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UNITED STATES DISTRICT COURT..._,,,

;...FOR THE EASTERN DISTRICT OF PENNSYLVANIA

JOHN PARASCHOS, §on behalf of himself and all § CIVIL ACTIONothers similarly situated, § NO

§Plaintiffs, § g c t/-- c v L4 V

§v. §

§Yl3N1 MAGNEX INTERNATIONAL INC., §JACOB BOGATIN, IGOR FISHERMAN, §HARRY ANTES, KENNETH DAVIES, .§ 4 1ROBERT OWEN MITCHELL, FRANK §GREEN WALD, MICHAEL SCHMIDT, §DAVID PETERSON, DANIEL GA Fri, §JAMES HELD, DELOITTE & TOUCHE, §L.L.P., PARENTE, RANDOLPH, §ORLANDO & CAREY ASSOCIATES, § JURY TRIAL DEMANDED

§Defendants. §

CLASS ACTION COMPLAINT

Plaintiff John Paraschos, individually and on behalf of all others similarly situated,

and by his attorneys, files this Complaint. The allegations specifically pertaining to plaintiff and his

counsel are made upon actual knowledge; the other allegations are made upon information and

belief, based on the investigation undertaken by plaintiff's counsel, including analysis of publicly

available news articles and reports, public filings, press releases, and other matters of public record.

Plaintiff believes that further substantial evidentiary support will exist for the allegations set forth

below after a reasonable opportunity for discovery.

N ature_of the_Action

1. This is a class action on behalf of persons who purchased the common stock

of YBM Magncx International Inc. ("YBM" or the "Company") between March 7, 1996 airl

..\ ,. .

- k ,n . e-,r.\),4?Yc\ '.. ,o;..-- n' --'' -At.V. .

May 14, 1998. Plaintiff is pursuing remedies under the Securities Exchange Act of 1934 (the

"Exchange Act") and state law.

2. YBM has long held itself out as a manufacturer and distributor of permanent

magnets and bicycles, with markets in North America, Europe, the Middle East, Asia, and the Pacific

Rim. Its expansion has been meteoric in proportions. In 1994, YBM was a corporate shell trading

for pennies a share on the Alberta Stock Exchange ("ASE"). By March 1998, YBM was a high flier

on the Toronto Stock Exchange ("TSE''); its stock reached a high of C20.15 per share, and its

market capitalization swelled to nearly C$1 billion. Its shares were included on the prestigious TSE

300.

3. To North American investors, YBM has exhibited the indicia of a legitimate

business enterprise -- abundant "buy" recommendations from stock analysts; a spacious corporate

headquarters and warehouse in suburban Philadelphia; frequent press releases announcing significant

corporate transactions and developments; an inviting website touting its prospects; steadily climbing

revenue and profit numbers; and, until recently, audited financial statements certified by well-known

accounting firms.

4. These 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.

5. 'The truth about YBM has begun to emerge only during the past several

months. On May 11, 1998, YBM disclosed that its auditors, defendant Deloitte & Touche L.L.P.

("Del oitte"), had refused to certify the Company's financial statements for the year ended December

31, 1997, pending completion of a forensic investigation. Only [six] months earlier, De lo itte had

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issued an unqualified opinion, following an extraordinary "high-risk" re-audit demanded by the

Ontario Securities Commission, with respect to YRM's 1996 financial statements. Despite the fact

that the Company's business practices were unchanged from 1996 to 1997, Deloitte now questioned

the bona fides of certain transactions and the identities of certain YBM customers,

6. On May 13, 1998, dozens of federal agents from the Federal Bureau of

investigation, Internal Revenue Service, Customs Service, and Immigration & Naturalization Service

participated in the execution of a court-ordered search warrant at YBM's corporate headquarters.

According to the search warrant, the agents were empowered to take a broad range of documents,

including bank statements, canceled checks, records of inventory, corporate records (including

information related to ovvriership of YBM), and samples of the company's products. The raid was

the culmination of months of investigation by the F131.

7. In response to the federal raid, the Ontario Securities Commission ordered a

halt in trading of YBM's stock, which remains in effect. Since then, fund managers publicly have

written down the value of their YBM holdings to little or nothing. Investors are in limbo, unable to

sell their YRM shares and in the dark about the Company's future.

8. On December 8, 1998, YBM confirmed the worst fears of its investors.

According to a Company press release, its attorneys believe that "U.S. authorities will be able to

marshal' substantial credible evidence of criminal wrongdoing in connection with YBM" and that

the Company "may well not be able to defend a criminal indictment.' The Company further

announced it had applied for the appointment of Ernst 8z. Young as receiver and manager of the

"assets, property, and undertaking of YBM."

9. At no time prior to December 8, 1998 did YBM or its auditors disclose its

questionable business practices and long-standing association with organized crime figures.

21. Defendant David Peterson is a former member of the Board of Directors of

YBM.

