vancouver sunDavid Baines, Vancouver Sun
Published: Wednesday, January 04, 2006
www .canada.com/vancouversun/news/business/story.html?id=6fef2a28-716a-4da9-a9d0-50bcd42d8655
1987 prawn scam veterans surface again
It was the spring of 1987 and I was working as a freelance securities columnist. I noticed a Vancouver Stock Exchange company called China Sea Resources Corp. which had a joint venture with the Chinese government to farm prawns in the South China Sea.
The company's president, James Poe, was making some pretty big noises about the company's commercial prospects. Within five years, he predicted, the joint venture would produce more than 36 million pounds of prawns annually. And in case you thought this was just prawns in the sky, he announced that tons of the little crustaceans were already being shipped to Vancouver.
The stock jumped to more than $6, but alas, none of the prawns made the swim to Vancouver. The headline on my story, "Where's the prawns?" captured the not-too-subtle theme that it was all a shell game.
Among Poe's co-directors were his wife, Paula, and a fellow named Sandy Brown. After the prawn promotion pooped, Brown moved on to another VSE joke called Gametek Systems Inc., which was marketing a coin-operated arm-wrestling machine called the Grappler.
Gametek projected that within three years, it would earn $60 million in annual after-tax profits. The stock soared to $3 per share, but the company failed to disclose crucial information to investors, including the fact it had been sued by the game's inventor, as well as by two men who had broken their arms playing the machines. The price collapsed and the stock was delisted.
Poe and his wife, meanwhile, moved on to the mineral exploration business through another VSE company, Pan Asia Mining Corp. The company established another joint venture with the Chinese government, this one to develop the Changma Mine, billed as China's only producing diamond mine.
Pan Asia didn't mine many diamonds, but it extracted a lot of money from investors, much of which accrued to Poe and his wife. During 2000, for example, Po collected $444,937 in salary, and Paula, who served as chief financial officer, received $76,500.
During the same year, the company paid $925,042 to a private company controlled by Paula for rent, administration, expenses and management fees, and $1,962,446 to a Hong Kong company "under common management" for administrative and technical support services in China. It also paid $839,906 in consulting fees, management fees, salaries and exploration and development costs "to certain officers and directors, shareholders and relatives of directors."
By the end of 2002, Poe's last full year at the helm, Pan Asia had raised $39 million in equity from investors, and lost it all. But these numbers, as bad as they are, don't tell the whole sordid story.
In January 2003, the B.C. Securities Commission charged that the Poes had traded millions of shares without filing insider trading reports. The orders were lifted after the Poes made the requisite filings, but that still didn't end the matter.
The commission made further inquiries and found the company had grossly overstated the potential of its Chinese diamond properties. For example, it reported an average expected value of $160 US per carat from its 702 property when three independent sources estimated values ranging from $50 to $97; and it reported that a 1,100-tonne-per-day facility at its Huixian Mine would produce a gross margin of $13 million US and capital pay-back of less than three years, but failed to provide any supporting documentation
Trading was halted while the company scurried to repair all the fibs it had told. The commission tagged geologist Don Nicholson, a longtime Poe associate, as the culprit and slapped him lightly on the wallet with a $15,000 fine.
By the end of 2003, Poe was ousted from the company and the new board issued a sharply worded release stating that under Poe's leadership, "the company could not meet its potential due to the lack of credibility of Mr. Poe and his management style."
Still, the regulatory fallout from the Poes' stewardship of Pan Asia (or China Diamond Corp., as it is now called) was not over. Last month, the commission revealed that Paula Poe had continued to breach insider trading reporting rules and had even set up a nominee account in the name of a housekeeper. She then used the account to trade shares that had ostensibly been issued to other company insiders or consultants.
"The bulk of these funds were spent on various personal expenses of the Poe family," the commission stated. Poe admitted her transgressions and agreed to pay a $25,000 penalty and submit to a five-year stock market suspension.
But this still did not spell the end of the Poes. James Poe is now chairman of Terra Nostra Resources Corp., which has formed -- you guessed it -- a joint venture in China giving it a majority stake in two companies that produce stainless steel and copper.
To read the company's promotional material, you would think Poe is a modern-day Marco Polo: "When the call went out by the mainland Chinese communists for expatriate Chinese abroad to invest and help rebuild the motherland, entrepreneur James Poe answered the call," the company reported on the Internet.
Conveniently, Terra Nostra trades on the OTC Bulletin Board in the United States, a trading forum that gets little or no scrutiny from Canadian regulators. The stock closed Tuesday at $2.45 US, for a total market value of nearly $100 million US, even though it has not yet generated a single cent of revenue.
Hoping to catch Poe, I dropped into the company's office at 1166 Alberni Street, introduced myself to the receptionist and, after some behind-closed-doors whispering, was finally led to the director of corporate communications. To my great surprise, he was none other than the prawn-and-Grappler booster, Sandy Brown.
"That was all bs," Brown said, referring to the Grappler promotion that he so earnestly embraced nearly two decades ago. "We both know that. That was the old VSE."
Yes, he conceded, the OTC Bulletin Board is just as wild as the old VSE, but for Terra Nostra it's just a brief stopover en route to the American Stock Exchange.
He said Paula is not involved in the company, but one of the Poes' daughters, Crystal, is a director, and the controlling shareholder is the Poe Family Trust based in the Bahamas. Don Nicholson Jr., son of the Changma Mine fibber, serves as CEO, and Poe himself is at the very top of the organizational chart.
All in all, this looked like a re-run of a bad movie. But Brown assured me, "James is a different person today than he was years ago."
And the business? It's real, he said.
Not like the prawns.
dbaines@png.canwest.com
© The Vancouver Sun 2006