Two months later, the FBI and other federal agents raided YBM's world headquarters in Newtown Township, and the company's fortunes have been in free fall ever since.
It now appears from U.S. and Canadian court documents that YBM's success was less than it appeared to be.
Those documents also suggest that Russian mobsters may have used the company's Eastern European operations to launder millions in dirty money through a web of related enterprises in a scheme worthy of a modern-day thriller.
Exactly how many millions is uncertain. But last April, the company's auditor raised red flags about more than $130 million in 1997 YBM contracts with businesses overseas.
The auditor, Deloitte & Touche LLP, warned the company's board in a letter that a preliminary search found that ``certain individuals'' associated with some of those businesses and ``certain related entities are reputed to have ties with organized crime.''
``The information,'' Deloitte added, ``heightens our serious concerns that these transactions may be bogus and are being used to cover the flow of money between these companies for other purposes.''
``The whole company was a fraud,'' said Paul Yetter, a Houston lawyer representing disgruntled shareholders. ``What is now apparent is, the success this company supposedly was enjoying was a sham.''
Last month, the company's new board, composed of outside investors, disclosed that YBM ``is certain to be indicted'' and that ``there is good reason to believe that U.S. authorities will be able to marshal substantial credible evidence of criminal wrongdoing,'' possibly involving ``links between YBM and certain alleged organized-crime members.''
The board's concerns were buttressed by a YBM-financed forensic audit of the company's operations that detailed how insiders may have carried out a complex money-laundering scheme under the noses of market regulators in Canada, where the company's stock was traded on the Toronto Stock Exchange.
The audit by the Philadelphia firm of Miller, Tate & Co., filed in a Canadian court Dec. 8, found that:
* More than $10 million in transactions in 1996 were ``highly suspicious'' and bore the telltale signs of money-laundering.
In one case, a YBM subsidiary received $3.2 million in wire transfers from three companies through a Lithuanian bank to an account it controlled in a Hungarian bank. Six days later, $3.2 million was withdrawn in six disbursements, and wired through Chemical Bank of Buffalo, N.Y., to six other companies.
The auditors found that ``the companies involved in both the incoming and outgoing wire transfers share one or more common addresses . . . indicia,'' the auditors said, of money-laundering. They added that ``similar suspicious transactions'' may have occurred in 1997, but that documents for that year were not available or had been ``destroyed or withheld.''
* Sales figures appeared to be grossly inflated. The company's 1996 financial statement reported North American sales of $13.6 million when those sales amounted to only $1.8 million. A list of customers included names of firms that did not exist.
* There was reason for ``serious doubts'' about the purchase and re-sale of magnets by YBM's Cayman Islands subsidiary, United Trade. Those deals supposedly earned United Trade a $12.3 million profit in 1997. Similar concerns were raised about YBM's oil purchases and resales. Auditors were unable to confirm the purchases or resales.
* There were ``significant unresolved concerns'' about the use of intermediaries to finance or broker ``technology contracts'' to modernize the company's Hungarian production operation. Semeon Mogilevitch, a reputed Russian mob boss who was an original shareholder in YBM, exercised control over one of the broker's bank accounts, according to the auditors.
* YBM was unable to document what happened to $32 million that a subsidiary claims to have transferred to other companies to cover contract and licensing deals. When YBM's board subsequently nixed those deals, $28.5 million was transferred back, but without any documentation showing where the money came from.
The disclosures have raised questions about the vigilance of Canadian securities regulators, and have prompted YBM shareholders to file four class-action lawsuits in U.S. District Court in Philadelphia alleging securities fraud.
One of those lawsuits charged that YBM's ``trappings of corporate legitimacy were in fact all part of an elaborate scheme to defraud investors. Rather than profiting from selling magnets and bicycles, it is now clear that YBM's only successful business is the laundering of criminal proceeds, evidently derived from illegal activities in the former Soviet Union and other Eastern European nations.''
* YBM Magnex Inc. was founded by a Russian magnetics expert, Jacob Bogatin, who came to the United States with two doctorates and a reputation for innovation in the industry. He ran the magnetics department for SPS Technologies Inc., an aerospace company in Jenkintown, before turning his attention to his own start-up, which he incorporated in Hatboro in 1994.
Bogatin, who quit YBM in November, has denied that the company had organized-crime connections or laundered money. He recently declined comment when approached at his home in an upscale neighborhood across from the Northampton Valley Country Club in Bucks County. ``Please get off my property,'' he said, and quickly closed his door.
His attorney, Eric W. Sitarchuk of Philadelphia, also declined to comment.
Two former YBM board members and a former company official, all of whom left YBM last fall, said recently that questions about some of YBM's business dealings had been brought to the board's attention. But they said that they saw no evidence of money-laundering or ties to organized crime, and believed YBM's operations were legitimate.
One of those board members, Frank Greenwald, of Woodstock, Ill., who helped Bogatin come to the United States in the mid-1980s, said that doing business in the emerging economies of Eastern Europe was difficult and presented ``opportunities for questionable dealings.''
But Greenwald said that he was ``satisfied, based on my knowledge of Bogatin, that if he had anything to do with it, there was nothing wrong. He repeatedly assured me there was nothing wrong in Eastern Europe. There were several attempts to establish that, and they came up with a clean report.''