22. Defendants Bogatin, Mitchell, Gatti, Held, Fisherman, Antes, Davies,

Greenwald, Schmidt, and Peterson are sometimes referred to herein collectively as the "Insider

Defendants."

23. Defendant Deloitte is a national firm of certified public accountants, which

maintains offices within this District. Deloitte was retained by YBM to perform a special audit of

YBM's 1996 financial results after Canadian regulatory officials raised questions about YBM's 1996

financial statements, its audit procedures, and the ultimate location of the Company's customers.

In November 1997, Deloitte issued an unqualified audit report on YB.M's 1996 financial statements.

24. Defendant Parente, Randolph, Orlando & Carey Associates ("Parente") is a

firm of certified accountants, which maintains offices within this District.

Jurisdiction and Venue

25. This action arises under Sections 10(b) and 20(a) of the Exchange Act, 15

U.S.C. § § 78j(b) and 78t(a), and Rule I Ob-5 promulgated pursuant to Section 10(h) by the SEC, 17

§ 240.10b-5; and state law.

26. This Court has jurisdiction over the subject matter of this action pursuant to

28 U.S.C. §§ 1331, 1337 and 1367, and Section 27 of the Exchange Act, 15 U.S.C. § 78aa.

27. Venue is proper in this District pursuant to Section 27 of the Exchange Act,

15 U.S.C. § 78aa; and 28 U.S.C. § 1391(b) and (c). Substantial acts in furtherance of the alleged

fraud and/or its effects have occurred within this District.

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28. In connection with the acts and omissions alleged in this complaint,

defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,

including but not limited to the mails and interstate telephone communications.

.Class_AlIcgations

29. Plaintiff brings this action as a class action consisting of all persons, other

than YBM insiders, who have been damaged by defendants' fraudulent and wrongful activity. The

class specifically includes all purchasers of YBM stock between March 7, 1996 and May 14, 1998.

30. The members of the class arc so numerous that joinder of all members is

impracticable. Plaintiff's claims are typical of the claims of the other members of the class, as all

members of the class were similarly affected by defendants' wrongful conduct in violation of

applicable law. Plaintiff will fairly and adequately protect the interests of the members of the class,

and he has retained counsel competent and experienced in class litigation. Common questions of

taw and fact exist as to all members of the class and predominate over any questions solely affecting

individual members of the class.

31. A class action is superior to all other available methods for fair and efficient

adjudication of this controversy, since joinder of all members is impracticable. Furthermore, as the

damages suffered by many individual class members may be relatively small, the expense and

burden of individual litigation make it impossible for members of the class individually to seek

redress for the wrongs done to them. There will he no difficulty managing this suit as class action.

Background

32. One or more individuals connected with criminal organizations, including the

so-called "Russian Mafia," have been enmeshed in YRIVI's affairs since its inception. Although

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YBM's links to organized crime figures are of material significance to the investing public, neither

YBM nor any of its retained professionals have ever fully disclosed those links_

33. In February 1994, defendant Bogatin formed YBM Magnex, Inc. ("YI3M

Magnex"), a Pennsylvania corporation. In May 1994, the stockholders of YB1VI Magnex and Arigon

Company Limited ("Arigon"), located in the Channel Islands, executed a share exchange agreement

in connection with a plan to merge the two companies which was consummated December 27, 1994.

1Incler the terms of the agreement, Arigon stockholders received 170 shares of YBM Magnex

common stock for each share of Arigon common stock. As a result of this business combination,

control of the combined companies passed to the Arigon shareholders.

34. Al the time of its merger with YBM Ma.g-nex, Arigon owned two subsidiaries,

Magnex RT ("lVlagnex"), located in Budapest, Hungary, and Arbat International ("Arbat"), located

in Moscow, Russia. According to notes to YBM Magncx's financial statements for the years 1997,

1993, and 1994, Arigon founded Magnex in 1991 by purchasing a budding and land in Hungary for

$1.8 million and then combining the building and land with manufacturing equipment associated

with the pemianent magnet industry. The notes further claim that in January 1991, Arigon funned

Arbat, a joint venture with another company, to conduct certain trading activity in Russia.

35. Arigon's relationship with Magnex was structured so that Arigon directed

virtually all aspects of Magtaex's operations. On September 12, 1992, Arigon and Magnex entered

into an agreement which made Arigon responsible for "all applicable clearances for production" and

the purchase and delivery of materials and supplies to Magnex. In addition, Arigon assumed

responsibility for the marketing, sale, and distribution of Magnex's products.

36. Defendant Bogatin created Pratecs Technologies Inc. ("Pratecs"), an Alberta

corporation, on March 16, 1994. On July 18, 1994, Pratecs issued 4 million c.xutimon shares to the

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public and became a junior capital pool corporation under the regulations of the Alberta Securities

Commission.

37. Among the original directors of Pratees was defendant Schmidt. According

to Canada Stockwatch, Schmidt previously had been in charge of investor relations for Technigen

Corp., a publicly traded company that was revealed in August 1989 to be "an outrageous stock

market fraud."

