

14 RUM YANTSEV was NOT a necessary and substantial factor in the sale or

15 distribution of the subject securities'' on page 14 of Defendant Sergey

16 Rumyantsev's Answer, which was filed on M ay 9, 2008.

l 7

18 RESPON SE TO INTERROGA TORY NO .2:


20 lnterrogatoo,, Defendant responds as follows:

21 D efendant played neither necessary nor substantial role in facilitating the

22 sale of the subject securities.

23 Defendant did not have any relationship with the issuer of the subject

24 securities.

25 Defendant did not introduce Defendant Edwards to NevW est.

26 Defendant never accepted delivery of the subject securities.

EXHIBIT 1

4



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1 Defendant never purchased, sold, or othenvise passed title to the subject

2 securities.

3 Defendant never owned the subject securities.

4 Defendant never solicited the sale or purchase of the subject securities.

5 Defendant never sought buyers of the subject securities.

6 Defendant never promoted sales of the subject securities.

7 Defendant never accepted orders to sell the subject securities.

8 Defendant never served as a broker ofrecord for the accounts of Defendant

9 Edwards, through which Defendant Edwards sold the subject securities.

10 Defendant never directed sales of the subject securities.

1 l Defendant never set the terms and conditions of sale of the subject securities.

12 Defendant did not benest or gain tinancially in any direct or meaningful

13 manner from the sale of the subject securities.

14 Defendant never published quotations in the subject securities in any

15 m edium .

16 Defendant never received instructions to transfer the proceeds of sales of the

17 subject securities.

l 8 Defendant never instructed anyone to transfer the proceeds of sales of the


20

21 INTERR O GATO RY NO . 3:

22 State a1l facts that support YOUR contention that DEFENDANT

23 RUMYANTSEV ''was not an offeror with respect to the subject securities'' on page24 15 of Defendant Sergey Rumyantsev's Answer

,which was filed on M ay 9, 2008.

25

26

EXHIBIT 1

5

Rumyantsev Declaration, Page 1 1


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1 RESPONSE TO INTERROGATORY NO . 3:


3 lnterrogatoly, Defendant responds as follows:

4 Defendant incorporates by reference each and al1 of his responses to

5 lnterrogatory N o. 2.

6 Defendant never entered into any contract of sale or disposition of the

7 subject securities, for value or otherwise.

8 Defendant never directly or indirectly solicited or arranged for the

9 solicitation of orders to buy in anticipation of or in connection with the sale of the


11

12 INTERROGATORY NO . 4: -

13 State all facts that support YOUR contention that DEFENDANT

14 RUM YANTSEV ''did not solicit the sale or ptlrchase of the subject securities'' on

1 5 page 15 of Defendant Sergey Rum yantsev's Answer, which was filed on M ay 9,

l 6 2008 .

l 7

18 RESPONSE TO INTER ROGA TORY NO .4:

19 Based on Defendant's informationn belief, and understanding of the

20 lnterrogatory, Defendant responds as follows:

21 Defendant never sought buyers of the subject securities.

22 Defendant never promoted sales of the subject securities.

23 Defendant never directed sales of the subject securities.

24 Defendant never published quotations in the subject securities in any

25 m edium .

26

EXHIBIT 1

6



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l INTERRO GATORY NO. 5:

2 State all facts that support YOUR contention that DEFENDANT

3 RUM YANTSEV ''did not personally benefit or gain, tinancially, in any

4 meaningful manner from the sale of the subject securities'' on page 15 of

5 Defendant Sergey Rum yantsev's Answer, which was tiled on M ay 9, 2008.

6

7 RESPONSE TO INTERROGATORY NO. 5:

8 Based on Defendant's information, belietl and tmderstanding of the

9 Interrogatory, Defendant responds as follows:

10 Defendant previously provided Plaintiff with detailed information about the

l 1 sources of Defendant's income during a11 relevant times. In particular, such

1 2 information was included in Answer of Sergey Rumyantsev to SEC'S First and

13 Second Requests for Production of Documents Pursuant to Rule 34 dated October

14 12, 2008 and in Defendant Sergey Rumyantsev's Response to Plaintiff Securities

15 and Exchange Com mission's First Set of Requests for Adm issions dated December

16 1, 2008.

17 During all relevant times, Defendant was an employee ofNevW est.

18 Defendant's employment and the terms thereof did not depend on the sale of the


20 During all relevant times, Defendant did not receive any payments or item s

21 of value from other Defendants in this action other than the salary and

22 commissions from NevW est paid in the ordinary course of business unrelated to

23 the sale ofthe subject securities.

24 During al1 relevant times, Defendant drew a salary from NevW est in the

25 amount of $36,000 per annum. The amount of that salary did not depend on the

26 sale of the subject securities.

EXHIBIT 1

7



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l During a1l relevant times, NevW est paid Defendant commissions derived

2 from his own book of business in no way related or connected to the sale of the


4 Defendant never received any commissions on the sale of the subject

5 securities.

6 Defendant never received any com mission overrides on the sale of the

7 subject securities other than approximately $1,800 based on a single transaction in

8 August 2004. Defendant believes that that amount was no m ore than one percent

9 of Defendant's total income during the relevant time period.

10 During all relevant times, NevW est was a privately held corporation, in

1 1 which Defendant held a minority stake. Transactions in the subject securities

12 never had a measurable, if any, impact on the value of Defendant's share of

13 ownership in NevW est.

14 During a1l relevant times, NevW est did not pay and Defendant did not

15 receive from NevW est any dividends.

16

17 INTERROGATORY NO. 6:

18 State a1l facts that support YOUR contention that ''DEFENDANT

19 RUM YANTSEV was not an undenvriter with respect to the relevant issuer and the

,, ,20 subject securities on page 15 of Defendant Sergey Rumyantsev s Answer, which

21 w as tiled on M ay 9, 2008.

22

23 RESPONSE TO INTERRO GATORY NO . 6:

,24 Based on Defendant s inform ation, belief, and understanding of the


26

EXHIBIT 1

8

Rum yantsev Declaration, Page 14


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2 lnterrogatories Nos. 2-6.

3 Defendant never was affiliated with the issuer of the subject securities.

4 Defendant never purchased the subject securities from the issuer or its

5 aftiliates with or without a view to the distribution of the subject securities.

6 Defendant never offered or sold the subject securities for the issuer or its

7 affiliates in connection with the distribution of the subject securities or otherwise.

8 Defendant never had direct or indirect participation in the sale of the subject

9 securities.

l 0 Defendant never had any material interest in the sale or distribution of the

l 1 subject securities.

l 2

13 INTERRO GATORY NO. 7:

14 State al1 facts that support YOUR contention that ''lnlo shares came to rest

15 with DEFENDANT RUM YANTSEV or any entity or individual controlled by, or

l 6 sharing comm on control with, DEFENDANT RUM YANTSEV'' on page l 5 of

17 Defendant Sergey Rum yantsev's Answer, which was tiled on M ay 9, 2008.

l 8

19 R ESPON SE TO INTERR O GA TO RY N O . 7:

20 Based on Defendant's inform ation, belief, and understanding of the


22 Defendant or any entity or individual controlled by, or sharing com m on

23 control with Defendant never owned a single share of the subject securities.

24 Defendant or any entity or individual controlled by, or sharing common

25 control with Defendant never held a single share of the subject securities in any

26 account under D efendant's control.

EXHIBIT 1

9



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3 RUM YANTSEV is entitled to rely on Section 4(4) of the Securities Act,

4 exempting brokers' transactions executed upon customers' orders on any exchange

5 or in the over-the-counter market (absent solicitation) such that he could not be

6 held liable for the violation of the registration requirem ents of Securities Act

7 Section 5 with respect to the subject securities'' on page 15 of Defendant Sergey

8 Rumyantsev's Answer, which was filed on M ay 9, 2008.

9


1 l Based on Defendant's infonnation, belief, and understanding of the

12 lnterrogatoly, Defendant responds as follows:


14 Interrogatories Nos. 2-7.

1 5 Defendant played neither necessary nor substantial role in facilitating the

16 sale of the subject securities. Nothing in Defendants actions constituted17 perform ance of broker's functions and, by extension, of anything m ore than the

18 usual and customary broker's functions in connection with the sale of the subject

19 securities.

20 Defendant did not execute orders to sell the subject securities.

21 Defendant did not receive any commissions in connection with the sale of

22 the subject securities.23 Defendant did not directly or indirectly solicit or arrange for the solicitation

24 of orders to buy in anticipation of or in connection with the sale of the subject

25 securities.

26

EXHIBIT 1

10



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l Defendant never m ade any payments in connection with the sale of the

2 subject securities to any person.

3 At a1l relevant tim es, Defendant was not aware of any circumstances in

4 connection with the sale of the subject secttrities that made provisions of Section

5 4(4) of the Securities Act, exempting brokers' transactions executed upon

6 customers' orders on any exchange or in the over-the-counter market, unavailable

7 to him .

8

9 INTERR O GATO RY NO . 9:

10 State al1 facts that support YOUR contention that ''DEFENDANT

l 1 RUM YANTSEV caused to be conducted, a searching inquil'y in cooperation with

12 the National Association of Securities Dealers (NASD now FINRAI with respect

13 to the subject securities, which inquil'y yielded legal opinions from three (3)

14 separate law t'irms as to the free-trading status of the subject securities and such

15 other facts and circumstances supporting the contention that the subject securities

16 were indeed free-trading and that the subject transactions were consistent with state

17 and federal securities laws'' on pages 15-16 of D efendant Sergey Rumyantsev's

18 Answ er, which w as filed on M ay 9, 2008.

1 9

20 RESPONSE TO INTERROGA TORY NO . 9:

21 Based on Defendant's inform ation, belief, and understanding of the



24 lnterrogatory N o. l .

25

26

EXHIBIT 1

11



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l During a11 relevant times, Defendant was President and a registered principal

2 of NevW est. In those capacities, Defendant put in place policies and procedures

3 that were the basis of the searching inquiry referenced in this Interrogatoly.

4 NevW est's searching inquiry consisted of a number of steps, including

5 verbal and written com m unication with a number of parties as well as N evW est's

6 own research of government filings.

7 NevW est contacted Defendant 1St Global to verify that the certificates

8 representing the subject securities were validly issued and unrestricted. 1St Global

9 vouched in writing for al1 certificates representing the subject securities.

10 NevW est interviewed Defendant Edwards, who asserted that he was not an

1 1 aftiliate of the issuer, that he did not acquire the subject securities from the issuer

12 or its aftiliates, and that none of the proceeds from the sale of the subject securities

13 were returned to the issuer or its affiliates.

14 NevW est checked corporate filings of Defendant CM KM Diamonds, lnc.

15 (t1CMKM''), the issuer of the subject securities, with the Secreta:'y of State of the

16 State of Nevada and found no evidence of Defendant Edwards' affiliation with

17 CM KM during all relevant times.

18 NevW est checked available tilings of CM KM with the SEC (Plaintiff in this

19 action) and found no evidence of Defendant Edwards' affiliation with CMKM

20 during all relevant tim es.

21 NevW est received or obtained possession of several attorney opinion letlers

22 issued in connection with transactions in the subject securities by law firms of23 Kum mer Kaempfer Bonner & Renshaw, Edwards & Angell, and Defendant Brian

24 Dvorak. A1l attorney opinion letters review ed by NevW est as part of its searching

25 inquiry supported the contention that the subject securities were free-trading and

26 that the subject transactions were consistent with state and federal securities laws.

EXHIBIT 1

12



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1 Starting in August 2004, NevWest shared a1l information about the subject

2 securities with the NASD (now FTNRAI, its regulator. Defendant believes that,

3 subsequent to August 2004, the share of transactions in the subject securities

4 comprised no less than 60 percent of the total transactions in the subject securities

5 at NevW est by volume and no less than 40 percent of the total by the dollar

6 amount. On several occasions, N evW est inquired if FIN.RA was in possession of

7 any information that would change the conclusions of NevW est's own searching

8 inquiry with respect to the subject securites. During all relevant times, the NASD

9 did not provide any specific information that would challenge NevW est's

10 contention that the subject securities were free-trading and that the subject

1 1 transactions were consistent with state and federal securities laws.

12


14 State all facts that support YOUR contention that ''DEFENDANT

15 RUM YANTSEV relied on the nlles and regulations, advice and guidance as

16 promulgated by FINRA including but not limited to its District 2 oftices in Los

17 Angeles, California which abdicated its duty to its members and its duty to protect

18 investors and preserve market integrity by failing to establish reasonably sufficient

19 policies and procedures so as to apprise or notify its m em bership of the vel'y

20 standardts) PLAINTIFF now seeks in impose on DEFENDANT RUMYANTSEV''

21 on page 16 of Defendant Sergey Rum yantsev's Answer, which w as filed on M ay 9,

22 2008.

23


25 Based on Defendant's infonmation, belief, and understanding ofthe

26 lnterrogatory, D efendant responds as follows:

EXHIBIT 1

13



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1 During all relevant times, Defendant and its employer NevW est were

2 members of the NASD (now FINltAI, a self-regulatory organization. As a self-

3 regulatory organization, the NASD promulgated rules and regulations and issued

4 guidance for its m embers with respect to applicable nlles and regulations.

5 During all relevant times, Defendant was not aware of any rule, regulation,

6 policy, procedure, guidance, interpretation, Notice to M em bers, or another

7 communication emanating from the NASD (CCNASD rules and regulations'') that

8 established with any degree of speciticity the duties of its mem bers and associated

9 persons in connection with unsolicited sales in broker transactions of securities

10 represented by cel-titk ates not bearing a restrictive legend when such sales could

1 1 violate the provisions of Section 5 of the Securities Act of 1933 (%drelevant NASD

12 rules and regulationsn). In particular, Defendant was not aware of any NASD rules

13 and regulations that specified the scope of searching inquiry sufficient to establish

14 that a broker was not participating in a distribution of unregistered securities.

15 Starting in August 2004, NevW est and Defendant shared with the NASD

16 and, specifically, its D istrict 2 offices in Los Angeles, California and Senior

17 Compliance Examiner Keith Llorens (tr istrict 2'') a11 information about the

18 securities and transactions that are subject of this litigation (Rsubject securities and

19 transactions''). That presented the NASD with an opportunity to advise NevW est

20 and Defkndant of any and alI relevant NASD rules and regulations if such rules

21 and regulations existed. The NA SD and its staff did not provide such advice.

22 ln August 2004, the NASD conducted a routine biennial audit of NevW est.

23 The audit included a close review of NevW est's written policies and procedures.

24 At no relevant tim e during and subsequent to the 2004 audit did the NASD suggest

25 that NevW est's written policies and procedures could be inadequate with respect to

26 the requirem ents of Section 5 ofthe Securities Act of 1933.

EXHIBIT 1

1 4



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1 After initially learning about the subject securities and transactions, District

2 2 of the NASD started monitoring the subject securities and transactions as

3 evidenced by num erous verbal and written com munications between NevW est,

4 Defendant and Keith Llorens (see Attachments 1 and 2 for examples of such

5 communications). Defendant believes that, subsequent to August 2004, the share

6 of transactions in the subject securities comprised no less than 60 percent of the

7 total transactions in the subject securities at NevW est by volume and no less than

8 40 percent of the total by the dollar am ount.

9 W hile lim ited in its resources and capabilities, Defendant understood that the

10 NASD had m uch broader investigative and su> eillance powers than Defendant

1 1 and NevW est themselves. Defendant also believed that the NASD shared w ith its

12 m em bers a duty to protect investors and preserve m arket integrity. Based on that

13 understanding and belief, NevW est and Defendant inquired on multiple occasions

14 if the NASD had information or knew of som ething that would challenge

15 NevW est's and Defendant's contention that NevW est's and Defendant's activities

16 in conjunction with the subject securities and transactions did not constitute a17 violation ofapplicable securities rules and regulations. The NA SD never

18 specifically responded to such inquiries advising NevW est and Defendant to make

19 their ow n detenmination on the m atter.

20

21 INTERROGATORY NO . 11:


23 RUM YANTSEV, beginning in August 2004, explicitly shared any and all

24 information related to the subject transactions with FINRA'S District 2 Oftices on a

25 daily or weekly basis and explicitly sought FINRA'S guidance as to the subject

26

EXHIBIT 1

15



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1 m atter of this Complaint'' on page 16 of Defendant Sergey Rumyantsev's Answer,

2 which was tsled on M ay 9, 2008.

3

4 RESPON SE TO INTERRO G ATOR Y N O. 11:

5 Based on Defendant's information, belietl and understanding of the


7 Defendant incorporates by reference each and all of his responses to

8 lnterrogatory No. 1 0.

9 ln August 2004, the NASD (now FINRAI conducted a routine biennial audit

10 of NevW est. During the course of the audit, the NASD learned about and

l l collected extensive information about the subject transactions.

12 Subsequent to the audit, the NASD and, specitically, Keith Llorens, Senior

13 Compliance Examiner with District 2, engaged in frequent verbal and written

14 communications with NevWest and Defendant about the subject transactions (see

1 5 Attachments l and 2 for examples of such communications).

16 During and subsequent to the audit, Defendant inquired of Keith Llorens on

17 several occasions if the NASD had information or knew of something that would

l 8 challenge NevW est's and Defendant's contention that NevW est's and Defendant's

19 activities in conjunction with the subject transactions did not constitute a violation

20 of applicable securities rules and regulations. Keith Llorens never specifically

21 responded to such inquiries advising NevW est and Defendant to make their own

22 determination on the matter.

23

24 IN TERRO G ATO RY N O . 12:

25 State all facts that support YOUR contention that on ''infonmation and belief,

26 FINRA, and particularly certain individuals at District 2, oversaw each and eveor

EXHIBIT 1

16



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1 transaction on a daily basis, yet notwithstanding multiple communications, FINRA

2 failed to facilitate DEFENDANT RU M Y AN TSEV 'S efforts to the extent that

3 PLAINTIFF now alleges such efforts were inadequate'' on page 16 of Defendant

4 Sergey Rum yantsev's Answer, which was filed on M ay 9, 2008.

5

6 RESPON SE TO INTERROGATORY NO. 12:

7 Based on Defendant's infonnation, belief, and understanding of the


9 D efendant incorporates by reference each and al1 of his responses to

10 lnterrogatory Nos. 10- l 1 .

11 Subsequent to the August 2004 audit, the NASD and, specifically, Keith

12 Llorens, Senior Compliance Examiner with District 2, engaged in frequent verbal

13 and written comm unications w ith NevW est and D efendant about the transactions

14 referenced in this lnterrogatory (see Attachments 1 and 2 for examples of such

15 communications).

16 D uring and subsequent to the audit, D efendant and NevW est inquired of

17 Keith Llorens on several occasions if the NASD had infonuation or knew of

18 something that would challenge NevW est's and Defendant's contention that

19 NevW est's and Defendant's activities in conjunction with the transactions

20 referenced in this Interrogatory did not constitute a violation of applicable

21 secttrities rules and regulations. K eith Llorens never specitically responded to

22 such inquiries advising NevW est and Defendant to make their own determination

23 on the m atter.

24

25

26

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l INTER ROGATO RY NO. 13:


3 RUM YANTSEV relied on policies and procedures promulgated by DEFENDANT

4 NEV W EST SECURITIES CORPORATION, which policies and procedures

5 emanated fonn numerous written and telephonic com munications with

6 PLA INTIFF SECURITIES AND EXCHANGE COM M ISSION whose staff led

7 DEFENDANT RUM YANTSEV to believe he could and must rely solely on the

8 issuer's transfer agent, attorney opinion letterls), the firm's clearing tirm, and

9 Depositoly Trust Corporation for purposes of surmising the validity of any given

10 stock certificate and its free-trading status'' on page 17 of Defendant Sergey

l l Rumyantsev's Answer, which w as filed on M ay 9, 2008.

12

13 RESPON SE TO INTERROGATORY NO. 13:

14 Based on Defendant's infonnation, belief, recollection, and understanding of

15 the lnten-ogatory, Defendant responds as follows:

16 During a1l relevant times, Defendant's employer NevW est was a

1 7 broker/dealer engaged in securities transactions. M any of those transactions

18 involved delive:y and sales of securities represented by certitkates not bearing a

19 restrictive legend. As required by applicable rules and regulations,NevW est and

20 Defendant developed policies and procedures covering every asped of its business,

21 including transactions in securities represented by such certificates. NevW est and

22 Defendant continually updated NevW est's policies and procedures based on

23 new ly-promulgated rules and guidance from its regulators, including the NA SD

24 (now FINRAI and Plaintiftl the U.S. Securities and Exchange Commission.

25 In or about December 2002, NevW est became involved in a dispute with

26 Global Reserve Corporation (û:GLBR''), an issuer, about the validity of securities

EXHIBIT 1

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1 represented by a certificate not bearing a restrictive legend previously delivered

2 and deposited by a retail client of NevW est. During the course of the dispute

3 NevW est and Defendant sought advice from Plaintiff s staff and, in particular,

4 Lawrence Renbaum.

5 In 2003, in an incident unrelated to the 2002 GLBR dispute, NevW est

6 became involved in a dispute with 20/20 Networks, Inc. (GET '') regarding the

7 validity of securities represented by a certificate not bearing a restrictive legend

8 previously delivered, deposited, and sold by a retail client of NevW est. During the

9 course of the dispute NevW est sought advice from Plaintiff s staff in W ashington,

10 DC and Salt Lake City, UT.

1 1 Subsequent to the GLBR and TW NK disputes, NevW est and Defendant

12 substantially amended NevW est's policies and procedures applicable to

13 transactions in securities represented by certificates not bearing a restrictive

14 legend. ln making those amendments NevW est substantially relied on guidance

15 received in com munications with Plaintiff s staff and the NASD. That guidance

16 specifically suggested that determinations of the issuer, the issuer's transfer agent,

17 NevW est's clearing firms, and The Depository Trust Com pany superseded

18 NevW est's own determination as to the validity and transferability (commonly

19 referred to as Gfree-trading status'') of securities represented by a certificate not

20 bearing a restrictive legend. The guidance also suggested that, if an attorney

21 opinion letter is presented in conjunction with establishing the validity and

22 transferability of securities represented by a certificate, it is sufticient for a

23 broker/dealer to rely on such opinion letter on its face.

24

25

26

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l INTERROG ATO RY NO. 14:

2 In YOUR RFA Response No. 14, YOU deny that YOU ''never took steps to

3 investigate why Jolm Edwards opened brokerage accounts in more than 30

4 different nam es at NevW est.'' ldentify a1l steps YOU took to investigate w hy John

5 Edwards opened brokerage accounts in m ore than 30 different names at NevW est.

6

7 RESPO NSE TO INTERROGATORY NO . 14:

8 Based on Defendant's infonmation, belief, and understanding of the


10 During al1 relevant times, Defendant was President and a registered principal

1 1 of NevW est. ln those capacities, Defendant put in place policies and procedures

12 that were the basis of NevW est's inquiries into why Defendant Edw ards opened

13 brokerage accounts in more than 30 different names at NevW est. As part of those

14 inquiries, Defendant Santos, NevW est's Vice President and General Counsel

15 during a1l relevant tim es, interviewed Defendant Edwards on m ultiple occasions

16 with respect to Defendant Edwards' activities at NevW est, including the number of

17 accounts Defendant Edwards controlled. Defendant was present during at least

l 8 one such interview and discussed al1 such interview s with Defendant Santos.

19 Defendant Santos also contacted Defendant Edwards' attorney about

20 Defendant Edwards' activities at NevW est. Defendant discussed with Defendant

21 Santos those com m unications.

22 NevW est and Defendant shared with the NASD (now FINRAI and Plaintiff23 a11 infonnation about Det-endant Edwards' activities at NevW est. As early as

24 August 2004, the NASD knew that Defendant Edwards opened brokerage accounts

25 in m ore than 30 different names at NevW est. As early as D ecem ber 2004, Plaintiff

26 knew that Defendant Edwards opened brokerage accounts in m ore than 30

EXHIBIT 1

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1 different nam es at NevW est. On several occasions, Defendant and NevW est asked

2 the NASD (in particular, Keith Llorens) and Plaintiff (in particular, Edward Brady)

3 if they knew som ething, in addition to infonmation already obtained by NevW est

4 and Defendant themselves, with respect to Defendant Edwards' activities that

5 would help NevW est comply with its duties and obligations under applicable rules

6 and regulations.

7

8 INTERROG ATORY NO. 15:

9 ln YOUR RFA Response No. 16, YOU deny that ''during the period of

10 January 1, 2002 through October 31, 2005, YOU did not know the identity of any

1 1 of the benetk iaries of the accotmts that John Edwards controlled at NevW est''

12 ldentify al1 benetk iaries of the accotmts that John Edwards controlled at NevW est

13 that YOU knew the identity of during the period of January l , 2002 through

14 October 31, 200.5 .

1 5

16 RESPON SE TO INTERROGATO RY NO . 15:


18 Interrogatoo,, Defkndant responds as follows:

19 The accounts that John Edwards controlled at NevW est included, among

20 others, the following four: Jolm M ichael Edwards Roth IRA; Debra Ann Edwards

21 Roth IRA; Eton Properties Corp; and Shareholder Relations USA, lnc. The first

22 two of the four accounts were individual retirement accounts in the nam es of John

23 M ichael Edwards and Debra Ann Edwards, respectively. As such, those two

24 accounts had clearly identitied beneficiaries. The rem aining two accounts on the

25 list were opened in the names of corporateentities. It is m y belief that the two

26 entities were respective beneficiaries of the two corporate accounts.

EXHIBIT 1

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1 INTER ROGATORY N O. 16:

2 In YOUR RFA Response No. 21, YOU deny that ''before February 1, 2005,

3 YOU did not know that John Edwards used the sam e address for several of the

4 accounts through which he was selling CM K M Diamonds stock at NevW est''

5 W hen did YOU learn that John Edwards used the same address for several of the

6 accounts through which he was selling CM K M Diamonds stock at NevW est?

7

8 RESPO NSE TO INTERROGATORY NO. 16;


1 0 Interrogatory, Defendant responds as follows:

11 Defendant does not have a specific recollection when he learned that

12 Defendant Edwards used the sam e address for several of the accounts through

13 which he was selling CM KM D iam onds stock at NevW est. However, Defendant

14 believes that it was prior to February 1, 2005.

15

16 INTERRO GATORY NO . 17:

17 ln YOUR RFA Response No. 2 1, YOU deny that ''before Februaly 1, 2005,

18 YOU did not know that John Edwards used the sam e address for several of the

1 9 accounts through which he was selling CM KM Diamonds stock at NevW est.''

20 How did YOU learn that John Edwards used the same address for several of the

21 accounts through which he was selling CM KM Diamonds stock at NevW est?

22

23 RESPONSE TO INTERROGATO RY NO. 17:

24 Based on D efendant's information, belief, and understanding of the

25 lnterrogatoly, Defendant responds as follow s:

26

EXHIBIT 1

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1 Defendant believes that he learned that Defendant Edwards used the same

2 address for several of the accounts through which he was selling CM KM

3 Diamonds stock at NevW est upon review of information and documents compiled

4 and provided to Plaintiff in response to Plaintiff s requests with respect to

5 Defendant Edwards' activities at NevW est.

6


8 In Y OUR RFA Response N o. 28, Y OU deny that ''YOU never took steps to

9 investigate why Jefferies stopped trading CM KM D iamonds stock.'' ldentify all

10 steps that YOU took to investigate why Jefferies stopped trading the tlow of orders

l l of CM KM Diamond's stock from NevW est.

