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September 18, 2014

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Company, owner will face civil trial to determine involvement in securities scheme

A panel of the U.S. 9th Circuit Court of Appeals ruled Tuesday that an owner and her company were entitled to a civil trial in Las Vegas for a case involving the sale of unregistered stocks in a scheme in which some 40,000 investors lost $64.2 million.

In doing so, the panel overturned the decision of U.S. District Judge Larry Hicks, who granted a pre-trial summary judgment sought by the Securities and Exchange Commission against Helen Bagley and 1st Global Stock Transfer.

But the panel upheld Hicks' order that Bagley and Global must “disgorge” themselves of $448,047 they made from their dealings. It also affirmed the order that attorney Brian Dvorak must give up $409,638. The court rejected Dvorak's claim that bank records show that the amount they are ordered to forfeit is too large.

In addition, the panel rejected Dvorak's appeal that his civil trial be delayed until after his criminal trial.

The SEC in 2008 filed a complaint against the three, plus 11 other defendants, accusing them of the sale of unregistered securities in a company called CMKM Diamonds Inc., which claimed it owned a gold and diamond company.

The panel decision, written by District Judge John Tunheim, said CMKM “had no legitimate operations."

“The company issued false press releases, operated a promotional racing team that traveled around the country, and provided investors with fake maps and videos of mineral operations in North and South America,” Tunheim wrote. He said the money collected financed the personal lifestyles of the officers of CMKM.

A criminal indictment has been issued against some of the persons involved in the company, including Dvorak, who is accused of writing a false opinion that the unregistered stock could be sold without prior federal registration. Dvorak wrote opinion letters to investors that said the stocks could be issued without a restriction and received $350 for each letter, the court said.

The court said there was a question whether Global and Bagley should face liability since they transferred the unregistered securities. The two said they acted under a Nevada state law.

“Based upon the evidence, a reasonable jury could conclude Global and Bagley were not substantial participants in the CMKM scheme,” the court said.

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