38. On July 27, 1994, Pratecs entered into a letter of intent to merge with YBM

Magnex, by way of share exchange. The terms of the merger between Pratecs and YBM Magnex

provided for a two-step merger process. In the first step. Pratecs acquired YBM Magnex's Canadian

marketing and distribution rights. In the second step, Pratees acquired all issued and outstanding

shares of YBM Magncx in exchange for the issuance oft 10 million common shares of Pralecs at

CS.20 per share. The second step of the transaction was completed on October 31, 1995.

39. On November 3, 1995, Pratecs issued a press release, announcing that its

acquisition of VIVA Magnex's common shares was complete. Pratecs further announced that

regulatory approval had been received for a 1 for 5 share consolidation and a name change of Pratecs

to YBM Magnex International, Inc.

40. As a result of the merger, the shareholders of YBIVI Magnex assumed control

of the newly created company. Furthermore, because the shareholders of Arigon had recently taken

control of YBM Magoex, the net effect of the transaction was to place shareholders of Arigort in

control of YBM, which was now a publicly traded company.

41. Throughout the pendency of these transactions (and indeed, throughout the

entire period described herein), the Company failed to disclose that Arigon and its shareholders were

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enmeshed in activities associated with organized crime. In fact, Arigon and its subsidiaries appear

to be the epicenter of a vast criminal enterprise.

42. At least three reputed Russian "godfathers" have been publicly linked with

Arigon or its subsidiaries: Semion Moguilevitch, Sergei Mikhailov, and Vyacheslaw Ivankov. All

three individuals have been publicly linked to serious criminal activities.

43. According to a news article published in the May 17, 1998 edition of The

Observer (a British newspaper), Moguilevitch was a major shareholder and director of Arigon. A

May 19, 1998 article in The Village Voice further reports that Moguilevitch founded Arbat as an

petroleum import/export company in the 1980's. According to a 1995 report by the Royal Canadian

Mounted Police cited by The Globe and Mail, Arigon appears to be the "central element" in

Moguilevitch's organization, with offices in Budapest, Moscow, Kiev, Tel Aviv, and Los Angeles.

44. Media sources tie Moguilevitch to extensive criminal conduct. An FBI report

cited by The Observer says that "the Moguilevitch crime group" is reported to be engaged in "large-

scale extortion, prostitution, arms dealing and drug trafficking." The Village Voice reports that "The

FBI and Israeli intelligence assert that he (Moguilevitch) traffics in nuclear materials, drugs,

prostitutes, precious gems, and stolen art."

45. Mikhailov relies on Arigon as a means of laundering criminal proceeds, both

The Observer and Edinburgh-based Scotland on Sunday have reported. The latter newspaper, in a

November 26, 1995 article, identified several European businesses that were "allegedly run by -- or

with -- Russian mafi a money," including "the electronics firm Magnex in Hungary" and Arbat. The

article reported: "According to Budapest police officers investigating the affairs of the Magnex

electronics firm, Budapest and Prague have become the focal point of Russian mafia money-

laundering operations because of easy access, the weakening of traditional institutional structures,

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and the great protection afforded to the depositors of commercial banks." The article continued:

"According to both Budapest and Moscow police, one of the key figures behind the money-

laundering is Sergei Mikhailov (who is) head of Moscow's dominant crime syndicate, the Solntscvo

gang."-

46. The May 17, 1998 edition of The Observer reports that Mikhai/ov is also

linked to Arbat. Mikhailov has interests in Austria and the diamond center of Antwerp, Belgium,

says The Observer, and is wanted in the U.S., Belgium, and Israel. Mikhailov has been in custody

in Geneva since 1996 and is awaiting trial on charges of membership in a criminal organization and

money laundering.

47. Arbat has also been publicly linked to Ivankov. According to the May 26,

1998 edition of The Village Voice, one quarter of _krbat's shares were controlled by Ivankov, "a

legendary Russian criminal who in March 1992 became Godfather of the Russian mob in America."

Ivankov is currently incarcerated in Raybrook, a federal prison in upstate New York, for his role in

extorting two Russian-born Wall Street stockbrokers.

48. As reported in numerous news sources, Arigon and its subsidiaries act as

money-laundering vehicles for the Russian Mafia. The May 21, 1998 edition of The Globe and Mail

stated that law enforcement officials in both the U.S. and Canada have alleged that Arigon is a

"money-laundering operation." Arigon, says The Globe and Mail, performs money-laundering

functions for Moguilevitch, Mikhailov, and a Russian come organizations based in Brussels called

the Branclwain group. The Village Voice reports that Moguilevitch's money-laundering activities

have been extended to the -U.S. by the creation of both YBM and FNJ Trade Management, a

company based in Los Angeles. In November 1996, the Russian magazine Ogonyok published the

names of Russian godfathers who have been accused of money laundering and other crimes by

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Russian law enforcement officials. One was Mikbailov, who was said to have helped establish

Arigon, Magnex, and Arbat.

