SEC Points and Authorities_merged

Case 2:08-cv-00437-LRH-RJJ Document 161-1

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JOHN M. McCOY III, Cal. Bar No. 166244 E-mail: [email protected] KAREN MATTESON, Cal. Bar No. 102103 E-mail: [email protected] MOLLY M. WHITE, Cal. Bar No. 171448 E-mail: [email protected] Attorneys for Plaintiff Securities and Exchange Commission Rosalind R. Tyson, Regional Director 5670 Wilshire Boulevard, 11th Floor Los Angeles, California 90036-3648 Telephone: (323) 965-3998 Facsimile: (323) 965-3908 UNITED STATES DISTRICT COURT DISTRICT OF NEVADA SECURITIES AND EXCHANGE COMMISSION, Plaintiff, vs. CMKM DIAMONDS, INC., URBAN CASAVANT, JOHN EDWARDS, GINGER GUTIERREZ, JAMES KINNEY, ANTHONY TOMASSO, KATHLEEN TOMASSO, 1ST GLOBAL STOCK TRANSFER LLC, HELEN BAGLEY, NEVWEST SECURITIES CORPORATION, DARYL ANDERSON, SERGEY RUMYANTSEV, ANTHONY SANTOS, and BRIAN DVORAK, Defendants. MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION BY PLAINTIFF SECURITIES AND EXCHANGE COMMISSION FOR SUMMARY JUDGMENT AGAINST DEFENDANTS GLOBAL STOCK TRANSFER, LLC, HELEN BAGLEY, SERGEY RUMYANTSEV AND BRIAN DVORAK Case No. 2:08-cv-00437-LRH-RJJ



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I.

INTRODUCTION The defendants in this action concocted and executed a complex scheme to

illegally issue and sell stock of Defendant CMKM Diamonds, Inc., a purported diamond and gold mining company, in an unregistered distribution. Subsequently, several of the Defendants manipulated CMKMs stock price and volume, making materially false and misleading representations regarding the company during the period from January 2003 through May 2005. Plaintiff Securities and Exchange Commission (Commission) now moves for summary judgment against the remaining four defendants, each of whom was both a necessary participant and substantial factor in the unregistered distribution of CMKM stock; these defendants are therefore liable for violating Sections 5(a) and 5(c) of the Securities Act of 1933 (Securities Act), 15 U.S.C. 77e(a) & 77e(c). See SEC v. Phan, 500 F.3d 895, 906 (9th Cir. 2007). The remaining defendants against whom the Commission seeks summary judgment are: Brian Dvorak, the attorney who wrote approximately 440-450 opinion letters improperly justifying the issuance of purportedly unrestricted CMKM stock; 1st Global Stock Transfer LLC, CMKMs stock transfer agent, and its principal, Helen Bagley, who issued hundreds of billions of additional shares of CMKM stock relying solely on Dvoraks opinion letters, notwithstanding that nothing this company did made sense to Bagley, and she was presented with many red flags that indicated that the stock issuances were illegal; and Sergey Rumyantsev, the principal of Defendant broker-dealer NevWest Securities, Inc., who caused the billions of shares of1



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unregistered CMKM stock to be sold to the general public. Based on the uncontroverted facts set forth in the accompanying Statement Of Undisputed Material Facts In Support Of Motion By Plaintiff Securities And Exchange Commission For Summary Judgment Against Defendants Global Stock Transfer, LLC, Helen Bagley, Sergey Rumyantsev And Brian Dvorak (Facts), the Commission seeks relief in the form of a final judgment of permanent injunction, disgorgement and civil penalties against each of these defendants. It further seeks imposition of bars prohibiting participation by any of the individual defendants in any offering of penny stock. II. ARGUMENT Summary judgment is appropriate when the pleadings, affidavits, and other supporting papers permitted by Rule 56 of the Federal Rules of Civil Procedure demonstrate that there is no genuine issue of material fact, and the moving party is entitled to prevail as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). As set forth below, the undisputed facts, established primarily by the Defendants own admissions supported by documentary evidence, demonstrate that each defendant violated the securities registration provisions of Section 5 of the Securities Act, and that the Commission is entitled to the relief it seeks. It is appropriate to grant such relief to the Commission where, as here, the facts establishing both liability and the appropriateness of the requested relief are undisputed. See SEC v. Platforms Wireless International Corp., 617 F.3d 1072, 1092 (9th Cir. 2010) (affirming summary judgment in favor of the Commission as to Section 5 claim); SEC v. M & A West, Inc., 538 F.3d 1043, 1053-54 (same); SEC v. Phan, 500 F.3d 895, 907 (9th Cir. 2007) (same); SEC v. First Pacific Bancorp, 142 F.3d 1186, 1190-91 (9th Cir. 1998) (affirming partial summary2



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judgment as to liability for fraud); SEC v. Murphy, 626 F.2d 633 (9th Cir. 1980) (affirming summary judgment of permanent injunction); SEC v. Current Financial Services, Inc., 100 F. Supp. 2d 1 (D.D.C. 2000) (granting summary judgment on fraud claims and for injunctive relief); SEC v. Chester Holdings, Inc., 41 F. Supp. 2d 505 (D.N.J. 1999) (granting summary judgment on fraud claims and for injunctive relief where defendants overstated corporations financial condition); SEC v. Cross Financial Services, Inc. 908 F. Supp. 718 (C.D. Cal. 1995) (granting summary judgment on fraud claims and for injunctive relief and disgorgement). A. Each Of The Defendants Violated Section 5 Of The Securities Act

Section 5 of the Securities Act provides, in relevant part: (a) Unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly (1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell such security through the use or medium of any prospectus or otherwise; or to carry or cause to be carried through the mails or in interstate commerce, by any means or instruments of transportation, any such security for the purpose of sale or for delivery after sale. . . .

(2)

(c)

It shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy through the use or medium of any prospectus or otherwise any security, unless a registration statement has been filed as to such security. . . .

Section 2(a)(1) of the Securities Act, 15 U.S.C. 77b(a)(1), defines security to mean any . . . stock, among other investments. CMKM stock was thus a security, the offering of which was required to be registered pursuant to Section 5. A prima facie violation of Section 5 is established by a showing that: (1) no registration statement was in effect as to the securities; (2) the defendants, directly or indirectly, sold or offered to sell the securities; and (3) the sale or offer was3



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made through interstate commerce or the mails. Phan, 500 F.3d at 902; SEC v. Continental Tobacco Co., 463 F.2d 137, 155 (5th Cir. 1972). Once the Commission establishes a prima facie violation, the defendants bear the burden of proving that an exemption to the registration requirement applies. Platforms Wireless International Corp., 617 F.3d at1086, citing Murphy, 626 F.2d at 641 (9th Cir. 1980), and SEC v. Ralston Purina Co., 346 U.S. 119, 126 (1953). Exemptions from registration provisions are construed narrowly in order to further the purpose of the Act: To provide full and fair disclosure of the character of the securities, and to prevent frauds in the sale thereof. Platforms Wireless, 617 F.3d at 1086, quoting Murphy, 626 F.2d at 641. The Commission is not required to prove scienter to establish a violation. See Phan, 500 F.3d at 906, citing SEC v. Calvo, 378 F.3d 1211, 1219 (11th Cir. 2004); SEC v. Levine, 2010 U.S. Dist. LEXIS 77937, * 3 (D. Nev.) (citing cases) (The plain language of the statute has no scienter requirement); SEC v. Softpoint, Inc., 958 F. Supp 846, 859 (S.D.N.Y. 1997), affd 159 F.3d 1348 (2d Cir. 1998). The defendants are each liable for violating Section 5 because the uncontroverted facts establish that they were each both a necessary participant and substantial factor in the unregistered distribution of CMKM stock, as explained below. See Phan, 500 F.3d at 906; Murphy, 626 F.2d at 648, 652. 1. Dvorak Violated Section 5

Dvorak, an attorney licensed to practice law in Nevada, acted as CMKMs attorney. (Facts 4-5.) As CMKMs attorney, Dvorak prepared opinion letters supporting the issuance of purportedly unrestricted CMKM stock, for which he received compensation. (Id. 4.) Specifically, Dvorak received instructions from Defendant Urban Casavant, the CEO and Chairman of the Board of CMKM, regarding CMKMs issuance in4



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August and September 2004 of more than 233.7 billion purportedly unrestricted CMKM shares to approximately 258 individuals or entities who allegedly invested in CMKM in 2001, but did not then receive certificates, including entities controlled by Defendants John Edwards, Ginger Gutierrez and James Kinney. (Facts 14.) A restrictive legend is a statement placed upon a stock certificate stating, among other things, that the stock is not registered with the Commission pursuant to Section 5 of the Securities Act and that an ownership interest in the stock represented by that certificate cannot be sold or transferred absent registration or the existence of a valid exemption from registration. (Facts 40.) Dvorak understood that if stock is restricted, it is not saleable. (Facts 16.) Nevertheless, Dvorak admits that after he received restricted stock certificates from the transfer agent, 1st Global, he wrote the opinion letters to take the restrictions off. (Id. 17 & 31.) Dvoraks action in writing the opinion letters to take the restrictive legends off the shares enabled them to be offered for sale by defendant broker-dealer NevWest. Similar actions by attorneys have long been found to constitute violations of the registration provisions of Section 5. See SEC v. Management Dynamics, Inc., 515 F.2d 801, 805 (2d Cir. 1975) (attorneys action in authorizing and delivering shares without restrictive legend enabled offer and sale, and constituted a violation of the registration provisions justifying issuance of a preliminary injunction). As the Second Circuit explained such a legend is the single most effective device for preventing the resale of restricted shares. Id. at 810. Attorneys who play a crucial role in obtaining a legal opinion letter, thus allowing unregistered securities to be dispersed to the public, have been found5



