| Book Reviews | The Naked Truth: Investing in they began selling stock for 1/100 of a a share of CMKM, or $15,000 to buy a the Stock Play of a Lifetime penny per share. block of a million shares. By the middle In December 2002, Casavant an- of February, the value of that block of By Mark Faulk nounced the opening of an office in stock had fallen to $3,500. By the end TogiEntertainment Inc., Oklahoma City, OK, Belgium that “would promote the of March, as Faulk puts it, “the cost of 2008. 411 pages, $26.95. ‘Casavant’ diamond brand and assist in a CMKM lottery ticket consisting of a the support of ‘conflict free’ diamonds.” million shares of CMKM stock was an This opening was part of a grandiose incredibly low $400”—or 4/100ths of a EVIEWED BY H R ISTOPHE R AILLE R C C. F global plan. According to Casavant, cent per share. For true believers, this “Blood diamonds” began to attract CMKM would “become involved in didn’t mean that they had lost $14,600 international attention in 1997. That the entire sales chain in diamond mer- in two months. No, it simply meant that was the year in which the U.N. Security chandising with the view of becoming it was even easier than before to load Council voted to forbid nations from the largest wholesaler of Canadian dia- up on more such lottery tickets. buying Angola’s diamonds—a vote that monds.” Casavant didn’t concern himself with arose out of the news that diamond ex- minor details, such as filing audited re- ports had financed the escalation of the The Mathematics of Hope ports as required by law. Accordingly, civil war in that country. In July 2000, Between that beginning and spring in March 2005, the Securities and Ex- the World Diamond Congress, meeting 2007, when Casavant lost control of change Commission instituted a pro- in Antwerp, adopted a resolution es- CMKM and returned to Canada, the ceeding pertaining to a delisting of the tablishing an international certification company sold a total of $200 million stock. In connection with that hearing, system for the export and sale of non- worth of stock to the public. It still isn’t Casavant asserted his Fifth Amendment conflict diamonds. By 2006, the stigma- clear where exactly the money went, right to refuse to testify. The reaction tization of the mining of diamonds in but it didn’t go toward mining or mar- of the true believers was—literally— Africa’s war zones in ways that finance keting diamonds. By May 2007, there disbelief. those wars rose to the highest level of was only $558.50 left in the corporate Faulk quotes a posting from an In- visibility on earth: the release of “Blood treasury, and the only noncash compa- ternet stock market message board: Diamond,” a Hollywood movie starring ny asset of significance consisted of an “Anybody that is reporting that Urban Leonardo DiCaprio. interest in another mining venture that has taken the 5th at the hearing is full The history of Casavant Mining Kim- was also quite speculative. of S H I T in my opinion. And I would berlite, or CMKM Diamonds, makes a In the heyday of 2002–2003, Casa- just love to slap around any individual certain melancholy sense against that vant attracted not only investors’ money that reports something like that without background. CMKM Diamonds was but also their conviction. His investors confirmation. He said, she said, it has marvelously successful as a promotion were believers. As Mark Faulk puts it been reported that, etc. etc. Does any- and a hopeless flop as a corporation. in this fascinating and detailed account, body here really think that in a hearing In retrospect, the story of the company Casavant’s “actions seemed to investors like this that Urban is going to take the can be vastly instructive in both re- to encompass the perfect balance be- 5th. That is ridiculous!” spects. tween an aggressive plan for financial In 2002, Urban Casavant accumu- success, and an ethical, moral, and hu- Skipping to the Ending lated claims to mineral rights on more mane approach to business.” I’ll compress facts mightily here than one million acres of land in and Through the period 2003–2004, and simply say that, two years later, in around Saskatchewan, Canada—sure- Casavant and his associates spread the March 2007, Casavant gave up control ly among the places least likely to be notion that there was a big buyer in over what remained of the company, troubled by civil war. Casavant then the wings who was ready to acquire signing over control to a one-time true moved to Las Vegas and