49. As a result of IBM Magnex's merger with Pratecs, Moguilevitch and his

associates gained control of nearly one-third of YBM's outstanding common stock. According to

the May 21, 1998 edition of The Vancouver Sun, Moguilevitch owned 5.5 million YBM shares after

the transaction. Six other individuals, all of whom are alleged to be associates of IVIoguilevitch, held

an additional 26.4 million shares. According to the Sun article, Moguilevitch's associates were his

ex-wife, Galina Grigorieva; Konstantin Karat; Anatoty and Tania Kuiachenko; and Alexei and

Valentina Alexandrov_

50. On the basis of these transactions, the May 21, I 99S edition of The Globe and

Mailconcluded: "A Russian mob boss and five associates owned just less than one-third of YBM

Magnex International Inc.'s shares in 1995."

51. At the same time as the corporate reorgani7ation, YBM proceeded with a

private placement of 7,075,000 warrants, each convertible into one common share of YBM, at C$2

per warrant. That offering was underwritten by First Marathon Securities Inc,. ("FM") and Griffiths

McBurney & Partners. Defendant Mitchell, a Vice President at First Marathon, certified the

prospectus on behalf of his firm, and became a director of YBM. On October 10, 1995, YBM

announced that the financing had been successfully completed, resulting in C$14.15 million in

aggregate gross proceeds. The prospectus certified by defendant Mitchell contained audited

financial statements for 1992, 1993, and 1994.

52. A confidential November IO, 1995 report prepared by Britain's National

Crime Squad alleges that the purpose of these transactions was to legitimize Mog,uilevitch's criminal

proceeds. Code-named "Operation Sword," the British investigation concluded that Moguilevitch

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was transferring funds from Britain to Hungary, from there to the U.S., and then to Canada. The

report observed: "Canada has been used purely to legitimize the criminal organization by the

floating on the stock exchange of a corporation which consists of the U.K. and U.S.A. companies

whose existing assets and stock have been artificially inflated by the introduction of the proceeds

of crime."

.53. The British investigation focused on Moguilevitch's involvement with Arigon

and three other companies, as well as on two British attorneys, Adrian Bernard Churehward and

Peter Blake-Turner. On May 16, 1995, British officials raided Churchward's and Blake-Turner's

homes and offices. Among the materials seized were records relating to bank accounts maintained

by Arigon at the Royal Bank of Scotland, as well as "over one hundred files -which contained

extensive intelligence relating to financial transactions conducted by the Mognilevitch

Organization." Subsequently, on June 6, 1995, the High Court of Justice in London issued orders

freezing the assets of Arigon and several individuals who were allegedly shareholders of Ari,gon,

including Moguilevitch.

54. Although the investigation was ultimately terminated due to lack of

cooperation from Russian law enforcement officials, British officials noted the following

accomplishments: 1) Moguilevitch was prohibited by the Ilomc Secretary from entering the United

Kingdom; 2) "every company controlled by Moguileviteh was closed down"; 3) Moguilevitch's

British attorneys had dissolved their partnership and were subject to civil litigation by the Royal

Bank of Scotland; and 4) records of every financial transaction conducted on behalf of Moguilcv itch

by his British attorneys were now available as evidence in any court of law.

55. In the face of serious allegations surrounding Moguilevitch and Arigon,

Pratecs (who was then awaiting completion of its acquisition of YBM Magnex) did not provide fun

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disclosure, but rather. chose to mislead the investing public. On June 22, 1995, Pratecs announced

that it had voluntarily halted trading of its common shares based on information it had recently

received regarding a subsidiary (whose name it did not disclose) involved in its pending acquisition.

Pratecs promised "further announcements" after "gathering additional facts from other sources."

56, On July 19, 1995, Pratecs stated in a news release that trading in its shares had

been halted over allegations made in London against "two individual shareholders" of YBM

Magnex. The press release claimed that the allegations were aimed at two British companies and

their lawyers but said the companies in question "are in no way related to YBM [Magnexj or its

subsidiary, Arigon." Pratecs further stated that "Legal counsel for Arigon has confirmed that the

alleged charges are unsubstantiated and the origins of the matter are difficult to determine."

57. On January 29, 1996, Y1-3M announced that it had received conditional

approval for a listing on the Toronto Stock Exchange ("TSE"), contingent upon satisfying certain

conditions which YBM expected to satisfy in early February.

58. On February 29, 1996, YBM announced that it had posted record sales and

earnings for 1995. Sales totaled $50.5 million, and net income was $8.2 million for the year. The

press release described YBM's primary business as "serving the rapidly growing global market for

high-energy permanent magnets, computer security systems, and consumer goods."

59. On March 7, 1996, YBM announced that its stock had commenced trading

on the TSE_ In a letter to shareholders accompanying the Company's 1996 Annual Report,

defendants Bogatin and Antes stated that as a result of the listing, "our shareholder base has also

grown, as has the interest shown by the investment community in our company's progress."

