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Venture Capitalism for Dummies by David Baines (Vancouver Sun) Money for Nothing – Dire Straits David Baines, business investigative journalist at the Vancouver Sun, tells us how to run a losing publicly traded company for 45 years and make millions. This is the second part of a series he began last February 16th 2008 on a penny mining stock called Silverado Mines that has been kicking around since the 1960’s like a cockroach duping the credulous and accumulating losses of $86 million while lining the pockets of its insiders. The entire so-called capitalist system is a sham and façade, a state subsidized operation kept afloat by a taxpayer provided stream of tax incentives, tax concessions, outright grants and bailouts that bears no resemblance to Adam Smith’s “invisible hand of the marketplace”. It’s a farce and without the Conservative Corporate Nanny State the whole system would implode in months. Market discipline is only for the working classes. If you missed the first installment by David Baines, you may want to read Part One first for which I have provided a link. In light of this article it’s obvious that free enterprise is neither free nor enterprising, but the myth of the “free market” lingers on. Since this has been going on for decades, I can only assume that it’s all legal. But I suppose within the context of the larger scheme of things with massive scams orchestrated by Enron, Worldcom and the more recent Bankster scams and subsequent taxpayer bailouts on the backs of taxpayers in the United States, costing hundreds of billions, this is small potatoes. Baines has a follow up article on the scam known as Silverado Mines in the Vancouver Sun this morning (December 10, 2008), a follow up to two earlier articles. I have included the two previous articles current article provided below. You may want to read the first two before the current one. This series of articles will give you a shocking insight into the sewer known as venture capital markets. My suggestion would be that governments shut down these swindles, declaring them illegal, and set up a chain of organizations to carry out the work of venture capitalists, investing in and providing guidance to small, innovative firms while inventing new legal structures that would allow them to cooperate and compete with one another at the same time. Over the past 100 years the venture capital stock markets have had a dismal record in providing funds for fledgling, creative firms and their incredibly low success rate is appalling. Most of the funding ends up in the hands of promoters and insiders. Often venture capital markets are just a glorified casino where paper is shuffled around for the benefit of these rip-off artists and parasites, as the Vancouver Stock Exchange has clearly demonstrated over the years. But this is small scale when one considers the magnitude of legalized crime in the larger corporate sector, notwithstanding the criminal acts of people like Hank Paulsen, present Secretary Treasurer of the Federal reserve in the United States who is robbing the public purse to bailout failing incompetently managed corporations and criminal financial institutions that are the primary cause of our current economic woes. Here is Clive Dilnot of The New Statesman: “Caribbean tax havens run on tax evasion and money-laundering, as do their British counterparts, something their governments no longer bother to deny. (Barack Obama had a telling line in one of his campaign speeches: "By the way, did you know that there's a building in the Cayman Islands that supposedly houses 18,000 corporations? That's either the biggest building or the biggest tax scam on record. And I think we know which one it is.") In Europe as a whole, crime is now one of the largest single sectors of business, with the Mafia alone controlling, through "legitimate" companies, roughly 15 per cent of Italy's GNP (worth as much as $800bn a year). We know this, but we pretend - along with our governments - that the institutionalization of crime within the "mainstream" economy does not matter; that it doesn't come with acute costs. This is nonsense. The global cost of tax evasion and avoidance is estimated, conservatively, at roughly $500bn. When more than 40 per cent of the value of African bank accounts is in Swiss banks, we know that looting and corruption - the politics of spoil, as Oswald Spengler named it nearly 80 years ago - has taken place on a huge scale. The (failed) reconstruction of Iraq, with almost no new infrastructure or working institutions to show for it, will be recorded as probably the largest site of embezzlement in history. One could go on. This should merely serve to remind us that crime is indeed a redistribution of wealth, but there is nothing of Robin Hood about it. It is the most regressive form of "taxation" and the one most debilitating, in all its consequences, to social well-being. It is also - though we tend