12

13 RESPO N SE TO INTERR O GA TO RY N O . 18:

14 Based on Defendant's infonnation, belief, and understanding of the

15 lnterrogatol'y, Defendant responds as follow s:

16 Subsequent to the time when Jeft-eries stopped trading the tlow of orders of

17 CM KM Diam ond's stock from NevW est, Defendant learned of the existence of a

1 8 letter ti'om Cathleen Shines Deputy General Counsel of Jefferies to Anne Dansard

19 Glowacki at the NASD dated M ay 6, 2005 (ttlefferies Letter''), a copy ofwhich is

20 included with this response as Attachm ent 3. Upon learning of the existence of

21 Jefferies Letter, Defendant conducted an inquiry and obtained a copy of the letter.

22 Defendant tirmly believes that the facts and circum stances described in Jefferies

23 Letter were the prim ary reason why Jefferies stopped trading the flow of orders of

24 CM KM Diamond's stock from N evW est.

25

26

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l INTER ROGATO RY NO. 19:

2 ln YOUR RFA Response No. 31, YOU deny that ''YOU never took any

3 steps to determine whether Jolm Edwards was returning the proceeds from his

4 sales of CM KM Diam onds stock to CM KM Diamonds.'' Identify a11 steps that

5 YOU took to determ ine whether John Edwards was returning the proceeds form

6 his sales of CM KM Diamonds stock to CM KM Diam onds.

7

8 RESPONSE TO INTERROGATO RY NO. 19:


10 lnterrogatoly, D efendant responds as follow s:

11 Dcfendant incorporates by reference each and a1l of his responses to

12 Interrogatories Nos. 1, 9- l 3.

13 During al1 relevant tim es, Defendant w as President and a registered principal

14of NevW est. ln those capacitics, Defendant put in place policies and procedures

1 5 that were the basis of NevW est's inquiries into Defendant Edwards' activities at

16 NevW est. NevW est and Defendant interviewed Defendant Edwards, who asselled

17 that he was not an aft-iliate of the issuer, that he did not acquire the subject

18 securities from the issuer or its affiliates, and that none of the proceeds from the

19 sale of the subject securities were returned to the issuer or its aftiliates.

20 Based on its policies and procedures, NevW est made and maintained records

21 of transfers of funds from the accounts that D efendant Edw ards controlled at

22 NevW est. NevW est and Defendant reviewed such records. None of the transfers

23 of funds from the accounts that Defendant Edwards controlled at NevW est were

24 directed to CM KM D iam onds.

25 As an introducing broker/dealer, NevW est never took custody or performed

26 transfers of funds or securities but relied on its clearing firms to perform those

EXHIBIT 1

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l functions. NevW est's clearing finns at all relevant tim es had in place their own

2 policies and procedures designed to ensure compliance with applicable rules and

3 regulations. Defendant received and reviewed exception reports produced by

4 NevW est's clearing firm s. None of exception reports provided by NevW est's

5 clearing firm s suggested that any transfers of funds from the accounts that

6 Defendant Edwards controlled at NevW est were directed to CM KM Diamonds.

7 NevW est and Defendant shared with the NASD (now FINRAI and Plaintiff

8 a11 information about Defendant Edwards' activities at NevW est. As early as

9 August 2004, the NASD knew that Defendant Edwards was transferring out the

10 proceeds from his sales of CM KM Diam onds. As early as December 2004,

l l Plaintiff knew that Defendant Fdwards was transferring out the proceeds from his

12 sales of CM KM Diamonds. On several occasions, Defendant and NevW est asked

13 the NASD (in particular, Keith Llorens) and Plaintiff (in particular, Edward Brady)

14 if they knew something, in addition to information already obtained by NevW est

15 and Defendant themselves, with respect to Defendant Edwards' activities that

16 would help NevW est comply with its duties and obligations under applicable nales

17 and regulations. During a1l relevant times, neither NASD, nor Plaintiff provided

18 NevW est and Defendant with any information that would help determine whether

19 John Edwards was returning the proceeds from his sales of CM KM Diamonds

20 stock to CM KM Diamonds.

2 l


23 ln YOUR RFA Response No. 36, YOU deny that ''in 2004, John Edw ards's

24 trading of CM KM Diamonds stock accounted for about 80 percent of NevW est's

25 total trading commissions.'' ln 2004, what percentage of NevW est's total trading

26 commissions came from John Edwards's trading of CM KM Diam ond's stock?

EXHIBIT 1

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l RESPONSE TO INTERROGA TORY NO. 20:



4 ln 2004, approximately sixtp five percent of NevW est's total trading

5 commissions came from Defendant Edwards's trading of CM KM Diamond's stock.

6


: ln 2003, what were the total commissions (in dollars) that NevWest earned

9 from John Edwards's trading of CM KM Diamond's stock?

10

11 RESPONSE TO INTERROGATORY NO . 21:



14 The total com missions that NevW est ealmed from Defendant Edwards's

15 trading of CM KM Diamond's stock in 2003 were $20,240.

16

17 INTERROGATO RY NO. 22:

1 8 In 2004, what were the total commissions (in dollars) that NevW est earned

19 from John Edwards's trading of CM KM D iamond's stock?

20

21 RESPO NSE TO INTERRO G ATO RY NO . 22:


23 lnterrogatofy, Defendant responds as follows:

24 The total com m issions that NevW est earned from Detkndant Edwards's

25 trading of CM KM Diamond's stock in 2004 were $2,371,289.

26

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1 INTERROG ATO RY NO. 23:

2 In 2005, what were the total commissions (in dollars) that NevWest earned

3 from John Edwards's trading of CM KM Diamond's stock?

4

5 RESPON SE TO INTERRO GA TORY NO . 23:



8 The total com missions that NevW est earned from Defendant Edwards's

9 trading of CM KM Diamond's stock in 2005 were $183,977.

10

l l INTERROG ATO RY NO. 24:

12 In YOUR RFA Response No. 4l, YOU deny that ''YOU do not know from

13 whom John Edwards obtained his shares of CM KM Diamonds stock.'' ldentify

14 ti'om whom John Edwards obtained shares of CM KM Diam onds stock.

15

16 RESPO N SE TO INTER RO GA TO RY N O . 24:

17 Based on Defendant's information, belief, and understanding ofthe


19 During Defendant's testimony taken on April l3, 2006, Plaintiff presented

20 Exhibit 133 ''Certificates deposited into John Edw ards' accounts.'' The Exhibit

21 clearly identified a number of individual and entities, from whom Defendant

22 Edwards obtained shares of CM KM Diamonds stock. In this response, Defendant

23 incorporates by reference a1l information contained in said Exhibit.

24

25

26

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27



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l INTERROGATORY NO. 25:

2 In YOUR RFA Response No. 41, YOU deny that ''YOU do not know from

3 whom John Edwards obtained his shares of CM KM Diamonds stock.'' Describe

4 how YOU leanled that John Edw ards obtained shares of CM KM Diamonds stock

5 from those whom YOU identify in Interrogatory Response No. 24.

6

7 R ESPO NSE TO INTERROGATORY NO. 25:


9 Interrogatory, Defendant responds as follow s:

10 During Defendant's testimony taken on April 13, 2006, Plaintiff presented

11 Exhibit 133 ''Certificates deposited into John Edwards' accounts.'' The Exhibit

12 clearly identified a number of individual and entities, from whom Defendant

13 Edw ards obtained shares of CM KM Diam onds stock.

14

15 INTERROGATO RY N O. 26:

16 In YOUR RFA Response No. 43, YOU deny that ''YOU never took any

17 steps to contirm that the people from whom John Edwards acquired the CM KM

18 Diamonds stock were not affiliated with CM KM Diamonds, other than to have

19 Anthony Santos call the transfer agent, lst Global Stock Transfer.'' ldentify a1l

20 steps that YOU took to confrm that the people from whom John Edwards acquired

21 the CM KM Diamonds stock were not affiliated with CM KM Diamonds.

22

23 R ESPO NSE TO INTERROGATO RY NO. 26;


25 lnterrogatory, Det-endant responds as follows:

26

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l During all relevant times, Defendant was President and a registered principal

2 of NevW est. ln those capacities, Defendant put in place policies and procedures

3 that were the basis of NevW est's inquiries into whether the people from whom

4 Defendant Edwards acquired the CM KM Diamonds stock deposited at NevW est

5 (tGsecurities at issue'') were not affiliated with CMKM Diamonds. As part of those

6 inquiries, Defendant Santos, NevW est's Vice President and General Counsel

7 during all relevant times, interviewed Defendant Edwards on multiple occasions

8 with respect to Defendant Edwards' activities at NevW est, including the source of

9 Defendant Edwards' CM KM Diamonds stock. Defendant was present during at

10 least one such interview and discussed al1 suc,h intelwiew s with Defendant Santos.

l 1 Defendant Santos contacted 1St Global to verifjr that the certificates

12 representing the securities at issue were validly issued and unrestricted. 1S' Global

13 vouched in writing for all certiticates representing the securities at issue. Upon

14 inquiry, 1St Global also stated that none of the securities at issue cam e into

15 Defendant Edwards' control as a result of transfers from affiliates of the issuer. l St

16 Global also stated that it issued the certit-icates representing the securities at issue

17 on the basis of attolmey opinion letters.

18 Defendant Santos also contacted Defendant Edwards' attorney about

19 Defendant Edwards' activities at NevW est. Defendant discussed with Defendant

20 Santos those com munications.

21 NevW est and Defendant shared with the NASD (now FINRA) and Plaintiff

22 a11 inform ation about D efendant Edwards' activities at NevW est O n several

23 occasions, Defendant and NevW est asked the NASD (in particular, Keith Llorens)

24 and Plaintiff (in particular, Edward Brady) if they knew something, in addition to

25 information already obtained by NevW est and Defendant them selves, with respect

26 to Defendant Edwards' activities that would help NevW est comply with its duties

EXHIBIT 1

29



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ii

! 1I

1 and obligations under applicable rules and regulations. During all relevant times,

2 neither NASD, nor Plaintiffprovided NevW est and Defendant w ith any

3 information that would help determine whether the people from whom John

4 Edwards acquired the CMKM Dimnonds stock were aftlliated with CM KM

5 Diamonds.

6

7

8 SW ORN to under the penalty of perjtu'y this 23M day of December, 2008.

9*ï '- 't ----'

--) 'ï.0 î qtu-x w A-v

I 1 s ergl' t. yayt- v:2

13

14

15

16

(7

18

19

20

21

22

23

24

25

26

.:1 (')

EXHIBIT 1



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1 VERIFICATION

2

3 STATE OF NEVADA )

4 COIJNW OF CLARK )

5

6 SERGEY RIJM YANTSEV, being first duly sworn according to law,

7 deposes and says: That he is a Defendant in the above-entitled matter; that he has

8 read the foregoing Responses to lnterrogatories and knows the content thereof; that

9 the same is true of his own knowledge, except those matters stated on information

10 and belief, and as to those matters, he believes them to be true.

11

12 ! (X ''k..

.. j ..... ,3 -<vts ,' $

14 sEkd' fs R Ax-rssv

15

16 SUBSCRIBED AND SW ORN to before me-. :,7 this c 3 .'.c' day of December 2008

.

l 8 lj z;ty .,.).... .

-

'

1 9 ï.. . :k . ',

.. cAqy Maqsojjs20 NOTARY I'tm lztc in and tbr said Notarv. ' . .,,' q,.,,z.ada

21 County and State

22

23

cAnv MARooLls uJarAR.Y MAR/OLIS4 y 1 . ï ' .. '11 Nevadaotfy faLlbglc Slafo of Nevada A . . ; .

ryz.g-j' ??L/' : ' ''pointmecz No. 98-3427-1 M A t kxp

jrsjl vjkjnt.j 5, 2g1 ()5 My Appt.Explres Juae 5. 2ûj() Y PP '

26

EXHIBIT 1

3 l



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SEC v. CM KM Diamonds, Inc., et al.

2:08-cv-00437 -LRH -IU J

ATACHM ENT 1

EXHIBIT 1

32



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Sergey Rumyane ev

From: ''Llorens, Keith'' <Keith.l-lorens@ nasd.com>To: <sergey@ nevwest.netpSent: Friday, December 10. 2004 9:46 AM

Subject: CMKX

Sergey,

Yesterday's total trading volum e for CM KX was approxim ately 40 billion

shares. Mr. John Edwards sold over 14 billion shares yesterday. Edwards'activity represented approximatellr 1/3 of the total trading volum e for

CM KX. Did Edwards give NevW est any different instructions yesterday? W asthere any news? W hat happened yesterday that would cause this extremeincrease in Edwards' selling activity?

Thank you,

Keith A . LlorensSenior Com pliance ExaminerDistrict 2 - Los AngelesNASD

300 S. Grand Avenue, Suite 1 600Los Angeles, CA 90071-3126tel 213.613.2633fax 213.617.3299

keith.llorens@naid-sçomwww,nasd.com

This e-mail, including attachments, may include confidential and/or proprietal'y inform ation, and may beused only by the person or entity to which it is addressed. lf the reader oi-this e-mail is not the intended

recipient or his or her authorized agent, the reader is hereby notified that any dissemination,distributionor copying of this c-mail is prohibited. If you have received this e-mail in error, please notify the senderby replying to this message and delete this e-mail immediately.

EXHIBIT 1

33



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SEC v. CM KM Diamonds, Inc., et a1.

2:08-cv-00437 -LRH-RJJ

ATACHM ENT 2

EXHIBIT 1

34



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From: ''Llorens Keith'' KKeith.lwlorensrt-tnasd.com>To: ''Sergey Rumyantsev'' 'ctseruev/nevwest.net>Sent: Tuesday, Janum'y 04, 2005 2: l 6 PM

Subject: RE: CMK.X

CM KX VOLUM E

DATE TOTAL MARKET VOLUME SHARES EDW ARDS SOLD % OF M ARKET VOLUM EEDW ARDS REPRESENTED

12/9/2004 44,437,521,354 14,470,000,000 32.56%

1 2/8/2004 1,147,615,978 150,000,000 13.07%

1 2/772004 2,1 59, 179,408 I 65,000,000 7.64%

1 2/6/2004 1,610,529,919 I 00,000,000 6.21%

1 273/2004 1 .471 ,165,710 400,000,000 27. l 9%

1 2/2/2004 1v413, 130,666 l 00,000,000 7.08%

12/1/2004 1,699,619,1 57 1 00,000,000 5,88%

l 1/30/2004 1,743,463,464 400,000,000 22.94%

1 1/29/2004 1,652,386,998 l 00,000,000 6.05%

l 1/26/2004 1,3 16,764,048 300,000.000 22.78%

1 1 /24/2004 1 ,1 88,389,23 1 200,000,000 16.83%

Keith A. Llorens

Senior Compliance Examinertel 2 1 3.61 3.2633f-ax 2 1 3 .6 l 7.3299

-----original M essage-----

From: Sergey'Rumyantsev (lnailto:serge/'anevvvest.net)Sent: Tuesday, December 14, 2004 2:56 PMTo: Llorensa Keith

Cc: santostoa/nevwest.netSubject: Re: CMKX

Keith,

The following responses are to the bcst of my knowledge as I haven'tcomlntlnicated with John Edwards directly:

l . A Timesale query on NW II indicatcs that the volume in CM KX onDecember 9, 2004 was 996.357,5 l 7 shares. I know for a fact that NW ST traded more

than 14 billion shares for John Edwards on that date, and al1 of the trades

were reported to tape (1 have AC'r printouts). Considering the discrepancybetween what we actually report and what shows up in historicStatistical Summarics, I HAVE NO W AY OF KNOW INC what percentage of the volume in an

issue wc traded on a given day.

EXHIBIT 1

35



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2. A request in response to a question: as you have better sources thanl do, please, provide me with information on what percentage of the dailyvolume in CM KX NevW est traded on each of 10 trading days precedingDecember 9, 2004.

3. As you are likely to see, we had not been selling much CM K.X prior toDecelnber 9, 2004. The stock price was getting weaker every day and weweren't getting the limit prices established by M r. Edwards' orders. On

December 9, 2004, even the $0.0001 bid disapgeared for a period of time.It is my understanding, that continual declines ln the stock price prompted

Mr. Edwards to lower his Iimit price to $0.00009. W e liquidated alI CLEAREDCM K.X positions from M r. Edwards' accounts on December 9-10 2004.

4. There was no news on CMKX on or around December 9 2004.

******************+*************************

Sergey RumyantsevPresident & CEO

NevW est Securities Corporation5440 W est Sahara Avenue, Suite 202Las Vegas, NV 89 146

jhone: (702) 938-06 l Itax: (702) 257-465 1email: sereevrznevwest.net+++*>******###**#++#+++++++*+******+#*+++***

DISCLAIM ER

This e-mail and any attachments thereto is intended only for use by the

addresseets) named herein and may contain legally privileged and/orcontidential information.lf you are not the intended recipient of this

e-mail, you are hereby notitied that any dissemination, distribution or

copyinj of this e-mail and any attachments thereto is strictlyprohiblted.

If you have received this e-mail in error please ilnmediately notify thesender and pennanently delete the Original and any copy of any e-mailand any printout thereof.

E-mail translnission cannot be guaranteed to be secure or error-free.The sender therefore does not accept Iiability for any errors or omissionsin the contents of this message which arise as a result of e-mailtransmission.

NOTICE REGARDING PRIVACY AND CONFIDENTIALITY

NevW est Securities Corporation may at its discretion Inonitor andreview the content of aIl e-lnail comlnunications.

----- Original M essage -----

From: ''Llorens, Keith'' <lkeith.lwlorensrznasd.coml>To: <serzevlnevwest.net>Sent: Friday, December l 0, 2004 9:46 AM

Subject: CMK.X

EXHIBiT 1

36



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Sergey.

Yesterday's total trading volume for CM KX was approximately 40 billion

shares. Mr, Jolm Edwards sold over 14 billion shares yesterday. Edwards'

activity reqresented approximately 1/3 of the total trading volume for

CM KX. Dld Edwards give NevW est any different instructions yesterday? W asthere any news? W hat happened yesterday that would cause this extremeincrease in Edwards' selling activity?

Thank you,

Keith A. LlorensSenior Compliance ExaminerDistrict 2 - Los Angeles

NASD300 S. Grand Avenue, Suite 1600Los Angeles, CA 90071-3 1 26tel 2 13.61 3.2633f-ax 2 13.6 1 7.3299

keith.llorensanasd.comwww,nasd.com

This e-mail, including attachments, may include confidential and/or

progrietary information and may be used only by the person or entity towhlch it is addressed. lf the reader of this e-mail is not the intended

recipient or his or her authorized agent, the reader is hereby notifiedthat any dissem ination, distribution or copying of this e-mail is prohibited.lf you have received this e-mail in error, please notify the sender byreplying to this message and delete this e-mail immediately.

This e-mail including attachments may include confidential and/or proprietary infonnation and may beused only by the person or entity to which it is addressed. If the reader ofthis e-mail is not the intended

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EXHIBIT 1

37



8/8/2019 163-main


SEC v. CM KM Diamonds, Inc., et a1.

2:08-cv-00437 -LRH -RJJ

ATA CH M ENT 3

EXHIBIT 1

38



8/8/2019 163-main


COKPANY 2 00217:55 FAZ JEFFERIES &5/06/211

iese er

Je rkzâ Ce po l:eSZDY - A< w, IO FOleYd&,m 1122* 1n1211.21%ly 6. 2005

e !32.au.*. wywyftq rzo

Via Fu R d tlvernie M ailM s. AnneDanse GlowxkiNM DLM Angtles Dîslrict OM ce0nv Câlifornf: Plaz;3X Soufb Glwld Avcme

,suitr 1600lxs Angeles. CA 9* 71

m ; CM-K Xear Anne:

n i; ImttormNpondl to your rm urst to ml-mnrlze circttmsfnv es âurronnrlia: Jeffe tg &ompany

,1no.': failurm to rzN rt c'm l'n transactions in C''M K' Diamends lnc.:CMKM I to the Nxion

al Treq Repoeng System (9w ç*T> '&) in 2004.

By wgy of baçkground,tlle Automae Confirmation Transaçe n Sewice CACT'') ig

mlmomaed syxqm whitll (a) compares trade fnformation mtere by ACTpm icipazlls Rd'ubml? Sdlpçke -in'' t''ndel. to tim National Secarities Cltadng Com

oration (SiNSCCD farlearanç: and settlmnent and @) transatîts vv 'rt: orka a tiqm: autpznqliçally to tiw

apt. Undc Ze NM D ntle:,a mtrnber fnn 4nd AG pe içipant mzy plœt !n deu

traosactionx outside of ACT Md NSCC O d Gereby settlt kanmaçtions manmally, In suchage the m

c bc 5= m:y vîilize ACT for (b).tradt roe ng only (œ lH ''Taptald not (a), NSCC clearlawç (called s'Exœlearing''lM ly' )

In M arch of 2004,two brokor-draler clm omerg of Jefferio appreached the finnqquxttug thz! M nqaodons in CM KX t)e settled on an e%

x-clearirtg bayia3' Thesea ker-dealer ousfomors whea lonq aellmx ef . ne reasixl fpr tKeir rmuesî wa;oenomks

: bcçausr CMKX txadld m suc: Iarge voltzmes a:14at guch . low pzice, NSCC

.required a yignilicot dqxlit for long sellers of the semeity lo eaure setllmncat. n eozt of tbi, dçposit

aegattvmly ilngaotod tlx brokerdoler's customcrs Jefferiea rnade aminess and operatienal riek dzmsiozï * dlew a limite number of rek

er dpalcrustemtrs who were long :ellers of CM KX to settle tlz trRdes K'Ex-clea1ing''

, These Ex-lealiqgfm sacliony wmre mettitored to ensarT lll:t t%: sollrrg proprrly dçlivered îh

Toçuritie.œ anö $11* kades Nttlled en a ttmdybasis.

Frpm a adtlrm entperwpe ùve,tbesex.cleG ng tru mq qmttlod without incident . 4 thjngs went smoothly for a pertod Qfscwvcal mauths.

Unfommately.uhdeknownst îo tt jixm

,fzom z trd : rp e ng ptrspective,th- e Ex-learing trades prix nted a p

w blem . As you m ay know,lhee ia * aize lim kation on ACT

yxjqjaly q

39

tsev Declaration, Page 45umyan


8/8/2019 163-main


:QQ: ITTCT FAt JEFFEXIES & COKPANV 2 Q015/Q%/

to :112 âny silgle kRnsaction of zrqeter thœt 10 million slïm : Rutooztio/ly mitœ onACT. *1*4 flrm hptl W ill a pxoprieo system K lhat any order Featv than 10 miBio

nlMw waz uuhmkttcd in cim ppnrnt parl:œf 1- lbln 10 znillion l res flrvt through

BM SS tour fmntA d zye ll znd th* to ACT for (a) dearjrg Rd (b) Tme rv re g

pu> ses (ealled b'the Big Repprf'). lnlkert. tu Blg Rem rt a11owe4 o d@s of over 10' '

mglma qhxre; to w acçe- d r,tler than rmjeœ d by ACT. Howevtrpwhen lhe srm'sd

ers enltred the l'Ex-clearinz orders'' they faged * emer Qkq Y del tblt wm'o legtrtbml 10 millioa shnmq on lhe aig Ro llrt 'rbç traders mistakmllybelik'ved thzt sizxethe

os:wdes were 'Ex-clexn'ng',tbe ACT limils would not Idlkç't tbeirTv ztportq

'We nowww that tltg Ex-oeeng trad- evçr 10 million zhares wo'e relxtrd by AW

.W hileRASS bag a pop up m tem te AI.JI tbe tr:tle proce ing arp. tha: an order lx'js been

zmjevxe by ACT, the D p !m must to aotivated by tl:e mem%tr 51=1 utilizing BM SS. n o:11: had neI tu

rnrd on *is pop ûp feature during this time frame.

n e 511n would likt * Kemedy tlûs fhihM'v $: xporl and would apyrxialt NASD'Sdance

.To develop the univcse af tratlea e ich wt:eliev; thœ nrm faile to report tohe 7'v

.

we ralz a report O t showg ;1l the fra qae olks of greatmr lhx 10 milkoa sbarxthat we Gxute on an Ex-clearing bagis durins Ge period 3/25/04 (+%* tlw Grm 5rMbe :n Y proçe en an Ex-clee g basig) thrx gh 9/21/04 (when :lx f'rm ctased to aotas & mckd meerl. Attarhed ix a spreadsheel zMwing the tansactilms (1 total of1 1 1 ,789,681 .2> aharcs) that wr bdiçvç w: failed ta repozt to t11* Twpi

.(S=preadsllcm,Bxbbit A zttaohH that shows t%e tmdo dates,rxçcuyion Km r. buy or sell

.ym%ol. qphntity' an: pHce.l W: would lik: to rlpod tbeae trade, in a rnanner wbio iscctptablg te you

.

SMz Egve tlken stgn lo prevens thi: pzoblern flom oçturring in tbe ruture including

prx tdures for approval to exeola; fY es SkFx-clearing'l wnd if tlw dedsioa 1$ m lde toxe

cute Ex-clmaring, procedu= lo muure prop:r trtdt rtporting te tllç 'rgpt.

If m ll have any queV ens Kbouç tM; mattœ.please call me at 212-28*.2536.

: ly, ,

%.y

.atllletn ShizwDcputy 0enera1 Counsel

Enclosurz

CC: Leslir Hhkalw m aff Attom ty,Seeudlies & Exoimage Corrlmission

' BRASS doe, ne ilgv: R y mech= ijm ttl Nlaktlp tlw ordrr lp ay/l Ql4 rvjxt problrrrk

EXHIBIT 1

40



8/8/2019 163-main


CBKPKNY 16:21::;5 F#: JEFFERIES *p/ql/zev;

-

. g . j gipàt

-- DATQ TN E : % % K k Q:'YPRICE . . ,aa m > 04 13tW l1& B ONG f0@

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A ,œ p.e 0,Q:e eexn-7 3/* 1:245:56 e GMKX e,M ,(KQ Q.*ç- s'- *a 114** : GMU

26:,(:*,% :,:e :zllzm - zezm 1B:K :O F C> 2

rq 0K .eX 0.c 1ex- m 412+. l5:j:)2B B C< 2œ

,QgQ,pK ;.> :- ozuga m * 4 14:2::2@ 3 G*$64(+ 41)0 0.œ Hlle zno 4* 45:45:3: B CMKX 6:,:* ,+ (1(m K:):::g:4z 4* ïES2;SI S CMc 5Q,X ;,X t ;.(m 1g:r- Ald 4/T24 13:4::4% 7 C* 2@pkc

,bû@ B.œ (mwvzvsfe: Vl' . 56:12::1 ; GMKX sllotoeope e.>- vslx: 41*Q* ïV &'(h: b CMKX &.X 0.M D.tM* :1.,444*:9 Wbm # 15:4M 5 e CMKX < 0.A ,X Q Qwc o:imeag.gv: 4/12+ 15:49r28 B CMG

5QQ.(IK ,q* Q,GX ;:'zezezeze 4/11* T;;X :40 B (2> Q* ,A ,= :,4* 9:rmw- v: 4?t:VM 1%:1Q1% B

CM> 2* ,:*,0* ;.0c0y.).

zs-- m 4114m4 $525::49 9 r!ko 1B0lX e.QX Q.œ œ ;rtula,#z: *14/84. 15:a J$: B Cm l@($(<

ç* ; Q.4Q* evl-z#up #4,5/t14 1 f :44:12 S œ G 11,(K*,(m Q.*veg- pyT 43F* 1211*51 @ CMKX 2O,A .K Q Q.W QO

lleouqzg 4/15/* 15t$*:K B CM% . 259.9*.00Q 0.> :74:*-:4 #/1&g4 $5)1 ç:u B œc 25(),1= ,:* Q.0e :uspKzxz: 414K 4 15:R :40 8 CMG 25:,+ ,* 0 0.0G01:<'$4l= ##6/Q4 15;42:51 @

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.e m Q Q.QX B:nzzexd:w 4&*m 16:56224 B CeKx 1*

,e .QO Q.X œvzzenziw 4/1:24 1626:3/ G CeMc $4:* 11.4%0 û.()0X :

.nm 'uqv 4/19/M 16r2$:17 3 - CMG *yD*,ûDû 0.4w**lzxsnu *23*4 )::Q9Q1 $ CQIG

1: (< ,ôœ 0.x Q1. 'utq4azk. R Dm 15.,K$:54 B CD% 10Q

,* Q.œ Q @,IK*Ovsz:-p: 4/1:+ 15:s7m e cMu!* ,œ 4e :.* 9xxavalv 4NW# !:;O :4e B. CMKX 2*

.:* .% A.e& :ltxom 4Q1VM $10:45 B CMu

2* ,* ,070 0.* * :vzeve:u 4* 15:4K1n B (IMG261),:::,* 4 o

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.m 97Lr:n1zp 4/2M )4 5::* 133 R C>2* ,(3(*.N111 :.x n*laenq. *$eM $2:BB:K b C

,> 5* .1*:.6* 0.a 8lo pso:rz 4/3Q1Q4 55724;* 8 C* 50;,QX ,e 0.QpM

EXHIBST 1

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tion, Page 47um yantsev Dedara... .. ç


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1l),X 0,n* a.= 1

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.(I4* q2:0.4)* .% e.= y.)2* ,40 .0* 9.* :1K Q.ç* ,tK ttçotn1K 4*,* t.c 12* .0* ,* n.

