Until only a few years ago the buildings along the Herengracht, a stately canal in central Amsterdam, formed what local residents called Banker’s Row. The gabled, 17th-century structures housed the offices of such solid New York-based financial concerns as Chase Manhattan Bank N.A. But in recent years dozens of unregulated securities dealers and salesmen—many of them from Canada—have set up offices in the district. Taking advantage of Holland’s liberal financial laws, they are selling stocks of uncertain value to European investors using high-pressure tactics which—while legal in Holland—have increasingly angered Dutch regulatory officials.
Pressure has been building for months on the Dutch government to stop the sales. Dutch officials have received repeated warnings from police and securities authorities in Canada and the United States that convicted North American stock promoters and salesmen were operating in Amsterdam. At the same time, there has been a rising chorus of complaints from disillusioned investors who had paid thou-
sands of dollars for stock, which overzealous salesmen predicted would rise dramatically in price. And some heavily promoted stocks did go up—only to suffer rapid declines. Then, last month, the ruling Christian Democrat government, which was initially unwilling to risk damaging the country’s reputation as a bastion of free enterprise, finally acted.
The Christian Democrats announced plans to introduce legislation later this year to close down operators who use high-pressure sales strategies and exaggerate the value and future prospects of shares. Later, Amstersdam police swooped down on many of the unregulated houses, rounded up at least 35 dealers who lacked work visas and expelled them from Holland. According to police, three were Canadians. In its own investigation of the controversy, involving a series of interviews in Amsterdam, Belgium and Toronto over three weeks, Maclean ’s has pieced together additional evidence on the sales practices of two unregulated securities dealers in the Amsterdam market; both have strong Canadian connections.
One of the connections exists through a firm whose sales practices have been criticized in the Dutch press recently. It is First Commerce Securities BV, Amsterdam’s largest unregulated securi-
ties dealer. First Commerce officials counter that the firm was left untouched by the police raids and add that they welcome government plans to tighten rules on the sale of securities. But critics say that the firm has employed glib, high-pressure tactics to promote stocks, including those of DeVoeHolbein International NV, a microbiology firm based in the Netherlands Antilles and controlled by two Canadian scientists. Maclean’s has learned that First Commerce has had links with convicted Montreal stock promoter Irving Kott, who introduced First Commerce to DeVoe-Holbein stock—the shares it has been promoting most aggressively.
Kott became prominent in the Montreal financial community in the early 1970s by promoting several stock issues. But in 1976 an Ontario provincial court convicted him on a charge of conspiracy to commit fraud in connection with his promotion of the Quebec-based Somed Mines Ltd. and fined him $500,000.
He met the founders of DeVoe-Holbein International—Dr. Irving DeVoe, 47, and Dr. Bruce Holbein, 33, former microbiology professors at Montreal’s McGill University—when the two men were looking for financing for their new company. The DeVoe-Holbein group of
companies was formed in 1982 to develop and sell a potentially lucrative extraction process to remove metals from liquid wastes, a system that professors developed at McGill. Contacted by Maclean's in The Hague, DeVoe confirmed that “Kott was instrumental in putting together the financial package that set up the company.” Added DeVoe: “There is now no connection between him and my company.” There is also no evidence to suggest that DeVoe or Holbein are in any way responsible for the way in which their stock is promoted.
First, Kott raised $1.6 million for DeVoe-Holbein by selling 3.2 million shares worth 50 cents each to a Hamilton, Bermuda-based company. That company then sold back about 300,000 of its 50-cent shares for $5 each to friends and relatives of the two professors. Then, in early 1983, First Commerce was formed in Amsterdam and it began promoting DeVoe-Holbein stock. First, Commerce’s general manager, Walter Bonn, told Maclean 's in a telephone interview that “Kott introduced DeVoeHolbein to us, underwriting it for us, and that was the basis of our collaboration.” Declared Bonn: “Any connection [Kott] had with First Commerce had to do with DeVoe-Holbein and that connection is definitely ended.” Bonn added that he had last seen Kott in November. But several days later, when Maclean's visited Bonn at First Commerce’s Amsterdam offices, he claimed he had never met Kott. Despite several requests, Kott was unavailable for interviews. However, in a letter from his lawyers, Kott threatened legal action against Maclean's if it published “libellous” allegations against him.