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60, Effective April 1, 1996, the assets of Arigon were transferred to United Trade

Limited ("United Trade"), a Cayman Islands corporation, in a "tax reorganization," according to the

Company's Annual Information Form, dated May 1, 1997.

61. On April 15, 1996, YBM announced record quarterly sales and earnings for

the quarter ending March 31, 1996. Sales were $16.07 million in the first quarter of 1996, compared

to $12.8 million in the same quarter of 1995, an increase of 25(Yo_ Net income for the Company in

the first quarter of 1996 was $2.975 million, compared to $1,474 million to the first quarter of 1995,

an increase of 101%.

62. On May 7, 1996, YBM announced that it had reached an agreement with the

holders of the Series A preferred stock of Arigon, whereby all 430,630 outstanding Class A preferred

shares would be surrendered for cancellation. According to the Company, the purpose of the

agreement was to eliminate a costly ongoing dividend obligation and to remove the requirement that

the shares be redeemed at the end of 1997 for their stated value of $R,612,595. The consideration

for the transaction, said the Company, was the issuance to such preferred shareholders of 2,050,616

common shares of YBM stock.

63. In June 18, 1996, YBM announced that it had acquired Schwinn Csepel RT

("Schwinn"), which the Company described as "a major European bicycle manufacturer." The

purchase price, according to the Company, would not exceed $3.7 million, payable over four years

in cash or shares of YBM common stock, and would be contingent upon Schwinn's profitabilily.

The Company represented that Schwinn was located in Budapest, Hungary and produced

approximately 100,000 middle- and high-end bicycles under technology developed by Schwinn USA

which were sold primarily in Western Europe.

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64. On July 9, 1996, YBM announced a "strong increase" in sales and earnings

for the quarter and six months ending June 30, 1996. According to the Company, net income for the

six months ending June 30, 1996 was $6.8 million, compared to $3 3 million for the same period in

1995, an increase of 106%. Sales for the six months in 1996 were $35.3 million versus S24.0

million in 1995, an increase of 47%. Quarterly comparisons between 1996 and 1995 also showed

strong increases. Net income was $3.8 million in quarter ending June 30, 1996, compared to net

income of $ I .8 million in the comparable quarter a year earlier, an increase of 111%. Sales in the

quarter ending June 30, 1996 were 519.2 million, compared to $11.2 million in 1995, an increase

of 71%. The Company further asserted that it continued "to expand its customer base" arid had

"increased penetration in several geographic areas including North and South America and the

Middle East."

65. On July 12, 1996, The Financial Post reported that YBM had "caught the

attention" of Griffiths McBurney analyst Mike Middleton. According to the Post, Mcliumey had

recently set a target price of C$8.50 for Y13M, which had closed at C$6.10 the previous day.

66. On July 16, 1996, YBM announced that six members of the Russian Olympic

bicycling team, then competing at the Summer Olympic Games in Atlanta, would use its "new

magnesium alloy bicycle." According to the Company, the bicycles were "produced and assembled

by YBM utilizing the Company's proprietary technology" and were "the lightest bikes available on

the market today." The Company said its "new Vacuum Powder Metallurgy Technology" enabled

the Company to produce "a new magnesium alloy composition suitable for bicycle application."

Although the Company claimed that "a number of bicycle companies in Western Europe have done

extensive testing with very promising results," it noted that "testing in the 'United States and Canada

is yet to be completed."

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67. On July 23, 1996, YBM announced that it had completed its acquisition of

a controlling interest in Schwinn, which it again described as "a major European bicycle

manufacturer." The Company stated that it intended to "incorporate its new magnesium alloy

production into Schwinn Csepel's bicycle frame manufacturing operation, thereby creating the

lightest bike frame on the market."

68. In August 19%, the Company represented that U.S. revenue totaled $5 million

for the first six months of 1996. The Company also claimed that Y1 =1114 was working on "several

significant contracts" in the U.S. and Mexico and was on the verge of landing a $2 million contract

in Canada.

69. On August 27, 1996, YBM announced that it had begun "construction of a

full-size magnetic lab at its Newtown facility." The purpose of the plant, the Company said was "to

start intensive study of new advanced magnetic materials and to implement pilot lab production,

including production of polymer bonded neodymium (rico) magnets." The Company predicted that

implementation of pilot lab production, plus a recently granted patent for neo magnets, would

"en able it to accelerate its penetration into the North American neo magnet market."

70. On October 15, 1996, YBM announced "continued growth" in sales and

earnings for the quarter ending September 30, 1996. For the three months ending September 30,

1996, net income was $4.6 million, compared to $2.1 million dining the same period in 1995, an

increase of 119%. Sales were $28.7 million during the third quarter of 1996, compared to $14.4

million during the third quart of 1995, an increase of 98%. The Company attributed its growth to

a number of factors, including its "penetration of the North American permanent magnet market

which contributed approximately 15% of total sales through nine months, compared to 5% for the

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year 1995." 'I'he Company also claimed that Schwinn, its recently acquired bicycle manufacturer,

had contributed $2.9 million in sales.