œp1a :,4* ,(m: 5.- 1()(tA .= ().cx $= ,œ 0,Q()e a.px lM ,* (),e 0,x 0j:peA* ,(= 4.* M2(m$a ,QX 4.oqe1œ 4,cœ ,QX 4.* 71œ ;.e ,e :.:K 1zcQ.K e,QO Q.<*15* ,:t*.:* Q.K I)1M*'e ,e 0.nœ 12:.:* ,:* :.(n 112*.0:0,*0 n.e 1190,* 0,- 09œ 15* .e ,= 0.e 1 !2Q0I(m jeQ0 e.(œ 11Q,0QQ.X Q Q.GKQ5A ,qQ;,QO Q20Q1121:,* :19* etûpt56h9,96*,0* ê.()@çr1ë ,0Y,Ixm p,œ QfB(*.(* ,()Q; 4.* 411!4.Q(:),* 0 0.0œ ,T4.0;p.0* Q

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EXHIBIT 1

42



8/8/2019 163-main


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EXHIBIT 1

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EXHtQIT 1

47

Declaration, Page 53umyantsev--. .. - -t


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1 CERTIFICATE OF SERVICE

2 Icertify that this document was served on the following by e-m ail on December

3 23, 2008:

4 M lly M. W hite

5 Leslie A. HakalaSecurities and Exchange Comm ission

6 5670 W ilshire Boulevard,l 1th Floor

Los Angeles, California 90036-3648

E-mails: [email protected] & hakalal@secxgov8 Attorneysfor the 5'Jr

9lrving M . Einhorn, Esq.

10 Law Offices of Ilwing M . Einhornl 7l0 10th Street1

M arthattan Beach, CA 90266

12 Email: [email protected] Depndant John Edwards3

14 M ark S. Dzarnoski, Esq.

Gordon & Silver, Ltd.15 3960 Howard Hughes Parkw ay

, Ninth Floor

16 Las V egas, 'NV 89169Email: [email protected]

17 Attorneyfor Helen Bagley and lst Global Stock Transpr LLC

1 8Urban A . Casavant

19 RR 5 Site 16 Box 29

Prince Albert, Saskatchewan S6V 5R30

Canada


22 Kathleen Tomasso2,3 9580 Lake Serena Drive

Boca Raton, FL 33496


25

26

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1 Anthony Tom asso

9580 Lake Serena Drive2 B

oca Raton, FL 33496


4 Anthony Santos

5 6965 North Durango Drive, Suite 1 1 15-381

Las Vegas, NV 891496 Email: [email protected]

NevW est Securities Corporation8 c/o Anthony Santos

6965 North Durango Drive, Suite 1 l 15-381

Las Vegas, NV 89149


11 Douglas E. Griffith, Esq.

12 Kesler & RustM l t re Building 2nd y'loorn y

,3 S Main Street8 .

14 Salt Lake City, UT 841 01

Email: [email protected] Attorneyybr paryl Anaerson

l 6Eric N. Klein, Esq.

17 Eric N . Klein & Associates, P.A.

1200 N. Federal Highway, Suite 2008Boca Raton, FL 33432


20 Sean 1. Koplow, Esq

21 6801 Lake W orth Road, Suite 2 14

Lake W orth, FL 33467

22 Email: seankoplow@gmailcom23

M ichael R. Bakst24 pxjs .r()2

a5 222 Lakeview Avenue, #160

W est Palm Beach, FL 3340126 m [email protected]

EXHIBIT 1

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l

John W esley Hall, Jr.2 13 1 1 S

.Broadway

3 Little Rock, Arkansas 72202-4843

e-mail: .

4 Attorneyfor De-/èn#tmt Brian Z/portzl

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EXHIBIT 1



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E X H IB IT 2



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Page l

l BEFORE THE NATIONAL ASSOCIATION

2 OF SECURITIES DEALERS , INC .

3 -0 O 0-

4

)

5 in the Matter of ) No. E02040112

)

6 NEVWEST SECURITIES )

CORPORATION )

7 )

8

0 INVESTIGATIVE TESTIMONY OF

1 SERGEY RUMYANTSEV

12 Los ANGELES, CALIFORNIA

13 WEDNESDAY, JANUARY 26, 2005

4

15

16

17

18

19

2:

21

ATKINSON-BAKER, INC .

22 COURT REPORTERS

Telephone : 1-800-288-3376

23 www .depo .com

24 REPORTED BY : ANGELAH HUNTER , CSR NO . 12574

25 FILE NO .: 9FOOACD

.

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Page 2 Page 4

1 BEFORE THE NATIONAL ASSOCIATION 1 I N D EX2 WITNESS:Sergey RumyantsevOF SECIJRITIES DEAI

.ERS, INC. 3 EXAMINATION PAGE3 -000- 4 By Mr ?pebber 6 29 35 61 75 91 114 l21

' è là3 i 7l' l 7à '1 35, 144, l 5 , , , .5 207 232 '6 By MI'. Llorens 27. 35 72 89. 1 13. 132. 145.

5 in the Matter of ) No. E02040 I 1 2 167, 176, 20i, 2i9 ) 1

. 8 By Ms Jablownow 3 l , 59, 66, 77, l l9,L33, 149,NEVWEST SECURI FIES )15q, 1:4.215CORPORATION ) 9

10 STAFF'SNUMBER EXHIBITS PAOE

1 l9 l Ekwumtnt dated January 21st. 2005 on NASD 8

12 letterhe d to Sergey Ru nlyantsev0i 3 2 CRD extraction ror Mr. Rumyantsev l 7

l I 14 3 Dxument dated August 26 2004 on Nevwest 6 li ativt testimony of SERGEY RUMYANTSEV, a Securitics lettcrhead to Keitl Llorens2 Invest g

. I 5 3 witness herein,taken on behalf of the NASD at 300 South Letter dated November 1 # 2004 to Mr

.Santos l48l 4 Grand Avenue l 6th Floor, Los Angeles California on :6 from shcrwin Cook ' 1 5 Wednesday, January 26, 2005, before Angelah Hunter, CSR No. 1-3 5 Two-paje document entltltd ''Stalement of I64

position. 6l 2574. y 8

l 7 6 Ten-page dxumcnt entitlcd ''Noticc lo members l 87j g (9 022 l Informalional on anti-money laundering ''

20 7 Ncw aceounl ducumentation First Colony 2099 la t auust dated 12/27/200 erc an ,20 21New aucount documentatlon datt,d January 2 10

2 I ' . .2 l l 2005 for lnnovute Moblle ( rust 2 23 9 Ne

w account documentatlon tbJ BT! Trust, 2 14 23 dated 4/3/2093

24 4, 0 Two-pqge wlre lnstructions dated l0?1/03 2 1 5

25 '5 to Web Investment Scarch Enginc

age 3 Page j

1 A P P E A RA N C E S 1 W ITNESS'S 2 NUMBER EXHIBITS PAGE 3 For thc NASD: 2 4 BY: JOHN E. W EBBER, Cornpliance Examiner 1 Unidcntified document 227

KEITH A. LLORENS, Senior Compliance Oflicer 3 5 JILI. I-. JABI.ONOW , Senior regional Attoruey (Exhibits retained)

300 South Grand Avenue. Suite I 600 46 Los Angetes. Calilbrnia 90071 5

213-613-2650 6 QCyES'I'I()NS WITNESS INSTRUCTED NOT TO ANSWER7 (NONE)8 For the W itness; 79 lkIC.DER.MO'I''I', WILL & EM ERY INICORMATION TO BE SUPPLIED

BY; JAMES L.SANDERS, ATTORNEY AT LAW 8 (NONE)1 0 2049 Century Park East. Suite 3400 9

Los Angeles, California 90067 10l l 3 10-55 1-9397 l l1 2 1 21 3 l 31 4 1 4

1 5 l 51 6 l 61 7 l 71 8 1 81 9 l 920 2()2 I 2 I22 2223 23 24 2425 25

2 (Pages 2 to 5XHIBIT 2 Page 2 of 7 Rum yantsev Declaration, Page 59


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Page 6 Page 8

I LOS ANGELES, CALIFORNIA; WEDNESDAY, FEBRUARY 26. 2005 1 Q. Did you discuss anything else?2 -o0e- 2 A No.

3 SERGEY RUMYANTSEV. 3 (Exhibit 1 marked for identif cation.)having tirst been duly sworn, was 4 () staff is going to hand you what's been marked as

4 examincd and testified as fOllow5: 5 stafps Exhibit 1 one-page document dated January 2 1 st5 6 2005 on xAs:l letterhead to sergey Rumyantsev.

. '

6 EXAMINAI'ION jtljt j )A.

(Reviewing Exh .7 BY MR. WEBBER: 8 Q. Please 1ke a moment to review the document.8 Q. Wc are on the record at approximately 8:35 on 9 Do you recognize the document?

9 Januazy 26th, 2005. 1 0 A. Yes.

1 0 Svill the n'itaess ple ase state and spell his full 1 l Q. And what do you recognize the document to be?

l l name for tNe record.12 A. That is the letter contirming my appointment.2 A

. Sergey Rumyantsev.Fifst name S-e-r-g-e-y, and 13 Q. Okay. As stated in Exhibit l s your testimony3 th e last n arnc is Ttu-nx-y-a-n-t-s-e-v.

, 14 has been requested in this matter pursuant to NASD4 (2. A11 right. My name is John Webber I m a

1 5 Procedural Rule 82 10. Rule 82 l 0 requires any person5 compliance examiner with District 2. Also present is

l 6 subject to NAsD'sjurisdiction to provide aIl information6 Keith Llotens a scnior compliancc cxamincr and' -

l 7 requested by the staff. Therefore, please be advised that7 Jill Jablownow a f egional counsel both also with thc NASD

18 oistrict 2. 18 failure to answer any ofour questions failure to provide

19 'rhis is an investigation by NASD to dctcrminc l 9 any information requested by the staff during this

20 whether there have been any violations ofthe association's 20 interview or failure to complete the interview befbre the 2 l rules or federal securities laws. 2 1 staff deems it to be complete could be viewed as activity 22 Mr. Rumyantsev, you are entitled to be 22 inconsistent with Rule 82 l 0 and NASD Conduct Rule 2 l 1 0. 23 rcprcscntcd by counsel of your own choosing.Will you be 23 lt could be the basis for the initiation of a

24 so represented today? 24 disciplinary proceeding that could lead to the imposition

25 A. I'm represented by Jirn Sanders. 25 of sanctions including a bar censure suspellsion and/or

Eyage 7 Page 9

1 M R. SANDERS' That's me. 1 Gne.

2 Q. And does your counsel represent you individually 2 Mr.Rumyantsev, you were sworn in under oath 3 or on behalf of a third party? 3 today. Thus, your failure to trutbfutly answer question

4 MR.SANDERS: lndividually. 4 could expose you to prosecution for perjuoz under both the 'I'NESS: lndividually, yes. 5 federal and State of California perjury' statutes. Also THE Wl6 M R.W EBBER. M r.Sanders, are you representing 6 NASD Procedural Rule 82 l 0 requires that you answcr all the

7 anyone else in connection with the examination in the 7 staff's questions truthfully,8 matter of NevW est Sectlrities Corporation Examination s I want to relnind you that giving fàlse testimony

9 E-02040 l l2? 9 here today could result in the initiation ofa disciplinary 1 0 M R. SANDERS: Right. At this point, I'm l 0 action against yotl whose end result could be the imposition 1representing NevW est Securities, the witness. Mr. Santos, l l of such sanctions as a bar k-rom the sectkrities industry,

2 Mr.Anderson Mr. I-aub and M r. Dillon. l 2 suspension, censure and/or fine.

I 3 BY MR. WEBBER: I 3 Do you understand all that 1 iave jtlst . .)4 Q. M r. Rumyantsev. did you have any prior l 4 represented to you .

1 5 conversations with anyone regarding your appearance here 15 A. Yes I do.

16 today? 1 6 Q. NASD is conducling this interview as part of a l 7 A. Well just in the general sense I discussed the 1 7 fact-finding process to determine whether there have been 1 8 need to appear and discuss aIl the lnatters to the fùll you 1 8 any violations ofthe association's rules. At this point19 know whatever l remember and deliver the whole truth. 19 the NASD has not made any determination that any such

20 Q. Okay. Who did you have those conversations 20 violations have occurred. This interview is nonpublic and2 l with? 2 1 confidential. It is not intended to be an adversarial22 A. Basically we got together with Antony Santos, 22 proceeding.

23 the general counsel. So he saids Hey, be there on time, 23 The staffcontrols thc record. And as such, the 24 answer alI the questions be truthful you know everything 24 court rcportcr will go off the record only at our 25 you remember. 25 instruction. Should anyone wish to go off the record for

3 (Pages 6 to 9XHIBIT 2 Page 3 of 7 Rumyantsev Declaration, Page 60


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Page 90 Page 92

assets. 1 Q. And what are the manual procedures?A. Uh-huh. 2 A. Manual procedures vely much focus on ajudgmenQ. Which would include the tirm's bank account. 3 call and checks and balances that we have with the tinn

4 A. Uh-huh. 4 because -- just like l review trading blotters on a daily5 Q. The tirm's clearing deposit. 5 basis Mr. Dillon reviews every single trade ticket6 A. Uh-buh. 6 virtually on a daily basis. So we have hvo people working

7 Q. The firm's - any of thc 'irm's positions in 7 independently of ene another.8 their trading account. 8 And l have an extremely cautious trader Jim

9 A. Uh-huh. 9 Correia who's the second trader on my desk. He would

10 Q. Those docnments such as the bank statements 10 rarely run a trade without actually showing me the ticketl 1 the shtements from CCS showing those, does Mr. Cowen take 1 1 just to verify that, you know, Hey, would this be construed12 those documents and enter them into the NYOB? 12 as something that is of interest.

13 A. Yes. All of those documents arrive at NevW est 13 So I would put myself and M r. Dillon at the14 in hard copy form. S0 we fax a11 of them to Mr. Cowen, and 14 forefront of this front-line effort. And 1 have a as l

15 he is the one who is handling them. 15 mentioned very diligent staff on trading desk that helps

16 Q. Okay. 1 6 me out, you know, to make sure that l don't overlook) 7 A. As a matter of fact you might recall that 1 7 something that might attract further review.

1 8 during the course of the audit we had the discussion about l 8 Q. Are the SARS filings reported to the board of19 valuing positions in our trading account. That particular 19 directors?

20 schedulc is vcry much my making, becausey remembery there 20 A. No, not reported to the board of directors. I is a discrepancy in what the value a clearing t-11711 might 2 l Q. W ho are they reported to?22 assign to a position versus what I would consider to be a 22 A Essentially top management, Mr. Santos

23 fair market value based on the bid tcst which is tie 23 Mr. Dillon Dave Laub and myself are the ones that are

24 metiod prescribed by SEC rules to value penny stocks. I 24 involved in that chain. 25 make all of those corfections, and l provide that schedule 25 Q. How often has the Grm filed SARS reports?

Page 9 l Page 93

to Mr. Cowen. A. W eli thert is no set frequency. It's not that

&1R. LLORENS: Okay. we're on any kind of schedule. But I believe tw'o or three

reports tiat we have on file.

' ' ER EXAMINATION Q, When is the litst tirne you a SARS report, the UR l l'iBY MR. W EBBER: 5 tirm?

Q. What is your role in the firm's anti-money 6 A. l wouldn't want to be guessing, btlt it would belaundering supervision? 7 about a year to a year and a half ago.

8 A . Well, I believe I answered this question earlier 8 Q. Did that involve a customer of the firm?

9 loday. On the trading desk, l'm just one of the people on 9 A. Yeah. As l lnentioned earlier the reports that 1 0 the front lines, essentially being a broker and being 1 0 we filed so for, they focus primarlly on trading acîivity. 1 1 solnebody who sees evety trade that goes through NevW est. I 1 1 The vel'y firsl report that we filed was prior to the formal

12 would consider myself somebody who is involved in early l 2 requirement and that was -- that involved an account from

l 3 detection of any kind of patterns that might attract l 3 an inzaginary countly, the Dominion of M elchizedek. You

14 ftlrtber revivw. I 4 might remember this because we did -- 15 Q. And what are the firm's responsibilities for l 5 THE REPORTER: Wait.16 anti-money latlndering? 1 6 THE W ITNESS: -- provide you with copies.

17 A. The requirement is to iave procedures and 1 7 THE REPORTER: i'm sorry. An imaginary company?

l 8 policies in place reasonably expected to detect a report to l 8 I didn't -- horities suspicious activities. And in our 19 THE WITNESS: Countl'y. 9 proper aut

0earlier discussion today. I outlined the four categories of 20 THE REPORTER: Okay. Thank you.

21 what would generally be considered activitivs warranting 2 I THE W'ITNESS: Yeah there are a few imaginary'

22 filing ()f a suspicious activity report. 22 countries out there and there are alvrts from various law 3 Q

. Does the firm have any automated procedures to 23 enforcement agencies primarily the FBI.But the

24 cletect suspicious activity'? 24 Department of the Treasury ls also interested with them 25 A. No. 25 because, in particular. the Dominion of Melchizedek in the

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1 agent that none of those positions -- 1 this client, and we have been able to be helpful to a

2 THE REPORTER: I'm sorry', could you slow down 2 shareholdtr,

3 just a little bit, please. 3 BY MR. WEBBER'4 THE WITNESS: Sure. 4 Q. You said that ''we'' determined not to file a SARS5 THE REPORTER: Thank you. 5 report in the tirst instance before the audit.6 THE W ITNESS: So we confirmcd with the transfer 6 A. Uh-huh.

7 agent that none of those positions rose to the threshold of 7 Q. Who were you referring to as ''we''?8 controlled positions, so they were detinitely less than 8 A. Antony Santos and myself.

9 ten. And if l remember correctly, less than tive percent 9 Q. How did that -- could you describe the10 of the outstanding shares. So at aI1 times, Mr. Edwards l 0 decision-making process between tbe two of you?1 1 would be trading those stocks, sell side mostly. And the l l A. We sit down with a two-pager notice to members,

12 only reason that those trades went to the millions of 12 and we just marked offevery single red flag and concluded13 dollars is that, you know, in an unexpected spike in the l 3 that that particular red flag did not apply. And there's14 price of the stock on one position. This is not the only 14 two notices to member that one actually has to leok at15 position that he ever traded. He traded other issues. So 1 5 because the long list of red flags primadly applies to16 nothing Iooked out of the ordinary. l 6 what 1 refer to as category No. 3 business practices not

17 BY M R. W EBBER: l 7 consistent with the usual pattern, a1l businesses practices

1 8 Q. What about the occasion when the customer's l 8 that do not make any sense. So red tlags squarely apply to19 trading is suspicious from tbe day one that he arrives at l 9 this categoly No. 3.

20 the tinn and becomes a pattem that is normai for the 20 But we also reviewed the other three categories.2 1 custom er but yet still suspicious? 21 the first one being a suspicitm of somebody using illegal22 A. W ell, I would file a repcd. But în this case, 22 funds, the second category being structuring, and the

23 what's suspicious about somebody depositing stock and 23 fourth categoly of somebody that -- using a broker dealer24 selling it and taking the money out? 24 to facilitate criminal activity. So we went down all of25 MR. LLORENS: Did any otber customer that the 25 those lists, we simply check -- checkmarked them and

page 1f)5 page l05

l 5rm had have trading patterns that were simiiar to 1 concluded that we don't have to file.

2 Mr.Edwards? 2 Q. How many accounts does John Edwards have at the3 THE W ITNESS: I mentioned earlier today when we 3 firm?

4 were disctlssing the business of NevW est that this is our 4 A. W ithout being absolutely accurate at this 5 specialty. So we have a ntlmber of clients that would have 5 point, it's north of 30. l.le controls about 30 -- between

6 large accounts with substantial amounts of penny stocks, 6 30 and 35, 1 would say. 7 and they wouLd be Inostly sellers. When l mentioned my 7 Q. And how is his account set tlp? 8 market making activity in 2003, when I was a leading markct 8 A. He brings in an account form. a trust document.

9 maker in several jssues, I had a couple of substantial 9 He fultills every requirement of what is part of the

1 0 accounts trading millions and lniliions of shares. And l 0 customer identification program. So we follow that to the

1 l those were not the same issue. There are a number of l l ''T'' and set up an account fbr him.

12 issues. 12 I don't know if you've been able to confirm that

13 And that activity ver.y much slowed down right l 3 in your view of his activity, but most ofhis accounts are 't trade you know, large volumes 14 very much inactive. There are a couple oftrades in a 4 now mostly because we can

15

anymore. l actually Iost a couplc of clients. I Iost a l 5 year so. There are Only three accounts that are 16 significant amount of business because of the limitarions. I 6 substantially active. He acts as an attorney, in fact, for 7 But fortunatety

.you know in this particular casc l 7 a number of entities. and he is -- according to his

13 Mr Edwards is Ioyal to us ands you know, he stuck with us l 8 statement to us he is an accountant. He's working with a 19 and he has no problem with, you know, doing tiose trades 1 9 number of projects. So those trust accounts simplify 20 ex-clearing. 20 recordkeeping and bookkeeping for him. And out of the 30

2 I See I can't really even represent him in my own 2 I pius accounts that I just mentioned most of them are just22 quote because if somebody frorn the street calls me up and 22 not active accounts.

23 says, Hey, I want to buy a certain amount of shares, I 23 Q. What involvement do you have in the opening of 4

cannot answer that question sayinga W ell I can only do 24 M r.Edwards' accounts?

25 this trade ex-clearing. So unfortunately we have not lost 25 A None.

27 (Pages l 02 to l 05XHIBIT 2 Page 5 of 7



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l Q. Who handles that? l of reference, we moved offices in July of 2003, so l2 A. Primarily the broker Daryl Anderson. He 2 definitely remember knowing him prior to the move so.

3 reviews the account paperwork, reviews the account 3 Q. And what was the circumstances of your meeting?4 application signs it. The second person who reviews it is 4 A. He was just -- you know, came by the office. He5 M r. Dillon, as the principal. He signs it as a principal 5 was talking to the broker. That's all.

6 approving the account. Then we package aIl the account 6 Q. And do you know anyone Mr. Edwards associates7 papenvork and deliver it to the clearing tirms becatlse 7 with?8 obviously with the strict requirements of the Patriot Act, 8 A. Not -- nobody in particular. You know, he's a

9 the clearing firm shares the burden and responsibility with 9 local gentleman, so obviously -- I once ran into him ut the10 us so that they do their own review. So they wouldn't 1 0 bar. He was -- and we said, ''Hi '' but he was with a lady.

1 i actually open an account unless we meet aIl the 1 l Tbat's all can l say. l've never seen him in a social

12 requirements. 12 environment so I don't know who he can be hanging out with

l 3 Q. You said that three -- or approximately three of 13 or ...14 Mr. Edwards' accounts are active? 14 Q. Which bars does Mr. Edwards frequent?l 5 A. M ost active. You know, the rest of them like l 5 A. I don't know. Like I -- I met him at the16 really do nothing in comparison to the three accounts. 16 W hiskey Sky at Green Valley Ranch. He apparently had an

1 7 Q. What do you mean by ''active''? l 7 office in that part of town at some point.1 8 A. Active meaning trading practically on a monthly 1 8 Q. All right. Any other interactions with19 basis. Some of the accounts you won't even see a lnonthly l 9 M r. Edwards outside of the office?

20 statement for them. There would be two trades in July and 20 A. No just -- never. That was like the only time 21 nothing since then. There could be another account with 21 I saw him outside the office.

22 two trades in November, and that would be al1 for 2004. So 22 Q. l4ow often have you met with Mr. Edwards since23 most of his accounts are Iike this, just trades few and far 23 that initial mevting?24 between one and two transactions. The active accounts are 24 A. W ell for me personally. l sve him in the

25 the ones that have transactions virtually every month, 25 office. M eeting, as in a conversation with M r. Edwards, 1

agc 107 Page l 09

-Iarge volume large frequency of transactions. l probably had two or three conversations with him in the

2 Q. And what do you mean by' ''large volurne''? 2 last two months.But apart from that, he just walks by my 3 A. Large volume the number of shares. You know 3 oflsce at the tinn and he would just wave and say

4 you'll be talking billions of shares of a particular issue, 4 ''Hello.'' Ejut that's - you know, that's interaction that you know, trades several trades a mtmth as opposcd to 5 happens practically every time he comes by. And as l said' '

6 several trades a year, so. l'm aware of only three such 6 if that's not ever.y day, he's probably there two three

7 accounts that would squarely'classify as active. 7 times a week.so. 8 Q. Anything suspicious about Mr. Edwards? 8 MS. JABLONOW : What's I1e usually there for two 9 A. No. He's in the oftice almost every day and -- 9 or tirec times a week or daily in the office?10 vel'y respectable gentleman and -- in particular, after we l 0 THE W I-FNESS: W ell, he m ight come by to drop off

1 just kept getting repeated requests from the NASD why 1 l a stock certificate for one ()f his accounts You know ! 1 r2 didn t you do this why didn t you do that actually went 12 that s typically what happens

. He -- he participated in

1 3 beyond what's required fiom us and we got a written 1 3 one of our private placements in the past. He's just -- ' he's a good client. So he comes in, we 4 statement from his attorney

. And as it turns otlt, his 14 you know he s a -l 5 attorney, Sherwood Cook. is a formef SEC comrnissioner for l 5 might have like a discussion -- Iike not recently

,but I l 6 the state of Nevada. So he is somebody, as represented to l 6 know that like Iast year he like participated in one of our

t 7 us. Mr. Edwards. somebody with lots of experience in this l 7 private placement deals. He's just interacting Iike a 1 8 area. This is finnly in Iine with his typical business l 8 typical broker-client relationship.

19 practices and we have written representatitm f'om cotlnsel I 9 BY M R.W EBBER:

20 that we just arc not in the position to question. 20 Q. You say he's a good client. What does I1e 21 Q. When did you first become aware of Mr, Edwards? 21 producc fbr commissions fer the firm? 22 A. As I mentioned in early 2003. 22 A. Last year the commission number the gross was2 3 Q . When y O u fi rSt m et h i m ? 2 3 i 11 the m i l l i ons o f' do l lars . I would say i t was north o f

24 A. Shortly thereafter, so I would say it's like in 24 $2 million.

25 the lqrst half of 2003. Because what helps me as a frame 25 Q. And how much money did that mean to the firm?

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l much more important, but, you know, l wouldn't be2 dedicating as much time to the trading desk.

3 So to make my point shorter l wouldjust -- l4 would like to put the word in for Jeffery Pucket't. l would

5 like to perhaps draw your attention to the sanction6 guidelines that are applicable to those scenmios. And

7 those sanction guidelines give you a range of potential8 fines in that case. But the statement on the

9 suspension/bar side explicitly mentions egregious10 violations. If l could say that, if you tind that we

1 1 violated something. if you find that Jeffrey Puckett has12 violated something, l would suggest that that violation was13 not egregious. So that's aIl l have to say on the record.

14 M R. W EBBER: Okay. Thank you for your

1 5 appearance here.16 And we're going to go off the record at1 7 approximately 4207.

1 8

19 (Proceedings concluded at 4:07 p.m.)