to forget this - economically destructive, and even incompetent. After all, crime is nothing but theft; by definition it does not make, it takes. It leeches monies out of the economy and it erodes the conditions for real economic life, because these are dependent on the structures of trust that crime destroys. To slip towards crime, therefore, is to slip into an economic model in which wealth is no longer created in any real sense but only extracted from what already exists. In fact, the much-vaunted "creativity" of the financial markets since 2001 boils down to little more than the invention of extraordinary mechanisms which increase the circulation of capital through the system (enabling revenue to be skimmed from each stage in the process) but which do not actually create wealth.” (Dec 4, 2008, New Statesman) Here is David Baines’ most recent article article: An unholy trinity at Silverado Gold By David Baines December 10, 2008 1:03 AM Welcome to the 36th annual general meeting of Silverado Gold Mines," company chairman, president, chief executive officer and chief financial officer Garry Anselmo told a rag-tag assemblage of three shareholders and sundry employees at the Best Western Capilano Inn & Suites on Tuesday. Now, you might consider this an innocuous opening, but with this company practically everything has an insidious element to it. It may have been Silverado's 36th year of existence, but it was not its 36th annual meeting. The company skipped the last four years, and might have skipped this year if the B.C. Securities Commission hadn't leaned on it. Anselmo tried to toss off this fiduciary holiday as an "oversight," as though you could forget to hold an AGM four years in a row. The first item on the agenda was to receive the company's financial statements for the past four years. Those statements showed that, during this hiatus, the company generated zero revenues and racked up $23.1 million in losses. The company lost another $6.9 million during the first nine months of this year, raising total losses since inception to $94.3 million US, or about $120 million Cdn. The company has lost most of this money exploring for gold and antimony in Alaska (antimony is used as a fire retardant, a lead hardener, and has other industrial applications.) One shareholder asked about the $41.2 million worth of "inferred in-place antimony resource" which the company claimed it had discovered on its Alaska property last May. Anselmo's response was the model of restraint. He said he wanted to "stay away from reporting value" until the company issues a pre-feasibility report, which is expected by month-end. "Restraint" is not a word one would normally associate with Anselmo, who has a penchant for Corvettes, gold nugget jewelry, fine food, bluster and hyperbole. Alas, restraint was imposed on him by the B.C. Securities Commission, which halted trading a few days after his antimony announcement and forced him to admit his valuation "does not consider factors such as costs . . . ." Oh, yeah, costs. Forgot about them. Furthermore, he admitted, the valuation was done by the company, rather than a qualified person, so readers should not rely on it. Which, of course, raises the question as to why the valuation was issued in the first place. Despite the commission's handcuffs, Anselmo couldn't quite control his promotional reflexes. He told the meeting that "everything on the property is big" -- big gold nuggets, big quartz crystals, and antimony veins over a foot thick. He delivered all this in a low-key professorial manner, giving him an aura of authority that the company's track record does not support. Another shareholder asked him about the company's proposed coal-water "green-fuel" project in Mississippi. Anselmo, again adopting a restrained manner, said it is not clear whether the coal supply in that state is suitable for coal water, so pending further tests, the project is on hold. What a contrast. Until May, Anselmo had been feverishly touting the project. After the commission stepped in, however, he was forced to admit the project had fallen apart. But once again, he had difficulty controlling his promotional impulses. He droned on at length about the viability of the technology, how the company would be able to produce coal water for the equivalent of $20 per barrel of oil. This prompted the company's lawyer, Winston Yee, who had parked himself beside Anselmo at the head table, to interject that these figures were based on models, not real life. "So it's all hypothetical?" the shareholder asked. "Yes, until it's in production on a commercial basis," Yee replied. The same shareholder asked Anselmo why, considering all his "grand plans," Silverado stock is trading at only a penny. (The stock is quoted on the dreadful OTC Bulletin Board in the United States.) Anselmo dug deep into his bag of excuses and pulled out two Howe Street favorites. "The same reason the American economy is on its knees," he said. A widespread