71. On October 29, 1996, Rob McConnachic, a Vancouver-based institutional

research analyst with Canaccord Capital, wrote that YBM's common stock should reach a target

price of C$12 within twelve months. According to McConna.chie, "For 1997, we forecast YBM

earn US$22.3 million or 84 cents a share on revenues of $110 million."

72. On December 10, 1996, YBM announced that it had recently negotiated a

"million dollar contract" with Mitsubishi of Japan. Defendant Bogatin stated: "More significant than

the amount of this initial order is the expectation that it will lead to additional business with

Mitsubishi and in the Far East where we have not done business in the past_"

73. YBM 's ever-increasing sales and profits in 1996, coupled with a steady stream

of positive announcements from the Company, rapidly made it a darling of North American

investors. Trading at a high of C$4.05 on the ASE in January 1996, YBM rose to a high of C$8.55

on the TSF. in December 1996. Trading volume rose, too. Approximately 42,000 shares traded daily

on the ASE, but that average surged to over 70,000 shares once the stock moved to the larger and

prestigious TSE.

74. On January 6, 1997, McConnachie of Canaccord Capital repeated his buy

recommendation and his $12 target price. McConnachie's upbeat outlook was based, according to

The Vancouver Sun, on "YBM's patented proprietary technology; its increasing market share in

North America; a recent contract with Mitsubishi of Japan; the company's strong balance sheet; and

rapid growth in worldwide demand for Neo magnets."

75. On February 25, 1997, YBM announced in a press release its sales and

earnings for the year ending December 31, 1996. According to the Company, sales increased from

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$50.6 million in 1995 to $90.3 million in 1996, an increase of 79%. Net income for the year ending

December 31, 1996 was $17.1 million, representing an increase of over 100% from 1995s net

income of $8.2 million. YBM attributed its strong results to "the continued penetration of the North

American permanent magnet market which contributed approximately 15% of total sales."

76. On March 4, 1997, defendants Bogatin and Antes executed YR1vf's 1996

Annual Report. The report was filed with Canadian regulatory officials on April 7, 1997.

77. The 1996 Annual Report contained a letter from defendant Parente in which

it represented that it had audited YI3M's financial statements for the years ending December 31,

1994, 1995, and 1996 in accordance with both Canadian generally accepted auditing standards and

Canadian generally accepted accounting standards. Defendant Parente further represented that each

of the financial statements fairly presented YBM's financial position for the year in question.

78. Parente has publicly stated that JohniVlatahoski, a partner in its Wilkes-Barre,

Pennsylvania office, played a lead role in the firm's audits of the Company before Deloittc took over

the assignment.

79. According to its 1996 Annual Report, YBM's leading and most profitable

business was the manufacture and distribution of permanent magnets. YBM's 1996 Annual Report

represents that total magnet sales were $33.7 million in 1995 and $61.9 million in 1996 and

accounted for 66.4% of total consolidated revenues for the year ending December 31, 1995 and

approximately 68.5% of total consolidated revenues for the year ending December 31, 1996.

According to the 1996 Annual Report, the Company's magnets were available in 23 countries and

were used in computers, general industrial machinery, automobiles, telc-communications, audio-

video equipment, and electronic equipment.

-. 1 8-

80. YBM also claimed in its 1996 Annual Report that one of its magnet products

-- known as neodymium powder — was used in refining crude oil. According to the annual report,

YBM purchased etude oil, added a by-product from manufacturing neodymium that reduces overall

refining costs, and then refined the oil. YBM claimed revenue of over $20 million in 1996 from its

use of neodymium powder. As described more filly below, none of these sales can be documented

with adequate evidence of the existence of the diesel oil or the legitimacy of the transactions.

81. YBM's 1996 Annual Report also represented that Schwinn would

manufacture a bicycle known as the "YBM Diamond," constructed on the basis of the Company's

"proprietary lightweight magnesium alloys." According to the Company, the first 1,000 bicycles

of the "YEW! Diamond" brand wcrc expected to be delivered to the U.S: by the end of the second

quarter of 1997. U.S. distribution of the bicycle would be from YBM's headquarters in Newtown

where the Company would maintain a warehouse for "visiting sales representatives."

82. On March 12, 1997, Y BM common stock reached a then-high of CS1I.20 per

share. According to The Vancouver Sun, McConnachie, now with Scotia Capital Markets, remained

bullish on the stock. "I'd still buy it here," he said.

83. On April 3, 1997, YBM announced in a press -release that it had signed an

agreement with Crucible Materials Corporation ("Crucible"), whereby YBM intended to acquire

Crucible's magnetic operations, subject to regulatory approval and other required consents. Based

in Elizabethtown, Kentucky, Crucible's primary business is the production of steels and various

84. On April 8, 1997, Jim Goar, an analyst at O'Donnell Investment Management

Corp., cited YBM as a good investment opportunity "among companies that arc expanding their

businesses in the U.S." The Financial Post reported: "YBM is looking to boost its U.S. sates,

-19-

probably through an acquisition, said Goat." Goat further predicted that Y13M can "expand earnings

at 20% to 25% a year over the next few years."