20 -000- 21 22

23

24

25

agc 243

I REPORTER'S CERTIFICATE

3 1, ANGELAH HUNTER. CSR No. 12574, Certified

4 Shorthand Reporter, certify; 5 That the foregoing proceedings were taken before me at the time and place therein sct fot'th at which time

7 the witness was ut under oath by me'2 ,8 That the testlmony of the witness the questions

9 propounded, and al1 the objections and statements made l 0 at the time of the examination were recorded 1 1 stenographically by me and were thereafter transcribed;l 2 That the foregoing is a true and correct transcript

l 3 ol-my shorthand notes so taken. 14 1 ftlnher certify that I am not a relative orl 5 employee ofany attorney ofthe parties nor tinancially 16 interested in the action.

l 7 I declare under penalty of perjul'y under the laws of l 8 the State of California that thc fbregoing is true andl 9 correct.

20 Dated this 7th day of'lanuary, 2005. 2 !

23

NGELAH HUNTER,CSR No. 12574

2425

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EX H IBIT 3



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'

CM KM D ixvnonds M uld-pagenf Sergey R= :- 1x.v.4:13/:6

Page 31 THE IJMTED STATF-S sscum'np.s ANo EXCHANGE COMMI%ION 1 C O N T E N T S

a 2 m 'Iwsss EXAMm ATION

3 h tlx Matvv of: ) 3 SGgey Rmnyana v 4

4 ) Fi1eNo.tA.o3n2:.A 4 EXIIIBITS

5 cvK.wf D> oNos ) 5 EM IIBITS DESCRIPTION IDENTIH ED

6 wnwass: sermy Rwnyaatx.v 6 130 Subp= a ' . 4

7 M GBS: l 11u*+ 2:4 7 131 Mr. Edwartls' Accotmls Sprexqdqhv!t 43

8 ptxcE: sxnuities - Excaaam commission 8 132 11/18/04 Iaeu 619 567: wilsbire Boulevard 9 133 Cerdficate Ikw sitq Sproadsheet 78

10 ll* Floor 10 l34 W ire Transfcrs S œt 88

11 Los Anm-, ce ornia 11 135 222/05 Ixttcr l l 1

12 12 136 2/22/05 lzeH l 12

13 DATE: 'Ibnvuy, Aplil 13, 24106 13 137 IX'U'gG CMKX Shareholdn Sprradshed 146

14 14 138 6/15/04 WW Confirmadœ 167

15 .11x above-enutled mzttf case on for Ie np 15 139 6/l 7/04 WH Conflrmadon I 68

16 pursuant to pouœaat 10:12 0 . 16 140 Total Sales and Wircs Spreadshœt 188

17 17 141 A11 CMKM Tradcs Spreadshœt 191

18 18 142 Largtst lndividuql CMKX

19 19 lnvestors Spreadshœt 19320 20

21 21

22 22

23 23

24 Diveained Reporing serdoes Inc. 24

25 (z02) 457-92:0 25

Page 2 Page 4

1 APPM RANCES: l P R O C E E D I N G S

2 2 (sBC Exhibit 130 was markv for

3 On W half of tlle Secuzities and Exchange Commission: 3 idmtificauon)

4 LESLIE HAKALA, ESQ. 4 MS. HAKALA! On lhe v ord at 10:12 a.m, on5 OLIVJA CARNEGIE, ESQ. 5 nursday, April 13tb, 2û06.6 Securides and Exchange Commission 6 Wbmvulxm,

7 5670 W ilshire Boulevard 7 SERGEY RUMYANTSEV,8 11th Floor 8 was calle as a wimcss and, lxaving tuzl f-lrst duly sworn

:

9 Los Angeles, California 9 was examincl and tostified as follows:1 0 10 EXAM INATION

11 On te alf of tlx W itncss: 11 BY MS.HAKALA:

12 MARK J. Gltllvlhls ESQ. 12 Q Pioax slaœ aad S-II yourfull nx-o fnrtbo13 W oodbury & Kesler 13 = ml.

14 265 East 100 South 14 A Selwy Rumyantsev; f'rst nnrna S-o-r-g-e-y, las!

15 Suite 300 15 nnme R-u-m-y-a-n-t-svv.16 Salt Lake City, Utah 16 Q I aw Iaoslio Hakala, 1 am aa offico ortbe

17 17 Comutission for purpo= of this prrmM ing. n is is an

18 l 8 invostigation by tho Univ States Sœ tuitics and Exchav

19 19 fx.runmlssien in tlm malu of CM KM Diamondw M -3028,lo

20 20 M errrnlzm whetller 11)= havo hxn violations of r- oln

21 21 provisions of tllo fexlerrxl sc uritios laws. Howx.tllo

22 22 facts dovolom d in tlzis inwmigation migl!t constilulo

23 23 violations of otbor fal- l or slae civil (yr rrn-minal laws.

24 24 Prior to 11. oe ng of tle rccorlk youw=25 25 m ovidod witb a copy of tbo formal arrlnr of invu tigation in

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Page 17 Page 19

1 AnotH issw was tk man I n%nw l earDc Jeffroy l Securities?

2 Puckot in tlm pasl hqd an NASD sarmuon atenrdlng to which 1r 2 A Antony SRQ)R who is presently thc exœutive vice

3 was suppoe to pay a fino of $3,*0 plior to rœssxiasng 3 prGidents went to Univero of Connecticuty and we were in4 witb an NASD mve . Nov West wlrn wo hrrtvlhim, Jeffroy 4 Several clam in the c nemics proram. We met there and@

5 Puckotr as an acceunting clck, m mlie on 11= definition 5 he was the one who invited :me to come out to 1.% Vcgas and

6 tlhat ir a person is tznploye in a ckzical capacily, lhaî 6 join Nev WG in 1999. ' .7 dœs no! rkx R) 1lle level of IZI/ associaul OtII tlr 7 Q W llo owps io

8 brokœ dœH. So Jeffroy worke for Nov West for a couplo 8 A Nev West i: a corporatien +1t1: approximntely 809 ycars prior to payng tbat fix n at was tbo second issue. 9 sbareholdu and 1 pcrsenally own about nine pcrcent.10 A liird issue wa: tim fact *at aftcr our px'vioms 10 Q Ninc?l 1 amv'lor of (w auons Tom Cbavtz loh in 2002: lowas in 11 A Nine m rcenta yeAy but it's 80 shareholdG tlx

12 cbarr of tlr oloctronic filing N son to NASD Rulo 3070 12 way m disburad owncrship.

13 which is a quaruly xport oa writton complaints. And sincv 13 Q D= anyox c1x own -- wlm aro tbe otlmr top iive14 Mn Glzaw Ie.R our rzrm abruptly, lx) novG dolœatod tbat 14 qhnreholœ rs?

15 task, so for srvcal montbsj I bçETvo for about a year and a 15 A 'flr largcst shareholdw to the lxst of any

16 ihalf, m faikd to provide lhese flnngs in a h'mely nuanner. 16 knowledge ig One Cap, which is at tllis point the private

17 W e got caught up since tlxzz, but tbat was tbt third bsue. 17 entity controllrd by Vincent Hesser. the Cap is a xa1

18 And tlv fourtb lssuq wHch I beliove is conrc ted 18 es'tatc company in 1.- Vegmq engaged in real çs'tate brokœal

19 to tbis paxticular invtsugauon, as a numbcr of tzansactions 19 mortgagr brokerage, and real estate development investment.20 in swvcral accmmts transpe in tlr sœtuitios orcMn f 20 An individual Donald Miner, who is a retired gcntleman in hi

21 Diamondsy tlr NASD dœmed llzat we might have ikad to file a 21 latc 60s, he perscm lly, w101 his family including his wire

22 suspicious activity mport under tlxr Palziot Acl. So tbat 22 and I tvliove his brother, a couple of other Klatives,

23 was tlv fourtb issuo tlzat tbry wcre invœtigating. 23 controls, I Ylievr, in excer's of 20 percent. Antony Santos

24 Q m 1.:1 is tllo mn'eant statas of tlv NASD inqmry? 24 and his family control, 1 believq approximately the same

25 A It's 3n sulmnak. 'nry actually novœ previde us 25 percentage as myrlf, so it would be around nine, ten

Page l 8 Page 20

1 w1111 any written cnmmunication as q) wba! tiw'ir inknded 1 percenta and also a gentlcman from Salt Lake City axo, Lleyd2 coursc of action is. 2 Mccuwen and his wife -- Mr. Mccuwcn ig also - I think bo's

3 M R. GRIFHN: By ''stalc ako'' you mm n you don't 3 in his early 80s at tllis poinl. He controls, l would say

4 know? 4 about 5ve h) srvcn prrcenl.5 THE WITNESS: Wo don't lmow what's going on witlt 5 Q D= John Fadwanls lmvo any ownemhlp ineex qt in6 tb

at, contm. 6 Nov W ost *rnritira?

7 BY MS. HAKALA: 7 A No.

8 Q t)t1v lhzn tlm u timonies you've dosCrile z bave 8 Q Wbo had m licy making authority at Ncv West9 you proviH u timoay % faro? 9 A urities?

10 A No. 10 A n e board of dirœlors which at pmsent linw

1 1 Q Havo you ovor 1v11 a dofondant în any lawsuil? 1 1 includes mysclf, Anlony Santos, Don Minor and David Laub.12 A No. 12 Q Slnce 2œ 2 has anyozm else sat on 1ho board of NOV

13 Q A= you now or havo you ovc 1= affiliakxl with 13 West Securkiu?14 Saint Goorge Me s, Inc.? 14 A No.

15 A No. 15 Q How ofe t1= tlm btnrd mœt?16 Q Aa you now or hav: you eve:r 1- afllliatod witb l 6 A Nvv W%t is a closely ixld company and moss of tbo17 CM KM Diamonds Inc.? 17 dœ ision making takes place in daily inu action among Antony

18 A No. 18 Santos, myself, and David Laub. Mr. Mintr drops in maye

19 Q AR you now or havo you ovc h=1 afliliatod w1111 19 once a wee.k lalcly maylv once every twe weeks. So QIOSe are20 Casavant M ining Kimlv ligllt Intornatiomql? 20 no1 rormal board mœtings, but we typically keep him

21 A No. 21 informe .

22 Q And arc you now or bavo you evm' lv n afliliakxl 22 Q Whal -- how do you and Mr. Sanlos and Mn Laub23 w1111 U.S. fonldian M inerrnls? 23 divie msponsibilities al Ncv W eest?

24 A No. 24 A Mr Sanlos graduatGl fz'om law school Univcsity of

25 Q How did you ond up gotting involm l w1111 Nev Wesl 25 Connecticutz so by vimm of his background, lr handlr.s all

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ntractual matters, all oompiiance matters, and typically l A That's before paying any exmns>. n at's tbTst of the negotiwtions with calxnt and prospedive 2 grou rovenuœ .

itnts. I handle the tinanccs, because I'm the fmancial 3 Q And 2005? '

crations principal, and 'ng in tmding including 4 A 2005, our total rtvenues wezv approximately 1.3,d keeping: complimm supxvision. And lxing the top 5 14 millios.

utive, the CEO. I am in r,1)- of essentiatly setting 6 Q Why wœ t01a1 = e,- : <, muclï lil> iq 2G14 tlx

als, targe? and following througb with Nev West plans. 7 in 2* 5?

r. Laub is the director of operationsy so he ' s all 8 A In 2004, weu d an lmntq'nl yoar with a signiscantrd keepino mnlntenmm and e- tially qv ation of the 9 amonht of wvqnuc comiag from u-adisp and we (lid

,I le ove,fice. 10 two se ificant privatoplaev ents which lwulul inQ W hat arç Nov W est's source,s of rovo œ ? l 1 significant cnmmlssions So 2004 bad two G tranrdlnaryA n e prednminant seku'ce,s of revcaue for Nev WG is 12 circumm tw tkat s+ ificantly improve tlo !op Ex formissions from exœuting unMlicited orders on dientq' 13 tle fmn.

structions. Two years ago tlzat source waq 80 pertznt of 14 Q Ixt's ahml tbox lwo cimumstancos. Fiat you

top line; last year it was about 70 lxrcent of tike top 15 saitl the- was sipuficaxkt lvxrllng?

e. 1 6 A T&m was significant tcadinp

Q So 20M and 2005? 17 Q Plow= olabaratm on latA 2005 was 70 perlxnt; 2004, about 80 N = t wms !8 A Most of tluat was tralling on tbe day sœtwity a:

mmissions from trading based on unsolicitcd custozner 19 issuc 1m .

s. The second largest source of revenue is commissions 20 Q CMKM Diamonds?d other fœs from iavestrnm t bnnking activities. 'Ihat 21 A CMKM INAIIXIlXK wNioh wt so= point tradu undtr tlv

ld primarily involve private placements typically tmder 22 symbol CMKM, cvenmally CM LX . Corv t And I beliç've thatulation D exemptions. And the third sourçe, and I'm 23 rrsulto sommvbere mound two to $3 million in top lineing this on 2005 numbers, is sales of packaged produots; 24 rev ue

tual funds, variable annuities, and similar financial 25 Q Aad wbat wv 1% mivato placmnonta you mentionod

Page 22 Page 24ning vcbiclts. ) oavlior?

Q In 2œ 3. what woa Nov West's tOL'U mvona's? 2 A '1'ho pzivate placcmcnts wo did in 2004,m

A I don'l remmnber tlm numbm'. 3 definitcly did a privato placcmcnt for Aimsi Tœlmologios,

Q Do you know appreximaely wllat it waw 2* ,% 4 tbat*s A-i-m's'i And l'm not cxactly sure it was 2004, butwu, 2* million? 5 I beseve we did tlr private phc- ent for E-Linnic tbatA W cE, it definiœly was not 200 million. My 6 year. 'n at might havr becn 2003, though. And we did tbe

l conjœture wcfuld bes l would put it somowbmr 7 private placmnent for Oakridge Micro Bnergy l bonovewtrn ono million and two million probably closc to one 8 tbat's tbe name of tlr issuer'

Q And in 2002. wox rnmmlssions tlm primary source of 9 Q Wa: Jobn Edwards involved in aay way Y III any ofx? 10 tbo privat/ plaoemonts?

A To tlv best of my rrcollction,tkougbout tbe l 1 A I beliove that Jolm Edwartjs investGl in tiloAimsi

tory of Nt'v W < with 11w exception, N haps,of tlx 1 2 private plagcmenl

. maybe socosd year, sM ing in 20:1 most of our 1 3 Q How' m=h dill 1lo iuvrest?cnues came from commissions. 14 A n at would lx,a guess Iv ause l donpt reancnlmr tie

Q In 2003, w:at were Nov Wost's total mvwnura? 15 specisc number, but sevoral $100,000. I believo in tlla!A J just answm'ed tilat queslion. I bclieve it hvas 16 pxivate placmnent

,m raised aboul fivo million all togetbm..cwimm iïl tlr neighborbood of one znillion. 17 So ho zriight bavo accounul for aboutjust under about seven,Q 1'zn - . I tbou@t 1 askod you for 2*2. I 18 eight pzrcont of tbc total that m raiscl in tlmt pHvate: to ask you for 2* 2. 19 placement

A Yoab, 2002, l don't rememlmr. 20 Q And lmw muc.h did Nev W>t ge1 for tllat privaR

Q How about 2004:? 21 placcmfmt?A 2004 our total rcvtnuts wme closer to Iive 22 A W e cozœ !Gl a commissjon of ten percem so alllion. 23 togcther tbat would be $500

,000 in cash. And tbrrr was

Q And jusl so I'm cloara i: tbat lmfozr payiag 24 commission in tlr form of restzicul stock which is next toraling cxlo sees? 25 impossible to valuo at tllat point ip timc

.

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Q Is M r. Anrkx m's conerxe still the ruqme ox ? 1 A I lxleve that Jolm Edwards açcounul for about 80

A No, it is not. 2 mrrm t of our tola1 trading commissions tbat yoar.

Q What is it new? 3 Q How znuch of tào two million plm ia cnmm'uionl '''%Currently m reduced payouk qiFniflcantly on any 4 gOZ- H by Jolm Edwards' +..a- wœ t to Daryl M d= on?

licite,d trndes in what would lx considerr,d penny stocks. 5 A Considcing tlm payoul structtm somowe around

tmless an equity is liqted on NASDAQ ar an exchange, the 6 85 to 90 N cent conm ing his payout stnzhuryouts on all thox cxamml>ions are at 45 perccnt. 'lYe 7 Q How muçld did Nov West got frtwn Joha Eawards.

youts ()n all other traœs h'eM; NASDAQ, Gxed income 8 e aing?oducts, znutual ftmds, payouts on those produds are st111 9 A Consideving those percenta-

,sonwwbere bdweengb starting at 72 perlrnt and prv ssing toy I ldievc, 90 10 t=

,15 lxrccnq so my guesstimateo I nv'vwr sv incally

this point. l I calculae tir numbm; I boliove h was around $300,000.

Q When did that change 'xkn place? 12 Q llas N> West o'vor gnHen any mvonuo - aay -

A n at cbangt took pl= in panuary of this year, is 13 sorry.

en we did -- 14 Has Nev Wes, ovcr gotton anylhizlg of value Frrun

Q 2006? 15 John Ellwards otllor thnn r- missions for selling Ms stœk?

A 2006, most re= t > otiation. 16 A Wou!tl lbat includo gifts?

Q Are tbe,x tbe only two payout enmtures that took 17 Q Yos= ? W as thcre a middle one lvtwccn tlw two? 18 A I brliovc tbat around Christmas time 2004

,Jclm

A 'fhere wcre may% one or two rev odationss because 19 Klwards broult a couple of bottles of cbampagae to !lmI mentioned earlicr, M r. Anderson's contract is renewable 20 ofjke

,so esscniallyjugt insiptilican! gif'ts: notbing ofar. And for business rexw ms, we always thought that 21 significant value

v Wrmst had to change the structum so that we would 1!e 22 Q Has John Edwards evcr givcn any gifts to anyone

aking even, or the Fmn actually, is in tbe bmsiness of 23 afliliated M tII NR West s'tmh ms Daryl Andorsoa?

ng money. So xxveral times m roegotiated the payouts 24 A Not lo tbo lvst of my knowledge.in the past, rcx mtiations concœnr'd the tiers more tban 25 Q Has John Edwm'ds ovcr loancd any monoy to anyox

Page 30 Page 32 payouts. And when l say 1l= tim'

,in tbo exampll 11m1 I 1 am llated witb Nov W ost such as Daryl Andomon?idrd earlier, wo talked about $10,000 tkrs. Fkst 2 A Not to tbe besl of my knowkdgr

.

000, 72; seconfl 10,000, 80; tNrd 10.000, 90. 3 Q Has Jolm Fxlwards >mr loaxxxl any mo- di= tly to

So in my mcmory, tlr mast reccnt payout stnwmre 4 Nev W est?or 1o 1l)e çimngo offœuve in Jqnuazy of this year

,m 5 A No.

ply cbange thv écrs to $39,000 A s F'rst 30,000 6 Q Has anw no at Nov West ovv'r bad any finaaçial; sœond $30,000, 80, tlzird 30.000, 90. So that's an 7 M lings witN Jehu Edwards otlw tban solling his su k?

pk of pmvious nœotiations. 8 A I'm aware only of a csent relaéonship witb lohn

Q 1:% % 241G4, kow muob mcqmy dkl Nw'v W est = n on -- 9 Rdwattls, as l zne oned earlier,Joim Edwards participaul in

ucll xrvonno was geex ratod from çnmmissions? 10 tle privak piacement tbat Nov W est conduce. So most of

A Talking abou! revenue or net incoml, tlx Nov West 11 tlw revenue and most of tile dcsngs are trading,but John

e of -- 1 2 Edwards did participate in l1m private phcemtm tbat we

Q Fint x't revçnuo 10ta1 zevtne . 1 3 conducted

A Gross revenue, total rrvonue. 14 Q Any otlw zrlatieaship lmtwœn John Edwao and Nov

Q 'fhat': Hglll. Gross rovenm . 15 West?A Omoss xwenue, l believc tbat was in txccss of $2 16 A No

lion. 17 Q hny otlw M ationship lvtu n John Bdward: antl

Q How much of tbat came frœz traA dox iu 1 8 anyox associatod witb Nev Wcst? tion witb John Fxlwards? 19 A Not tbat 1 know er

.

A l bexvo tbat was tlr question. 20 Q You said tllal John Edwavds llad sm nt somo limo inQ 1'm sozzy. It was all fœ Jolm Edwanls? 21 South Africa?A Yoah, lbo tohal commissjons from trading in 2004. 1 22 A n at's wlla! 1 belivx 'fbe Im son that came up in

ieve wem ovc $3 million, 23 the past,during rm eral years wc bad a rctail suptzvigor

Q And Jolm PQIwNIIS IImIIO out in excmss of lwo million 24 Ram ond Dillon who is Bzitishyand he did s> d some time as

kat? 25 a raflio N sonalë . a xatlio announcer in Soulb Mzica And

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l con&xlm'mg' lbat background, at some point it camo up tbat l So as a conm ptnco of 0 1, ta relationship tbat

2 Jobn Edwards had a similar background. So my conclm ion is 2 N> Wosl had w1:1 Mr. Edwards took a zw'w turzl lv alzx

3 not base on any (lirœt convcrsa6on: w1t1! IOIm Rdwards, but 3 allbough pzrviously priar to our NASD audh wo did4 as an infx ce of tir similarity brtwcen tlmoxpciences of 4 pœsonazy know Fxlwe , zret 5v11 hhn on srveral occasiens

.

5 John Edwards and Ram ond IXEO . 5 and N haps - not myself mrsonally, but 1 bclirve otlv

6 Q Pl= H n'lm fœ zney a: le yoa can. 11m 6 offlcers of Nov W>t migbt havo had convtrsations w1t1: Mr 7 Mstary of #ohl Edwxvvle xflev 1. * - ---0 a clm t of Nov Wmst 7 F-dwards aboul 11. nahur of his transactions We - in ordc

8 Socuriti-. 8 lo mnko suro tbat wo did tEngs in acce nce w11 tir rula9 A As I mentione earliœ, I cannot say anytsing ahmt 9 wc intnsificd lbose t

,ypcs of inquiriœ. So wo obtained

10 'how tbo relationslzip senrlexl. Howovc, starting in March of 10 assurancc from Mr. Edwe ' attrx'y, I beligvo tv Mr .

11 2003, I've b= pay;ng aœnlion lo traA . As l mtntione 11 Sanu , SgV= I timos, ilzttrviowe Mr. , and at no12 I'm tlr sonior trading sumrvisor, so I rrviow trades, tfado 12 point in time 414 m bave a sense tllt unlawful actlvrky' was

13 blotw s on a daily basis. And I noticed in a lohn Edwards 13 transpiring.

14 was conducting a si& iticant amount of btlsinœs. 14 So altbougb wr kcpt all tlx autle ties infome

15 For znany montbs starung in M arch 2003, Joim 15 we communicae witll tlv NM D primanlyat tlr tlme,latcr in

16 Edwards establisv a consisa t pato of e ositing, 16 lat 2005, carly - 1'm sorry. I-ae 2004, oarly 2005, wo17 ta ically in ce ficak fozm chnnw in a vanotyof small 17 starte cfwnmunkating mlh NASD, I belio've tbat 1 recdvcl

18 issucs, typically 1ow prico c uritiœ. Ovc time Mr. 18 % fzrs! zm uest for information from yeu personally in -

19 Edwards would give his brokc Mr..Anderson scE orders, and 19 Q 'I'lm SEC staff'20 ovc timc m would lx: liquidating tlloso positions, and Mr. 20 A Yes, tlr SEC zmuestcl around Christmas tkne in

21 Edwartls would bc taking tbc mo- oul. n at activity 21 2004. So starting in IMcunber 2004, m were cnmmunicating

22 incro sd signifkanîly in mrly 2004, and in pardcular in 22 perie cally witb tlm staff of tbe SEC. W e 1md a visit from

23 connection witb lzis trading activity and shn,u of CMKM 23 x'v= l SEC officcs, I IXZrVG in Febmary of 2005. So

24 Diamonds. AltV ugll Mr. Edwarl did a nUTIIIX:r of lrades in 24 althougll all of tbose lincs of cornmunication essctially

25 CMKM Diamontls a: oarly as Marcb 2003, tbe dollar amounl and 25 covertd all asv ts of Mr, Edwards' activity, he sull

Pagc 34 Page 361 share amount of those trades nover caugbt my attention, tbo'y 1 remaine a client. And during that time I lvliovo lm (IPCIIeII

2 wero always relatively insignificant compav to tim broad 2 a couple more accountg. provide some updated documcntq for

3 spectrtun ef Nev West clients. 3 some of th)r.q and rmnaine a client continuing his trading

4 Howw eq in Marcb of 2004 and mozr so in Jmw of 4 acuvity.5 2004, 1lm hvas a significant spikro and wlo I say 5 At present tlme he has no position in CMKM Diamonds

6 ''significant,'' it was about kn-fold spiko in tlv price of 6 in his accomm exco t for somt vestrictcl stock wbich I

7 tlx stock. And all of a suddœ some of tbo positions tbat ? beliove was spun eff from CMKM Diamonds. But at all times -

8 Mr. Edwards had in tbe accounts witb Nev W csts tlvy also 8 I ikave lo say lNs: At all times Mr. Edwards did not limit

9 inclmse in valuu tomfold. M d consie ng signzficant 9 his activityjust to shares of CMKM Diamonds; lm always was10 voltune in CM KX, all of a suddon not only thoso positiens wcm 10 involved witlz sovm'al otlv issutn. And at prccnt time lx)

1 1 valuablc, m wcrc also able to liquidatc l1xzn for Mr. Edwards l ) has stweral accomm , and I beliove that as v ently as maybe

12 wilb significant return apparently lo him, and considering 12 b'ven tbis monA bo ran some trades in otber issu>.

13 otlr commission our top line increase açcordingly. 1 3 Q Wllat otber ismwem?

14 Towards tbe zniddle of the s'tmmer of 2004, Mr. 14 A Most roccntly bo sold a position in IMo Mining

15 Edwards opezied soveral morc accountq in which he de osie 15 and Exploration, DMXP. 1 IME> O tbat Mr. Sanlos migbt M ve16 more stœk in tlr CMKM Diamonds, and I believe tlr largest 16 bad a discussion regarding tbat particular pesition w1t11 tbe

17 volume of eading in tboso accountq and tbe largest dollar 17 slaff of tbe SBC I would say about a ycar ago, lv ausc whe,n

18 amount in procaxls occux l somowlm behveen Septcmber and 18 tbat position appexe in Mr. Edwards' account, we have a

19 EMccmtmr of 2004. In August of 2004, we bad our BNL NASD 19 babit not necessarily a wriœn procedure, 1 beliem but a

20 audil. 1 did nol mendfm lir dat: earlier loday, bm I (lid 20 habit of clrcking on cwvn large position titat comcs to Nov

21 mention tiwat audit. And çertain issuœ came up s- ificazy 21 Wesl And accordlng lo information that wo bad al tlv A G

22 in cennœtion * t11 tbat trading. Tbe NASD skqre lœking at 22 Mr Edwards dem sie tbose ctrtificates, wlzioh 1 II:IA wero

23 tbat adivity, but 2ry nrvc indicae lo us tbat tbcrc was 23 in Novembc of 2004, it appoarcl that several accounts thal

24 any spœific problcm oxpccl tbat tbere were sknificant 24 Mr Edwarcls contrellM in aggwate bad mox tban kn N ccnt25 amounts of morey involved. 25 of outstanding sharts of tbat issuc.