Within months of YBM's incorporation in 1994, the fledgling company agreed to merge with Arigon Co. Ltd., which was based in the Channel Islands. As part of the deal, control shifted to Arigon, which British and Canadian authorities and newspapers have linked to Mogilevitch, the reputed Russian organized-crime boss.
He was described by British police in an internal 1995 report as ``one of the world's top criminals,'' with an estimated personal fortune of $100 million. And Arigon was the ``central element'' in Mogilevitch's worldwide crime organization, according to a report by the Royal Canadian Mounted Police disclosed by the Globe and Mail of Toronto.
That same year, YBM took control of another company, Pratecs Technologies Inc., also founded by Bogatin. The new, publicly traded company was known as YBM Magnex International Inc. Its 31 original shareholders included Mogilevitch, who with several reputed associates reportedly owned nearly a third of the company's stock shortly after it went public in 1995, according to public documents and Canadian press reports.
The company quickly gained a foothold in the magnetics business, and spectacular growth ensued.
In 1996 and 1997, YBM acquired a company with magnet-making plants in Kentucky and England, bought another magnet-maker in England, and expanded its magnet plant in Budapest. The company also began a $2.4 million expansion of its Bucks County headquarters, signed a letter of intent to enter into a joint venture to make magnets in China, and announced that six members of the Russian Olympic bicycling team would ride its new ``magnesium alloy'' bikes in Atlanta.
Sales jumped from $50 million in 1995 to $138 million in 1997. Some of Canada's largest and best-known brokerage houses promoted the stock and underwrote multimillion-dollar equity offerings. By last March, YBM's stock, which once traded for pennies, soared to a high of $20.15.
* Behind the company's glowing reports, however, problems were coming to a head.
Attorneys for a disgruntled shareholder have alleged in one of the class-action lawsuits that YBM's board knew as early as August 1996 that the U.S. Attorney's Office in Philadelphia was investigating the company ``for infiltration by Russian organized crime.''
Federal officials have declined to discuss their probe or say when it began. But two former directors who sat on YBM's board then disputed that allegation.
``I can assure you the board did not have any knowledge of an investigation in 1996,'' said one of them, Greenwald.
He said that YBM was having problems obtaining visas for Russian nationals then, and ``the suspicion was raised [within the company] that there was some problem.'' But he said that the problems eventually were cleared up.
Another former director, Michael Dieter Schmidt, of Burnaby, British Columbia, said that, ``like any other company, there are going to be rumors. We took action to try to find out if there was anything going on, and [U.S. authorities] would not confirm or deny anything.''
By 1997, securities regulators in Canada were raising questions about the company's sales, and the identity and location of some of its customers. By the spring of 1998, those and other questions were being asked by YBM's auditor, Deloitte & Touche LLP, as it reviewed the company's 1997 financial statement.
At the time, YBM was enjoying record success on the stock market. As the company's share price rose, seven YBM directors or top executives sold more than $2 million in shares in February. Among them was Bogatin, who sold $314,940 in YBM stock.
Deloitte raised its concerns with YBM officials on March 23 about certain transactions by the company's Eastern European subsidiaries, which generated more than half of the company's reported profits and revenues.
Deloitte warned YBM officials on April 20 of its concern about millions of dollars in transactions with companies with reputed ties to organized crime.
Seven days later, YBM announced its first-quarter earnings, claiming that net income had increased by 95 percent and sales were up by 38 percent, according to legal documents.
Word of Deloitte's concerns reached the Ontario Securities Commission on May 12. The following day, trading in the company's 44 million outstanding shares was suspended on the Toronto Stock Exchange. That same day, more than 60 federal agents from the Organized Crime Strike Force converged on the company's Newtown headquarters, armed with a wide-ranging search warrant. A truckload of documents were hauled away by investigators, who have declined to discuss their probe, except to confirm that there is an investigation of the company.
Within a month, the company announced that its own investigation, overseen by its outside directors, had uncovered breaches of company policy and lapses in ``common business prudence,'' but no evidence of criminal acts, bogus transactions, or hidden financial arrangements.
Even so, matters quickly moved out of YBM's control.
In June, Deloitte quit as YBM's auditor. The reason, the firm said, was that YBM's own investigation had ``left substantial issues uncovered.''
Then, in August, the company's Canadian lawyers quit. That same month, a group of outside investors announced plans to seek control of YBM's board of directors.
They succeeded in September, and were welcomed by Bogatin, YBM's founder, who expressed hope that the new board would be able to restore public confidence in the company.
But by the end of November, Bogatin was gone - resigned, according to a company news release - and YBM's problems began getting a fuller airing last month when the company was placed in receivership in Canada to protect its remaining assets.
YBM now finds itself in ruins. The company's new board said last month that its stock will never trade again, and that the ``overall ongoing operations of YBM, on any reasonable set of assumptions, will continue to generate negative cash flow.''
Even so, a group of investors that includes Bogatin has said that it is considering buying what remains of YBM.
``The company has phenomenal potential,'' Vancouver businessman Ken Davies, a former YBM board member, said earlier this month.
But he added: ``If the allegations are correct, maybe there's a lot more problems than one can handle.''