85. On April 18, 1997, The Financial Post reported that YBM would bc added

to both the TSF, 300 index and the TSE 200 index.

86. On April 22, 1997, the Company announced financial results for the quarter

ended March 31, 1997. Net income for the quarter was $5.6 million, compared to $3.0 million in

1996, an increase of 86%. Sales tbr the first quarter were $29.6 million versus $16.1 million in

1996, an increase of 84%. According to the Company, strong results continued to be generated from

its permanent magnet business, which accounted for 67% of total revenues. Defendant Antes stated

in the press release: "the Company continues to capitalize on opportunities in the resurgent markets

of central and eastern Europe which accounted for almost 45% of total revenue."

87. On May I, 1997, the Company published its Ammal Information Fonn for

the year ended December 31, 1996. In that document, the Company discussed a number of business

risks, including the risks associated with business activities in Eastern Europe. According to the

Company, the "evolving market economies in Eastern Europe are characterized by a high level of

cash transactions as well as less rigorous financial controls." Because of concerns that had been

expressed in the media and "by government officials" concerning companies doing business in

Eastern Europe "and particularly in Russia," the Company had taken two steps to address the

concerns. First, the Company had divested itself of Arbat. Alter reviewing Moat's operations, said

the Company, it was not satisfied that "adequate customer and sales representative acceptance

procedures could be implemented, including monitoring the propriety of sales commissions paid to

sales representatives." Second, the Company had established an independent committee of the

Board of Directors who retained experts to review the Company's operations. YBM represented that

-20-

recommendations from the review were being implemented and that the Audit Committee would

monitor compliance with the recommendations.

88. On May 6, 1997, YBM announced in a press release that it had entered into

an agreement with Marathon Securities Limited and Griffiths MeBurney to explore financing

alternatives to fluid YBM's acquisition of Crucible and expansion of YBM's existing facilities. In

its press release, YBM described itself as a "growth-oriented metallurgical company" which was in

the process of developing new products, including "lightweight magnetic-alloy components and

computer security systems."

89. On June 2, 1997, YBM announced in a press release that it had filed a

preliminary short form prospectus in the provinces of British Columbia, Alberta, Ontario, and

Quebec for an offering of shares valued at C$100 million. According to YBM, the proceeds of the

offering were to he used to fund YBM's acquisition of Crucible arid the repayment of debt assumed

in connection with the acquisition of YBM's neodymium production facility in Ilungary.

90. On June 5, 1997, the Hungarian News Agency reported that Schwinn and its

"U.S. majority owner YBM Magnex have agreed to invest 2m in the company's Csepel plant for the

production of new magnesium alloy bicycle frames." According to Schwinn managing director

Gyorgy Podolak, production of the new bicycle would involve a significant widening of capabilities

at the plant, beginning in 1998. The news article further represented the following: 1) that YBM

had acquired 99.5% of the bicycle plant in July 1996, with the remaining .5% held by "US bicycle

manufacturer WB"; 2) that Schwinn had registered capital of HUF 590m and reported sales of 1.7bn

last year, with 50% of those sales coming from exports; 3) that during 1996, Schwinn produced some

75,000 complete bicycles as well as bicycle frames and other bicycle parts; and 4) that Schw inn

filled 20% of the animal demand for bicycles in the Hungarian market.

-21-

91. According to press releases dated July 10, 1997 and July 23, 1997, the

proposed YBM public offering was delayed for unspecified reasons. In addition, YBM and its

counsel remained in discussions with regulators in an effort to settle "all outstanding deficiencies"

relating to the preliminary short form prospectus.

92. Also on July 23, 1997, YF3M announced sales and earnings results for the

quarter and six months ending June 30, 1997. According to the Company, sales for the three months

ended June 30, 1997 was $31.4 million, compared to $19.2 million in the same period of 1996. Net

income was $6.1 million for the quarter ended June 30, 1997, compared to 33.8 million for the same

period in 3996. Defendant Bogatin claimed that the growth in sales was a "result of YBM's

expanding global markets and the general growth of magnet markets worldwide."

93. On July 25, 1997, YBM stated in a press release that the delay in its equity

offering arose from concenis raised by regulators about YBM's sales made through "distribution to

end" users. According to YBM, the majority of its magnetic products were sold through such users.

In response to the concerns expressed by regulators, YBM had pledged that it mild perform

additional due diligence confirmations and that it had engaged DeIoitte to "complete these diligence

procedures."

94. On Friday, July 25, 1997, YBM common stock fell C$1.70 to C$11.70 on

heavy volume. of 1.2 million shares. During the day. YBM reached a three-month intraday low of

C311. According to The Financial Post, YBM issued a statement late in the day saying it was not

aware of any reason for the activity. The Post reported that "Nesbitt Burns Inc. was behind much

of the volume, accounting for trades of more than one million shares. Nesbitt crossed a block of

600,000 shares at $12 each."