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Page 37 Page 39As a result of that obm ation, we informe,d Mr. 1 A I'm not awaro of tbat

hvards that it appears tlmt hc is the control 1x1..m ortbat 2 Q Who dœs Mr. Bdwawh wcrk far?v and we cffectively plzt a halty we would not let him 3 A lbelieve lr wIX'H for hlmMlf I don't tldnk lr de those positions. We contacted the SEQ we discuRe it 4 worlls for anybody.

ith sevcral n'znlatory amncies, and as a mattrr of facq we 5 Q How d= ll@ get - 11ow (1= Jobn Edwnwlm lv omo 11mained an atterney opinion letter from an attorney that Mr. 6 truse of tlv trusts 11-4 lo's truse for? '

wards, or nzaylx the issuer hired for that purpox. AM tbe 7 A 1 don't know.

orney opinion 1* indicalcd that Mr. Bdwards would not 8 Q Did youovcr ask Mm?considered the czmtrolling mvson. We found that 9 A No.

sufficio t for oklr purpo= , and that positien wms dormant 10 Q Do you know wllo wonld u ew lmw lohu Fdwartts Fm tmore than a year. 11 ca!no to 1m a cmuom at Nov Wem? Wlle woall 1 ask abmzt

However, rœm tly in another oontext we lmd an 12 tlwat?

ortunitylo verify an updated number of outstaning sbares 13 A Since Mr Bdwards is a climzt of Daryl Andcson, 1his particular iRqner, and as of r= ntly, Mr, Edwards' 14 would considor him to lv a gocd source. Obvimwly many yearstion was no longer over ten Iv cent, it was less th% 15 IZaVe pasq but tlr > on who wcmld pocess tbe papelwork at

percent. And all othcr factors oonsidered and the ract 16 tbe time Mr Edwards ON :M Ns rlrst account znigby have bœn

at he's held 1110% Rluqres for more than a year and a uumber 17 Tom Cbavu wilo al= dy lefl. AM Mr. Cimxez loft arountl

otlv factors th% went into considtvation, we allowed 11M 18 Christznas time of 2002,and ssnce I didn't rtznembe exacqy

liquidatc those positions. 19 if Mr. Edwazds camoto Ncv W est in hte 2002 or eady 2003,IQ 'What d= Mr. Edwards do? W hat is his 1.* of 20 cannot be co in of that But Mr. Cbavez might knowsiness? 21 somltlting about tlkal Or in early 2003 David Laub took ovcA M y interpretation and my understanding of his 22 Mr Chavez's duties, bul l belitve lr was jlm ovcwlrlmrd atrescntations, as I mcntioned earlier, most of thox 23 tlr time, and I wculd not put tbat burderl on lum of tryins to

ssions tzanspired bethvern Mr. Santos and Mr Fxlwards, 24 - * wbat happrned tlrœ years ago.'s involved w101 a number ef issucrs of stock, low price, 25 Q 'WI- tl= John Pdwards maintain om ces? .

Page 38 Page 40

ul on tbe pink sieet esstmtially, quinu senlial penny 1 A During tlx time tbat J'vo known John Edwards,I

ck a= , be's invelve with a numbur of fresh issuers 2 bmlievo tbat ho -- liko l've never sœn his office, number

lm repxsonul k, us, sv ifically in tbc contoxt ef CM KM 3 one; numbœ two,I bclicvc that he dxs work out of his

amonds, hc is in thc businos of acquking large pesitions 4 house, and as we later discove ,ir maintaire a mai! dropsœ k from non-affiliae issners, somelimes restricted 5 in Ims Vegas And Gat's all I Imow at tlzis point.

ck that lK) Iost to age. Obviously in tbat casc, my 6 Q W lvrc is Mn Edwards' :t)s1* ,c0?

œture would be lr would be buying it at a discount and 7 A I don'l lxzneznbm' spœifically, but tbat's ontuany liquidating tbezn for llis ewn accouns or for - in 8 v ord. M d we have his driver's liccnso on 5le w1111 tbe

cax of his account wi1 Nev Wct, hees tlr control 9 corzwt home ad- s, I beliove tbat Mr. Sanlos has VQEI'ZGI

son of several trusls, so 1 beliow hc might bo N forming 10 it witb Mr Edwards tiuat that is cxactbr wlwbx lr rœidos.o typo of activhie.s as a trustœ for otlv indivgdmqls. l 1 Q How many timo-s havo you m rsonally met Mn Edwards?

Q Jmt to clat'ify soumthing you said a minua ago. lm 12 A As l sai; Mr. Edwazds cnmex to vish our officu

ie stx k f1.0m uxzaffiliatod -- 13 hm uently,so I would put tbat numbcr at ovœ 50. lt could

A Non-affiliae individuals. 14 be a hundred.

Q Imlivide s. OHy.. 15 Q Whon was tlm last time you saw ldnl?A Not aff-liae witll llr issuœ, Tàat's what I 16 A Two or tllrœ wœks ago.ant. 17 Q Why did yov r.œ him two er 'h> we ago?

Q Okay. 1: Mr. Edwards an accountant? 18 A He came by tbr office

A He repmsrnkd to us tbal his professional 19 Q Wllat for?lifkations include accounting and law. 20 A He was meeting witll Mr. Andcson briefly, be likr.s

Q Did 1io ovc provide any tMdonc.o of tlkil? 21 to sznile and say hello to evorybedy in tlm ofsce. l den'tA I N sonally have not seon any documcntary evidence 22 Q;I'JI tbere was any spœilic business tbat 1m discusscd witb

tbat. 23 anybody,not witlz me ror cA in and l cannot speak for Mr

Q Aro you awaa of him previding any supporting 24 Andcrson. I know thoy had a brief mœting.mcntation of his qwalifioations to anyolm? 25 Q Has Jolm Edwartkq over discuse wilh you tllc SIIC

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l invostkatioa? ) %5ew.2 A Ncver witb me. 2 (SEC Bxlibit 131 was marked for

3 Q Has Jolm Edwztrdh to tie 1% of yollr knowledm, 3 ideauEca*on)4 - discussod tbo SEC'S iam œ gation M tII anytxm at Nov 4 BY Ms. HAKALA:

5 Wmqt? 5 Q I'= lowing yx wl-t haq Y a znawHd a Rxhibi:6 A 1 don't know. 6 131. M ibit 131 is a Y IV ' ' . At tlo lottom

7 Q M far a; yoll kn- . i: JA Fzwards aw= Gat tle 7 if uy% * by SF.C staff/ apd is dakd May lltk

8 SF,C bas * in toucb w1t11 N> W ct? 8 2* 5. '1'lm h-aingia,wlohn Fadwaye e Nev w est - 's - aml9 A I lmlirvo be is. 9 1% ih- 's azk M ibk 3 op 1% 1op zim -hau 0ozxr

10 ' Q Wbat': yor basi: fer tlhqt IGie,D 10 I caw zqzresent to y- * tlvda- iw Rxhibit ;3111 A l INV O t dming tlf timo wlm tlr SEC conduce 11 waa mq- by 111. se as a lisl of Johm alu nts' xrwwxkts

12 an autjit of Nev W est in eatly 2005, it is entixly h'kely 12 &om anz-n- tl movitkxl by NR west Sxnzrilix I h.w >@

1 3 tbat oa on? of tlzose days, Mr. F-dwards came by, visie tir 13 w'xqsan lo donle 89 wewmxe. 11 may Ix oat '' was a

14 officq and I also boliovo tbat Mr. Edware :111r p= onally 14 'cal rzrox or M- hing. but to 11- 1- of =1y

15 or his attorxy provide some corzopondence that might have 15 une stu dinyail's ooznplefg. So I c.as xnyz- : to you thaf

16 1m 1 cnmmunicae to 11r SEC by Mr. Sanlos. So tlzat's tbe 16 I hav. every .-qnw lo lhiak it': ooznplete

17 basis of my bea f. 17 A Okay.

18 Q A: far a: you H ow, hml Mn Edwaxds IO WO I any 18 Q I'm gxe ng you've x'v:zr seen Whibil 131 lfoxi

19 u limtmy lo tlm SFr l 19 is tNa, oorzecl?2Q A I'm no$ awax of tlmt faût. 2G A I hm xver seen tlus smdjk dotunwms

,*1 ï

21 Q And has lm v'vc motioned to you any inquit'y by azly 21 lxtieve I mrseaany conkibufed quile a bit of infozmadon

22 governmtmt aglncy ZrF/aTIEV RM KM Diaoone ? 22 that's uxd in preparaion of this

23 A He nevœ did. I'm aware of inquiric that came 23 Q Okay. Pleax would you take a look al Fhhlbil 13I24 dirœtly to Nev W < bm I'm not aware of any inqulriœ tbat 24 an: 1ot xx Hlow if yoa = any olzviomq mîux- ox it or

25 nzilt have gone to Mr. E> ards. 25 things tbat yop have m stions alxlutoe a= rwy of. I

Page 42 Page 44

1 Q Hax aayono o'vor rm n John Edwards on - tbat.you l unrlezrxtnnd tbat you can't go througb and verify tle nmnH on2 know of resr sœ'n John Edwards' = itk'n= ? 2 tbo chart as wo sit H .

3 A Not tbat I know of. 3 A Yœ, 1'm not looking at numbers I'm parucular

4 Q Axkd llms anyone you know of evc sœn bis officç? 4 concmmM wilh tlm smlling of account nnmex bœatwe l've5 A l bavm lw'ver sœn hîs ofiice. 5 scn some spelling GTCrS in tir records tbat I since

6 Q Rim . But do you hlow of anyox at N> W=t wllo': 6 corrœtcl on Nev West's side. So I wante to make sure lhat7 aerfnxlly s= Ms 01'11= * 7 this documenl is up to tlate.

8 A No, I don't. 8 Q Plea .9 Q How many accounts did Joha Edware I-VO witb Ncv 9 A Yes. my cursory mvimvs indicau tbat tlx:re are no10 W est during 2004 and tlr Fn 't part of 2* 5? 10 obvious sland-outs lt appears to bo accuratc.

I 1 A Towarx tbe cnd of 2004 and tlv cnd of 2005. 1lr 1 1 Q 0* thipg I nolice is t1-1 Mn Edwards --'-g to1 2 lolal nambc of accountq 11m1 Mr. Edwards controEcd was 12 InVO bad a numlvr of accounts V tII the same name bu!

1 3 bctwecn 30 and 35. I don'y n'X= II= tlv sv isc numbc. 13 diffx t acçoxmt numu . For cxamplex 'hex s to lv

14 Q M y did &) baw so many accounts? 14 two Faza Cyœ lndlutrial Ix . Trus't accounts, two Fase n

15 A '1'lv accounts tbat Mr. Edwards had includd his 15 accounts and so on. W hy is tbat?16 personal IRA and I bvliovv an IRA for ikis u -wife. Mr. 16 A LG me poinl yom atkntion to tlm column entitltd

a

17 Edwards also had trust accomm sot up for, I believe, 17 ''clcaring breken'' NR W cst Sœuritiœ is an introducing

18 difrmrnt beneficiaries. And l bave never had a cliont tbat l 8 broker dealcr, we carry customer accounts on a fally

19 had 30 accoun? undc a cnmmon conkol, but Nev Wcst has 19 disclose basis w11 clearing srms. And dming tlv years

20 worked witb attorneys that controlle , say, tea accoants for 20 2002, 2003,and 2004. m went tbrocgh Qzree (IiSm=I!

21 diff= nt purposes, for diffcrcnt enthies. Tllat simplifiG 21 cl= ing f'ns, And as an introducing broker dealer. Nov

22 accotming, allows C.P.A.'S or attorneys involvi w1t1, 22 Wc'st dœesn't have authority to create accotmt numbers Tbo

23 differcnt clients to avoid cemzningling ftmds, providing 23 account numbcrs come from tlr clearing f''m. Evezy time we

24 better reports, clœr statmnonls. So lhese are my 24 switçM clcaring f-rms we weuld got a x-w account number

25 conjœtmu, but that's wbat Mr. Edwm'ds has lGI us to 25 So an account witb tlc same nmne would have a difrmvnt

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nt numH if m w e looking at tivo different clearing l A lf I may ate a little bit, the more thne has

s. 2 passed since then, l adually believe znore and more that that

ox of tla tungs I shouldmeouon aboutu timony 3 was the reason becaua tbat ravtmn to be tlm dixrcEon in tbe

xlay is I will efton a,k you qlv tions t1m1 we b0t11 know tlv 4 industry that certificates preœnt a lzighcr tllan avtrage Xir,IC

:0, and oal's so Y t samebtxly lau '' ' Aing tlm 5 and higher tIIM av- e workload and typically not

anscripl has a clear uutuxs- alng. 6 significantly llighe reward. Howeveq 'b'e- waq an issue

A I undcrstand. 7 w101 RBC Danc that JO'UItGI in a lawsuit that m evenhxally

Q what is a clearina bmue? 8 settled with thon. And consi ' the timing of b0thA A cle ng brokœ is a rmancial instituuon whick 9 events, thcy may or may not lxl related. n ey coincidcd inan mmns and purpm , would have tlr samo litensœ as a 10 time too olosely for rne to be tee tw tnin ixcauœ they might

gular brokc tloalrr Gcopt in addiuon to typical brokœ l 1 have rnnd.e t1x decision to tx inatc Nev Weat nl- ay when

I= setvices. thcy weuld ofrœ e- vn clwtcdialsrœord Ia certain things happened tlzat m..$m1% in thc lawstzit.

ping, and trnaing srrvica to smxlw brokœ de-qlem . A 13 n e lawsuit concerned a stock (=11502,and our

earing f'm would actually carzy all tlr ags- of customer 14 position, and to our %st knowledge or understanding of

m whicb means that tlm custtxly of runtls, sœuriues, 15 applicable rules and reps, indicated that m wcre dealing .

y otlmr ass- that nugbt 1m in a cltqtom accoun: tbat 16 * t.11 a ca'tse when - oh, wow. I'm trying to t111111c if I'm

ezm'ng rn'm would assux msponsibility ror producing 17 talking about the RBC Danc or Wells Fargo incident Yeahymato rœoris, distzibuuonal sta- entq, producuon of 18 that wms RBC Dane. So m wm'c dealing witll a stock

de conflrmations, and otlvr rrcorttq as rcpu',wl by nges 19 certificate that an issuer canceled many months aftcr thaticable k) tbmn or as requesul or d>ignae by the 20 ccrtilicate entzred the strearn or commercea has 1.

ux brokc CIRIC as part of a fully (lisclosu 21 transfn d ia strœt aame, sold, many wcekl and monthshave

auonship mrson te a clcaring agrœmenl. 22 past, and the issuer canceled tile ctrtificate and it no

Q 14o- wm um throup tho cloaring fsrrns tlzat Nev 23 longer exists. But according to the way the system opelates,est hatl and ton mo wlma tbat rvm was tlm cloazing rzrm for 24 th= are certain procedural m les, I lxlieve

,and there are

ev west aad wlzy you . 25 ceztain agency rules in particular conceming the depository

Page 46 Page 48

A Ub-bub. In 1999 whe,n Nev w - bœamu a functioning 1 trust corporation thal result in tbe Habiliw of a clearins

dcalc our broker dealer licenr,u btcamç dfœtive in 2 bouse And from lat, tbe broker dœler, Eabio for actober ef 1999. Our cleaxing fmn wag RPR Correspondent 3 skck ccrtilkate tilat migbt havo been canceM .

rvices, wlzich as a result of a nwrger bocame Dano 4 So if a client dcw sits a stock cctificate witbor= pondence Smviccs, and tvmztually pursuant to ano- 5 Ncv West, we XII it, but 12 montbs lator fcr some roason tbe

gcr it lv amo RBC Dane Cormsplmdtnl S> ices. RBC is 6 issuc comu back and decides to cancd tbat cctifkate,

al Bank of Canafla. 7 tlm is pm t likelihood that depository trust corperation

That zdationship lerminatd offkially base on 8 wolzld impese a short position as if tbat position tbe

tten correspondenc.e iïl hto 2002, but bœauso of a imical 9 cctificato that we, for examplr, sold, mq if it nt'ver

fficulties tlm acm azy switcb to a diffemnt cloaring 10 exisltxl So tbat was tlr case witb Dano. Eventuany -

did not takt place until = ly 2003. In my Glucatcd 1 l Q Wllo was tbat issusr?imae il would be somowhc in March or April of 2003 that 12 A Tbat issuc was Global Reserve Corporation

,GLBR

switcb took place rrom Danc, RBC Dane Corzupondeal l 3 was tbe symbol at tbo time I bolioc h's still an active

rvices to Wrzlls Fargo inv>tnents Correspondent Sel'vices. 14 symbol but secuzily is dermanl and ossentially non-existcnt

Dano H minated a relationship w1t11 Nev Wost 15 for purposes of a public market placo,

tzrities officially based on thcir correspondcce witb us 16 Q Okay.ed on tike facl tbat llx'ir seluities proccssing pœ ple 1 7 A Wllal bapm ne ovcntually,Nov West Sœ urities

uld not handle tbe volume of physical cerdficau .tbat Nev 18 contacu l tbo issuc, tbc transfc agenl and Gsmially

zy was subm itting for procœsing. So that was tlw official 19 dealt out tbe case, dc onstrated the 10t10. of tbe law,and

rsion of why tlv relalionsbip terminated. And in oarly 20 tlle issucr withdrmv tbe canccllation. Everyfhing was

3 we s'nrtzvl clearing witb W ells Fargo lnvestment 21 rctorGl, nobody got hurt cxcrpt we eaded up in tlv lawsuh

orrespondect Smvices. 22 with RBC Dant and sbortly tlv'm-afler lost lhe cleazing f-rm .

Q C,an 1 ask you fœ a socond? Do you tlkink tllat tbe 23 In 2003 in March, we startcl werking witb Wells

son Dax telrminate,d V G Nov W est wmq - tbat that was tlke 24 Fargo Cozwspondenl Sezvices. As a Inatu of fact tibat was

mqson, or do you tMIA tbem wag slmm otlzor roason7 25 not a complotely new mlauonship because wben RBC acqlzltvvl

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1 Dano Romclv cloarilv armv tlry close down tlr offiœ in 1 capital probl= s, so it would not bo msy to > znonçy oul of

2 St. Lmzis, Missouriy and that's wlv our clearing peoplo 2 tlw n on in a timdy fasbkm. So in tlr middlo ef our

3 w11 RBC Dano RouscH were. So that wbole x m tbaî worke 3 kansiuon to th'mu evts berore movlng any acco% ts, we

4 in St. Louis and llœklod not to mevo to Minnmpolis 4 dœided to 1* for anotH clam'ng rrm. So m stopped

5 Gsentially A blisiedy in my tmtlerslanding, tle clezm'ng 5 doing any bminGs with Advanlage and signed an agm rlent

6 arm for Wells Fargo Investmrnts. 6 w1111 Emmitt Larkin & Company'in San Francisco.

7 W o know a lot of 1110= pcopleo m ctablisle all 7 ' Emmltt Larkin & Company at % tinx had tir

8 tlv pm rr..- of tirir rehuonship, wo stnrlerl working with 8 repuotion orlxing frimzdly to tY tym of businœs m were# 1% to avoid sctnazios lilœ tlhat se>nnn'o wilh canceld 9 doing. W o luzew srvœal small brokœ dea1tys tbat were

10 slock certiscates, bm eventually abou! a year laler Weltq 10 ckaring tlzroul tbo and being on tlm west coast tbat was11 Fargo ran in> simihr mobl= s. Brli- h ()r noty wtilad a 11 a convenient lœation for us. Nov Wost W ba* ip Leas

12 similar incidcnt witb anotH clieat which onco again, was 12 Vqas. So we stnre building a relauonship witb Rmmltt

13 msolvez but - 13 Larkin. Howov witàin twe wœks of signing O t agrœmœ ly

14 Q Who was tllat clionl? 14 Emmltt Larkîn indicated to us that tlvy ne k) gez out of an

15 A ln tbat casc wm wtre talking about TWNK was tbe 15 agreemenl w1t11 Nrv West as soon as possible.

16 sm bol. T- ity Tw ty Networks was tbc nnmo of tbe issuc. 16 Q Why?

17 So in a slmzlnr scœmio, m had a polenual sbM . M d as 17 A My interprctation is that in late 2003, and I

1 8 you milt be awareo a short posiNon Qxcrttically has 1 8 besrve it was November. tlm SCC ch'nlwl a mle change. an

19 tmlirnited risk. So clcming t-zrms and brokcs don't like 19 inkrnal nzlo change of NaEonal Securitics Cle ng20 tboseo and tbat nugbt = ult in poe lial net çapital 20 Corporation, wlzich is a sister company of tim DTC

,depository

21 problems. So m fougbt it fmiously, and as a rcsult of tbat 21 trust corporation. lt was a trtwt compaay. And SCC is tlp

22 incidentz W ells Fargo termlnae tlwir mlationship witb Ncv 22 main clearing botwe for muity transactions in tiic Unie

23 W>t Securities. But what's inkresting and completely 23 States. Wben a lrade happens, typically tlv ollmr :ide of

24 fascinau me lf I may use tllis hnguagq witllin a fmv montls 24 rvczy trade in the U.S. market is Nadonal Securitio

25 afler - 'nating Nev Westa W ezs Fargo cœnplttely e ted te 25 Cloaling Corporauon. lf Nov Wat, as a markel makçr, sells

Page 50 Page 52

J business of providing corasponding clearing selvice's. n ey 1 100 sbaws of Microsoft to Schwab, l1m actual sotllcment at

2 decidcd not to take that HSIt anm orc. 2 tbe v'nd of tlr day would bo as followsz Nn' W est. solls 100

3 So onœ we lost W ells Fargo as a clearing f'n, A'e 3 shnn'x of MicrosoR to National Sœuritiœ Clmring

4 wmr desm rate to find another clearing house that would 4 Cxxpocation. and Schwab, tbat samo day, m ys moncy for tlmt5 acoept a p0,111 brokc dr'aler without profile. I have to 5 amount of slmr..q and = eivos tbeso shnn'x from National

6 mction that a small brokœ dealer that dœs a 1ot of trndl'ng 6 Sœudties Clraring Corporation. nis is what is known asbusiness in low price r uritits, somt, if net znost of which 7 qontinuous nu settlcnont syso .

8 entcr tbe system in certificated fora that's higllly rislty 8 So tbo rule cbane applicabk to conlinuous net9 from the point of view from the indtwstry. Being a markd 9 setqemrnt systom at Nauonal Securities Clearing Corporation

10 maker, that's llighly risk'y, so it's not easy to find a 10 Qzat look place in 2003 plade it arbitrary tlm way National

1 1 clearing f-rm that would acct'pt a new corrcspondenœ with 1 1 Securitic Clearing Corperation hantlles risk. 'rlvr is such12 this prosle

. 12 concept as tlm cloazing flmd drposit. Ifyou are a mmnber of

1 3 Soon after gttting notice that W ells Fargo 1 3 DTC and National Sxulitics Cloaring C'orporation, wlm you

14 terminated Nev W est, we ostablishod a cloaring relationship, 14 cxœute a trade for a certain amotmt or sbm,let's gayy

1 5 and wben l say ''establishedr'' l mean that we signed a 15 tir same 100 shxw'x of Microsoft, National 5œ1114t1%l 6 contract with what at tbe ti.me was known aq Advantage 1 6 Cleaùng Comoration assumœ tlx risk llmt a time wait

I 7 Clearing. Currently their f't.m operates kmder the name North 1 7 sotllc rnt of that trado will not take plact Ejtbc tbe '

1 8 American Clémn'ng out of South Florida, I belicve. However, 1 8 soller will fa2 to delivc tir secuzity or maybc tbo buyer

19 once wçt started iznplementing the transition from W ells Fargo 19 would fail to deliyer tlm cash fer srttlemom in a timely

20 to Advantage. we ddected several things that prompted us to 20 fashion, so that's considered a risk.

21 look for another clearing film. We did not like their 21 Now, wirn m talk about a squid sœurity,

22 trading interface. we could not get accerss to a 1ot of 22 crvnmonly, 1 would say tvmrybody would agrœ tlmt 100 shm'es

23 infonnation using any kind of electronic platfonn, so it 23 er Microsoh is a highly lkuid asstq and tlr rksk of24 signiticantly slowr,d us down. 24 selling a trade likc tbis is mlatively small Howovw', if25 W e also heard rumors that Advantage had certain 25 somebtxly tzadcs one million shnn'x of a stock tbat trad> in

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Page 53 Page 55pink s- maybo onco a wœk and it trades at mrhaps, I znade an apuznent with Compuu Cloaring Servkes

,it was not

ry - 11 prkq but price migbt be irmkvant in this cases 2 tbc written agm nent but vcbal,tlnt in no issuo would wo

ro is a much greater HSk Qlat a failum to drlivc or 3 trade more tban a ccrtain number of * nn'x on any gvcn day. 'IKTV Se 10 sM e that tym of a H msaction incro sœ 4 I lvlirvo tlr nambœ initgally was 5vo million

,cventually

mntically. 5 h bœamo tcn milli6n. So îf I bave 20 clienls,œch of 'Yern

Pzior tch NOVD W of 2003. National Securities 6 wants to trade a miKon shares of.x'W , ten'oYthnrn can tradu

emHng Ce oratkm would ux a formula tbat would rrqltire a 7 i: y0u know, tlr 1 11 cannot V guse we can only trado ton

taia deposit in hk id ftmds. caA to ensure against tllat 8 milzon on a given day. First in Fjrot out.of Hsk. So if a cW dng Nm Gœutes a lradG say, 9 We nrvœ rqally ran into that problc aczoss

milllnn onwtq of XYZ for tlne days - tlzrer days is tlr 10 numlm of cliœts. Typically if one clict weuld have a

ical e lement cyclo in tlm sœuritios indusey te y - l l position that rxceetls a particular tH hold, and m would

111rœ days tbe cleaxing f'rm tbat Kld tbox sb> would 12 Kay, ''Ttxlay you can s02 ten milEon. If you want to sdl

t up a re 'n nmrulnt just to ouhmre National SrCUHGeS 13 more, you can do it tomorrom'' And Computr Clcaring, to tbeti t tlr risk tbat tllis trade V 11 14 1.41 of my knowledge as a nult of Qlat novœ ran into 1l=earing Corpora on agains ,

sotde in a timely fasMon. 15 problmn of ckadng fund doposits. Now, tlm vas a shcrt

Since Novembc 2003 tlv fnranzlR disap;m e and 16 çut for 1a< positions that did nl)t bœomo obviotls to us

donal Swurilia Clam'ng Cozporaion, in my . 17 originally, but as we progresxtl tbrougb our relationship

derslanding, randomly comos up witb tir amotmt tbat tbo 18 witb Computer Cleazing Services,became a grtzd m y of

ing f-rm weuld lm e to e osit. So when m were 19 cxœuting larm txades.Ming w1t11 W dls Fargo, I wa: active in tlr number of 20 'Fbere is a notion of X clearing. X cle ng means

rities, low pzico scurities, being a markv't makc , I 21 a kade settled oueide of tbe conunlzing net setlltzncny

ld be trading sometimœ millions of sbn.- a day. One day 22 system . As l said, wlrn somcbody tradts using continuous ret

tcoivetl o phono call from W ells Faqo wiere tlpy said t1%$ 23 settltment syslmn, tlm otlv side of tlr tralle would always

SCC aske W dls Fargo lo put up $l0 million for tbrœ days 24 be Nalional RCUIiEeS Trading Ce oration. lf you sold lost lo xttl: thv lrada. For Wells Fargo, h was not 25 Schwab, at tbo end of tlm day you don't deliver anytbing xo

Page 54 Page 56

ch a big deal because tlleylrc affiliatred w11.11 a huge bank 1 Schwab. you ddiver something to National Securitics Cloaring

d 111% just had to pm up a couple of thonmqnd dollars in 2 Corporatîon, and National Acurities Cleadng Corporationterest costs, which forttmately they could not pa'ts to Nev 3 delivtrs sometlling to Schwab.