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liable for violating Section 5. See SEC v. Fisher, 2008 U.S. Dist. LEXIS 58477 **10, 12 (E.D. Mich. 2008) (attorney defendant played an integral part in the transformation of stock from restricted to freely transferable shares). See also SEC v. Ramoil Management. Ltd., 2007 U.S. Dist. LEXIS 79581 ** 27-29 (S.D.N.Y. 2007) (because opinion of counsel was required as to whether shares were legally issued in order for shares to be registered as part of an employee benefit plan, defendant attorney who signed opinion letter was liable for violating Section 5 as a necessary participant in the sale of unregistered stock); SEC v. Universal Major Industries Corp., 546 F.2d 1044, 1045-1046 (2d Cir. 1976) (affirming finding that defendant attorney aided and abetted Section 5 violations where attorney wrote 118 letters that, although purporting to rely on another attorneys opinion letter, could be construed to satisfy the transfer agents requirement for opinion letters in order to issue stock, and another 88 letters that were clearly opinion letters). As explained above, the Commission is not required to establish scienter to prove that Dvorak violated Section 5. Nevertheless, Dvoraks admissions, constituting uncontroverted facts, establish that he did, in fact, act with scienter.1 In particular, Dvorak: (1) Understood that state law required that the stock Casavant was requesting be issued in fact be issued at the time it was paid for. (Facts 18.)

Scienter is satisfied by proof of recklessness, which is conduct that consists of a highly unreasonable act, or omission, that is an extreme departure from the standards of ordinary care, and which presents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been aware of it. SEC v. Dain Rauscher, Inc., 254 F.3d 852, 856 (9th Cir. 2001).6

1



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(2)

Wrote the opinion letters notwithstanding that it seemed odd to him that CMKM had failed on over 400 occasions to issue unrestricted stock it was supposed to have issued. (Facts 19.)

(3)

Drafted most of the opinion letters without obtaining any supporting documentation, consisting of subscription agreements, canceled checks, and receipts evidencing payment for the shares, which Dvorak had requested for prudence sake and because he (initially) didnt want to produce documents that were wrong; Dvorak set aside his concerns about obtaining documentation based solely on conversations with people that led him to believe Casavant was solid, because Casavant had property. He had money. He had signing power at the Venetian [hotel in Las Vegas] all the time. He had rooms. . . . (Facts 20-24.)

(4)

Also failed to obtain back up other than purported CMKM Board Minutes authorizing the 100 to one forward stock split, notwithstanding his concerns about preparing related opinion letters. (Facts 28.)

(5)

Notwithstanding his purported concern about the stock split, issued an opinion letter on December 15, 2003, based on the stock split, that incorrectly stated that an investor should be issued 4 Billion shares rather than 400 million shares, rationalizing this typo as resulting from him always having trouble with the millions and billions. (Facts 30.)

(6)

Wrote some of the letters without having the accompanying stock certificates, even though he knew his letters had to be attached to the relevant certificates. (Facts 28.)7



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(7)

Issued the opinion letters notwithstanding his ignorance of CMKMs finances and indications it had no money, including that he had no idea how CMKM raised money, he knew CMKM had no assets, he knew CMKM operated out of Casavants home, and he did not know the source of funds Casavant used to pay him. (Facts 32-34.)

(8)

Issued the opinion letters notwithstanding his concerns regarding the honesty of transfer agent Bagley. Dvorak knew that Bagley was accepting stock that was not signed, and even though he did not know why and wondered if it was not signed who approved it? rationalized his role this way: in my mind it was compartmentalized. This was my job. I was writing letters. (Facts 28.) He also did not trust Bagley and tried to have her fired as CMKMs transfer agent (Facts 35); he admits he did not think the number of shareholders on 1st Globals shareholder list matched the number of shares CMKM believed were being issued. (Facts 36.)

Although the Commission need not establish any of the above facts to establish that Dvorak violated Section 5, these facts establishing his scienter constitute additional evidence establishing the appropriateness of the Commissions requests for injunctive and penalty relief set forth below. 2. 1st Global And Bagley Violated Section 5 Defendant 1st Global was registered with the Commission as a transfer agent beginning in October 2001. (Facts 6.) It was owned and operated by Defendant Bagley, and was CMKMs transfer agent at all relevant times, beginning in 2002. (Id.) At various times, CMKM stock issuance and transfers represented more than 50% of 1st Globals business. (Facts 38.) As explained above, a restrictive legend is a statement placed upon a stock8


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certificate stating, among other things, that the stock is not registered with the Commission pursuant to Section 5 of the Securities Act and that an ownership interest in the stock represented by that certificate cannot be sold or transferred absent registration or the existence of a valid exemption from registration. (Facts 40.) The presence of a restrictive legend on a stock certificate forecloses future sale or distribution of that stock certificate until the issuers transfer agent removes the legend by reissuing the certificate without the legend being present. (Facts 41.) In this case, Bagley caused 1st Global to remove the restrictive legends from stock certificates for at least 279 billion shares of CMKM stock. (Facts 42-43.)2 She did so based on certain purported supporting documentation, including board authorizations and attorney opinion letters from Dvorak. (Facts 44-47.) By removing the restrictive legends from the stock certificates, Bagley and 1st Global enabled the stock to be freely traded. As the transfer agent who removed the restrictive legend from the unregistered stock, 1st Global and its principal, Bagley, were necessary participants and substantial factors in the unregistered distribution of CMKM stock made in violation of Section 5. These facts alone render 1st Global and Bagley for violating Section 5. It should nevertheless be noted that there are some older court decisions from other Circuits that indicate that some level of negligence or knowledge of the surrounding circumstances on the part of a transfer agent may be required to hold that transfer agent liable for violating Section 5. See SEC v. International Chemical Development Corp., 469 F.2d 20 (10th Cir. 1972) (individual liable for taking steps necessary to the distribution of unregistered stock where he had

Bagleys acts may be imputed to 1st Global. See SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1089 n.3 (2d Cir. 1982) (imputing individuals scienter to entities he controlled).9

2


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intimate relations with the principals involved and was the president of the corporate transfer agent, leading the court to conclude that he with knowledge of the circumstances, was a participant in the illegal distribution). However, at least one court granted the Commission a preliminary injunction against a transfer agent and its principal, finding it was not sufficient for them to claim that they removed the restrictive legends pursuant to opinions by counsel that the shares were exempt from registration. See SEC v. Dumont Corp., [1969] Fed. Sec. L. Rep. 92,424 (S.D.N.Y. 1969); 1969 U.S. Dist. LEXIS 12942 (assertion of reliance on attorney opinion does not defeat the Commissions prima facie presentment of a Section 5 violation; preliminary injunction granted to the Commission). In this case, however, 1st Global and Bagley, like Dvorak, not only acted negligently, they acted with scienter. In particular, Bagley: (1) Issued the shares notwithstanding that nothing this company did made sense to me, including CMKMs assertion that it had failed to issue 279 billion of its purportedly outstanding shares. (Facts 46.) (2) Never asked anyone whether it was actually true that the 279 billion shares were outstanding and should have been issued two years earlier, instead relying solely on attorney opinion letters, including by Dvorak, notwithstanding that she apparently wondered whether the shares were truly outstanding. (Facts 47.) (3) Relied on Dvoraks opinion letters notwithstanding that she had previously learned from a Commission examiner that certain other opinion letters issued by a different attorney regarding CMKM were incorrect, causing her to request corrected letters. (Facts 48.) (4) Relied on Dvoraks opinion letters notwithstanding that she just did not like him, and did not feel comfortable, to the point where, at10


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the end of the relevant period, she asked that any opinions from Dvorak go through another attorney hired by CMKM. (Facts 49.) Thought it strange that CMKM had so many shares. (Facts 50.) These facts satisfy any requirement that 1st Global and Bagley act with knowledge or reason to know that an illegal distribution is taking place. Additionally, as in the case of Dvorak, these facts establishing the scienter of 1st Global and Bagley constitute additional evidence establishing the appropriateness of the Commissions requests for injunctive and penalty relief set forth below. 3. Rumyantsev Violated Section 5

Defendant NevWest Securities Corporation (NevWest) was registered with the Commission as a broker-dealer from 1999 through July 16, 2007; Defendant Rumyantsev served as NevWests CEO and head trader from at least January 1, 2002 until April 13, 2006. (Facts 7-9.) Rumyantsev was also one of four members of NevWests Board of Directors, which had policy-making authority, participated in most of the decision-making of NevWest, and owned about 9% of NevWest. (Id. 9-11, 13.) Rumyantsev handled NevWests finances, as well as its trading functions, including record-keeping, compliance and supervision. (Id. 12.) Rumyantsev holds various specialized securities licenses. (Id. 9.) Defendant Edwards delivered to NevWest newly issued stock certificates in CMKM stock. (Facts 57-58.) Edwards opened brokerage accounts at NevWest in more than 30 different names, many of which were trust accounts for unnamed beneficiaries, and used his own social security number for most of the accounts. (Id. 64-65, 67.) Edwards then sold CMKM stock through these more than thirty accounts. (Id. 61.) As of December 31, 2004, Edwards had wired more than $30 million out of the brokerage accounts he controlled at NevWest. (Id. 71.) Rumyantsev was aware of all of these facts. (See cited paragraphs of Facts.)11


