'Poster boy' for securities misconduct charged with export offences

As expected, more and more of this almost comical story about Steve de Jaray of the Footstone Jive Winery operation came out today by David Baines of The Vancouver Sun:

'Poster boy' for securities misconduct charged with export offences

I had been wondering what happened to Steven de Jaray, who I view as the poster boy for how to dupe investors and get away with it. Now I know.

He and his 26-year-old daughter, Perienne, are in trouble with the Canada Border Services Agency. In December 2008, border officers intercepted two packages that were being sent to Hong Kong and found they contained electronic chips that could be used for military purposes. Also, the chips had been valued at $1,375, but border officials determined they were worth at least $200,000.

In February 2009, the agency's criminal investigators conducted searches at the exporter's residence and business, and last week they announced that de Jaray and his daughter had been charged with exporting technology subject to export rules, and failing to report commercial goods for export.

They are scheduled to appear in Richmond Provincial Court on June 15.

I tried to obtain copies of the search warrants, which usually outline what the alleged offences are all about, but couldn't track them down on Monday.

What I do know is that during the high-tech bubble, de Jaray savaged his former public company, AimGlobal Technologies Company Inc., so badly that, when I make public presentations, I use this case as an example of extreme securities misconduct, and an example of how you can defraud public investors and not suffer any criminal consequences.

In the late-1990s and early-2000s, de Jaray was founder and chief executive officer at AimGlobal, a Toronto Stock Exchange-listed company. At its peak in 2000, it sold $154 million worth of carbon-monoxide detectors. Investors were so smitten with revenue growth that they ignored the fact that the company lost $82 million during the same period. The stock traded as high as $27.

In the summer of 2001, the company's independent directors became concerned that de Jaray was using the company's treasury as his personal piggy bank. They hired KPMG to conduct a forensic audit. I obtained a copy of that report and was shocked at what I read.

For one thing, a consultant who had helped sell shares to private investors charged the company $211,900 for his services. De Jaray instructed him to submit a bill for $406,900, of which $195,000 was used to reimburse the consultant for a Ferrari that de Jaray had purchased from him.

In another non-arm's-length deal, de Jaray's then-wife Simone (they are now divorced) exercised options to buy 72,000 shares at $5 each in four tranches. Rather than pay the $360,000 required to exercise the options, she submitted four invoices -- each corresponding to the exact cost of each tranche -- for $360,000. The invoices were ostensibly for marketing services, but KPMG said it was unable to determine "the exact nature or value of the work" she provided.

KPMG also reviewed a $150,000 payment made by AimGlobal in March 1997 to Kustanal Investment Bank of Nauru, ostensibly for the placement of shares, and other financial and marketing services. KPMG viewed the transaction as suspicious. It noted that Nauru is "one of the top money-laundering havens in the world." It also noted the invoice was not addressed to anyone, there were no details relating to the placement of shares, and KPMG had not been able to confirm that the bank even existed.

De Jaray, meanwhile, was wheeling out buckets of money. During 2001, he collected $999,057 in management fees and a bonus of $100,000, and was reimbursed for expenses totalling $538,546.

Many of those expenses were dubious, to say the least. They included $49,112 for 30 cases of wine ($136 per bottle), which he claimed to have given to directors as gifts; $8,593 for picture framing by Wall Street Picture Framing on Marine Drive in West Vancouver; and $802 for men's clothing purchased at Thomas Pink in London. In all, KPMG identified $201,197 in expenses which, in its view, required further explanation.

De Jaray was also dumping tons of shares. Between June 1999 and October 2002, he sold 1.2 million shares without reporting those sales. It wasn't until Oct. 24, 2002, after trading was halted, that he filed an insider report disclosing he had disposed of them. Even then, no specific dates or prices were disclosed, so there is no way of knowing how much he made.

It was quite clear, however, that he was living a very affluent lifestyle. He and his wife lived in a spectacular house at 5730 Seaview Rd. in West Vancouver, overlooking Eagle Harbor Yacht Club. He also owned an Aston Martin and several Ferraris.

AimGlobal didn't fair as well. In October 2002, it went into receivership and the stock was delisted.

In May 2004, de Jaray signed a watered-down settlement agreement with the B.C. Securities Commission in which he admitted to insider trading reporting violations and to failing to install adequate compensation controls. Most of the specific abuses discovered by KPMG were not mentioned. He agreed to pay a $100,000 fine and submit to a nine-year securities ban, which is still in effect. No criminal charges were ever laid.

De Jaray subsequently founded APEX-Micro Electronics, which manufactured microchips and other electronics on a contract basis. This is the company that produced the chips that de Jaray was attempting to export to Hong Kong. It also fell on hard times and went into bankruptcy in July 2009.

In recent weeks, de Jaray has taken his big talk and high-living lifestyle to Oregon. He has leased a historic two-storey building in the centre of Jacksonville, Ore., and announced plans to open a winery, spirits distillery and tasting room in mid-June.

He claims to have distribution connections throughout the United States, and predicts his winery could be producing 100,000 cases in four to five years. That would make him a major player in Oregon -- the largest winery in the state currently produces 139,000 cases annually.

To pull this off, he'll need a lot of capital. Perhaps the Kustanal Investment Bank will help him out.

dbaines@vancouversun.com

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