'.

v.st because that was not part of the cost outlined in our 4 X clearing dœ sm't work tbat way. If I trade Xing t. But timx fœs were part of the reason 5 clcaring with Schwab

.the tzadr sellg not tlirough NationalW dls Fargo terminated tbc rcladonship with Nev West 6 Securities Clearing Corporation but dirœtly against the

So when we came to Emmitt lmrkin aod m started 7 participant's account W SII DTC. So if I fail to delivmessing the issue of trym' g to tell themm ''Gentlemen, you 8 certain sccurities at tlw end of tlm day into the accotmt of

d to l>e aware, this is a recent rule change, we want to 9 my clearing ru'm w1t1: DTC thcy will know exactly whe to go

e sure you tmderstand.'' And they signed the t 10 after So in this particular (n% therc is no nœd for

t.h tks, but I believe thcy did not have a clear idea of what l 1 additional clearing fund deposits Everybody knows cxactlygoing en with that. So they signed the agrœ ment with 12 who's involved in the trade, they're stdcter buy-in

but apparently within a couple of weeks they 13 procedmes so X clearing trades were a grcat way of making

sidered the issue and oalled us back quickly, trcaux 1 4 large trades happcn while wt worked with Computer Clearing

mitt Larkin is not Wells Fargos that's my conjtctum but I 1 5 Services.nk it's accurats, thcy just realizcà that tlve is no way 16 Howcver, cvery individual participant of X clearingcould c,01.1,1e. up w1t.: a million dollars here, a million 17 trade is taking a HSIC now. lnstead of National Securities

llars there. 'rhey could not maintain a rdationship with l 8 Clearing Corporation bearing the HF,k of not being able to

y FIZ'm that dœs large volume of bttsiness in loW price 19 settle on a timcly basis,now every individual broker whoities. 20 dœ s X clearing trades has to worfy about it

. So very fcwSo the next m ove was to Computcr Clearing Services 21 ftrms, very fww market makers that I know of would allow X

mpute,r Clearing Service,s for refcrence, on Exhibit 13 l it 22 clearing trades. and that ntunlxr has dropped since the time

identified as CCS. CCS weloomcd us, and what really was 23 we werc actually executing a lot of those trades

at from the btwnning, thcy exhibited clear undcrstanding 24 In 2004 l believe we had a rdationship with m aybe

all tlle fœs involved in trading large volumes. And wc 25 two or three markd makcs who would execute X clearing

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1 t:ados witb Nev Wœt. So tbat flezerrnlnd tlwir dirccuon of 1 lv e iciaries of tboso 1= 1 wœ ?

2 our btlsinœs in a lot of low pricee sœmisœ. Compue 2 A I do not know.

3 CH n'ng Strviccs did businoss witb us for about a ytar 3 Q D9d you ru ask Mn Edwauly 'h-?4 lvfore bdng acqne' by IYnson Financial Scvicœ, which Lq 4 A No, I nrvcr did.

5 our presens clœring, so tlm circtunstancœ of tbat transilion 5 Q Did ye = inqrlnms aayœ at NOV WY > fiad6 arr easy to dcscribc. Mezgtr, so we've bœn ce ng witb 6 oqt w:o 1% * ' ' -11c1a* = 7 ' .

7 Pœ son sinc,e that e k plaçe. We stnr'e transfcrring 7 A No, I dkln't.

8 accountq and executing trades w1t11 Penson, I belit'veo in 8 Q Why no'?9 August of 2005. So it's a long answc. 9 A Cunrnoy uodc tlr provigions ef tlv Pahiot Act,

10 Q YR = t of ane tlzis bcf- but I tlidn't 10 tlmre ax cvtnin nzl% and rtgulations tllat apply to11 mally un-----xna Did you - ask anyox at N> W >t why 11 ctutomc idoatificafon pre urœ. And tlrrg is a zule

12 Jolm FA- ? had egtablimhtvl > many diff= t accouna? 12 tbat's ckarly statcl t11a1 tlm duty of a brokc doaler in tie

13 A 1 n- askc bm I discussed tNis issx Wirn 13 case of a lrust account exknds to tlv owrlc of tlv agcoun:14 tlr NASD brougbt up tlr que on of wluther or no1 Nov W%t 14 in this case somœ nw who controls it. So tlmre is languagw

15 would InVe to fzle suspicious activity rvw rt in conjlmcion 1 5 in black and whito tbat intlicau tbat a broker dealer dœs16 witb tlr speciik transaction: in CMKM ono of tlr factors to 16 not ne to know wlzo lbebeneficiarios of a trust are mq long

17 consider is wleber certain activity ma1:% sense. So in tlr 17 as m know our çustomertv coneoh tlm account. 'rir

18 gontexl d lbis analysis. Nev W >t bad to addv s tlr issueo 18 persol who (IIX'nGI tim account who tzadcs !l= accouh: h's

19 and Antony Santos, who is tbe vke pmsidtmt and gx al 19 csscnlially tlm basis.20 counstl of N> Wes: lm is llr N son wbo inkrvimvGl Mr. 20 Q So did you virw 1at John Edwv lm was tle owzer of21 Bdwards and Mr. Edwards' alkrney on several occasions trying 21 all of oœ e accounts?

22 to identify tlàat busin%s purpose. So Mr. Santos and myself 22 A Fer purposef of tbe ctlstonw'r ide licaéon rule,

23 would discuss tbat issuo. 23 Mr. Edwards was tlle ownc of tllosm accounts.

24 Q And what did Mn Edware or Ms attarzmy say was 24 Q W= you over carious of who tbo l=e ciario's of25 tbo bmix u pux'pv of all '1u'.e se aralo acr- nts? 25 tboso trusts wc ?

Page 58 Page 6

1 A l believe tlxat Mr. Edwards' atlorncy did not go l A Not - not particularly, no.

2 s- ifically in* tljat Ascussion. 'I'Y answer wo mcdved 2 Q Did anyox ovt:r - th*1 you know ef ç'ver a:k Mn

3 from tle attorney was tbat ovczytking was in complianco w1,11 3 Hdwankl who tbo a lloficiariw's of 1110 trus:s w= ?

4 applicablo rules. 'I'ir answœ wo got from Mr. Edwards was 4 A I'm not awam of tbat. I'm aw= of tlzo fact tlhat5 tlmt ir was açting as attorney-in-fatl for soveral 5 in our disoussions w1t11 Mr. Edwards and in particular

. 6 individuals, and tilose trusls that wo bad tbo accounts for, 6 convcsations tbat Mr. Sanu had w1t1) Mr. Edwards, it was

7 tboy obviously rcpresented intmpsts of differcnt 7 absolutely cloar tbat Mr. Fwdwards was concerned witb tl)c

8 bendiciarics. So diffm m açgounts wore nœessary lo 8 privacy of tlv beneficiaries, But as Ijust indicatcd in tlx9 mainuin oleamr accounting v ords, cloartr rvw rting, And 9 pxvious answer, ir indicatcd tllat if tlrrc was a formal

10 so csœ tially O t's my interpretation of tlr answo'r wt 10 m juesl for that information, be would provide tbe namea of

1 1 received from Mr. Edwards. 1 1 tllc bcneticiaries. So as long as 1r could proteu tlxir

12 Q Wllo wœ tbo diffomnt i- liciarios of tbo 12 privacy, ir would not put - notbing would stop him from1 3 (Iifrmvnt accouna? 1 3 doing tbat if formally tm uesled.

14 A I do not know who tllosc beneficiaries are. 14 Q What (1o you R o by cone- ahmt 'lœn-t pzivacr

15 Q M o would I ask to find om wbo tlxse aR? 15 A We1l, essentiey if you havo a trust witb a1 6 A Mr. Edwards at some point, I beliove, indiçae to l 6 btnetkiary, h is my underslnding of what a client privacy

17 us that if a regulattzr formally m jtlcstcd tbat inf= ation, 17 is. So if Mr. Edwards has acccs to a beneficiary for a

l 8 ht would provide it. 18 tnzst, 1 bclitve tbat tlr berwficiaries bave tlr right not to

19 Q To wbam? 19 bc disclosed to anybody whe asks.20 A Te wbcevœ would ask tlmt. 20 Q Cau you havo a trust witlmut a benoficiary?

21 Q Did lm ovor IOII yeu tbat ho had asserkxl his 5111 21 A I don't know.

22 Amondmwnl privileges not lo proviœ iztformation to tlm 22 Q Was il your lmaetrqnnalng that 'lœ. ac-xlly weze23 goverrnmont agoncics? 23 lv mticiaries of all of tbo tnlsts?

24 A 1'm not aware of that. 24 A WG I bave xvimm l so= of tlle trust papm vork

25 Q Did anyono at Nov West o'ver ask Mn Edwaro who tlm 25 that's gubmie w1t13 nmv acgounts, and altbough tbat

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Page 6 1 Page 63k never spœificany idrntifiod tlm lvneliciaries, 1 us tbat Mr.Bdwards' acuvitks weren't crossing any legal or

1 besm?e it stqtGl tbat bmwsciaries n istcl. 2 reguhtoty 11*.

Q 11 it pessible. bm l on tv iafermatioa yoq'w 3 Q Why did you px that as= xu'R fenm tkis lotte '- = about Mr. Fzwards and 1% trustqy tkas 11- am in 4 A Primarily l= alss/ of Mr Cm k's reputaûon, and

t xm rral ' ' - 'ficiarios to tlm trasts and te 'm just 5 tbis 1* resultcd in my un* standing &om a numbœ ofunts làat Jobn Fxlwards controls? 6 tdopbonic convcsauons tbat Mr Santos and M r. Clmk luad so

MR. GIUFFIN: You'm askins about possibiliti>? 7 ât was just a c'Almination of sovm'al vcbal Gcbanges. ahnd

MS. HAKALA: I'm askitv if V *s r. aly dotumtlls B tàis was Nov> W 2* 4, approximatoly tlu montbs afw tlmzulo out that possibiEty, or any evidence tbat ntles 9 flrst timc tlr NASD indicae to us tbat we nœdtxl to pay

t tbat possibiöty. 10 cklxr aœ ntion to Mr. Edwards' acGvity. So a 1- 11u

MR. GRIFFIN: You can answ that 11 tbkq reassured us t1n1 it was notjust Nov W>l 11m1 lookeTHE W ITNF-SS: I bavo not sœn any doctmw ts tbat 12 at Mr. Fxlwards' activity and conçluded Qlat notbing apmam i

uld rttlo tiïat out, bm l don't know if I can mako tlmt 13 to be wronp So Mn Cook, wiè his apulation,was tio namo

njecturm 14 tbat gave tls comfort.

(SEC Bxlu3it 132 was markH for 15 Q DidNA Weesx pay Mr. Cœk to mviow lohn FxlwarA 'idmnufication.) 16 luTh'ne mactic-?

BY Ms. HAKAI.A: 17 A No

Q l'm yhowie yoxk what's * ' '- matked as Exhibit 132. 1% Q W lm paid MT. Ctmk fm his work?

bit 132 js a 10* dau Nov= H 18t1, to Nov W Y * 19 A I havo no informadon or knowlcdge of tbatw4xxl Cm ks ''Ro: lolm M. Edwards.'' Do you = (e zo 20 Q 11 sayl borm in tlm sœond paragraph or% letlerxibit 1327 21 ''I havo roviowed tlm lzatling pzacticcs of Mr

.Edwards.H WhatA Yos, I do. 22 trading practica i: 11%1 s- ifically mf- ing to?

Q What is it? 23 A I ta not mlk'e. any condusions bastd on this.A n at's tbe letter from Mr. Shmwood Cook whe, to 24 Q m kat waK yourundozstanding of what lIo wasbot of my knowlodgc, reprosenti Mr. Edwards at the 25 zrforring t0?

Page 62 Page 64e. W e have the date

,Novemlv 18th 2004. 1 mentioned l A My undcstanding is this xfm ed to transactionslic today that M r. Santos conununicated with M r. Edward 2 oxecuul at or tirough Nov West Securlties Corporation

.

his attonxy, that attorney was M r Cook. And this is an 3 Q How did Mn Cœk roview Mr. Edwarda' trading

plr of correspondence that Mr. Santos received this in 4 pzacticos at No'v W est?mnbcr of 2004 and maintnlnazl it with the records that we 5 A I do not know,but my educated conjecttur would bc.from Mr. Edwards' accotmts. 6 every account has dctailcd rœords and t110% rœords alv

Q ls this the only lctkr tkat Nev West received 1()m 7 cnmmunicau to tlzc account holder by way of trado. Cook regarding John Edwartks? 8 conrlrmnuons and slaa ene. And to tbe lxst of myA This is the only lctter that I lçnow of 9 knowlem, Mr. Edwards mainuine good rrcords of cvmylhing

Q Do you havo any rcason to tbink tbcre were any 10 tbat transpirv in accounts ir controne . So it is my

er letters? 1 1 Glucated conjœture tbat Mr Edwards might have provide .A l don't have any other reason. 12 conrzrmations and stau nents to Mr. Cook for roviow.

Q W lm is Sherw'ed Cook? 13 Q n is may - nd a- osutivo,and I don't mcau it

A I personally do not ltzmw Mr. Sherweod Cook, but Mr. 14 te bo. I'm tryie lo undozwtand W ax it yeur unH m nding

d rv arch and l believq $at Mr. Cook at some point 15 tbat tltis lottor nomet Frnm John Fxlwards' lawyor, right?thc pmst wms an officer of a regulàtory orgMization. 1 16 A Yes.

't rcmember sw cifîcally if it was the sta1 securitics 17 Q In ox scntcnc.e John Edwartks' Iawycr says that 'ulator in Ncvada or if it was a federal, but 1 believe 18 gsxntially my clicnt hmsn'l dox anytNing wlxmg

. W le did

Mr. Cook was a highly ranked officer in a securities 19 that #vo you catnrozl tbat Mx. Edwards acnmlly lladn'A donolator in the state of Nevada. 20 anytlting wrong?

Q Did Exhibit l32 play any role in Nev West's 21 A I a- dy sutcd 0 1 a onmsentencc letler comession regardie Jobn Edwartls? 22 on the back of

,I believe, sevcal telephonic conversations

A I can say with conlidcnc,e that the letter from Mr 23 tbat Mr. Sanos bad w111. Mr.Coek. Alld my backvound dcesok gave tts quite a bit of confidence in the fact that wc 24 not allow me o make any lcgal conclusions

,but Mr. Santos is't doing anything wrong in particular.but it reassured 25 an attoruoy and a gencal counsol for Ncv West

.so based on

l

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l Ms reproxntauons, h was my understanding that a 1* l A Okay.

2 like tbis was sufficlnt grounds fûr at lœst that sonse ef 2 Q Se wo can mqo tbat ward withom leng cone '

3 comrort tbat I roferzrd te, xt tlm vmy soid tcmz but - 3 aboxzt tllat. W hat was tlm n-* of Mr. Edwe ' xdatianolp

4 Q Hew often did Mr. Santos and Mn Cm k sw ak? 4 w11: CyW Mark?

5 A I do not know, but I IXZ- at lost twice. 5 A I don't zomcznbœ sN v cally, bm a 1:a11)0 Ian

5 Q Did Mn Sane x'ptu O you A*ezr eaclt of lho= 6 Macontire camo up. ' .

7 çonv= atiozuq? 7 Q Ian?

8 A 1 cannot say it was after œch of tbosç 8 A Ye , Ian Macentire camo up in tlw cone of9 conversauons, but by tlm timo tbis 1* arrie , 1 m s 9 Mr. -' ono of tic cltities tikat Mg. Edwards controlle also

10 well awarr of tlr fact that tbose conm sations took placo. 10 bad Mr. Macentire on it and -

l 1 Q W ut wu dirprm me,l H ing 'hr- çonv= ationW 11 Q YR mex oxm of tlm trtuls'12 A I was not part of IIXISG I don't know. 12 A Not ono of tlm trustq, but - 1 don't zmneznlmr

13 Q Wllat did Mn Sane toll you lm '.xlkGl abeut w11 13 sv ifkaHy, bm tlm was a corpomtion tbat wo lœkcd up

14 M r. o mk de lg 111- conv- zvhnn&? 14 on tlv Nevada Secrete of Stak site, pnmethlng along th0x

15 A '11e fact t1m1 Mr. Edwards had a numltr of açcounts, 15 snes.

16 tmst accomm. and tlmrm wmr lransaçlions in 1- amounts 16 Q Firsl Colony Morchant? .

17 of CMKM, CMKX shn- . I believe 11. fœm was smcifica:y 17 A Fksl Colony Mcchant most 111* . And I don't18 on +a1 particular issr , and I be19ove tbe conversae ns 18 remerrnbc why tlr theught is in my * d, but I tllink Mr

19 involvod a discttssion ofwlehsr tlr shaM wmv ll timakly 19 Macentire was tle principal of Cy* Mark. I don't hm a20 issue and lœitimakly h= trading. So tbat would l)o my 20 s- ilic zœollection, bu1 for some ro son tbat's tlv memory

21 conjœture, tbat was tlm natux oftlv discx ion, and tbat 21 tbat comes to me righî now.22 would l)e my recollœtion of what Mr. Santos rrpore to mc. 22 Q WM n did yog discovor 11-1 John Edwards llad x e

23 Q Wkat did - wàal Obeantivoly - it sounds lik- 23 prior afliliation with C''ylx:r Mark?

24 tàoso wom tbo topics tlhqt woro discusm l. 24 A I would eslimate it as being sœond haif of 2004

25 A Corrœt 25 se probably towards the mld of tbe yoar whcn we sinrteH

Page 66 Page 68

1 Q Wlhqt Rbstantively was eaid a: to why tbo lares l looking g1o5er at thoso transactions.

2 wc isse and fzro H'alng and so foe ? 2 Q Did you ovt:r ask Jolm Fzlwards - or did anyono at3 A Considering 11m: discussions of tllis paricular 3 N*v W est rvw'r ask Jobn.mlwards what tbe natmr of M s

4 subjœt Iœk place wilh a numbc of individuals, I cannot say 4 rclationship w1t11 CyH Mark kad *'- --?5 tbat what l'm going to say now was discusse betwœn Mr. Cook 5 A I am not awam of any spccific 5r1/ of quelons

6 and Mr. Santos, but h was my belid al all timo tbat a 6 along these lines.

7 substantial numbœ of qhn,v'x lhaî Mr. Edwards deposited and 7 Q Did anw ne o-vc ask John F-dwards what lli:8 sold through Ncv West canw to him througb private 8 rdalionship witb C-axavant M ining KlmH light Inevnntienal

9 transactions, privatr p'zmbnses from individuals not 9 or CM KM Diamonds was?

10 arjiliatml w;G tir issuc, And alse Mr. Edwards had somo 1 0 A I believe tbal on several occasionsv m asked M r

1 l early deposhs early in 2003, somo of 1l= shares in CMKM 1 1 Fdwards in tbe negatim wllich mcns we asked bim to verify

12 Diamonds it is my lvlid tlzas Mr. Edwards was in one way or l 2 to us lbal be is not an affiliale of CM KM Diamonds and no

13 anoe afflliaul with tlv prcdocessor company of CMKM 1 3 shares tbal lm deposite M III Nev W>t camm from affiliatea

14 Diamonds, and tlx:re was a contol pesitien tbat was no lonm 14 of CMKM Diamonds.

15 zestrictctl under Rule 144.. So some of tlr sbams tbat Mr. 15 Q What do you moan by ''affiliau ?''16 Edwards had wce oldcr sluareqdating back to the predœessor 1 6 A Affiliates,in my undcslanding, am officœs and

17 issuc. I'm ttyng to rmnember. Cylmr M ark was 1lr name of 17 de tors, and I'm not 100 N cont cerlain but ma bers of

18 11)e issue, 1 IXE- . And the majority of tbe sbares came in l 8 irnmcdiate famdyof (lffir,ers and directors, and control19 tlv privatc transacuons. 19 shareholdœs ton pm'cgnt or more. So that's my tmdrrslnding

20 Q l want to probr a little bit on somo of tbo thing: 20 of what çonstitutes an affiliak.

21 youjlm said and try to get a 1* unH - ding. 'rlm 21 Q And Mr. Edwardx was aske to conf'n t:al nose of22 flrst is you znmzlioned a sur cempany Cybor Mark. I 22 his shaas caum from affiliau ?

23 can xrpu nt lo you that Cylmr Mark was 1he prtdocmsser nanm 23 A Yes.' lmrlight Ina ational tœk ovor. 24 Q W as be askcd 'o coxdirm tbat h; was not an4 Ixtroro G sam t Mining Kzm

25 You're cxm tly zvmvmlxrrjng tllat namc. 25 affiliatc?

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l A I bave no roson to doubt it, and onco agains 1 can 1 Q Including all of tlm trust accounts and se fe ?2 say lllat l was part of ctxnpiEng all the data tbat weat iœ 2 A Yœa c= t.

3 the pe arafon of t%is damment. 3 Q Mr. Edwards - wlo dgd Mn Fxlwe q got all of tlx4 Q &) John e ositod Ortificau - m) 4 sllares 1at lm ' into tbo vaxious accounte?5 somobmly who you kx w lzml 1= fœmally asstviatGl w111, tlm 5 A As I mee nGl oarH

,we IXIG tbat most of

6 c- pany (kPO?tGI 261 billion thx.w- ofs- k Did thi: o'vœ 6 those pesifons im acqe' frem 'private inéviduals.

7 give you any = son A) wonœr FIXI was txyie to Iiquidato 7 Q R o?

8 se k for tle com- y? 8 A I bave no know- ge of that9 A H= 's my lix of tbinking. Unfozluna ly Qmre is 9 Q Did wu evor ask hlm?10 nol.much by way of dau on this docttmentz Exbèit 131, but 1Q A Wllal?

l l Mr. Edwards stare drpositing and melllng slwq- fn CMKM as 1J Q Did you o'vc ask hlm?12 early as March ef 2003. And by Jtme of 2004 wlrn a 1- 12 A I v onally ncvc aske * .Edwards, bu1 basGl on

13 spike in pricc happenc I tI;nII ttm total amount of sh= 13 my knowkdm of Mr. Edwards' convcsations wit: Mr. Santos,

14 dvw sie antl squîdatod was in tlr neigbborhocd of 60 14 Mn Edwards indicao tbat lr weuld provide tbe infonnaEon

15 billion. And as you zmntznber, Ijust discmrsGl our 15 if nœeaary. And I te rvo Mr. Santos contacul F'st16 convcsation witb W eltq Fazgo and subsmuonl discussions w111, 16 Global Stock Transfc and a* d tlmnz to vcrify tiuat all Qr

1 7 tbo transfc agent, in mrly 2004. late 2003, w: brlix that 17 transfm's in tlm namo of tir lrust,tlx position tbaî Mr.

18 CMKM had in cxcess of 600 billion issues outsunding. So 18 Edwards controllcl, none of th!m cam e from affiliaa. 1

1 9 SeIIi/K about 60 billion ovcr a IXHIXI of moa tban a yoar 19 bcErve tlr kassfœ agent is subjœt to cerlain privacy20 clid not pruent any spœific lm son for conrm to us. 20 provisions

,but at least Mr. Sanlos was ablo to obuin a ''ne''

21 And this number, 263 billion sbaro, most of tboso 21 as tbe answer to tbat question.

22 doposits bappencd in lat: 2005, early 2006, likely at or 22 Q FH Global told Mr. Santos?23 around tbo time m' subsequent lo tlr lwmz' tbaî m 23 A That nonl of tbose posifons - tbat all of those

24 discmsc Exlllbit 132, wccks. if not,.montikq aftc tlr NASD 24 transfm's were covc d by altorney opinion Ictters and tbat

25 st'mrd taking a close look at Mr. Edwards' eansacfons, and 25 none of tbox transfers came from affiliaa . n at's my

Page 74 Page 76

1 ebviously in my tmdcstandigg, yoars aftc CyW Mark lxcame I interpree on of what First Global lold Mr Santos.

2 CMKM Diamond. So all of tbox factors combined usentially 2 Q Do yol ihave axty notes or H umontation conf-ming3 lGl mc to beliovo that at no partigular point in timo did Mr. 3 lat?

4 Edwards control more tban *'n m rcenl. So ovc a pcziod of 4 A I don't5 two years, it wag probably -- I don't want to sound like 1'm 5 Q D= Ncv West llaw aay businems: Rlationship w11116 producing an implausibk scenazio, but wc can tlzink of a 6 FH Global Se k Trangfo otlv tban tbat tl>oy'rw tu

7 tcadcr wbo over 11. comse of two ycars on 1bo monthly 7 lzansfo-r an t that you coalau to clv k on stlxk

8 basis, lot's say, buys a tbousand sbares of Microsoft and 8 = rlilicakls?

9 stlls a tbousand shares cf Microsoft. 9 A Yoab,tbey're a local transfer amnt, one of many

1 0 I can run this skaight 12 times a year, evopt 10 in Leas Vœas,so it's jus! - yoab tbcre's no businGs

i 1 lct's pretend I'm buying it in onc phce and solling it in 1 1 relationship.

12 anotber. So ono f-rm would sœ owncship of 12,000 shnna,q 12 Q No otber ties?1 3 wllile at no point in tiuw did tlm parlicular indivldual 13 A No

.

14control more tban a iousand shares. So in Mr Edwards' 14 Q AR you awam of any p= onal ties l- œn anyox

15 çaso, œpecially considœipg his represenlations tbat from 15 at Nev W est and anyox at Firsl Global?16 timc to timo ixl would purchâse large positions from l 6 A Wdl we know oach ote 's facc .

17 nen-affiliaul indivîduals so ovcr !lx) couzse of lwo years. 17 Q But no personal business?1 8 that number adds up to 263 billion shares Bu1 at no point 18 A No N sonal businœs

,no N sonal tl>.

19 ill time did we have anytlling near to ten pcrcrnt considering 19 Q Whal a!v tllo naxnes ef tM lmople at Fizst Global?20 our understanding of what th: numbcr of issued and 20 A W e know tbe plincipal Hokn Baglcy and m v ently

21 outœ nlling sbn,oe was in CMKM. 21 md a gentlmnan namd Jeff at First Global 1 don't rmnmnber

22 Q For calculating tbe ton mrcont numbcr, did you 22 his last namo.23 agpu ato all of Mn Fzdwards' accounts? 23 Q Mitcbom .24 A At >cy point in tim yes, we would aggrœ ale M r. 24 A Jeff Milchell çorrect.

25 Edwards' accomm. . 25 Q Wâat 11% d= Jolm EIIwaTILS Ilavo to Firsl Global?

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ttarnoy-in-fact7'? 1 BY M S. HAKAI .A '

A We2, tbat's a um t1>1 1. lksGl in my prx ce at 2 Q And Mn Scgeyp do you tm&e nnd tbat you remain

st once, so 1'm rqo ling it aactly as I IX'.M h from 3 undcr eatll?

, 4 A Yes, I do understand.

Q +11a1 tlœa 9: moan? 5 Q And can you conlinœ g1v1e your % st tgeimony?

A I don't know. But oncl again, tbat term came up on 6 A Yes, 1 (;an. ' ' '

v= 1 (v asionw and nobody at Nrv westovc quesuonu it. 7 Q W lzo is JM Corrcia?

I always zrliml on the t'xperGso of otlmr moplo involvM 8 A Jim Correia is an equity tradcr at Nev West.uding Mn sanos. so I (lon't know wbat tbat m ns. 9 Q W hat dx s 11e do for N> W es't s- ifically?

Q How mnny t'ustamerrq can yoa baw ie'ore you aœd to 10 A His p!imary duty is pru ssing execution of agency- r.aa ox havo lmr- opo 'wvlq to lm rrgisteaxl as as 1 1 traaex. He originally started as my a istant on the trading

estmont advisor for pxovidie invosa cnt advico and 12 dcsk, and at this point in time he handles most of the agcncy

ndung mw w for pooplo? 13 volmne and he helps me witll original entry in preparation of

A I don'l know. 14 our trade blotters. So he starts at 6 in the morninw takes

Q Di; you owr ask Mn Fzwards if 1. was xcgist- 15 phone calls, receives tickets. orders from brokcs,

an iavostmont adwxr? 16 commm icates those orders eledronically or ovc the

x Ne. 17 telephono to a clearing rlrm tmaing desk or other market

Q Did you ovv'r woae if 110 n--*-= lo lm regiseenwl 18 makcs, and es= tially completes the ordcrs.

aa inveglznont adviscr l= aux ho wmq V dling 1- 1e.:* 19 Q W as he tl,e trader tlmt handled John Edwards' sales? 20 of CM KM Diamonds stx k?

A No. 21 A Hc handled the majodty ef those trades.Q D9d Mr. Fzwaukq evm' give any -- tbat you'a aw= 22 Q W lle elsl lx dled tho rest?any indication of who he purçbav tlv CMKM Diamends 23 A Since Ilm a1s0 trader on the desk, occasionally I

k f'rfwn? 24 might be the one who take.s those tickea.