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Edwardss sales of CMKM stock generated more than twice as much in trading proceeds for NevWest as any other NevWest customer. (Id. 73.) By permitting Edwards to open the brokerage accounts and sell CMKM stock, Rumyantsev enabled the stock to be freely traded. As the principal of the broker-dealer, and the person responsible for compliance at that broker-dealer, among other matters, Rumyantsev was a necessary participant and substantial factor in the unregistered distribution of CMKM stock made in violation of Section 5. These facts alone render Rumyantsev liable for violating Section 5. See SEC v. Phan, 500 F.3d at 906 (defendants role in assisting resale of stock satisfied sold or offered to sell element of Section 5). There is little doubt, however, that Rumyantsev will argue that upon receiving the stock certificates, NevWest contacted Bagley and/or 1st Global to verify that the certificates were validly issued and unrestricted, and that in response to those inquiries, Bagley and/or 1st Global vouched for the subject stock certificates. (Facts 52-53.) This ignores that Rumyantsev was aware of many facts that indicated that NevWest was involved in a large unregistered distribution of stock. Like Dvorak and Bagley, Rumyantsev acted with scienter. In particular, Rumyantsev: (1) Knew that CMKM did not make adequate public disclosure because, among other facts, it did not publicly disclose the number of outstanding shares of its stock (Facts 55); and, as of at least January 1, 2004, it did not publicly disclose its financial statements. (Id. 56.) (2) Knew that Edwards was delivering newly issued stock certificates. (Facts 57-58.) (3) Knew material facts about the price and volume of Edwards trading, including that Edwards was liquidating his CMKM position, that the price of CMKM stock significantly increased in the first half of 2004,12


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and that Edwards sold stock through more than 30 different NevWest brokerage accounts, many of which were trust accounts for unnamed beneficiaries, but for which Edwards used his own social security account number. (Facts 59-61; 64-65; 67.) Never asked Edwards why he opened brokerage accounts in more than 30 names even though Rumyantsev had never before had a client with more than 30 different brokerage accounts under his control. (Facts 62-63.) Never asked Edwards to identify the beneficiaries of the accounts that he controlled at NevWest. (Facts 66.) Failed to obtain assurance from Edwards that he was not involved in an unregistered distribution of CMKM stock beyond simply asking Edwards whether the purchase came from CMKM affiliates, notwithstanding that it was part of NevWests operating procedure when dealing with a large position to get additional assurance that NevWest was not involved in an unregistered distribution (Facts 75-76); Rumyantsev never asked Edwards from whom he had obtained his CMKM stock. (Id. 78.) Never contacted CMKM directly. (Facts 77.) Knew that at least two regulatory agencies, the National Association of Securities Dealers (NASD), and the Saskatchewan securities regulator, were questioning and/or taking regulatory action against CMKM and Casavant; that the NASD was examining Edwards trading of CMKM stock (Facts 68-70); and that one of NevWests own clearing brokers had stopped trading CMKM stock, and subsequently stopped clearing NevWests trades in CMKM stock; NevWest13


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nevertheless continued to trade CMKM stock. (Facts 79-85.) In sum, as Rumyantsev admitted in testimony, CMKM itself always appeared questionable to him, because it tried to pull its Commission registration which would result in there being no public information; CMKM was not filing required periodic reports with the Commission anymore and there was accordingly no publicly available current financial information about it; and a cease-and-desist action had been taken by the Canadian securities regulatory authorities, a big indication that somethings not right with the company. (Facts 86.) These facts show that Rumyantsev acted with scienter in participating in the unregistered distribution of CMKM securities in violation of Section 5. Under similar circumstances, the D.C. Circuit has had no difficulty affirming Commission findings in administrative proceedings that broker-dealer principals acted willfully in violating Section 5 and that the relief imposed by the Commission was appropriate. See Geiger v. SEC, 363 F.3d 481, 485 (D.C. Cir. 2004) (respondent head trader liable for violating Section 5 where, even though the certificate bore no restrictive legend and the respondent was assured by respondent salesman that the shares were free-trading, he failed to inquire sufficiently into the circumstances of the transaction); Wonsover v. SEC, 205 F.3d 408 (D.C. Cir. 2000) (respondent liable for violating Section 5 where he made no inquiry into how or when the shareholders acquired their stock and was presented with several red flags including company officers exercise of an unusual amount of control over nineteen accounts and suspicious information in the account documentation). As the court explained in Geiger, by giving [salesman] Geiger a blank check, [head trader] Kirby abandoned even the pretense of due diligence. 481 F.3d at 485. Here, Rumyantsev clearly gave Edwards a blank check to trade CMKM stock, notwithstanding the many red flags with which he was presented14


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that an unregistered offering was taking place. B. The Commission Is Entitled To The Relief It Seeks

The Commission seeks four types of relief against these defendants: (1) permanent injunctions prohibiting future violations of Section 5; (2) disgorgement of their ill-gotten gains; (3) imposition of civil penalties; and (4) impositions of penny stock bars against the individual defendants. 1. Permanent Injunctive Relief Is Appropriate

Section 21(d) of the Exchange Act, 15 U.S.C. 78u(d)(1), provides that upon a proper showing, a permanent injunction shall be granted in an enforcement action brought by the Commission. To obtain an injunction, the Commission must establish that there is a reasonable likelihood of future violations. See SEC v. Murphy, 626 F.2d at 655. Whether a likelihood of future violations exists depends upon the totality of the circumstances. Id. The existence of past violations may give rise to an inference that there will be future violations. See id.; see also United States v. Odessa Union Warehouse Coop, 833 F.2d 172, 176 (9th Cir. 1987), SEC v. Koracorp Industries, Inc., 575 F.2d 692, 698 (9th Cir. 1978). Courts also consider factors such as the degree of scienter involved, the isolated or recurrent nature of the violative conduct, the defendants recognition of the wrongful nature of the conduct, the likelihood that, because of the defendants occupation, future violations may occur, and the sincerity of defendants assurances (if any) against future violations. SEC v. Murphy, 626 F.2d at 655. See also SEC v. Berger, 244 F. Supp. 2d 180, 193 (S.D.N.Y. 2001) (a permanent injunction may be particularly appropriate where a violation was founded on systemic wrongdoing, rather than an isolated occurrence, or involved a high degree of scienter.) A reasonable likelihood exists that each of these defendants may commit15


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future securities violations. All of the above factors are present. As detailed above, each Defendants violations were knowing and repeated; each acted with high scienter, knowingly engaging in multiple violative acts. None of these defendants has either recognized the wrongful nature of his or her conduct or made any assurances, sincere or otherwise, that he or she will not commit future violations. Finally, each of these defendants is, by reason of their professional occupation and the licenses they hold (attorney, transfer agent, principal of a broker-dealer) in a position to violate the law again. 2. An Order That The Defendants Disgorge Ill-Gotten Gains And Pay Prejudgment Interest Is Appropriate As the Ninth Circuit most recently reiterated this year: [A] district court has broad equity powers to order the disgorgement of ill-gotten gains obtained through violation of the securities laws. Disgorgement is designed to deprive a wrongdoer of unjust enrichment, and to deter others from violating securities laws by making violations unprofitable. SEC v. Platforms Wireless, 617 F.3d at 1096, quoting SEC v. First Pacific Bancorp, 142 F.3d 1186, 1191 (9th Cir. 1998); see also SEC v. Rind, 991 F.2d 1486, 1493 (9th Cir. 1993) (disgorgement is an available and appropriate equitable remedy for violations of the securities laws). In contrast to damages, which are designed to compensate fraud victims, disgorgement forces a defendant to surrender his unjust enrichment. See SEC v. Rind, 991 F.2d at 1493. By preventing unjust enrichment, disgorgement eliminates the incentive for violating the law. Id. at 1491, 1493; see also SEC v. JT Wallenbrock & Associates, 440 F.3d 1109, 1113, (9th Cir. 2006), SEC v. First Pacific Bancorp, 142 F.3d at 1191. The amount of disgorgement should include all gains flowing from the illegal activities. See SEC v. Platforms Wireless, 617 F.3d at 1096, quoting SEC v. JT Wallenbrock, 440 F.3d at 1114; see also SEC v.16


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Cross Fin. Servs., 908 F. Supp. 718, 734 (C.D. Cal. 1995). The Commission need only present evidence of a reasonable approximation of the defendants ill-gotten gains. See SEC v. Platforms Wireless, 617 F.3d at 1096; SEC v. JT Wallenbrock, 440 F.3d at 1113-14. Once such evidence has been presented by the Commission, the burden shifts to the defendant to demonstrate that the disgorgement figure was not a reasonable approximation. SEC v. Platforms Wireless, 617 F.3d at 1096, quoting SEC v. First City Financial Corp., Ltd., 890 F.2d 1215, 1232 (D.C. Cir. 1989). As the Ninth Circuit explained: We place this burden on the defendants because information is not obtainable at negligible cost. The defendants are more likely than the SEC to have access to evidence [demonstrating that the SECs approximation is not reasonable]. . . . [W]e conclude that the risk of uncertainty should fall on the wrongdoer whose illegal conduct created that uncertainty. Id., quoting SEC v. First City Financial Corp., Ltd., 890 F.2d at 1231 & 1232. In Platforms Wireless, the Ninth Circuit affirmed the District Courts order that the defendants disgorge the amount of proceeds obtained from the illegal sale of the unregistered securities. 617 F.3d at 1097. Although the Commission is not required to be so conservative in its calculation of disgorgement, see id. at 1097, in this case, the Commission only seeks the amount of proceeds each of the remaining defendants personally received from the unlawful sales. The Commission thus seeks disgorgement from the Defendants as follows: Dvorak. Although Dvorak admits he received at least $157,500 for writing at least 450 CMKM opinion letters at $350 per letter (Facts 88), a review by a CPA employed by the Commission of bank account records reveals he received a total of $318,843 from the defendants. (Id. 87, citing Declaration of Nina Yamamoto 14 & Exs. 9 & 10 thereto.) Given the sources of these funds, and that the amount is derived from bank records and cannot be controverted, $318,843 is a17