economic bust is a handy excuse that comes around every few years and gives promoters the opportunity to reset the clock. In most cases, however, their companies are already messes, as Silverado certainly is. For his second excuse, Anselmo cited illegal short-selling. This, too, is a much invoked bogeyman designed to portray the company as the innocent victim of malevolent outside forces. Once again it ignores the company's obvious business failures and structural problems. One of Silverado's biggest structural problems is Tri-Con Mining Ltd., Anselmo's private company, which has insinuated itself in the middle of Silverado's business. Silverado doesn't have any employees. Services are provided by Tri-Con, which charges cost plus 25 per cent for exploration and development work, and cost plus 15 per cent for mining operations. (Cost is defined as out-of-pocket cost plus 15 per cent for office overhead.) Tri-Con also charges a flat fee of $10,000 US per month. This adds up to a lot of money. During the nine months ending Aug. 31, Tri-Con billed Silverado $3.1 million US, of which $940,654, or 23 per cent, represented the amount in excess of Tri-Con's cost. Last year, Tri-Con charged Silverado $6.91 million, of which $1.24 million, or 18.3 per cent, represented Tri-Con's mark-up over cost. During the past 15 years, Anselmo -- through Tri-Con -- has earned an average of $425,000 annually, courtesy of Silverado shareholders. This is very handsome remuneration for somebody running a one-cent company, not to mention a huge conflict of interest. I wondered how this conflict is managed. Is the contract for these services put out to tender? Are competitive bids sought? Does the company conduct reviews to ensure that Tri-Con is providing value for the money it receives? I posed these questions to James Dixon, who has served on Silverado's board for the past 20 years as an independent director. He is also a member of the audit committee and a lawyer with the Vancouver firm Holmes & King. Who better to represent the interests of ordinary shareholders? Alas, Dixon was not able to point to a single thing the company has done to safeguard the interests of shareholders. For him, it all boiled down to trust. Anselmo had 35 years of experience and was "well-versed" in exploration costs in Alaska. "As a director, I am entitled to rely on the expertise of management," he said. I was floored by this response. Dixon's obligation as an independent director is to ensure the conflict is properly managed, not defer to the person who is in the middle of it. At that point, Anselmo whispered something. Then Dixon said Anselmo had reminded him that KPMG, the company's previous auditor, had previously reviewed Tri-Con's charges. (The implication was that KPMG had approved them.) I'm skeptical. Auditors don't do value accounting in the normal course of audits. I asked Anselmo whether he had any documentary evidence to support what he was saying. "I'm not prepared to provide any," he said. So what we have here is the perfect storm: Massive and continuing company losses, a stock price that is barely registering, and a principal officer and director who is getting rich at the expense of shareholders. Anselmo was not about to muse over this unholy trinity: "This meeting is closed," he declared, cutting me off in mid-sentence. dbaines@vancouversun.com © Copyright (c) The Vancouver Sun
Silverado a gold mine mostly for related company
On Saturday, I wrote about how Silverado Gold Mines Ltd., for the past four decades, has been promoting some gold properties in Alaska and, more recently, a proposed coal-water plant in Mississippi. Despite a steady string of boosterish releases promising shareholders imminent riches, the company has produced nothing but losses. As of Nov. 30, cumulative losses totaled $87.5 million US. Meanwhile, the company has issued nearly one billion shares to finance operations. Due to these chronic losses and constant share dilution, the stock is now trading at a mere five cents on the OTC Bulletin Board in the United States. The company's founder, president and chairman, Garry Anselmo, boasts that he doesn't take a cent of salary from Silverado, which is technically true, but quite misleading. As disclosed in the company's filings with the U.S. Securities and Exchange Commission, he has earned millions of dollars from Silverado through his private B.C. company, Tri-Con Mining Ltd., and two related U.S. companies. Here's how it works: Silverado leases spacious offices on the 11th floor of the Terasen Gas building at 1111 West Georgia for about $125,000 per year. None of the employees, including Anselmo, work for Silverado. They all work for Tri-Con, which is owned by Anselmo. Tri-Con charges Silverado at cost plus 25 per cent for exploration and development work, and cost plus 15 per cent for mining operations. (Cost is defined as out-of-pocket cost plus 15 per cent for office overhead.) Tri-Con also charges a flat fee of $10,000 per month. This adds up to a lot of money. Last year, Tri-Con billed Silverado $6.91 million, of which $1.24 million, or 21.9 per cent, represented the amount in excess of Tri-Con's costs. The year before, Tri-Con charged Silverado $4.91 million, of which $760,324, or 18.3 per cent, represented Tri-Con's mark-up over cost. This sort of billing arrangement has been in effect for the past 35 years. During the last 14 years alone, Tri-Con has billed Silverado a total of $40 million, of which $5.6 million, or 14 per cent, represents Tri-Con's mark-up. The bottom line is that Tri-Con, which is owned by Anselmo, has earned about $400,000 annually in mark-up for the past 14 years, courtesy of Silverado shareholders. Pretty handsome remuneration for a five-cent company. But that's not all. In November, the company announced it had hired Irma Mungal as its vice-president of administration. She was touted as a "dynamic addition" to the management team. It wasn't until Feb. 28 -- more than three months later -- that the company disclosed in an SEC filing that Mungal is Anselmo's wife. According to the filing, Mungal holds two degrees (in human resources and business administration), but she refused to say where she got them. "None of your goddamn business," she told me. The filing also stated that, as a representative of a leading financial institution, she was "responsible for operations risk management across western Canada." She declined to disclose her title or the the name of the financial institution. "Anything that this company must disclose to the public, we do. Anything that we don't disclose to the public is none of your damn business." Then, because I was "scum of the Earth" and focused on "smutty" writing, she proceeded to tell me how often she and her husband "do it." She also told me she has a black belt in martial arts and could "kick ass." It was all quite bizarre. I felt very fortunate I didn't work in the Silverado office. Mungal, like the other employees in that office, is employed by Tri-Con. Presumably her services, plus an appropriate mark-up, are charged to Silverado. But how much, we don't know. Tri-Con also leases, for Anselmo and his wife, a Cadillac SRX and two Corvettes. Each are worth about $100,000. I wanted to ask Mungal and Anselmo whether the lease costs are passed through to Silverado, but they made it clear they are not willing to talk to me. What makes the Tri-Con billing arrangement so questionable is that it gives Tri-Con broad discretion to spend Silverado funds. Also, it has no expiry date, and there is no indication the contract has ever been put out to tender. All we have is a vague assurance in the financial statements that all Tri-Con charges "approximate the fair value of these costs had they been performed by arm's length parties." Presumably the company's outside auditors, Berkovits & Co. LLP, monitor this process, but I'm not sure how. The firm is situated in Ft. Lauderdale, Fla. I turned to Silverado's board of directors for answers. The board consists of Anselmo, 64; Stuart McCullough, 72, a retired Canada Safeway district manager; and James Dixon, a senior partner with the Vancouver law firm Shandro Dixon Edgson. McCullough, even though he is Anselmo's cousin, and Dixon are listed as "independent" directors. Since Dixon has been an independent director for 20 years and serves as a member of the audit committee, and is also a member the B.C. Law Society, I asked him why Silverado doesn't hire its own employees, rather than using a contractor like Tri-Con, which charges a hefty mark-up and has the effect of obscuring the president's remuneration. I also asked how much Mungal charges for her services; whether the vehicle lease costs are charged to Silverado; and whether certain other costs (unrelated to Silverado's affairs) are charged to Silverado. I further asked why this company does not appear to have held an annual shareholders' meeting since 2004. (The B.C. Business Corporations Act requires B.C.-registered companies to hold a shareholders' meeting every year.) Alas, Dixon -- like Mungal -- referred me to SEC filings, which he said "to the best of my knowledge, fully disclose the business of the company." This, of course, was no help at all. I must say, I have no idea why a lawyer like Dixon would associate with himself with a company like this. Even more puzzling is why he would advertise his directorship. But there it is, on his website biography, along with his business and law degrees, and his memberships in the Kappa Sigma Fraternity and the Vancouver Club. Go figure. dbaines@png.canwest.com © The Vancouver Sun 2008
David Baines has been arguably the best writer at the Vancouver Sun for decades. Below he explains how to make a great living by running a losing business for 45 consecutive years. It’s called “entrepreneurship”? Christ turning loaves into fishes or walking on water? That’s nothing compared to this amazing miraculous feat of capitalist wizardry.