A He never gavo any s- ific indication. 25 Q Did John fdwartLq ever commtmicats '

Page 94 Page 96Q Did hm over givo any - 1 indication? 1 instruclions to JM Cm eia?

A His genm'al indkation was his rosponso to our 2 A I would say t11a1 on extrmnely rare occassons bu1

iries whellrr tbe puzchase came frem affiliau , and 1lr 3 tlm w= 6111% whcn Mr. Andcson would bc ou1 of lown, so 1

swer was no. 4 probably would say lcs tlzan trn timœ Mr. Edwm'ds would caE

Q Why tlid you ask tlkal? 5 into the tading dcsk div tly and communicate mosl likely toA Bœaus: as part of our operating proceduro wlm 6 Mr. Conda.

re de ng w1f11 a large position wlm tbcre aro queslions, 7 Q And tbat's loss 'hnn tcn timo ovtr % wbole

would Eke to get additional insurance tbat wc're not 8 m'HGI that M n Edwards :ad accoual at Ney W es't?

olved in an tmregiste distribution. 9 A n at's tbe best of my rtcollœtion, bœause thoso

Q Did il ovrr occur to you that Jobn F-dwartkq mil t 10 wcro vmy infzmuent insunces.

lv liquidaung sharcs from tbo company and nxrnlng tbo 1 1 Q otW tllan 1t:$)e instaaoeg. ave you aw= of anycods around to tbo back tail company? 12 occasien wben M n Cormia spoko dirrctly w1t11 Jobn Fxlwae ?

A Cm sidering all information available to m , tbat 13 A W itb almost complœ tertaînty, that would be in my

occurrcd to us. 14 prucnce in tlx trading room wirn Mr. Edwarlls would come and

Q Did tbat ovm' (xcur lo anyonp at Nov Wcsl? 15 Gsit tbe offices and ir would simply pop in and say hello toA I don't lmlieve so. 16 Mr. Correia and myself.

MS. HAKALA: It's about 12:30. Wily don't m take 17 Q Was anything e ond sxial grœtings?r lungb brcak now? 18 A Nox not to tbe best of my knowltxlge.

MR. GRIFFIN: Grwat. 19 Q On those œcasionx?MS, HAKALA: Off tbe zword at 12:30 p= . 20 A No.

t'Rœess kaken.l 21 Q How did Nev WY can' out its trading for JohnMS. HAKALA: We're back on tte record at ! :47 p.m. 22 Edwartls in CM KM Diamonds stocks sm cilically?

Cotmsel, do you agrcc we had no subsmntivo 23 A As the pcriod duzing which sfr. Edwards tradM CMKX

sations during tbo brcak? 24 CM KM spans ovœ, I would say, more than lwo years if my

51R. GRIFRN: Yes. 25 mmnory dœ sn't fail me, m bad tllrœ different clearing f'rms

ju . jug; j)6 EXHIBIT 3 Page 15 of 23 R tsev Declaration Page 80U mya rl ,

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1 dming tbat PY IKI of time. So tir way we executGl tradœ l * ?

2 diff= l dw ding on tlr procedu!w in phce al tlm time. 2 A No. lf wc'm narrowing this down lo tlr time wlm

3 So orignally early on in 2003, I would say tlmt mo:t of tlr 3 we had to nm X clenrlng trades, tbe majerity wcnt tkougb4 mdars simply wcnt lnto tbe trading routmgsyse of tlr 4 Jeffreys and Empire Financial asd a vcry small amount though

5 ckaring rzrm. Iaau in 2003 early 2K 4 I don't '' '' ''''ber 5 wbat's now Hudson Sœurities. At tlx time tlry might % ve

6 speciscally, but m migllt bave commtmicae de tly w1t11 6 10 Wern. '

7 otlr markd makcrs bœa e wirn you execute o (los in a 7 Q Hew waK tlm A ision ma* of what sbalo wo'nl

8 parucular issue rm luœ uy, you * 11 notko whicb 1a+ 8 tlœougll Joffx'ys. w:at shn- went Fx pia ,aud what

9 whelœalc marku makcs handle hrger vohxmm so you IMVO a 9 m1:- -' - went Hvdson?

10 tmtlrr clhanx of aecuting if you go dlrecllylo a particuhr 10 A That was mœtly base on, numH 011e, willinplœs

11 markd makc. 1 1 of a company ta, you know, accet a tIUIIO of a 1- sizo X

12 And oventually -- I bad tlr prolone discussien 12 clearing. And witb Mr. Edwards' kansacuong, m would13 earlier today abeut 11Y*ations rtsulting from cle ng fund 13 typically havc a vn L'V position t1m1 lypically could not

14 doposits rw uirementg at MSCC. Since m could do only X 14 get fillcd in a single day, so we would crwnmunicate to

15 clcazing tzades in tbc amount consisa t w1t11 Mr. Edwards' 15 Jeffrcys and Empim on 11, same day tllat m weuld lmve stock

l 6 ordcs, during most of tlm 2004 tlr majority of volumo wcnt 16 for sale in sucb and such a quantity, and tlzis would lm our17 tlzrougb Jeffx'ys & Company in Now York and Empire Financfal 17 limiî price. And depending on how mucb œch of tlv housrs

18 Group in Rorida bœausc tboso wczr tbo only two heusos m 18 would bo able to 511 us, tbat would bc tbe altocation. And

19 km w tlzat would accxpt h1. ordcs for X clezm'ng 19 voxy Ettle weat to Hudsen becaurse iludxm t!- felt20 processinp So tlv choice was bare Gclusively on tlr fact 20 comfortable w1Q1 lazge sizcs and tbcy evenlually couldn't do

21 that wo could not trade tbat kind of volume with anybody 21 trades X cloaring. So Gsentially the allcation of sales

22 olse. 22 wa& demand driven; if Jdfrrys could SIk say, 20 million, a

23 Q Ploase YII mo mom ahmt tlm relationqhlp etwcon 13 hundred million on a givcn day, if tllat met our limit pricc

24 Nov W est and Joffm'ys. How did tbat dovolop? 24 pnmmœ rs, we weuld fill that order

25 A n at relauonship, 1 beliom (lau back to 2002 at 25 Q Who at Joffx'ys was Nov West in toucb witl,?

Page 98 Page l0

l least. Evcry wholcsale kading house, to tbc bcst of my l A Chr primazy conlact is Alfonso tm tini. I beliove

2 lmowledgc, always triçs to sr.cure agency busix ss from small 2 ho was tbe principal guy tba! led tl!e tmm from Hamtegovc

3 market makers, small broker dealers likg Ncv Wres't, and m 3 to Mcrill Lynck Ncw lersc'y and finally to leffreys. Bul

4 frcquently get phonr calls from cssentially -- I cannot say 4 tborr are multipk traders. n cy'rc OTC deska I think,5 every m arkd makc, but I probably have memoly of at least 5 consistq of at lcast ten peoplq so we communicau w11 a

6 20, 30 phone calls from differcnt markct makcrs trying to 6 number of tbem.

7 secur/ business. But it makes sense to direct blzsincss only 7 Q Arc '1<m any jm onal rdalionships lvtwccn Mn

8 to 1a1> houxs lvcause that's where you do gd quality of 8 Lontini and anyone at Nev W :+7

9 cxecudon. 9 A No, no personal mlationship.

10 Jeffreys & Company is a large brokerage house, and 10 Q Who al Jeffmys kx-w ldow Nov Wost wms gelting 11m

l ) tbeir OTC desk has tremendous amotmt of experiencc in tbc l I CM KM Dia onds cmrtificatcs?

12 over-the-countr bulletin board and pink sheet stocks because 12 A To tbo brst of my knowkdgc, nobody.

1 3 I believe most of their staff came ovcr from what uxd to be 13 Q Wag John Edwanks' namos evm' mantione lo Joffreys?14 Hairtog, which was one of the largcst market makers. Before 14 A l'm not aware of any such inslance.

15 tlxy went oat of business, they became Merrill Lynolta Nt'w 15 Q Did anyono at Joffrcys ovcr ask Nov wosq or aayox16 Jersey, and th% finally Verrill Lynch shut th= down, se thc 16 at Nov 'Wost how it camo to llavo so many thn-q of CMKM17 teazn came over to Jeffreys & Company. 17 Diamonds stek?

!B So Jeffro s & Company traded large voîmnes, l i: A I (lon'llhiak se.

19 believe that originally startrd in convcsations lxtwœn 19 Q Is it u111z:1hq1 for ox brokc doalc to llavo s'Ilch a

20 th:ir traders and Mr. Correia as he handles most of tlle 20 higll volumo in a parucular oertificae?

21 agency trading busîness, he's the onc who's on the phone w11.11 21 A ln my experience it's not mmsual

22 otàer market makers the most, And oncc Jcffreys indicated to 22 Q Did Mn Ixntini OVO'T oxpmss asy opinion #o you23 lzs that they do not have a problem with X clearing trades, a 23 ahmt tle issuor CMKM Diamonds?

24 lot of CM KM trades went through tht' . 24 A Can you lm morr specific? W bat do you mean by

25 Q Are tlley tbe only N son tbat Nev W est did CM KM 25 ''opinion?''

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l Q WH e alng i-- 'o- did Jobn Edwards #v@ 1 Q Why didn't you z- odak tlm contract at thl2 xrgarding Ms accolma? 2 lxgilmillg of 2(K)4?

3 A I rm cr spœiscally ztredm l any instnzcuons fmrn 3 A Bad businas judgmenty maybe. 'flrre was notbing in

4 Mr. Edwxvds, se my knowhlge of tlè Lq ba* on trade 4 Mr, Andœson's contract tbat would havejustificl a cbano of5 tkkots and tbo crvnrnunicauon fzom Mr. M derson. Typically a 5 tlr payout structux in favor ot !lr rtrm, bccatlse at all

6 position in tlv account would lx) available for liquidation 6 h'mex m consv!envl Mr. Edwm'ds as a grtat lar& client buî

7 subjœt to a limit prix My undœsanding is, lv would not 7 tbe apvement 11m1 was in pl= was tlr ag= mcnt tbal m hatl

8 cnmmunicato it to mer but Mr. Andcson would relay to tir 8 in place.9 lrading desk tbat tbis is tlr taro prices tbis is wlmre 9 Q And you don't H ow Eow Mr.Anœ---' ' cax to have

10 wo'rc trgng to x11 so a ce in 11* prico or bottcr, 1() Mn Edwnedm as a cuslomor?11 om tbe course - 11 A I don't.

12 Q Were lobn nlward:' * Mnvolitited? 12 Q Did Daryl Aarkx m know John lealr Daryl1 3 A Yœ. 13 Aniu S'nHZ',I workiog at Nov Wost?

14 Q Wbat did Darxl A'' *''' 'n da to oarn his ono mént 14 A 1 already answe tbis que on. I don't hlow. I

15 = 1cth1e million dollam that ihe enx''ee *'' '' John Fzlwm lM' 15 bave no reason to bdievo tbat lr did. '

16 accouals? 16 Q Hm you ovmr :ad any roasos to lmliovo tbat Daryl17 A W en, if l may say so, tlzis is not a matkr of 17 Ate rxon lla: aay mlbennce ab> pzoblmns?

1 8 monoy but a znatler of particular Gecution. A lot of traclœ 18 A No.

19 in CMKM Diamonds w e done in marks witb significant sp= ds, 19 Q Hax you :ad any ztason lo doubt Mn Ane en's20 and a spread is the diffezrnce bdwccn tlx bid and tlm ask 20 inkgrity?

21 prico. And most of tbo cœuGons for Mr. Edwards were at 21 A No.

22 tbe tlffm', And for erxnrnpley ir a stock trados at 6/1001 of 22 Q Have you cvc had aoy reason to lhlnt' llo':23 a m nny on thc bid and 7/10* of a m nny on tlv offc, tbat 23 (Iishox st?

24 spread is aboul 12, 13, 14 N cent. So tlx diffcm wo lbat 24 A No.

25 tbe customc gains by sdBng at lziplo zco six as opposed 25 Q Have you rvor -- what s% s did you 'nlet to find

Page 106 Page 10

1 to kiple zero scwen is more Qzan sufficict to compensate l out :ow mue.h Joha Fzwxva. hadpid fpr * CKR M Diauxmo

2 for any additional cost of lrading. 2 xloçk oat lIe Ilad acquie ?

3 So Gvc N cent commlssion always factored in tlle 3 A we never look aay se s to esxabssh sw cifically

4 1- amotmt of trading, lhis was mmsual, 1- volume 4 wbat he paid.5 transactîons tbat wcre donc closc to the offc. So tbe 5 Q Ditl yoa evertake aay stem lo rfnd out rmxvally

. 6 çustomc was rxoiving signirxant benelit of t11a% and in 6 what 1= paid?

7 everybody's opinion wbo looke at itz to tbe best of my 7 A No.

8 kmowledge, tba! justificd lhe fivo mrcent commission. 8 Q Did you qrv- axk Mn Fxlwavds whll 1ze lle mid for9 Q Maye 1em -- lot mo try to msk you tlv quostion in 9 the Mock?

10 a diff= nt way. h solmtls 11W Dal'yl Andmxon m rsonally 10 A Ne. '

1 1 didn't do vcry muç: lm qur.o all tlm tr'atlos wc unsolicitGl 1 1 Q D14 Mr. FXI- o evcr e- muaicate to you wlla: be

12 and it was Mn Conv'is whe was achmlly hautlling lho trading 1 2 -14 fox tlxr Mxk?

l 3 and Mn F-dwards was bzinging in all tlm Krtificalos and so 1 3 A No.

14 forth. Hut it sonnam liko Daryl Axldorsop ew.''re woll ovG a 14 Q Is tlmro any wxy fhaî you know of to riad oul bow

15 million doBars from Jolm Fxlwards' lxados. 15 mucb Mn FXI- A paid rog lEe s:oe.k716 A n at is correc and tbat's an tmforhmate 16 A No.

17 consmuence of the cnmmivsion strucmre. It's sometking tbat 17 Q Have you ever = a Mn Fulwards' tax zvqt% s?1 8 I N sonally do not s.œ llow tlr amount itself would be tlm 1 8 A I have nol, but Mn santos repzqsented to = tbat

19 basis alone to adjust tbal. So tir arrangGnœt, tbe contract 19 lp presented his tax zeturns to him in an offix And20 tbat Mr. Anderson bad in placo at lllo time warrante that 20 accoyding to wlxat I renxm-r

,tljose tax zemms mflectefl 1he

21 payout to him. So if il wore $10,000 $100,000 or $2 million, 21 proceeds orsales of CMKX.

22 11* was tlx commission slructum lhat applied, and - 22 Q Did Mn Saatos keep a copy of tlkox tu wtuas?

23 Q Wmv Mr. And> on's contracls dnM on a yoarly 23 A I dou't kaow.

24 baqis? 24 Q Did you rvrr axk My. rianlos to sbow yeu mrxaally.25 A Ycq. 25 a oopy of lhox tu zvturns?

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Page 109 Page 1 11A No. 1 to tus it appeared that considering Mr Fxlwards' relationship

Q W lyca did M r. Edwards *ow Mr. Santos ltis tax 2 toœch of llrtrusl, hewould % consi- in ag- te

tmns? 3 tilo control shnmhnlH. So tkat roulul in nzvtm'n ' A I don't know. 4 inquiriœ and cfmmumv!ation wit: 11. SEC and 1 beliove maybo

Q W hcn did Mr. Santos III you that ho ltad r.ern M r. 5 ollrr regulators and tlv effœtive halt on Mn Edwards'wards' tax rcturns? 6 trading in tbat position But Laura Antbon# *as tlr autiorA I do not ntrnemlmr specifically, but I would say no 7 of tlnt atlorney epinion.

erthan tlo mlmmcr of 2095. 8 (SEC Exhibit )35 was marke forQ Did Mn Santos kII yeu anytlling else about the tax 9 identificauon.)urns? . 10 BY MS. HAKAI.A'

A No. 1 1 Q I'm showing yopwul bas 1- mzerled asQ Why did M n Edware sbow Mr. Santos bis lax 12 Govcrnmct's ExMbit 135. R'xhibit 135 ig aw ns? 13 dtmumont, a kma' to Mn Antony rmntos dated Fobzuary 22<A I belirvo that was the ms'ult of condnual 14 2005

.r Laxma Anlony. Is lltis tbe letler you wc

izies that Mr. Santos kept making to Mr. Edwnrdn and 1 15 rororring to a momot ago?

liev: that Mr. Edwards vollmtœred to slmw thox tax 16 A This is Gaçtly tbe lotter

tuns to Mr. Santos. I'm not cv nin, but l believe that 17 Q And did you rcccivo thi: lotlor xmnnd Fobrmarythe oase. 18 22n(1, 2K 57

Q Hms Mn Bdwards, as far as you know. lver shewed 19 A n at is cor= t. We lhwe fax marks on this Exhibitr. Santos any other doctzments in R sponse te inquiries? 20 135.

A NG to tbc best of my knowledgc. 21 Q Uh-huh.

Q W = you surprise,d to lM en tbat hq bad shewn M r. 22 A And actuazy tlr fax stamp is Aum t 31st,2005,tos tbe tax renarns? 23 so ''

A No, I was not. 24 Q Thig may 1v wlvn it was faxetl lo nw. n at fax

Q W as it your uatkrstandmgtEat M r. Edwards wms 25 stamp znay lx$ wbon tbo lote was faxtxl te mo mq opposod to

Page 1 10 Pagc 1 12

ng monoy on tlm sala or losing mox y on tlm salos of 1 wben St was provie to Ncv W osl I don't know. but I'm

KM Diamone stœk? 2 just --A 1 dun't know. I cannot YII ont way or anotlv . 3 A I don't know myself bu1 --

Q Dld you eve:r ask Mr. Edwards? 4 Q I tMZA I xmztombor that. but I don't want toA No. I didn't. 5 smculatc.

Q Did 'you eKr ask Mn Andorson? 6 A l VII not question 1lr fact tbat we received tlrA No. 7 1e* shortly after it hvas issucd A ause tbe incidcnt with

Q Wby nol? 8 Eklta Mining and Explorauon, in my xnmnory, dates back moaA Bœ ause in a low price stock environmen: what 9 tban a year from today's tlate

. So February sounds accurak.

ple are trying lo achiove is lnaximum proce s from scllins 10 Q '1Ye fomtb lino of tbo letœr rofors to tbo tradingir posiuon, bœause a 1ot of tbese su ks migbt lose l l entities. Do you H ow what thex trading entitie,s are?

uo ovc nigbq and h's not how much you makc but bow 12 A Fourth line?

lo you lose in liquidating a position. So differenl l 3 Q Of tho 1011%. 11 rvays. ecolloclivcly tlv a dingllavo diffcrent goals and it's not a custom for sucb 14 ontitios-''

icie liquidations to be subjœt of inquiries whetirr 15 A 01z, ''collœtively the kading cntities.''icnt is making or losing moxy on' tbat

. 1 6 Q But il dœsn'l smcify whicb particular trmœ andQ Who's 1-ama Antlmny? 17 corpomîions. M at was yom' untkrstandizlg?A Laura Anthony is an atlarney, I belicvq wh0 18 A At tlm time l received tbis ldtcr

,I had spœ ific

de Nov We'st with an attornry opinion on DMXP. I 19 knowledge whicb atcomm hdd slh'kres in IMlu Mining and

licr mcntioned tbat. 20 Exploration. So in my mind tbat referred sv ifically to

Q '1Yr Ixlta Mining? 21 tbose acceune,

A Dulu Mining, corrœt. That was 1l= attorncy 22 Q If you oould hold onlo tbat, 1'11 show you anooernion that I referred to carlier wirre Mr.Edwardç 23 tlœ ument.

sitrd what appoared to be a position exccding ten 24 (SEC Exhibit 1 36 was marke fercent of issuM and outstanding sharu in œ lka Mining, and 25 idontificatiou.)

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l trust? 1 Mr. Sane had with Mr. Edwartls, tlxl que on was . . 1,

2 A lt's not a corporation. ''Inc.'' i: A t pars of tbe 2 'm at is tlm busin>s purmsr of lhaving diffx t accotmtqr3 trust name. 3 And 1 ie rve tï answ was, 'Those accounts stand for

4 Q Wsat d= 11m1 -- Whywmlld you Kqw i' t:at way? 4 trusts w1t1: diffemnt be ciaùœ.'' So tbat was, I5 And wlly wtmld a 1n1s1 havm aa Ixm. 1= 17 W àat dtv that 5 beliom tlv only aplare on givc to Ncv West

6 ? 6 Q Ilid Mr. S=tOS kII you' lat?ROR7 A I don'tknow. 7 A I itlieve se

8 Q Did yop ovG ask Mr. Fzwards? 8 Q Okay. I'm a Hltlo cnnfne : lv amqe a minuk ago9 A No. 9 I askedyou if youie conczœ knowle of tkat ar if tbat

10 Q Did you cvér ask Mn EdwaKds alxmt tbo pm- 10 wasjmst your as- ption. and youjmt said it was your1 1 e IUI apy of 'lw- ent;ly -- any ortbe cntitjos that ho 11 asm= ptioa. Now it's a ding liko M n Sane ac- lly teld

12 tontrollod? 12 yœz lbat

13 A W o novor asked Mr. Edwards spœitkally about any 13 A Nq my assumpuon, I bolirvo it was in a sEghtly

14 of tir e * . 14 diffx t context. I'm trying * remmnbcr cxacdy what h

I 5 Q Azld my last quostion il if you ma mally did - 15 was. I don't tbink it'; in conflict It is my assumpuon1 6 aro yoa awazv of aayox at Nov W e,st > > nqklng MT. Edwards 16 ,1n1 tbis busin>s purpœ of Mving different trust

17 sm cillcally about any of tbo çntili> tbat lm controlle ? 17 accounts, and my agsumption is based on some irlfnzvnnuon tllat

18 A No. 18 1 reccived in my convcsaùon 5v1,1: Mr Sanlos. So 1 don't

19 Q You*vo mqid tbat tbe b-ix's: purpox le ind having 19 sœ a contradicuon tl= .2: all tlloso KaIHIimS was W aux of tliWereern: l- fiçiarims. 2û Q + 1-1 I#m lzying Io ligïlre out is if you ikavo -- if21 A n at was thc businGs purpose apparvmt te mt. 21 tllore's any ovitkncm supporting thal mqsumplion or if tbatks

22 MR. GRIFFIN: I Q;IIIQ the question you aqked ls 22 jxlsl you lxking al it and you tlkie ng. mO11x that znust 1=23 could lr oxplain i: and he said tlmt he th):1g,11t that tbat's 23 why lv did its- vx suvnobtxly told m u thaq you saw

24 1% casc 24 dœumexlts saying lllaq ar llnmctking like tbas

25 MS. HAKALA: Ol(ay. Tbates fair. 25 A I have never sœn a dtxpAmen: but ençe again,

Page l 30 Page 132

l M R. GRJFFIN: W llotlrr he has actual knowhlr is 1 apparenqy Mr Santos had a convtrsation witb Mr. Edwards on

2 anot> matu . 2 onr, maybe morc occasions. Appamnqy tbore wcrc

3 BY MS. HAKALA; 3 repz=ctations to tlr effwx tbat tlrse trusts lm e

4 Q 'lYat was actually my m y xxt qo tjon wa: to 4 diffx t ivneliciaries. And having this informaKon,I

''Wellclarify. Was tbat an mqsumpuon on yom' pam or did Mn 5 could look at tbis and make my own inferrnce tlxa: , 6 Edware evc rsay tbat tlmx wœ difftrrent l- ficiaries? 6 tllis could mako sensc.'' So tbis is a personal assumption

, lA Timt s an assumption on my part lv ause as I said 7 lbat to zrm ma1= scnse but h also has supporling -- it s .Y

8 1 ncver N sonally discm sGl witb Mr. Edwards his busi= s 8 not doclxmentary evidence,but representations of Mr. Edwards

9 purposœ, but that was my undcstanding of represenlations 9 sœms to suppon tbat assumption.

10 made. ' 10 Q Wbat 1G1 Mn SaaYs to ask Mn Edwae aboyt tlkiv?1 i Q Ditl anyox at Nov Wost ovœ ask Mn Edwards why lm 1 1 A As part of Nov Wrst's compliance with ntw

12 lmd 40 diffc nt account namta? 12 anti-money laundming zules undc lhe Pattiot Act every time

13 A I'm sorzy. C-an you rcpeat tbat? 13 tllcrc is a transaction or a pattern of transacticms tbal

l 4 Q According to Iwhlbit l3l if you'll 14x)k on tbo 14 slands out iu tbe busiriess practice of a breker dœler, tbat

15 socond pago, Mn Edwards had accounts in 40 tliffcronl namos. 15 mim rmuixr additional scludny. And based upon tl!e16 n at's counting as * umo wY n accounts gwilclxxl ovor fm m 16 conclusion of review and tbat additional scrutiny

,tbat

17 W clls to CCS. tl- werr 40 diffcrrnt accezmt nxmcs. Did l 7 brokœ doalcr bas to make tir call whetbcr to rrport

18 anyoe at Nov W cst ovcr ask Jolm F-dwanh why lm v epexl 18 particular transaction or pattcrn of tfansaclions to tbe

19 accounts in 40 diffcrrnt nnmcs? 19 Ekpartmrnt of Trcsury. So this is wilat Nev W est was Joing.

20 A 1 don't believ: anybcdy evtr asked 11m spœisc 20 And in tir cotlrse of complying with that particttlar

21 quœtion. 21 reqnirtvnentjMr. Santos was interviY ne Mr. Edwards :nd his

22 Q Did anyox over ask - frnm Nov West eVG ask Mr. 22 aRornoy Slv wood Cm k.23 EIIwW % gonozaHy w:y lm omntxl so many difforenl accountl? 23 Q M at did you know about CMKM Diamonds?24 A I'm gcing to try and answer this as spœijkally as 24 A At wlmt point ia timo?

25 possibye. ln tlv courso of tbe convcrsations that 1 IXEt'CO 25 Q ln 2X 3 alzd 2004.

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1 ()r anylbing of that sort. So -- l Mn ffzmk to =bslantiate Ms vi- : w1t1: 11= reasons ho rmvno

2 Q Did you bave any - I'm = y. 2 te tlloso conolwiozw?3 A T1xre was a combination of fac- tbat œ&entially 3 A Bœause 1 tnkst Mn Santos. He is my par- and

4 drtw substantial scrutiny to Mr. Edwards' adivity but nrvor 4 gmlrral counses and if be rtporls R) me tbat information

5 pase tlm tlzreslxlld Ijust described. 5 providd by Mr. Cook is sufficimA I leavt ît at tbat.

6 Q Did Mn ff.re ec givo you any agx/monr,o otber 6 Q Now, in 'zvenm ef talkinh to tlm lransfœ agont7 tban tbe 1,41- that I - you mrlicrltxlay? 7 wkat vx lly wmq asked of tbo h'A-for agont?

8 A J nevœ N sonally spoke w1:1 Mr. (7œk so I'mjust 8 A ldonetknow.9 judging on tlm basis of represene ons xnade to me by Mr. 9 Q *11a1 oxactly did tllo transfcr agont cnmmunicae10 Santes. 10 back te N> W -t;

11 Q n at elso did Mn Santos say tllat Mn fx.re said 1 1 A 1 don't know.

12 lvyondthis lm e? 12 Q Solow did youzr,ly on tlmtrxnsfer agv'nt?

13 A My enemoây 1l= best of my v onYtion, Mr. Santos 13 A 1 reBed on Mr. Santos who commnnicae w1,11 tlr

14 jusl brlfly qummarizcl tbat Mr. Cxx)k indicaul to Mr. Santos 14 lransfœ ae t.