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reasonable approximation of Dvoraks ill-gotten gains. Bagley and 1st Global. A review by the Commissions CPA of bank records reveals that 1st Global and its owner and principal, Bagley, received $302,500 from the other defendants in this action. (Facts 92, citing Yamamoto Declaration 20 and Exs. 13 & 14 thereto.) Bagley admits that during the relevant period, more than 50% of 1st Globals income was derived from its work related to CMKM and that in 2005, 1st Global made about $350,000, which admissions are consistent with the Commissions conclusions drawn from bank records. The Commission seeks to hold Bagley and 1st Global jointly and severally liable for the full amount of $302,500 and interest thereon, as these defendants collaborated and had a close relationship in engaging in the violations. See SEC v. First Pacific Bancorp, 142 F.3d at 1191-1192 (holding individual jointly and severally liable with entity of which he was the chairman of the board, the CEO and the majority shareholder, and with a second entity of which he was the president and CEO). See also SEC v. Platforms Wireless, 617 F.3d at 1097-98; SEC v. JT Wallenbrock & Associates, 440 F.3d at 1117. Rumyantsev. Rumyantsevs ill-gotten gains derive from his 9% ownership interest in Defendant broker-dealer NevWest. As set forth in the Declaration of Edward Brady, a Commission examiner, and Rumyantsevs testimony, NevWest had an agreement with defendant Daryl Anderson, an independent contractor, pursuant to which Anderson received about 85% of the total commissions on his trades, and NevWest received the remaining 15%; of the $2,559,428 in gross commissions on CMKM trades received by NevWest, NevWest retained $383,914.20; a reasonable approximation of Rumyantsevs ill-gotten gain is 9% of this amount, or $34,552.28. (Facts 97-98.) Because Andersons compensation was based on an agreement with NevWest pursuant to which he received pre-set18


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amounts, the Commission does not seek to hold Rumyantsev (as principal of NevWest) jointly and severally liable with Anderson for the full amount of the commissions on the trades. See Hateley v. SEC, 8 F.3d 653, 655-56 (9th Cir. 1993) (joint and several liability not appropriate where firm was obligated by agreement to pay individual 90% of all commissions generated from his solicitations). See also SEC v. Platform Wireless, 617 F.3d at 1097 (explaining why Hateley was inapplicable in that case).3 In this case, it appears not only that NevWest is not jointly and severally liable with Anderson, but that it is reasonable to approximate Rumyantsevs ill-gotten gains based on his 9% ownership interest in NevWest. A reasonable approximation of Rumyantsevs ill-gotten gains is accordingly $34,552.28. (Facts 98.) Additionally, disgorgement normally includes prejudgment interest to insure that wrongdoers do not profit from their illegal conduct. SEC v. Manor Nursing Centers, Inc., 458 F.2d at 1105; SEC v. Cross Fin. Services., Inc., 908 F. Supp. at 734. This year, the Ninth Circuit held that it is permissible to calculate prejudgment interest based on the rate provided in 26 U.S. C. 6621 for tax underpayments, consistent with the manner in which the Commission calculates prejudgment interest in orders of disgorgement in all administrative proceedings before it. SEC v. Platforms Wireless, 617 F.3d at 1099. As the Ninth Circuit explained, the defendants receipt of monies from investors by distributing unregistered securities in violation of Section 5: [W]as the rough equivalent of receiving an interest free loan from investors. The proper measurement of the benefit of the loan is the interest rate the defendants would have otherwise paid to finance their business operations with a comparable, unsecured loan. The interest This Court previously ordered Anderson liable for $2.3 million in disgorgement, a reasonable approximation of the commissions he received. 635 F. Supp. 2d at 1190.193


Filed 12/23/10 Page 21 of 28

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 (Id.)

rate reflected in Section 6621 . . . is a reasonable proxy for the interest rate that would ordinarily be charged on an unsecured loan. Id. at 1099 (citations omitted).4 In this case, the Commission calculated prejudgment interest somewhat conservatively using the IRS method, by simply calculating the interest from the final payment received by each defendant to the date the Commissions motion for summary judgment is being filed. (See Declaration of Karen Matteson 14.) The amounts of disgorgement and prejudgment interest owed by the Defendants are: a. Interest on Dvoraks gains of $318,843 is $90,795.31, for a grand total of $409,638.11 in disgorgement and prejudgment interest; b. Interest on Bagleys and 1st Globals gains of $302,500 is $145,547.87, for a grand total of $448,047.87 in disgorgement and prejudgment interest; and c. Interest on Rumyantsevs gains of $34,552.28 is $13,702.35, for a grand total of $48,254.63 in disgorgement and prejudgment interest.

3.

Imposition Of Civil Penalties Is Appropriate

Congress enacted civil penalty provisions to achieve the dual goals of punishment of the individual violator and deterrence of future violations. SEC v. Marker, 427 F. Supp. 2d 583, 592 (M.D. Fla. 2006), citing SEC v. Coates, 137 F.4

Previously, consistent with the then-existing case law, the Court in this case used the post-judgment interest rate mandated by 28 U.S.C. 1961 as the rate at which to calculate pre-judgment interest. See SEC v. CMKM Diamonds, Inc., 635 F. Supp. 2d 1185, 1190 (D. Nev. 2009), citing Western Pac. Fisheries, Inc. v. S.S. President Grant, 730 F.2d 1280, 1289 (9th Cir. 1984); SEC v. Cross Fin. Services., 908 F. Supp. at 734.20


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Supp. 2d 413, 428 (S.D.N.Y. 2001). The deterrence of securities law violations through the imposition of monetary sanctions serves such important goals as encouraging investor confidence, increasing the efficiency of financial markets, and promoting the stability of the securities industry. See SEC v. Palmisano, 135 F.2d 860, 866 (2d Cir. 1998). Section 20(d)(2) of the Securities Act, 15 U.S.C. 77t(d)(2), provides that the Commission may seek, and the Court may impose, civil monetary penalties for securities violations. Three tiers of penalties may be imposed in an amount that shall be determined by the court in light of the facts and circumstances. See Section 20(d)(2)(A) of the Securities Act, 15 U.S.C. 77t(d)(2)(A). A first tier penalty may be imposed for any violation of the federal securities laws. If the violation involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement a second tier penalty may be imposed. A third tier penalty may be imposed if the violation additionally directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons. See 15 U.S.C. 77t(d)(2). Under any of the three tiers, one alternative maximum is the gross amount of pecuniary gain to such defendant as a result of the violation. Id.5 The factors used to determine the appropriateness of an injunction are helpful when assessing penalties. SEC v. Abacus International Holding Corp., [2001 Transfer Binder] Fed. Sec. L. Rep. (CCH) 91,542, 2001 U.S. Dist. LEXIS 12635, 2001 WL 940913, *5 (N.D. Cal. August 16, 2001). These factors include: the degree of scienter involved; whether the violations are recurrent; and the likelihood

The alternative maximums, adjusted for inflation, are $6,500 per violation for a natural person under the First Tier and $60,000 for an entity; $60,000 for a natural person under the Second Tier and $300,000 for an entity; and $120,000 per violation for a natural person under the Third Tier and $600,000 for an entity. 17 C.F.R. 201.1002 (adjusting for violations after February 2, 2001).21

5


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that defendant=s occupation will present opportunities for future violations. See SEC v. Murphy, 626 F.2d at 655. Previously, this Court imposed penalties equaling the gross amounts of their pecuniary gains on other defendants in this action, noting that: The Murphy factors confirm the propriety of this calculation. Regarding the first factor, Edwardss, Andersons, and the Tomassos degree of scienter was considerably high. They are sophisticated businesspeople and their scheme was expansive, complicated, and well-calculated. . . . Anderson traded billions of shares of stock, despite clear signs that the stock was improperly issued. . . . Concerning the second factor, Edwardss, Andersons, and the Tomassos violations were not isolated by recurrent. From January 2003 through May 2005, Edwards, Anderson, and the Tomassos sold billions of shares of fraudulent stock, [and] repeatedly violated several securities laws. . . . SEC v. CMKM Diamonds, Inc., 635 F. Supp. 2d 1185, 1193 (D. Nev. 2009). Like the defendants who are the subjects of the instant motion, the Commission alleged that defendants Edwards, Anderson and the Tomassos violated Section 5, but not the antifraud provisions. The conduct of the defendants who are the subjects of this motion is no less egregious, particularly since each of these defendants is or was at the time, a licensed attorney (Dvorak) or securities professional (Bagley, 1st Global, and Rumyantsev). 4. Imposition Of Penny Stock Bars Against The Individual Defendants Is Appropriate Section 20(g) of the Securities Act, 15 U.S.C. 77t(g), authorizes district courts to bar individuals from participating in an offering of penny stock, conditionally or unconditionally, and permanently or for such period of time as the court shall determine. 15 U.S.C. 77t(g)(1). The court may order a penny stock bar against any person who violates the Securities Act who was engaging in activities with a[n] . . . issuer for purposes of the issuing, trading, or inducing or attempting to22