encountered CMKM and make its loyal investors mil- believer, Kevin West. According to a two penny-stock promoters, who of- lionaires. Many penny-stock investors third party who was there, “Urban was fered to raise $100 million for him to al- seem to think in straightforward arith- acting like he was anxious and scared low him to develop his mineral claims metical terms, such as the following: “A to death and couldn’t wait to get on and, should his hopes for those claims price of $1 per share seems a modest a plane back to Canada. He said he come to fruition, to enable him to mar- goal. If a stock is today selling for, say, had a meeting with his attorney David ket the diamonds. Together, Casavant $0.01, then I can put my $10,000 of sav- Chesnoff and they were going to indict and his new associates created CMKM ings into it and own 1 million shares. him and he was really worried about and issued press releases informing When the big deal comes through, or that.” shareholders that CMKM had found when a vein of diamonds is verified— Kevin West became the new chair- promising kimberlite pipes (subterra- well, surely the stock’s value will go up man and chief executive officer of nean geological structures with volca- to $1, and I’ll be a millionaire.” CMKM Diamonds, and Casavant took nic origins that often hold diamonds); In January 2003, it cost $0.015 to buy that airplane to Canada. West estab- 72 | The Federal Lawyer | June 2009 lished a new company headquarters in Madoff: Corruption, Deceit, and Hofstra University in 1960. He did not Tyler, Texas, and hired an experienced the Making of the World’s Most make a deep impression on his class- litigator as corporate counsel to try to Notorious Ponzi Scheme mates at either of those institutions. It win back through the civil courts some appears that very soon after his gradu- of the value that had been drained out By Peter Sander ation from Hofstra, before 1960 was of the bank accounts of investors over The Lyons Press, Guilford, CT, 2009. 288 pages. out, he had created Bernard L. Madoff the years. $14.95. Investment Securities (BMIS) with seed The book tells a story that may money of $5,000. shock some of those who are unfamil- That was not a small sum of money iar with the netherworld of penny-stock REVIEWED BY CH R ISTOPHE R C. FAILLE for a newly minted college graduate. At promotion. It is a story that juxtaposes the time, $5,000 was nearly the annual some of the best of human impulses The subject matter of this book income of the median wage earner in against some of the worst and a tale needs no real introduction. The title the United States; in 2009 dollars, the that has a postmodern twist: Mark alone will surely do that job for any sum would be roughly $35,000. Where Faulk got swept up in the story as he reader of The Federal Lawyer or for al- did the money come from? We don’t researched and wrote this book, and, most anyone conscious in the United know. In his book, Peter Sander rightly in September 2008, West (while re- States over recent months. Let us jump expresses his curiosity and moves on. maining in office as chairman) named right into the subject, then, by enumer- Faulk the new chief executive officer ating seven continuing mysteries of the 2. Peter Madoff: Waves and Chronology of the company. Bernard Madoff affair, each raised in Bernard Madoff’s brother, Peter, is I recommend this book heartily. I the course of this book. I could easily continuing to make waves, even in the should say, though, that I didn’t come adopt a higher number, but I’ll stop at face of his brother’s long sentence and to it as an impartial arbiter. Faulk was a seven to keep the size of this review the continuing criminal investigation. great help to me in sharing the fruits of manageable and also because a num- On April 30, 2009, Peter demanded a his then ongoing research when I wrote ber with such scriptural resonance may half-million-dollar licensing fee for the a story on the CMKM/Casavant case for be appropriate in homage to the Jewish software that was part of the market- my former employer, HedgeWorld, in philanthropies so cruelly devastated by making operation at BMIS. The com- May 2007. Indeed, I provided a blurb Madoff’s swindle. pany’s market-making operation, it for the dust jacket of this book. These questions, presented roughly should be noted, was apparently run As final words, I can offer a caution in chronological order, in accordance separately from the investment-advis- for investors.