convicted market riggers back in business

The Australian 08.09.09 - Convicted market riggers back in business

Convicted market riggers back in business

Rebecca Urban | October 08, 2009

Article from: The Australian
TWO years after being convicted in one of Australia's biggest market-rigging cases, Dean Scook and Jeffrey Braysich are back in business.

Scook, a well-known Perth businessman who was sentenced to 14 months behind bars for illegal share trading, stands to emerge with up to 40 per cent of a mining group that is attempting a sharemarket float.

Dourado Resources, which is hoping to raise $3-$5million, has a deal to buy a bundle of mining tenements from Whitvista Pty Ltd, a company that is part-owned by Scook.

In return, Whitvista will receive shares and options valued at $6m plus $50,000 cash.

The initial public offer, which was due to close yesterday, coincided with Scook's appearance in the Sydney Federal Court this week, where he was summonsed to give evidence in a case involving the publicly listed Chameleon Mining. Chaired by former rugby league player Benny Elias, Chameleon is also backed by Braysich -- Scook's former stockbroker and partner in crime.

On November 10, 2007, the Perth District Court found the pair guilty on multiple charges of creating a false or misleading appearance of active trading in the shares of Intrepid Mining almost a decade earlier.

The company was in the midst of a takeover at the time and, according to evidence heard in the Perth District Court, Scook was keen to increase his stake. Through his private company Challiston Pty Ltd, he subscribed to take part in a placement. The 2 million Intrepid shares he picked up for 50c each later debuted on the sharemarket at $1.33, representing a sizeable profit for the businessman.

However, as the court later found, Scook had been using multiple accounts through several brokers and a pool of traders to manipulate trading. Unbeknown to the brokers and traders, Scook would arrange both sides of a transaction in order for a trade to be executed.

Some of the charges related to wash trades (transactions that involve no change in beneficial ownership of the shares traded) and matched orders (trades arranged between associated parties).

Both are illegal.

Scook was found guilty of 158 counts of market rigging, and was sentenced to three years' jail, with a minimum 14 months to be served.

Braysich, who was Scook's broker at Paul Morgan Securities, was convicted on 25 similar counts. He escaped with a one-year suspended jail term. Both had pleaded not guilty to the charges.

Their convictions followed a long-running investigation by the Australian Securities & Investments Commission, which was already familiar with Braysich as a result of a separate probe into his financial planning business Saxby Bridge.

In 2001, ASIC revoked the firm's licence and banned Braysich from acting as an investment adviser for five years over its conduct with clients. However, both bans were later overturned by an appeals tribunal.

Saxby Bridge was one of several so-called "sophisticated investors" invited to take part in Chameleon's share placement earlier this year. According to ASIC records, Braysich ceased to be a director of Saxby Bridge on November 22, 2007 -- 12 days after his market rigging conviction -- and his wife Michelle took his place.

With no legal restrictions on his ability to manage or direct corporations, sources close to the businessman claim that he is a frequent presence at the Sydney office that Saxby Bridge shares with Chameleon, which is currently suing Murchison Metals -- as well as two former directors, Phillip Grimaldi and Greg Barnes -- over ownership of Murchison's iron ore tenements in Western Australia.

Braysich's father, Joseph, is also an investor in Chameleon and has been a regular visitor to the Federal Court since the hearing started last month. Another Braysich family company, Blue Valley Ltd, also lists its principal place of business at Chameleon's office, which is on the 20th floor of a Pitt Street high-rise.

Murchison and its co-respondents are disputing the claim.

With a market capitalisation of just $33m, Chameleon is what's known as "a penny stock". However, having heavily promoted the merits of its legal case -- at one stage whacking a $1.5 billion valuation on it -- its share price has risen 250 per cent this year.

But its deal with an overseas litigation funder has proven a source of frustration for some shareholders. While the litigation funder is represented in Australia by Paul Lindholm of Phoenix Capital, it is the Singapore-based International Litigation Partners that has taken out a $20m charge over Chameleon's assets.

International Litigation Partners has paid-up capital of just $1 and is ultimately owned by a British Virgin Islands company whose own ownership structure is unknown. While Chameleon has repeatedly refused to disclose the terms of the agreement, it has denied that those financing its litigation are linked to its own directors or shareholders.

Scook's appearance in court on Tuesday was at Chameleon's request. He provided details of past business dealings with Grimaldi and Barnes and revealed that he was still friends with Braysich, despite their legal troubles.

The 53-year-old has been relatively quiet since his conviction -- a result of a five-year ban from managing corporations. Formerly in charge of dozens of companies, these days Scook is listed as a shareholder of just two, including the Perth-based Watertight Investments, run by Timothy Leahy. The 27-year-old also took the reins at Whitvista, which features heavily in the Dourado prospectus, after Scook's conviction.

Watertight is a joint shareholder of Whitvista, alongside three other companies that counted Scook as a director before his conviction. Two are now run by his long-time business partner Carol Hardie. All the companies are registered to 70 Aberdeen Street in the Perth suburb of Northbridge -- identified in court this week as Scook's current business address.

Dourado was incorporated in May last year and used to have an office next door to Whitvista at 68 Aberdeen Street. Late last year it entered into an option deal with Whitvista to acquire two tenements in a gold-rich region of the Northern Territory.

According to the Dourado prospectus, on the Australian Securities Exchange website, the company will have between 49.6 million -64.6 million shares after listing. Whitvista will own 20 million of those shares, plus 10 million options, making it the largest shareholder by a long shot.

Despite that, it does not appear to have a representative on the board, which is chaired by Emilio Pietro Del Fante, a director of the listed Prime Minerals.

Dourado, which has neither a sponsoring broker promoting the deal nor an underwriter, is planning to use the proceeds of its fundraising to advance its tenements.

Telephone calls to the company's office in Perth, where its accountant is based, were not returned.

Scook, who told the court he no longer traded on the sharemarket but bought and sold mining tenements for a living, could not be contacted. Braysich did not return calls.