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induce the purchase or sale of, any penny stock.6 15 U.S.C. 77t(g)(2). The standard for imposing a penny stock bar essentially mirrors that for imposing an officer and director bar. SEC v. Universal Express, 475 F. Supp. 2d 412, 429 (S.D.N.Y. 2008), citing SEC v. Wolfson, 2006 WL 1234994 * 10 (D. Utah, May 5, 2006). Officer and director bars are appropriate if the persons conduct demonstrates substantial unfitness to serve as an officer or director. SEC v. First Pacific Bancorp, 142 F.3d at 1193, quoting 15 U.S.C. 78u(d)(2).7 The factors the courts consider to determine whether to order such a bar are: (1) the egregiousness of the underlying violations; (2) the defendants repeat offender status; (3) the defendants role in the fraud; (4) the defendants degree of scienter; (5) the defendants economic stake in the violation; and (6) the likelihood that misconduct will recur. Id. With the exception of the fifth factor, these factors are essentially the factors weighed in determining the appropriateness of injunctive relief. With regard to the fifth factor, at least Dvorak and Bagley had significant economic stakes in the violations. In particular, 90% of Dvoraks income in 2004 was received from CMKM, which was his only client. (Facts 89.) Similarly, during the relevant period, more than 50% of the income of Bagleys entity, 1st Global, was derived from its work related to CMKM. (Id. 91.) Finally, although Rumyantsevs economic stake was smaller, in 2004, most of the revenue of his entity, NevWest, was from trading CMKM stock ($2-$3 million of $5 million in

CMKM securities are penny stocks because they are equity securities bearing a price of less than five dollars, except as provided in Rule 3a51-1. See 15 U.S.C. 78c(a)(51); 17 C.F.R. 240.3a51-1. At all pertinent times, CMKMs stock price ranged from $0.0001 to $0.001 (Complaint at 7.) 7 This Exchange Act provision, and the similar Securities Act provision, were subsequently amended to reduce the threshold for imposing an officer and director bar from substantial unfitness to serve to merely unfitness to serve. See 15 U.S.C. 77t(e) & 78u(d)(2).23

6


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total revenue), and the gross commissions received by NevWest during the relevant period were a significant sum over $2.5 million. (Id. 95-97.) Dvorak, Bagley, and Rumyantsev should each be barred from participating in an offering of penny stock. Each played a significant role in the scheme to sell billions of shares of a penny stock to the unsuspecting public in a massive unregistered offering. They thus violated the federal securities laws while participating in an offering of penny stock. Additionally, for the reasons stated before with regard to consideration of similar factors in determining whether to impose injunctive relief and civil penalties, imposition of penny stock bars is warranted to protect the investing public. III. CONCLUSION For the reasons stated, the Commissions motion for summary judgment that the remaining defendants each violated Section 5 of the Securities Act, and that the Commission is entitled to the requested relief, should be granted.

Dated: December 23, 2010

Respectfully submitted, /s/Karen Matteson Karen Matteson Attorney for Plaintiff Securities and Exchange Commission

24


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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 [ ] [X] [X] [ ] [ ] [ ] [X]

PROOF OF SERVICE I am over the age of 18 years and not a party to this action. My business address is: U.S. SECURITIES AND EXCHANGE COMMISSION, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036-3648 Telephone No. (323) 965-3998; Facsimile No. (323) 965-3908.

On December 23, 2010, I caused to be served the document entitled MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION BY PLAINTIFF SECURITIES AND EXCHANGE COMMISSION FOR SUMMARY JUDGMENT AGAINST DEFENDANTS GLOBAL STOCK TRANSFER, LLC, HELEN BAGLEY, SERGEY RUMYANTSEV AND BRIAN DVORAK on all the parties to this action addressed as stated on the attached service list: [X] OFFICE MAIL: By placing in sealed envelope(s), which I placed for collection and mailing following ordinary business practices. I am readily familiar with this agencys practice for collection and processing of correspondence for mailing; such correspondence would be deposited with the U.S. Postal Service on the same day in the ordinary course of business. [ ] PERSONAL DEPOSIT IN MAIL: By placing in sealed envelope(s), which I personally deposited with the U.S. Postal Service. Each such envelope was deposited with the U.S. Postal Service at Los Angeles, California, with first class postage thereon fully prepaid. EXPRESS U.S. MAIL: Each such envelope was deposited in a facility regularly maintained at the U.S. Postal Service for receipt of Express Mail at Los Angeles, California, with Express Mail postage paid.

HAND DELIVERY: I caused to be hand delivered each such envelope to the office of the addressee as stated on the attached service list. UNITED PARCEL SERVICE: By placing in sealed envelope(s) designated by United Parcel Service (UPS) with delivery fees paid or provided for, which I deposited in a facility regularly maintained by UPS or delivered to a UPS courier, at Los Angeles, California. ELECTRONIC MAIL: By transmitting the document by electronic mail to the electronic mail address as stated on the attached service list. E-FILING: By causing the document to be electronically filed via the Courts CM/ECF system, which effects electronic service on counsel who are registered with the CM/ECF system. FAX: By transmitting the document by facsimile transmission. The transmission was reported as complete and without error. I declare under penalty of perjury that the foregoing is true and correct.

Date: December 23, 2010

/s/ Karen Matteson Karen Matteson25


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SEC v. CMKM DIAMONDS, INC., et al. United States District Court - District of Nevada Case No. 2:08-CV-00437-LRH-RJJ (LA-3028) SERVICE LIST Irving M. Einhorn, Esq. (served via electronic and U.S. mail) Law Offices of Irving M. Einhorn 1710 10th Street Manhattan Beach, CA 90266 Email: [email protected] Attorney for Defendant John Edwards Mark S. Dzarnoski, Esq. (served via CM/ECF only) Gordon & Silver, Ltd. 3960 Howard Hughes Parkway, Ninth Floor Las Vegas, NV 89169 Email: [email protected] Attorney for Helen Bagley and 1st Global Stock Transfer LLC Urban A. Casavant (served via electronic and U.S. mail) RR 5 Site 16 Box 29 Prince Albert, Saskatchewan S6V 5R3 Canada Email: [email protected] John Wesley Hall, Jr., Esq. (served via CM/ECF only) 1311 Broadway Little Rock, AR 72202-4843 Email: [email protected] Attorney for Brian Dvorak Kathleen Tomasso (served via U.S. mail only) 9580 Lake Serena Drive Boca Raton, FL 33496 Email: [email protected] Anthony Tomasso (served via U.S. mail only) 9580 Lake Serena Drive Boca Raton, FL 33496 Email: [email protected] Sergey Rumyantsev (served via electronic and U.S. mail) 1951 North Jones Boulevard, #G-202 Las Vegas, NV 89108 Email: [email protected] Anthony Santos (served via electronic and U.S. mail) 6965 North Durango Drive, Suite 1115-208 Las Vegas, NV 89149 Email: [email protected]


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NevWest Securities Corporation (served via U.S. mail only) c/o Anthony Santos 6965 North Durango Drive, Suite 1115-208 Las Vegas, NV 89149 Email: [email protected] Douglas E. Griffith, Esq. (served via electronic and U.S. mail) Kesler & Rust McIntyre Building, 2nd Floor 68 S. Main Street Salt Lake City, UT 84101 Email: [email protected] Attorney for Daryl Anderson Eric N. Klein, Esq. (served via electronic and U.S. mail) Eric N. Klein & Associates, P.A. 1200 N. Federal Highway, Suite 200 Boca Raton, FL 33432 Email: [email protected] Michael R. Bakst (served via electronic and U.S. mail) PMB 702 222 Lakeview Avenue, #160 West Palm Beach, FL 33401 Email: [email protected]

27



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JOHN M. McCOY III, Cal. Bar No. 166244 E-mail: [email protected] KAREN MATTESON, Cal. Bar No. 102103 E-mail: [email protected] MOLLY M. WHITE, Cal. Bar No. 171448 E-mail: [email protected] Attorneys for Plaintiff Securities and Exchange Commission Rosalind R. Tyson, Regional Director 5670 Wilshire Boulevard, 11th Floor Los Angeles, California 90036-3648 Telephone: (323) 965-3998 Facsimile: (323) 965-3908 UNITED STATES DISTRICT COURT DISTRICT OF NEVADA SECURITIES AND EXCHANGE COMMISSION, Plaintiff, vs. CMKM DIAMONDS, INC., URBAN CASAVANT, JOHN EDWARDS, GINGER GUTIERREZ, JAMES KINNEY, ANTHONY TOMASSO, KATHLEEN TOMASSO, 1ST GLOBAL STOCK TRANSFER LLC, HELEN BAGLEY, NEVWEST SECURITIES CORPORATION, DARYL ANDERSON, SERGEY RUMYANTSEV, ANTHONY SANTOS, and BRIAN DVORAK, Defendants. Case No. 2:08-cv-00437-LRH-RJJ

STATEMENT OF UNDISPUTED MATERIAL FACTS IN SUPPORT OF MOTION BY PLAINTIFF SECURITIES AND EXCHANGE COMMISSION FOR SUMMARY JUDGMENT AGAINST DEFENDANTS GLOBAL STOCK TRANSFER, LLC, HELEN BAGLEY, SERGEY RUMYANTSEV AND BRIAN DVORAK



1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 3. 2.

Pursuant to Rule 56-1 of the Local Rules of Practice for the District of Nevada, Plaintiff Securities and Exchange Commission (Commission) submits this Statement of Undisputed Material Facts in support of its Motion for Summary Judgment against the remaining defendants on the remaining issues in this action. I. RELEVANT DEFENDANTS A. The Issuer EVIDENCE

UNDISPUTED FACT 1.

Defendant CMKM Diamonds, Inc. (CMKM) See Exhibit (Ex.) 1 was at all relevant times a Nevada corporation. Its common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 (Exchange Act) and was quoted on the Pink Sheets.1 (Complaint) 13; Ex. 2 (Answer of Brian Dvorak (Dvorak Answer)) 4; Ex. 3 (Answer to Complaint of 1st Global Stock Transfer LLC and Helen Bagley (Bagley Answer)) 11.2 On March 3, 2005, the Commission ordered a ten day trading suspension of CMKM stock pursuant to Section 12(k) of the Exchange Act. On October 28, 2005, the Commission revoked Ex. 1 (Complaint) 10; Ex. 2 registration of CMKMs stock. (Dvorak Answer) 3; Ex. 5 (Commission Order Dismissing Review Ex. 1 (Complaint) 8; Ex. 2 (Dvorak Answer) 3.