15 that 'ng was in complianco 11Q1 tY applicable rttlo, 15 Q And wlzat did Mn Santos xw rt bek lo you?16 mgulations, and Mr. Edwards bad cleared jt. 16 A Mr. Santos mportod back to nze 11m1 1. askod tlle

17 Q Did Mn Sanu over cnmmunicate A) wa tkat Mn 17 lransfc < : and I brliovc 1le spoke witb Hrlen Bagley, be18 Cœ k bad gex ino aay M >11 of 1lle factors tllat :ad 1m1 hlm 18 askul if slr can say with ce inty that Mr. Edwards'

19 to t:at çoncl- ion? 19 certilicau didn't como from tlr issuor or aflisates of tbo20 A I had no'vœ hard any dotails, so Mr. Santos nt'vc 20 issuc. And tlv answer 11m1 l1e r= ived according to wlmt ir

21 çemmunicae any deails, and zvitirr lm indicae tbat H . 21 x'pmsonted to mo was absolutely not, tbey did not come from

22 Cook did. 22 tlr issuer or afj-zliatcs.

23 Q So your ue%zlerrvvnnding i, tba: Mn Cm k x'vc 23 Q How did Hol= Bagloy H ow what Mn Sanes Inoant by

24 provie any * *11: substaatiating bis e izon? 24 ''afliliate ''

25 A No. Al1 I know ig tbat Mr. Santos did not providm 25 A Once arain, I beli- thats witbout knowing with

Page 154 Page 15

l mo with information one way or anodm l certainty, slr hadjust liko any transfer agcnt wou!d have,

2 Q Did you ask Mn Sanu ? 2 attorncy opinion letlers substantiating transfm's of slock.

3 A No. 3 Anll I belicve tllat was the basis of ber conclusion.

4 Q W= you conv- ? 4 Q Did Mr. - t0$, as far as you know, ask Helon

5 A No. 5 Bagloy if 11- were allorney lctlors suppmling tlm transror6 Q (Xlmr 'hnn tlm fact tbas Mr Cœk had a prier 6 of tbe stœk to Joim F-dwards?7 apm înlmcu: - mior mnployma t position tbal you viowtxl aa 7 A I do not rem> ber.

8 pzrsligiou. was fhe- any v son to giw Mr. Cœk's viçw any 8 Q Was it your undorstanding tbal #herra worc attonmy9 mom weighl 111= a guy on tlm st- 7 9 10- supportillg làesm transf= tœ ?

10 A WG tlm was anotW tkirig tbal Mr. Santos 10 A 1.41 m: pu1 this in time mrspœtivc. It is my

1 1 indiqate to me, notjust his prior posidon w1t17 a 1 l understanding presently. ln 2004, I don't think l had any12 ngtdator, apparently Mr. Cook pv ently is employcd witb a l 2 knewlGlge or opinien onc way or anotH .

13 prestigious law f'n and l tllink repu&alion is a big tiling 13 Q % 41 what' : tlm basis for your untlerstanling now?14 in tlr 1* 1 community. So that was thc word tlkat I received 14 A Bœause I bcliovc weeve askM that queeslion a

15 from Mr. Santos. 15 couple more times since 2004.1 6 Q So tbe fact tl'al lm werkM for a ge 1aw fvm aod 1 6 Q To whom?

l 7 uRd to ikave a ge job was onough to mly on Ms viows? 17 A First Global Stock Transfer and spœilscally Htltm18 M R. GROFm : I tllink that znischaracterizes his 18 Bagley.

19 atimony. He said pmstigious Iaw fmn. 19 Q W1* did sbo say?20 MS. HAKALA: Okay, Prestigious law r'rm. which 20 A Once again, I dldn't speak to her div tly,bu!

2 1 acmally may be a diffx t thing. 21 prcenlly I belioe 111% are attorney opinion letters

22 'IHE W ITNESS; Honestly, I do not know what elsc to 22 substanliaung transfer of cm4ain shmrzs inlo 1l= nazne or

23 lzse as a reference for a lawycr. 23 beneficial om mrship of trusts controlled by Jolm Edwards

24 BY MS. HAKALA: 24 Q I'm IIIK quilo sua llow to phrar.e this. Has tbo

25 Q Wlly didn't you arkk Mn fY.zmk or Mr. Santos to ask 25 John mlwards iss- and tbo subsmuent rcgulatory scrutiny

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Page 157 Page 159''- a significanl i- for No'v West? My follow-up que on 1 (R= s taken.lto 1= why are you baving Mr. Saatos TnoW all tlm çalls 2 MS. ' Okay. Back on tlv rœord at 3:32 p= .

a of aeu're it yom=lf andje xlm' g en Mr. Santos? 3 (7.0=01. shortly lmfore wo rcslzmed tle zwords you 'On= again it'g going to 1x lzard for mo to plvaM 4 indicaled yeur cle wantcl to clarify somezbingg ()t* .

responm but on one l0vel it has htz! a siN ificant 5 than tlmt, did we havo any substanïve conversauons?

oblc bccaux it's not going away; on tlm otH handp 6 MR. GRIFR N: No. ''

odys afu a2 Abexe monlbs, almost ycars, afe all tlr 7 BY MS. HAKAI .K

ks tlmt we've bad witk NM D in particuhr. haq m?er 8 Q Mn - what wonld yol 14 to darify;ifiedy put down on llamr what m miglït have done m'ong. 9 A I indicae that the NASD novœ put anyfhing in

amso to tlr bot of our knowkdges and x 'zr absolutezy 10 wridng. Wihal 1 need to say and meant to say is tlry nevœ

nfidtnt tllatm'Gy applicable zule in tlzi: partkular oasw 11 chqrged us with anytbing in writing, V aust Qxrr is

I don't think we'm missing anytbing, bm we did net 12 cono pondence lhat indkae A'm q of conc= of tla last

ak any rulo tbat m know of. And m 'm laken skp: going 13 audit And vczy early in tlm u timony today 1 outline

ell bomnd cf wbat would be qxpectcl from an averagebroker 14 lboso four m s, so obviously tbars based on written

ler in tbis coantry, oaco aFainy to tlw bot of lmr 15 cormspondencc So inslead of nothing in wri*ng I mcnt to

owledge, so it is our belir,f tbat m have done what m had 1 6 say tbry have not chargtxl us in writing.

flo and 1- 1m mom. 17 Q Have you ser.n a copy of tllo traascript of ytmrSo tba: rrgtllaklry scaminy for us has mostly bœn 18 u timony witb tbe NASD?

pmzlo in our lralls jllst in tbe sense of what could 19 A No.ssibly have been - like wbat coukl wo bavo dono wrong? 20 Q Do you rtanomlx)r ytmr testimony w1t11 tlr NASD?

auso to tbis day we have no ovie ce tbat Mr. Edwards 21 A That was about 15 monls ago,bm I mon, it's ll1e

mself has deno sonwthing wrong. bœallse wo've sœn all 22 tzutb, so --

ncls of actiens, as I mentionc against Urban C-asavant, 23 Q l.cl me -- what I'm wondering. I'vo had tho

MKM had tbeir e stration revoke. So wo've scen all kinds 24 oppnennity to reviow that traascript, antl 1'm thinking tbatactions taken against tlr issucr m 'Me nvwc sœn 25 tmlay wo can savo a lol or timo that if I can assmno that

Page l58 Pagt 1 60hing don: to Mr. Edwards v onally. Ta tlzis day wc have 1 your answors to tlzo quostions posod by tlv NASD aro t:o same

bad any documcnted evidmwe pztwnu l to any of us 2 ms you would answor tbose qu tions kxlay,j don't nexvl to go

dicatinp jusl cbatlenging tbat opinkm. Even looking at 3 througb a 1ot of tho background stuff of informaliom h

transfc she , bœausm I sœ tlzis for 11r fzrst time 4 tbat --still -- l don't know wbo Dalo antl Max Casavant areo but 5 A n at is a goqxl assumption. Y>.

reading these names do not yet asccrtain to me tlhat 6 Q Okay. Just sa= a 1ot of timo tnxlging through

y'm in facl. affiliau of tbe issuer. So to tllis day 7 tho tnmo stuff ovor and over agaim W ho svm rvisGl Daryl

re jusy in O dark and wondœing. 8 Anlkfson?Q Has tbo NASD indicated to you or h) Nov Wost tbat 9 A Daryl Andrrson, lming a retail broker during tlm

's considezing suie Nov W Y ? 10 thne undtr review,was subject to supervk&ion by Ram ond

A 'nry indicae to us tlry'm censidcring Anklng ' ) 1 Dillon supmwisor and uhimately subjct to my sujm isionsciglinary action, but nover indicatcd th% were suing I 12 as tlv pruident of tir fzrm. ADII obvieusly tbat's you

n't tIIiIIIC tbal's an optien initially. Arbitration is tlr 13 knew, a vertical 5ne of command,but ir wc IIIC about

occlure llmt would havc to follow. l 4 functional areas obviously we had Mr Santos wbo, as a

Q 'l'lloy'x indicakxl tkat tilcy intçod lo pursœ 15 gencral counsel, is in charl of genrral compliance issues insciplinazy action? l 6 tbal respect and Mr Andcson was subjem lo Nfr. Santos'sA n cy intlicaled they intend to pursue disciplina!y 17 supn ision. I am tlr senior trading supn isor, so in

ion, but tlry nover put anything in writing after montbs 1 8 cmlain alm s of trading,1 wottld bave div t autboHty in

d months of indicating tbal. Ticy indicae that te us 19 supefvisory matu s

l 5 mopllm ago originazy. 20 Q Wlm -- llow did Nov WY sqlporvix Daryl AntH son to

MR. GRIFHN: Could we take a shon blm k? 21 mako xmo tbat ho was accurately convoying trading

MS. HAKALA: Oh, sure. 22 instructiens to the trading * k?

MR. ORIFFIN; lf tbat's all :111. 23 A n at was my v ponsibility. And sincc we're such aMS. HAKALAZ n at's fino. Off tlle Tecord at 3:25 24 small f-lrm, tbere is no chain of delivm'y

,so tlle only way

m. 25 Mr. Aadcson communicated trading instructions to m was by

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C Diam onds M uld-pageW Sergey kum yan-,4713/0

Page 1 61 ' page 16

1 dolivming a F:N e ktt m' calling a sm cifk irismxtion l (11f1 not know it was a mail drop. And esxnlially now we do.

2 1. Now, we novc smcifically verifid the validity or 2 Q How do yoll hlgw wbat Jo% F.rlwe I' hamo address is3 wM her instrucuons were corrœtly convom l going back to 3 A Bœause wo vcrificl it from his drivc's licensc

.

4 tlle c5< but as Mr. Fxlwards was an activo client w1t11 a 4 .*rXI I bolkve Mr Santos miFht havo 'Aen additional sttps,

5 1- ntunlmr of lradlngj and bc wottld receivl stalemenls and 5 but --

6 confuznauons at all tkncs, D'VH l1xzn. and lr was a 6 Q Do you know whœ tly- ' n'aaltional vtop: = 17 faquent visitor to tbe oflicq Mr. Fzwards ncvery ovm' 7 A No.

8 que oncl whe.hv his insmwtions wc relayed in an 8 Q How do yoa t'n- tlm oaa- s on Mg dzivo's lirwe-9 inaccurat mannc, So since iv ncvc raised tbe que on 9 is Ms hnmn aaa- e?

10 like that, tlx:fe was novc a need frem my perspective to 19 A 1 (lon'l know,and I'm not aware of tlr spœific1 1 verzryany instrucions sv ifically. 11 steps tbat we migbt or migbf ncl havc lnlren lo vtzify tbat

.

1 2 Q Did Daryl Anœ--- ' - mevAlvo any comlvnsatien 12 n e revionv of Mr. Santog in my undersunding, e k - tlr13 ot- - fnwn Nev W ost otbrr tbln cnmmlsxion: on his M aezq? 13 çonclmqion was y%

,that was Mr. Fzlwards' hmne ad- s and

14 Did llo havo a salary or anylhing? 14 tbat wmq sufscient to satisfy our clulomer identlficadon

15 A No. 15 rmltilunontq

16 Q Was lle mimbursml ferhig lxmnsos? 16 Q Did mœt of* . Bdwards' acr.romW ux Ms Sœial

17 A I don't bolieve le v'vc was for anyœ ng. 17 recurily nmzthx'?

1 8 Q Ax you aware of any otH Rlationship le w= 18 A I do not know tlxat.

19 Daryl Ane on and Joha Bdwards otH tàan actie as hi& 19 Q Did you = 1We! any so s to cW k and = what20 brnkev? 20 Kmial Socurity numlmr was *:jwl on tv accounts?

21 A No. 21 A No.

22 Q lfyou 11> to Exhibil 131, whic.b is tbo acrnnnt 22 Q Did you - have yoq o'vor discme w1111 anyox whal23 lisq you'll nolc tàat znany of John Edwards' accmmts àave 23 Social SooUlity numlvr wml n=xl os tbo accountq?

24 tbe umn addregs al 75* W esl Lake M= d Boukvard. 24 A No.

25 A Ycs. 25 Q Would it mlrprise you k> 1= Aat John Fxlware

Page 162 ' Page 164

1 Q Wox you aw= of that in 2003 and 2(K)4? 1 ural Ms > ial Socurily nxlmbcr on many of tlm accounts?2 A l bœame familiar with an igsue witb tlkis address. 2 A No. Acmally this is slandard praclic: in many3 W@t around the Iime - 3 cases with trusts

. I belirvo I've strn tbat Yfore.

4 Mlt, GRIFFm: Answc tbe question tbat slx asked. 4 Q W I- tbo enzqrle- ux's Ml own Seial SKUIY5 W1m1 was tbe question? 5 numbm'?

. 6 THF, W JTNESS: n e answc is no. 6 A 1 beliove I ilavw I'm no1 lK percent cA in, but

7 BY MS. HAKALA: 7 it does not strike mo as snm-bing untksmql

8 Q You Y d you W ame aware of an issœ w1111 œis 8 Q Dœws Nov Wost haw an outsido law Ftrm thal it u=

9 adG ss. W llat was tbat issuo? 9 to Gonsuls < t11 on zrgulatory issx ?

l 0 A ln Februazy 2005 wlx'n tlm SEC was in olzr officœ, 10 A From time lo timesy>, m de, soveral Fzrms.

l l tllw'y indicae to us tlml that address was a mail drop, so a 1 i Q M at Fzrms am tllosl?12 PO Box wimre Mr. Edwards would collœt a largc volume ef 12 A Mr Griffin 11= mpresene W oodbury & Kesler w cl 3 confulnation stalemenls tbat 1 mtnéonod. So ir was using a I 3 çonsule witb tbmn in rœeatmontlls srvcal tinv

, But 1lr14 mailbox as a location to rœeive thoso documcnts 14 lengest rdatiensbip tba! we've had is witil a fu'm McEtrmotq

i 5 Q And wlry is that.an issuo? 1 5 Will & Bmery in 'Washington DC. And we know a couple of1 6 A W e.II our - tbe pœple who brougbt i! to our 16 lawjrcrs in tlr I7C officq I rœently nxt somo people io tbo

17 attention said tbat it's important * velify lmder tbe 17 L.A. office, and as a mattœ of fact, MclMrmott, W ill & Emcfy

1 8 cllstomœ identilication $.111% we Qrre's a physical 18 rtprtsented us during our u timony at tM NASD last ycar

19 localion wlm an account holdcr is doing business But otlr 19 Q 1 want lo tread vcry carrfully bozo lecausc20 v earcb indicatod tbat in a case of an entity such as 20 obviom ly convmsations you've had w1,11 your lawm azr

21 trasts, tir residoncé of tlm trastœ is sufficient to x'rvc 21 privilœc and I don't want lo ge e1- . Se l tMIA wo all

22 as tlv main placc of business, So for Mr. Edwards, at all 22 want to tzm d very ca fully. I'm surc yov counsel fœ ls

23 îimes we knmv wbat his hom: addzvss was, and tlr fact tbat 1x: 23 tbo mame way.

24 bad a mail drop at fu'st apprared an issue to an SEE ofiker 24 lWR.GRIFIRXN: W o'll ld you know if you cross tbo

25 who wa: in our offices but it just -- to us apmared like we 25 lino.

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'

wIM KM Dixmonds M ulti-page Sergey Rumyantzzw 4/13/0

Pagc 169 Page 17

1 A YM.MZ. Leauoi lo Mz. Corzeia indicakd that 1 case did not ca2 for any discm sion with Mr. Anderwon. 'J'%

2 Jemv'ys consiH d tbese traasadions - for sozne zeason I 2 lmme ale supN sing -- tlm sum rvisor chain requirizlg tlm

3 tbink znaylx it was compnance, rnayh auotlm'r dv rhwmt at 3 reviow of tlloso tvanuctions involvd Mr. Santos and Mr

4 Jelrx'yw tlpy esxnually chox to disconeue N t business 4 Dillon, and as tie chief executive ofscc of tile f'rm,I was

5 axding aa cMKX. 5 ultimalely v ponsibk for tlmse tMngs So my discussions' PMKM' oi CMKX învolved pzrdfwninnnuyQ n y? 6 regardmg any nzate s of

7 A We nmw got any explanadom 7 Mr. Santos and migbt have involve Mr. Dinen. So -- but

8 Q Did yq> e xffmys why lbey te tkdto 8 n- a sA ilic discmsion * 1h Mr. Ane on.9 discopMpx tu lmsixss? 9 Q Azr you aw= of anyono at NOV Wosl x0l% Daryl10 A Ne. But iryou mrnem> l zrvnfoncd that vezy few 10 Anœ---'a for mre infnrm-ion ahml Jolln FAqm.uvI*7

11 rlrzns for a vmiety of z= ons would enkrlain 1- volunr 11 A I can't Kay wjth any sv iscity. I'm not awax of

12 busi= s doing X clearing in low pziœ securities. So iî 12 tilat.

13 could have Y n something zelae m ificany to tllat 13 Q A1> you awv of any- at Nov Wost disc-sing

14 znat< il could ix sozlethic: else bul I donlt want lo 14 coae- m ahyut RMKM Diamonds w1t11 1:* 1 And= olj?15 smculak on that I 5 A No.

16 Q Diëlle fu tbal Jeffxw quil e1,'>l'pg wilh CMKM 16 Q Aa you awe ofaayox ovcr zaixing concorns about

17 Diamonds = >ux ypu fo hav. aay ooncerxs a ut oe ru 17 John Edwnnlm witll Daryl Auaerrvnn?

18 tbat you w'zm O R doipg busixu wilh CMKM Diaxnono s'qmk? 18 A No.

19 A Only me nily in 11. senx N t il was ene mom 19 Q I tI;A we naamqstxl thi: but Ijusy want20 mason for us h) pay a- tion lo what's coming in. So 11n1 20 to cozkf'n 1at I n'laezrvtrxvl Are yol awa of anyox - did

21 was one mom mmsea for us to doublq clrck wifh tbe traasfer 21 you or are you aw= of anyone at N> W çst ovor asking Jolm

22 agent that tbe Mock that we'ze m iving is good, asd il was 22 Edwards sv ifically if llo had any rolo in CMKM Diamends?

23 one more reasoa for us M aps to obtain assuraaœs from Mn 23 A No.

24 Edwards. so I telieve 11-1 Jeffxeys Mopmd dojng business 24 Q Did you or axlyono at NOV Wost ovG contact CMKM

25 wi+ CMKX sonwtizne in tlw fan of 2004, so tlp 1* we're 25 Diamonds to find out if Jolm Edwartts had any ro107

Page 1 70 Page 172

) looking My Exhibil 132, znill lx contemmraneous il linx. l A No. 'I'irse s= l to be similar qo tions tbat we2 So as I said, that decisionyonly rnaînal influence and 2 addmssv carlicr. '

3 esseaNany part orwhat prompted us to scruunize thox 3 Q I know. I j>t want to mako suro oat I -

4 transaçqons more thaa lraasacNons in otlwv accounls that we 4 A Yrab, so we bad zrpv entatian from Mr Edwards

5 earrkxl. 5 tbat )x; was not affiliae , not connœted to CMKX, and tlrro

6 Q 1)1:1 yop ever get any written cozd-nation fxom Mr. 6 was no fartirr inquiry.

7 Fzwaro of any of Ms xv= ntauons? 7 Q 0* t11= Gings wm*vtr eolWsrl aboulx did you er

8 A No. 8 anyox olx at Nov W es: lako any additional skps to 1= 1

9 Q Why xot? 9 mozc about CMKM Diamondgp otber tkqn what wo'vo nl= #10 A 'Ihat's not our business practicm 10 '5klt'e.d about?

l 1 Q Did y:m >er copsie gelling wzillo conf- xlion 1 1 A Shlrt answ is no.

12 fxom Mn Bdwayds? l 2 Q 0* t:an what wo'vo al= # 'xlà'al abom did you1 3 A I N sonkly never considered that 13 er anyox at N> W œ tako an'y additional ltepq to gatlkc'r

14 Q Did you gver h-v uyox elx al Nrv Wesl discuss, 14 furtbcr informalion aboul John Edwards?

15 *Maylx w. eould ge4 writlea confinnxtioa from Mn FA- :S of 15 A (7t1r tban wlhat m 'Mt discugx so far no

16 tks 1hi, antl lMs?* 16 Q I jxzst waxll lo mnk'et sutt tlmre's no otllor issue out17 A No, I den't tMIA so. 17 tlmrc tbat wo havcn't dîxmse . De you know stxx hxly nv

18 Q Ilid you evcr ask Daryl Aatlerxn yo obt'xia moze 1 8 Mic:ael King?

19 ipfomœ ioa aboul Jou Fxlwards? 1 9 A Y> .

20 A No. 20 Q Who is Michxl King?

21 Q Did you ovvv discusa yom conceras v ayding CMKM 21 A Michael King is a gctlmnan, I bclieve )r migbt bo22 Diamonda w1111 11- 1 Ax- son? 22 in lzis lalo 60s

,maybe early 70s, onc of tbr earliest clienls

23 A No. 23 of Nev W cst activdy involved with smallc issucs I

24 Q Wlly not? 24 bclieve my very f'rst mmnory of Michad King is tllat of

25 A m cause % chain or su- ision in Ys paAcular 25 attending a prewntation of some company. He likes to inviv

E age o Page 169 Page 172Diversified Reportixm Smvicesa Inc. 202-467-9200 Rum vantsev Declaratinn Pace 88


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E X H IB IT 4



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1 SERGEY RUM YANTSEV, pro se1951 N Jones #6202

2 Las Vegas, NV 89108E-mail: chaptako embarqmail.com

3 Telephone: (702) 647-7925

4UNITED STATES DISTRICT CO URT

5DISTRICT OF NEVADA

6

7

sEctnkl-rlEs AND Exclovxt)s case N o. 2-O8cv O()437-LRH-RJJ8 COM M ISSION

'1 intiff, ANSW ER OF SERGEY

9 P a ,RUM YANTSEV TO SEC s FIRST

10 vs. and SECOND REQUESTS FORPR ODU CTION OF DO CUM ENTS

11 CM KM DIAM ONDS,INC., et al., PURSUANT TO RULE 34

D efendants.2

13

14 PROPOU NDING PARTY: PLAINTIFF, SECURITIES AN D EXCHANGE

15 COM M ISSION

16 RESPOND IN G PARTY : SERGEY RUM YANTSEV

17 SET NO.: ONE

1:

19

20

21

22

23

24

25

26

EXHIBIT 4 Page 1 of 22 l



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1 Defendant Rum yantsev responds to the Securities and Exchange

2 Com mission's First and Second Requests for Production of Documents under Rule

3 34 of the Federal Rules of Civil Procedure as follows:

4 FIRST REQUEST FOR PRODUCTION OF DOCUM ENTS TO SERGEY

5 RUM YANTSEV

6 REOUEST FOR PRODUCTION NO. 1:

7 All docum ents concerning any communications between Santos and any of

8 the following individuals or entities:

9 a. CM KM Diamonds, lnc.;

10 b. Urban Casavant;

1 1 c. John Edw ards'

12 d. Anthony Santos;

l 3 e. Daryl Anderson;

14 f. lan M clntyre'

15 g. Bruce Harlan;

16 h. Todd Sm ith;

17 i. Timothy Cam mell;

18 j. Jeff Mitchell;

19 k. V ictor Casavant;

20 1. James K inney'

21 m . Ginger Gutierrez;

22 n. N evW est Securities, lnc.;

23 o. 1St Global Stock Transfer LLC;

24 p. Helen Bagley;

25 q. Anthony Tom asso;

26 r. Kathleen Tomasso;

EXHIBIT 4 Page 2 of 22 a



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l s. Jeff Turino;

2 t. Edwards & Angell LLP;

3 u. D. Roger Glenn;

4 v. Emerson Koch;

5 w. Shawn Hackman;

6 x. David Desormeau;

7 y. Christopher Jensen;

8 z. Ed Thom pson'

9 aa. V incent Lo Castro;

10 bb. Don Yarter;

l 1 cc. P.A. Holdings;

12 dd. Part--l-im e M anagem ent, lnc.,

13 ee. Any entity for which Jeff Turino served or serves as a director, ofticer,

14 owner, trustee, or beneficiary;

15 ff. Any entity for which Kathleen Tomasso served or serves as a director,

16 officer, owner, trustee, or beneficiary;

17 gg. Any entity for which Anthony Tom asso served or serves as a director,

18 oftscer, owner trustee, or benetqciary;

19 hh. Any entity for which Bruce Harlan served or serves as a director,

20 officer, owner, trustee, or beneficiary;

21 ii. Any entity for which Urban Casavant sen'ed or serves as a director,

22 officer, owner, trustee, or beneficiary.

23 RESPONSE TO REQUEST FOR PRODUCTION NO. 1:

24 l object to the request for production of all doctlments concerning any

25 communications between Santos and the listed individuals and entities based on

26 the stipulation in Rule 34(a)(1) that the requested items must be isin the responding

EXHIBIT 4 Page 3 of 22 3



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l party's possession, custody, or control.'' l am not a custodian of Santos'

2 documents. W ithout waiving the objection, the response to Request No. 9 covers

3 al1 docum ents concerning any com m unications between Santos and Rumyantsev

4 within the scope established by Rule 26(b).

5

6 REOU EST FOR PRO DU CTION NO. 2:

7 A1l docum ents retlecting or concerning any payments or item s worth more

8 than $100 received by Rumyantsev from, or on behalf of, any of the individuals or

9 entities listed in Request N o. 1.


11 As an employee, l received compensation from NevW est Securities

12 Corporation. The response to Request N o. 8 covers docum ents reflecting or

13 concerning any payments received by m e from NevW est Securities Corporation.

14 N evW est Securities Corporation carried securities accounts for several nam ed

15 individuals and received comm issions in the ordinal'y course of business. W ithin

16 the scope established by Rule 26(b), information and documents with respect to

17 such comm issions are equally available to the Plaintiff as they were previously

18 provided to the Securities and Exchange Commission (the tdcommissionn). See, in

19 particular, ddM aterials from NevW est Securities Corporation, obtained February

20 2005 - September 200555 as disclosed in Attachment 2 to Rule 26(A)( 1) lnitial

21 D isclosures by Plaintiff Securities and Exchange Com m ission dated June 18, 2008.

22

23 REO UEST FOR PRODUCTION NO. 3:

24 All docum ents reflecting or concerning any paym ents or item s w orth more

25 than $100 paid by Rumyantsev to, or for the benetit of, any of the individuals or

26 entities listed in Request N o. 1.

HIBIT 4 Page 4 of 22 4XRumyantsev Declaration, Page 93


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2 I object to this Request on grounds that it is unduly burdensome in that

3 responding to this Request would require m e to review all documents reflecting

4 or concerning any payments from NevW est Securities Corporation to its associated

5 persons Anderson, Rumyantsev, and Santos made in the ordinary course of

6 business. W ithout waiving the objection, documents reflecting or concerning such

7 payments to me either were previously provided to the Colnmission or are those

8 provided in response to Request No. 8.

9

10 REO UEST FOR PRODUCTION NO. 4:

l 1 A11 documents reflecting assets wol'th more than $ 1,000 that Rumyantsev

12 directly or indirectly owns or controls, including but not limited to real estate, bank

13 accounts, brokerage accounts, personal property, partnership and other investment

14 interests, cars, and boats.


16 The requested item s are equally available to the Plaintiff as they were

17 previously provided as part of dûstatem ent of Financial Condition of Sergey

18 Rumyantsev'' dated November l6, 20075' and Ststatem ent of Financial Condition of


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