There are more than profits and losses to the stock market
The stock market is a mysterious place. There are lots of companies that trade on the junior markets that never make money, but they manage to stay alive and keep trading. The best example is Silverado Gold Mines Ltd. It was formed in 1963 -- 45 years ago -- and it has never had a profitable year. Since inception, it has lost more than $86 million US. Yet its chairman, president and founder, 64-year-old Gary Anselmo, lives a very comfortable life. He lives in a $883,000 house in Richmond, he drives a 2006 Corvette, he eats at the finest restaurants and flies first class wherever he goes (he says because of a back injury). Anselmo boasts, quite truthfully, that he takes no salary from Silverado, but this is not the whole truth. Over the years, he has earned millions of dollars through his private company, Tri-Con Mining Ltd., which acts as the operator for Silverado's two main projects -- the Nolan gold project near Fairbanks, Alaska, and its newer "green" project, a process for making coal water (an environmentally friendly substitute for petroleum-derived fuels). Tri-Con bills the company at the rate of cost plus 15 per cent for overhead, plus 25 per cent for exploration services or 15 per cent for development and mining services. Over the years, this arrangement has put millions of dollars into Anselmo's pocket. During the nine months ending August 2007 (the company's last reporting period), Tri-Con billed Silverado a total of $4.26 million. If just 15 per cent represents profit to Anselmo, that amounts to $639,000. Keep in mind, that's for the last nine months only. Where does all this money come from? Every once in a while, when the treasury gets low, Silverado issues more shares for cash. Over the years, it has done this many times. There are now 778 million shares outstanding. And that's after a three-for-one share consolidation and a 10-for-one consolidation. The net result is that the company has manufactured more paper than a toilet paper factory. Of course, people will only buy a stock if they feel they can unload it at a higher price. There are two ways to get the stock price higher. The first is for the company to do something productive. In this regard, Silverado has been a flop. Every project the company has undertaken has ended in failure. In 1985, for example, Anselmo was touting the Mount Grant gold mine in Alaska, claiming it had "the potential for being one of the highest recovery producers in North America." Commercial production began in November 1985, but a little more than a month later, operations were suspended "after initial operating results did not meet expectations." The company shifted focus to its Nolan Creek project. In October 1992, Anselmo said projected earnings for the year ending November 1994 would be $8.96 million US. In fact, the company lost $3.1 million U.S. Anselmo is still flogging the Nolan gold project, but he has also jumped on the "green" bandwagon. In 2000, he announced that Silverado would establish a plant in Alaska to produce coal water. He claimed Silverado could produce coal water for the equivalent of $7 US per barrel of oil, which would position the company "as a world leader in the commercial development of such fossil fuels, not only in Alaska, but in other areas of the world." (If you're going to be a world leader, it may as well be the whole world.) In any event, here we are: eight years later, and Silverado not only doesn't have a commercial plant, it doesn't even have a demonstration plant. During the nine months ending August 2007, the company didn't generate a single cent of revenue, but there are no signs of austerity at Silverado's spacious, glass-sculpted offices on the 18th floor of the Terasen Gas building at 1111 West Georgia. During the same period, it racked up $5.6 million in expenses, including $967,609 in management services, $891,982 in consulting fees, $722,009 in advertising and promotion, $668,367 in office expenses and $191,584 on reporting and investor relations. As I mentioned, there are two ways to boost a stock. The first is to do something productive, which Silverado has not. The second way is to give the impression that you are doing something productive. In this regard, Anselmo has been an expert. In 1980, when the company was trading on the old Vancouver Stock Exchange, the stock peaked at $10.50, but soon fizzled out. In 1993, when it moved to the Nasdaq, it enjoyed a revival of sorts, trading as high as $3.50. Not content to leave the stock's fate to mother nature, Anselmo has used many different tout services to boost the share price. Among them has been Robert Chapman, a U.S. newsletter writer who has been the subject of cease-and-desist orders in nine different states and was handed a 10-year stock market ban in B.C. in 1989. Despite his best efforts, Silverado was not able to maintain Nasdaq's minimum stock price and was relegated to the dreadful OTC Bulletin Board in the United States, where it is now trading at six cents. If we are to believe Anselmo, the flagging stock price is not the company's fault. It is the fault of that ubiquitous stock market bogey-man, the naked short seller (people who sell the stock short without first borrowing the shares, or making an "affirmative determination" that the shares can be borrowed). This is an illegal practice, one that is difficult to prove but often cited by promoters who need to find somebody or something else to blame for their companies' flaccid performance. Despite these predators, Anselmo is convinced he will prevail. "We're on the path to becoming successful," he insists. "We're very close. It's been a lifelong battle, but we will not quit." Such gallant words. Winston Churchill in a Corvette. SILVERADO'S 10 (MORE) LOST YEARS Silverado Gold Mines Ltd. has lost more than $85 million US since its inception in 1963. LOSSES 1997 / $4,414,772 1998 / $16,938,903 1999 / $1,449,391 2000 / $1,872,116 2001 / $1,677,974 2002 / $3,755,401 2003 / $8,519,169 2004 / $4,304,232 2005 / $3,394,107 2006 / $7,683,002 9 months to August/07 $5,330,229 Losses since inception $85,633,725 Figures in U.S. dollars
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