A Final Judgment of Permanent Injunction was entered against Defendant CMKM pursuant to its Consent on April 22, 2008. (Docket No. 27.) 2 All exhibits are appended to the accompanying Declaration of Karen Matteson, unless otherwise stated.2

1



1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

UNDISPUTED FACT

EVIDENCE Proceeding And Notice Of Finality, 2005 SEC LEXIS 2820 (October 28, 2005).

B.

The Attorney EVIDENCE See Ex. 1 (Complaint) 26 & 63; Ex. 2 (Dvorak Answer) 5, 10 & 20; Ex. 3 (Bagley Answer) 14.

UNDISPUTED FACT 4. Defendant Brian Dvorak (Dvorak) resided in Las Vegas at all relevant times, and acted as CMKMs attorney. As CMKMs attorney, Dvorak prepared opinion letters supporting the issuance of purportedly unrestricted CMKM stock, for which he received compensation. 5. During the relevant period, Dvorak operated the website www.144opinionletters.com. In October 2007, Dvorak filed for bankruptcy under Chapter 7 of the Bankruptcy Code. Dvorak is licensed to practice law in Nevada. C. The Transfer Agent And Its Principal

Ex. 1 (Complaint) 26; Ex. 2 (Dvorak Answer) 5.

UNDISPUTED FACT 6. Defendant 1st Global Stock Transfer LLC (1st Global), a Nevada corporation with its principal place of business in Las Vegas, was registered with the Commission as a transfer agent beginning in October 2001, and remained so registered at all relevant times. It served as

EVIDENCE Ex. 1 (Complaint) 20-21; Ex. 3 (Bagley Answer) 13.

3



1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 263

UNDISPUTED FACT CMKMs Transfer Agent at all relevant times, beginning in 2002. At all relevant times, it was owned and operated by Defendant Helen Bagley (Bagley), who resides in Las Vegas. D. The Broker-Dealer And Its Principal

EVIDENCE

UNDISPUTED FACT 7. Defendant NevWest Securities Corporation (NevWest) is a Nevada Corporation and and Exchange Commission in 1999.3 8. NevWest Securities Corporation deregistered with the Securities and Exchange Commission as of July 16, 2007. 9. Defendant Sergey Rumyantsev (Rumyantsev) resides in Las Vegas. He served as NevWests CEO and head trader from at least January 1, 2002 until April 13, 2006. Rumyantsev was also one of four members of the Board of Directors of NevWest, which had policy-making authority. Rumyantsev holds Series 4 (registered options principal), 7 (general securities representative), 24 (securities principal), 27 (financial and

EVIDENCE Ex. 1 (Complaint) 22; Ex. 4 (Defendant Sergey

registered as a broker-dealer with the Securities Rumyantsevs Answer (Rumyantsev Answer) 22. Ex. 1 (Complaint) 22; Ex. 4 (Rumyantsev Answer) 22.

Ex. 1 (Complaint) 24; Ex. 4 (Rumyantsev Answer) 24; Ex. 6 (Defendant Sergey Rumyantsevs Response to Plaintiff Securities And Exchange Commissions First Set Of Requests For Admissions (Rumyantsev RFA Response)) Nos. 1 & 2; Ex. 8 (transcript of

A Final Judgment was entered by default against NevWest on December 4, 2009. (Docket No. 136.)4



1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

UNDISPUTED FACT operations principal), 53 (municipal securities principal), 55(equities trader) and 63 (state securities) licenses.

EVIDENCE investigative testimony of Sergey Rumyantsev (Rumyantsev Test.)) 13:313:13, 20:8-20:14.4

10.

NevWest is a corporation with about 80 shareholders, and Rumyantsev held about 9% of the company.

Ex. 8 (Rumyantsev Test.) 19:7-12.

11.

NevWest was a closely held company, and

Ex. 8 (Rumyantsev Test.)

most of the decision-making took place in daily 20:15-20:21. interaction between Rumyantsev, Defendant Anthony Santos,5 and David Laub. 12. Rumyantsev handled the finances, as well as all Ex. 8 (Rumyantsev Test.) trading functions, including record-keeping, compliance and supervision. 13. Rumyantsev also was in charge of setting goals Ex. 8 (Rumyantsev Test.) and targets for NevWest, and following through with NevWest plans. /// /// /// /// This testimony was taken under oath by Commission staff as part of the Commission investigation that preceded the filing of this action. 5 A Final Judgment was entered against Defendant Anthony Santos pursuant to his Consent on February 9, 2010. (Docket No. 140.)54

20:22-21:10.

20:22-21:10.



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II.

ATTORNEY DVORAK PREPARED HUNDREDS OF OPINION LETTERS SUPPORTING THE ISSUANCE OF PURPORTEDLY UNRESTRICTED CMKM STOCK

UNDISPUTED FACT 14. Dvorak received instructions from Defendant Urban Casavant (Casavant), the CEO and chairman of the board of CMKM, regarding CMKMs issuance in August and September 2004 of more than 233.7 billion purportedly unrestricted CMKM shares to approximately 258 individuals or entities who allegedly invested in CMKM in 2001, but did not then receive certificates, including entities controlled by Defendant John Edwards (Edwards Entities), and Defendants Ginger Gutierrez (Gutierrez) and James Kinney (Kinney) and others.6 15. Dvorak wrote approximately 440-450 opinion letters justifying the issuance of purportedly unrestricted CMKM stock. 16.6

EVIDENCE Ex. 1 (Complaint) 39.f.; Ex. 2 (Dvorak Answer) 9.

Ex. 9 (Deposition of Brian G. Dvorak (Dvorak Depo.)) 135:17-135:23. Ex. 9 (Dvorak Depo.) 39:21-

Dvorak understood that if stock is restricted,

Final Judgments by default were entered against Defendant Casavant on September 4, 2009 (Docket No. 129), and Defendants Gutierrez and Kinney on December 4, 2009 (Docket No. 135). A Final Judgment ordering payment of disgorgement and penalties by Defendant Edwards was entered on June 24, 2009, pursuant to the Courts Order granting the Commission summary judgment as to those remaining relief issues. (Docket Nos. 122 & 124.) Previously, the Court had entered a Judgment of Permanent Injunction against Edwards pursuant to his Consent on May 20, 2008. (Docket No. 41.)6



1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

UNDISPUTED FACT it is not saleable. 17. Dvorak received restricted stock certificates from transfer agent 1st Global, and wrote the opinion letters to take the restrictions off. 18. Dvorak understood and told Casavant in approximately December 2003 that state law required that stock be issued at the time it was paid for. 19. Dvorak wrote the opinion letters notwithstanding that it seemed odd to him that CMKM had failed on over 400 occasions to 39:25.

EVIDENCE

Ex. 9 (Dvorak Depo.) 96:896:25.

See Ex. 9 (Dvorak Depo.) 111:19-112:24.

Ex. 10 (transcript of investigative testimony of Brian Dvorak (Dvorak

issue unrestricted stock it was supposed to have Test.)) 141:8-141:22. issued. 20. On December 10, 2003, Dvorak requested, in writing, back up documentation from CMKM including subscription agreements, canceled checks, and receipts evidencing payment for the shares, so that Dvorak could now issue the shares. 21. Dvorak requested the backup documentation for prudence sake and because he didnt want to produce documents that were wrong. 22. Ultimately, however, Dvorak drafted most of the opinion letters without obtaining any supporting documentation.7

Ex. 9 (Dvorak Depo.) 113:12113:19, 115:17-116:11; Depo. Ex. 501 (letter).

Ex. 9 (Dvorak Depo.) 116:5116:11.

Ex. 9 (Dvorak Depo.) 145:4145:7.



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UNDISPUTED FACT 23. When Dvorak requested copies of canceled checks evidencing payment for the CMKM shares, he was told the check copies were in Canada; he never received them. 24. By late summer of 2004, Dvorak had set aside his concerns about obtaining back up documentation based on conversations with people that led him to believe Casavant was solid, because Casavant had property. He had money. He had signing power at the Venetian [hotel in Las Vegas] all the time. He had rooms. . . . 25. Dvorak set aside his concerns notwithstanding that at some point Casavant informed him that he did not have records indicating what CMKM had done with regard to issuing shares. 26. Dvorak also set aside his concerns notwithstanding that at some point he realized Casavant was a drunk. And when he drinks, hed talk you out of $20,000 and promise you the moon, and the next day, youd be standing right there, Wheres my moon? 27. Dvorak also set aside his concerns notwithstanding that he knew that Casavant had a [s]erious gambling problem.8

EVIDENCE Ex. 10 (Dvorak Test.) 121:18122:1.

Ex. 9 (Dvorak Depo.) 116:25117:15.

Ex. 9 (Dvorak Depo.) 157:9157:13.

Ex. 9 (Dvorak Depo.) 159:13159:19.

Ex. 9 (Dvorak Depo.) 359:6360:9.



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UNDISPUTED FACT 28. Additionally, even though Dvorak knew that each of his opinion letters had to be attached to the relevant stock certificate, he in fact wrote some letters without having the accompanying certificates. Dvorak also knew that the transfer agent, Bagley, was accepting stock that was not signed, he did not know why. And if it was not signed who approved it? But, he rationalized, in my mind it was compartmentalized. This was my job. I was writing letters. 29. Notwithstanding that the requests for opinion letters that really crossed [his] eyes were the ones that came under the hundred and one forward [stock] split and I screamed and yelled about this isnt going to happen without back[up] and I got the back up, the only back up Dvorak in fact obtained were purported Board minutes authorizing the stock split. 30. Even though Dvorak was concerned about

EVIDENCE Ex. 9 (Dvorak Depo.) 160:6161:5.