Exactly how much DeVoe-Holbein stock First Commerce has obtained is also not certain. DeVoe said that he and Holbein own close to 50 per cent of the 21 million outstanding shares, but because the rest of the stock is in bearer form—the owner’s identity is not recorded by the issuing company—he does not know who the other shareholders are.
Immediately after its formation First Commerce began advertising in the International Herald Tribune and The Wall Street Journal/Europe. The ads urged readers to send for a free copy of First Commerce’s newsletter, called Investors' Alert. The newsletter featured economic news and stock recommendations, and frequently recommended DeVoe-Holbein as a priority buy along with the companies such as International Business Machines and Wang Laboratories.
By July, 1983, a telephone sales campaign was under way, and DeVoe-Holbein began trading on the unregulated Amsterdam over-the-counter market—in which stocks are sold priI
vately rather than on a stock exchange —at about $9 a share. In a June 15, 1984, special bulletin issue of Investors' Alert the newsletter predicted that DeVoe-Holbein shares could trade in the $10-to-$15 range before the end of 1984 and “much higher by early 1985.” That did not happen. This month, when asked to quote a price for DeVoe-Holbein, which is marketed only by First Commerce, Bonn quoted $6.75 per share.
The selling methods used by First Commerce have caused serious concern both inside and outside Holland. Reiner
Fuchs, secretary of the Amsterdam Stock Exchange, for one, said that investors had complained to the exchange about dealings with First Commerce as well as with other unregulated dealers. According to Fuchs, the complaints involved alleged difficulties in reselling shares. As well, last summer Pierson, Heldring & Pierson, a merchant bank owned by the Amsterdam-Rotterdam Bank, which had been selling DeVoeHolbein stock privately, stopped doing so. According to a director of the bank, who requested anonymity, the bank made the decision mainly because it objected to the sales practices of First Commerce. Added the director: “The very aggressive way in which investors
were approached certainly had an influence on the price of the shares, which bore no relationship to developments within the company [DeVoe-Holbein].”
Financial experts in neighboring Belgium say that they too are concerned about the transactions. The Aug.4,1984, issue of the Moniteur Belge, the official government gazette, forbad bankers and brokers to “co-operate in any manner” with First Commerce’s sale of DeVoeHolbein shares. Explained Jacques Verteneuel, director of the Belgium Banking Commission: “First Commerce was selling securities by mailing circulars, telephoning residents and offering to go to their homes, without the permission of the ministry of finance.”
Still, First Commerce firmly defends its sales methods. In a widely circulated brochure introducing its activities, First Commerce stressed that its salesmen contact people only after they have received five issues of Investors' Alert. But Arie Gerla, chairman of Holland’s association for the protection of shareholders, claimed that the process operates quite differently. “They are on to you before you know what has happened,” he declared.
The company readily acknowledges that it relies on Canadian expertise in selling its shares. The firm’s literature states that it uses Canadian sales “consultants” to help train its European salesmen. Bonn said First Commerce currently employs five Canadians. He added that DeVoe-Holbein shares are secure and that First Commerce has between $3 million and $16 million at any given time to buy shares back from investors who are anxious to sell their holdings in DeVoe-Holbein or City Clock International NV, another Netherlands Antilles company whose stock the firm promotes. Bonn estimated that about three million DeVoe-Holbein shares had been purchased by roughly 5,000 clients around the world.
For his part, DeVoe says that because his company is now “launching into its commercial phase,” the bad publicity surrounding First Commerce “hurts our company tremendously.” DeVoe added that the company recently obtained a $4-million loan backed by a debenture held by First Commerce.
Another firm with Canadian connections which is implicated in the Dutch controversy is Amsterdam-based Frankal Investments Advisory Services, run by Allan Simon, formerly of Toronto. Simon told Maclean's that he was not the owner of Frankal but he would not say who was. In early 1984 Frankal began recommending shares in Global International Corp., a Utah, Nev., company with its head office in Toronto and which trades on New York City’s overthe-counter market. The May, 1984, issue of Frankal’s International Special Situ-
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