Ex. 10 (Dvorak Test.) 141:19142:6.

Ex. 9 (Dvorak Depo.) 149:7-

obtaining back up supporting the 100 to 1 stock 149:10, 150:4-151:1; Depo split, he issued an opinion letter on December 15, 2003, stating that investor Emerson Koch should be issued 4 Billion shares based on his purported purchase of 4 million shares on9

Ex. 502 (opinion letter).


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UNDISPUTED FACT November 4, 2001, supported only by a subscription agreement, and the subsequent 100 to 1 stock split. At the time, Dvorak did not realize that there was a typo in the letter, and that the correct number of shares was 400 million, because he always had trouble with the millions and billions; he does not know whether four billion shares of CMKM stock were issued pursuant to his instructions. 31. The majority of Dvoraks opinion letters opined that shares could be issued or deemed unrestricted because the shares actually should have been issued more than two years earlier. 32. Dvorak wrote the opinion letters notwithstanding that it he had no idea how CMKM raised money and there were no assets. 33. At some point, Dvorak learned that CMKM was operating out of Casavants home. 34. Dvorak never asked Casavant where he was getting the money to pay Dvorak. 35. Dvorak did not trust Bagley, and questioned

EVIDENCE

See Ex. 1 (Complaint) 42; Ex. 2 (Dvorak Answer) 12.

See Ex. 10 (Dvorak Test.) at 175:4-175:13.

Ex. 9 (Dvorak Depo.) at 149:3-149:6. Ex. 10 (Dvorak Test.) at 175:14-175:16 Ex. 9 (Dvorak Depo.) 309:1-

every statement she made to him; he also tried 309:8; see id. 330:12-330:13. to have her fired as CMKMs transfer agent.

10


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UNDISPUTED FACT 36. Dvorak had a beef with Bagley all the way through because he did not think the number on 1st Globals shareholder list matched the numbers of shares CMKM believed were being issued.

EVIDENCE Ex. 10 (Dvorak Test.) 42:2143:6.

III. TRANSFER AGENT 1st GLOBAL AND ITS PRINCIPAL, HELEN BAGLEY, CAUSED ISSUANCE OF BILLIONS OF SHARES OF UNREGISTERED CMKM STOCK UNDISPUTED FACT 37. Transfer Agent 1stGlobal issued up to 622 billion shares of unrestricted CMKM stock based on both written authorizations and attorney opinion letters. 38. At various times, CMKM stock issuance and transfers represented more than 50% of 1st Globals business. 39. From December 2002 through September Ex. 1 (Complaint) 33; Ex. 2 2004, on numerous occasions, 1st Global issued (Dvorak Answer) 9; Ex. 3 billions of shares of CMKM stock in certificate (Bagley Answer) 19. form without a restrictive legend to numerous individuals and entities. 40. A restrictive legend is a statement placed upon a stock certificate stating, among other things, that the stock is not registered with the Ex. 1 (Complaint) 34; Ex. 2 (Dvorak Answer) 9; Ex. 3 (Bagley Answer) 20. Ex. 1 (Complaint) 32; Ex. 3 (Bagley Answer) 18. EVIDENCE See Ex. 1 (Complaint) 5 & 41; Ex. 3 (Bagley Answer) 5 & 26.

11


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UNDISPUTED FACT Commission pursuant to Section 5 of the Securities Act and that an ownership interest in the stock represented by that certificate cannot be sold or transferred absent registration or the existence of a valid exemption from registration. 41. The presence of a restrictive legend on a stock certificate forecloses future sale or distribution of that stock certificate until the issuers transfer agent removes the legend by reissuing the certificate without the legend being present. 42. Bagley and 1st Global were notified that CMKM increased its number of authorized shares numerous times until its number of authorized shares was approximately 800 billion shares. 43. In particular, in 2004, the number of issued shares was 499,158,000,000, and CMKM requested that Bagley cause 1st Global to issue an additional 279,000,000,000 shares, which it claimed were outstanding, and which brought the total number of outstanding shares to over 778 billion.

EVIDENCE

Ex. 1 (Complaint) 34; Ex. 2 (Dvorak Answer) 9.

Ex. 1 (Complaint) 35; Ex. 3 (Bagley Answer) 21.

See Ex. 11 (transcript of investigative testimony of Helen Bagley (Bagley Test.)) at 216:25-217:4, 217:9-217:14.

12


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UNDISPUTED FACT 44. Bagley and 1st Global obtained certain

EVIDENCE See Ex. 1 (Complaint) 35;

purported supporting documentation, usually in Ex. 3 (Bagley Answer) 21. the form of a board authorization and/or attorney opinion letter, prior to 1st Global issuing any unlegended stock certificates. 45. Bagley caused 1st Global to issue substantial See Ex. 1 (Complaint) 36;

numbers of stock certificates without restrictive Ex. 3 (Bagley Answer) 22. legends in late 2002 and 2003, purportedly based on attorney opinion letters. 46. Bagley issued the shares notwithstanding that nothing this company did made sense to me, including CMKMs assertion that it had failed to issue 279 billion of its purportedly outstanding shares. 47. Even though Bagley may have wondered whether it was actually true that the 279 billion shares were outstanding and should have been issued two years earlier, she never asked anyone about it, instead relying solely on attorney opinion letters, including by Dvorak. 48. Bagley relied on Dvoraks opinion letters notwithstanding that in 2003, she had learned from a Commission examiner that certain opinion letters issued by a different attorney regarding CMKM stock were incorrect, and she13

See Ex. 11 (Bagley Test.) 217:15-217:18.




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UNDISPUTED FACT requested corrected letters after learning that fact. 49. Bagley relied on Dvoraks opinion letters notwithstanding that she just did not like him. I did not like his attitude. . . . I just did not feel comfortable, to the point where, at the end of the relevant period, she asked that any opinions from Dvorak go through another attorney hired as counsel for CMKM. 50. Bagley also thought it strange that CMKM had so many shares, but nevertheless issued the stock certificates, as requested, without restrictive legends.

EVIDENCE

See Ex. 11 ( Bagley Test.) at 123:3-123:10 & 123:22-124:7.


IV.

RUMYANTSEV, THE PRINCIPAL OF BROKER-DEALER NEVWEST, CAUSED BILLIONS OF SHARES OF UNREGISTERED CMKM STOCK TO BE OFFERED AND SOLD TO THE GENERAL PUBLIC

UNDISPUTED FACT 51. The absence of the restrictive legend on the stock certificate creates the impression that the stock it represents is the subject of a registration statement with the Commission or is exempt from such registration.

EVIDENCE Ex. 1 (Complaint) 34; Ex. 2 (Dvorak Answer) 9; Ex. 4 (Rumyantsev Answer) 34.

14


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UNDISPUTED FACT 52. Upon receiving stock certificates, NevWest contacted Bagley and/or 1st Global to verify that the certificates were validly issued and unrestricted. 53. In response to NevWests inquiries, Bagley and/or 1st Global vouched for the subject stock certificates. 54. Edwards told NevWest that he was not an affiliate of CMKM and that no proceeds from his sales were returned to the company or its affiliates. 55. Rumyantsev knew that CMKM did not publicly disclose the number of outstanding shares of CMKM stock. 56. As of January 1, 2004, Rumyantsev knew that the financial statements of CMKM were not publicly disclosed. 57. Rumyantsev knew that Edwards handdelivered several recently issued stock certificates in CMKM stock to NevWest. 58.

EVIDENCE Ex. 1 (Complaint) 52; Ex. 4 (Rumyantsev Answer) 52; see also Ex. 3 (Bagley Answer) 28. Ex. 1 (Complaint) 52; Ex. 4 (Rumyantsev Answer) 52.

Ex. 1 (Complaint) 57; Ex. 4 (Rumyantsev Answer) 57.

Ex. 6 (Rumyantsev RFA Response) No. 3.



Rumyantsev knew that Edwards was delivering Ex. 6 (Rumyantsev RFA to NevWest newly issued stock certificates in CMKM stock. Response) No. 7.

15


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UNDISPUTED FACT 59. By August 31, 2004, Rumyantsev knew that Edwards was liquidating his position in CMKM. 60. Rumyantsev knew that the price of CMKM stock significantly increased in the first half of 2004. 61. Rumyantsev knew that Edwards sold CMKM

EVIDENCE Ex. 6 (Rumyantsev RFA Response) No. 8.


Ex. 6 (Rumyantsev RFA

stock through more than 30 different brokerage Response) No. 11. accounts at NevWest. 62. Before Edwards opened the brokerage accounts Ex. 6 (Rumyantsev RFA at NevWest, Rumyantsev had never before had a client with more than 30 different brokerage accounts under his or her control. 63. Rumyantsev never asked Edwards why he opened brokerage accounts in more than 30 different names at NevWest. 64. Rumyantsev knew that many of the accounts that Edwards controlled at NevWest were trust accounts for unnamed beneficiaries. 65. The trust paperwork that Edwards submitted to establish his new brokerage accounts at NevWest did not identify the beneficiaries of the accounts that Edwards controlled at NevWest. Ex. 6 (Rumyantsev RFA Response) No. 17. Ex. 6 (Rumyantsev RFA Response) No. 15. Ex. 6 (Rumyantsev RFA Response) No. 13. Response) No. 12.

16


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UNDISPUTED FACT 66. Rumyantsev never asked Edwards to identify the beneficiaries of the accounts that he controlled at NevWest. 67. Rumyantsev knew that Edwards was using his own social security number for most of the accounts through which Edwards was selling CMKM stock at NevWest. 68. By August 31, 2004, Rumyantsev knew the National Association of Securities Dealers was examining Edwardss trading of CMKM stock. 69. By August 31, 2004, Rumyantsev knew that the National Association of Securities Dealers had questioned whether NevWest should file a suspicious activity report in connection with Edwardss trading of CMKM stock. 70. By November of 2004, Rumyantsev knew that the Saskatchewan securities regulator had issued a cease and desist order against Casavant in connection with CMKM. 71. As of December 31, 2004, Rumyantsev knew that Edwards wired more than $30 million out of the brokerage accounts that he controlled at NevWest.







17


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UNDISPUTED FACT 72. Edwards told Rumyantsev that none of his shares of CMKM stock came from affiliates of CMKM. 73. Edwardss sales of CMKM stock generated more than twice as much in trading proceeds for NevWest than any other NevWest customer. 74. Edwards paid NevWest a 5% commission for NevWests sales of Edwardss shares of CMKM stock. 75. It was part of NevWests operating procedure when dealing with a large position to get additional assurance that NevWest was not involved in an unregistered distribution. 76. The only assurance Rumyantsev sought was to ask Edwards whether the purchase came from CMKM affiliates, to which Edwards generally indicated no. 77. Rumyantsev never contacted CMKM directly.




Ex. 8 (Rumyantsev Test.) 94:5-94:9.



78.

Rumyantsev never asked Edwards from whom he obtained his shares of CMKM stock.

Ex. 6 (Rumyantsev RFA Response) No. 42. See Ex. 8 (Rumyantsev Test.) 96:21-99:24.

79.

One of the two primary clearing brokers through which NevWest introduced CMKM trades was Jefferies & Company (Jefferies).18


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UNDISPUTED FACT 80. Rumyantsev never asked Jefferies why it stopped trading CMKM Diamonds stock. 81. After Rumyantsev learned that Jefferies stopped trading in CMKM stock, NevWest continued to trade in CMKM stock. 82. By November of 2004, Rumyantsev knew that Jefferies had stopped trading the flow of CMKM stock from NevWest.

EVIDENCE Ex. 6 (Rumyantsev RFA Response) No. 27. Ex. 6 (Rumyantsev RFA Response) No. 29.

Ex. 7 (Defendant Sergey Rumyantsevs Response To Plaintiff Securities And Exchange Commissions Second Set Of Requests for Admissions (Rumyantsev Second RFA Response) ) No. 47.

83.

Rumyantsev never asked Jefferies why it stopped trading the flow of CMKM Diamonds stock from NevWest.

Ex. 7 (Rumyantsev Second RFA Response) No. 48.

84.

Rumyantsev never took steps to investigate why Jefferies stopped trading the flow of CMKM stock from NevWest.


85.

After Rumyantsev learned that Jefferies stopped trading the flow of CMKM stock from NevWest, NevWest continued to trade in CMKM stock.


19


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UNDISPUTED FACT 86. CMKM itself always appeared questionable to Rumyantsev, because it tried to pull its Commission registration which would result in there being no public information; CMKM was not filing required periodic reports with the Commission anymore and there was accordingly no publicly available current financial information about it; and a cease-anddesist action had been taken by the Canadian securities regulatory authorities, a big indication that somethings not right with the company. V.

EVIDENCE Ex. 8 (Rumyantsev Test.) 137:13-139:14.

EACH OF THE SUBJECT DEFENDANTS RECEIVED ILL-GOTTEN GAINS AS A RESULT OF THEIR PARTICIPATION IN THE OFFER AND SALE OF UNREGISTERED SECURITIES A. Defendant Dvorak EVIDENCE See Declaration of Nina Y.

UNDISPUTED FACT 87. Dvorak received $318,843 in payments from

the other Defendants in this action as a result of Yamamoto (Yamamoto his participation in the unregistered offerings. Declaration) 14 & Exs. 9 & 10 thereto. 88. These monies included at least $157,500 for writing at least 450 CMKM opinion letters at $350 per letter. Ex. 9 (Dvorak Depo.) 124:17125:1; 135:17-135:23.

20


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UNDISPUTED FACT 89. Approximately 90% of Dvoraks income in 2004 was received from CMKM, which was his only client. B. Defendants 1st Global And Bagley

EVIDENCE Ex. 10 (Dvorak Test.) 34:2334:24, 35:5-35:7.

UNDISPUTED FACT 90. In 2005, 1st Global made about $350,000.

EVIDENCE Ex. 11 (Bagley Test.) 30:2431:2.

91.

During the relevant period, more than fifty percent of 1st Globals income was derived from its work related to CMKM. Bagley and 1st Global received a total of $302,500 from other Defendants in this action as a result of their participation in the unregistered offerings.

Ex. 11 (Bagley Test.) 59:2159:22 & 60:1-60:2; see also id. at 31:3-31:7. See Yamamoto Declaration 20 and Exs. 13 & 14 thereto.

92.

C.

Defendant Rumyantsev EVIDENCE Ex. 8 (Rumyantsev Test.)

UNDISPUTED FACT 93. NevWests predominant source of revenue was

commissions from executing unsolicited orders 21:11-21:20. on clients instructions. In 2004 80% of its revenue was commissions; in 2005, 70% of its revenue was commissions. 94. In 2003, NevWests total revenue was approximately $1 million.21



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UNDISPUTED FACT 95. In 2004, NevWests total revenue was approximately $5 million. Most of this revenue ($2-$3 million) was from trading in CMKM stock. 96. In 2005, NevWests total revenue was approximately $1.3-1.4 million. 97. The gross commissions received by NevWest

EVIDENCE Ex. 8 (Rumyantsev Test.) 22:21-22:23; 23:6-23:24.

Ex. 8 (Rumyantsev Test.) 23:3-23:5. Ex. 8 (Rumyantsev Test.)

on the sales of CMKM stock between March 5, 189:23-190:1; Declaration of 2003, and April 15, 2005, totaled $2,559,428. Edward M. Brady (Commission Examiner) & Ex. 1 thereto (Ex. 140 to Rumyantsev Test.) at 5 (final entry under column titled Cumulative Commissions).

22


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UNDISPUTED FACT 98. Defendant Daryl Anderson, a broker employed as an independent contractor by NevWest, had

EVIDENCE See Ex. 8 (Rumyantsev Test.) 12:8-12:10; 25:16-25:25;

an agreement with NevWest, pursuant to which 26:25-28:12 (Andersons he received approximately 85% of the total commissions on his trades; NevWest received the remaining 15%, or $383,914.20 of the $2,559,428 generated on the sales of CMKM stock; based on his 9% interest in NevWest, Rumyantsev received $34,552.28. commissions ranged between 72-95% pursuant to his agreement with NevWest); 31:3-31:6 (based on the agreement, Anderson received about 85-90% of the commissions received by NevWest on CMKM trades); 31:7-31:11 (guestimates that NevWest received about 15%, or $300,000, of the total commissions on CMKM trades).

Dated: December 23, 2010

Respectfully submitted, /s/ Karen Matteson Karen Matteson Attorney for Plaintiff Securities and Exchange Commission

23


Filed 12/23/10 Page 24 of 26

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 [ ] [X] [X] [ ] [ ] [ ] [X]

PROOF OF SERVICE I am over the age of 18 years and not a party to this action. My business address is: U.S. SECURITIES AND EXCHANGE COMMISSION, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036-3648 Telephone No. (323) 965-3998; Facsimile No. (323) 965-3908.

On December 23, 2010, I caused to be served the document entitled STATEMENT OF UNDISPUTED MATERIAL FACTS IN SUPPORT OF MOTION BY PLAINTIFF SECURITIES AND EXCHANGE COMMISSION FOR SUMMARY JUDGMENT AGAINST DEFENDANTS GLOBAL STOCK TRANSFER, LLC, HELEN BAGLEY, SERGEY RUMYANTSEV AND BRIAN DVORAK on all the parties to this action addressed as stated on the attached service list: [X] OFFICE MAIL: By placing in sealed envelope(s), which I placed for collection and mailing following ordinary business practices. I am readily familiar with this agencys practice for collection and processing of correspondence for mailing; such correspondence would be deposited with the U.S. Postal Service on the same day in the ordinary course of business. [ ] PERSONAL DEPOSIT IN MAIL: By placing in sealed envelope(s), which I personally deposited with the U.S. Postal Service. Each such envelope was deposited with the U.S. Postal Service at Los Angeles, California, with first class postage thereon fully prepaid. EXPRESS U.S. MAIL: Each such envelope was deposited in a facility regularly maintained at the U.S. Postal Service for receipt of Express Mail at Los Angeles, California, with Express Mail postage paid.

HAND DELIVERY: I caused to be hand delivered each such envelope to the office of the addressee as stated on the attached service list. UNITED PARCEL SERVICE: By placing in sealed envelope(s) designated by United Parcel Service (UPS) with delivery fees paid or provided for, which I deposited in a facility regularly maintained by UPS or delivered to a UPS courier, at Los Angeles, California. ELECTRONIC MAIL: By transmitting the document by electronic mail to the electronic mail address as stated on the attached service list. E-FILING: By causing the document to be electronically filed via the Courts CM/ECF system, which effects electronic service on counsel who are registered with the CM/ECF system. FAX: By transmitting the document by facsimile transmission. The transmission was reported as complete and without error. I declare under penalty of perjury that the foregoing is true and correct.

Date: December 23, 201024

/s/ Karen Matteson Karen Matteson

Case 2:08-cv-00437-LRH

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