-22-

95. On Monday, July 28, 1997, YBM common stock rose C$.60 to $12.30, on

volume of 454,615 shares. According to The Financial Post, YBM issued a second statement

"saying it had no reason that might explain the activity." Although the stock's average daily trading

volume at the time was 89,000, almost 1.76 mil/ion YBM shares changed hands in the two trading

sessions for July 25 and Jab, 28.

96. On July 31, 1997, the Company announced that it had signed a letter of intent

with KVANT Company, whom the Company described as "a major computer producer in Europe,"

to sell its CatcIlDisk computer security systems product line for $4.5 million. According to the

Company, the sale represented a 200% return on its original investment and included "intellectual

property, patents, trademarks, inventory, and equipment." A closing date on or before September

30, 1997 was expected.

97. On Friday, August 1, 1997, YBM stock rose C$.15 to CS10.85, on volume

of one million shares. For the week, YBM's stock was down C$1.05 in heavy volume. According

to the August 2 edition of The Financial Post, "Trading has been volatile since last Friday when

YBM issued a statement saying its proposed $100-million financing had been delayed. Regulators

had expressed concern over how YBM's sales were stated in the financing's prospectus."

98. On August 13, 1997, YBM announced that it had recently negotiated a five

year supply contract with Volgodonekonomscrvis Corporation to supply various magnetic

applications, including magnetic plugs and other magnetic filtration devices. YBM described

Volgodonekonomservis as a "supplier" to VA2, the largest car manufacturer in Russia. According

to the press release, YBM enjoyed a "very strong" position in the Eastern European Magnetic

Market, which was growing at the rate of "approximately 95% per year."

-23-

:

99. At an unknown date in 1997, YEM's proposed C$100 million equity offering

was restructured. Under its new plan, YBM would receive $48 million through the private

placement of subordinate convertible notes and another $52.8 million in an equity offering.

100. On August 21, 1997, YBM announced that it had received regulatory approval

and completed a private placement of subordinate secured convertible notes in the aggregate amount

of $48 million. According to YBM, the notes were purchased by institutional investors and were

subject to mandatory conversion to common stock at C$12 per share when the Company's

prospectus was cleared by securities regulators.

101. On August 22, 1997, YBM announced that it had completed the acquisition

of the magnetic operations of Crucible, which consisted of Crucible Magnetics in Elizabethtown,

Kentucky and Crusted Magnetics Limited ("Cnisteel") in the United Kingdom. YBM further

announced that it would operate the acquired assets through its wholly owned subsidiary companies,

Crumax Magnetics Inc. ("Crumax") and Crusted.

102. The Financial Post reported on August 23, 1997 that Connor, Clark &. Lunn

Investment Management Ltd. had purchased the notes "on behalf of accounts and funds managed

by it." According to the Post, if the notes were converted into common shares at C$1 2 a share, the

accounts and hinds would own 6.5 million shares, or 16% of YBlvl's outstanding shares.

103. On October 1, 1997, the Export Sales Prospector reported that a joint venture

was "gearing up to manufacture and market real-earth permanent magnets in China." Partners in the

joint venture were "U.S.-based YBM Magnex International Inc., a subsidiary of YBIVI Magnex inc.,

in connection with the local Beijing Jingei Magnetism Technology Co., Ningbo Yunci Co., and

China Aviation Materials Research Institute." If the project went forward, reported the news service,

YBM was expected to invest up to $40 million into the venture in order to acquire a majority stake.

-24-

A chart accompanying the article listed Anatoly M. Kulachenko as Chairman of YBM Magnex, Inc.

As alleged above, Kulachenko and six others, all of whom are associated with Moguilev itch,

received 25.7 million shares in YBM when the Company was reorganind in 1994-95.

104. On October 3, 1997, the Hungarian News Agency reported that the

"Hungarian magnet manufacturer Magnex Rt is to invest 20m in expanding production capacities."

According to the news article, the capital would be provided by "the Canada-registered patent

company YBM-Magnex," and the new 12,000 square meter production facility was to hc completed

by late December 1998. The article further represented that Magrtex was "cooperating with" a

company known as Mag,nafilter International Inc., who produced a "magna-filter" that was designed

"to collect the waste absorbed by car oil filters." The Magnex plant exported 95% of its output, said

the article, and relied on "raw materials supplied from Canada."

105. A precondition of the equity offering was a favorable audit letter from

Deloittc. Among the diligence procedures Deloitte was requested to perform was a re-audit of

YBM's December 31, 1996 financial statements. According to the Company's short form

prospectus, dated November 17, 1997, the OSC had specifically raised concerns with respect to the

audit procedures "relating to reported amounts of sales as well as the identity and ultimate location

of the [Company's] customers.

106. In its role as YBM's auditor, Deloitte knew that regulators had raised

questions concerning the bona fides of YBM's sales and customers, that YBM's proposed equity

offering depended on a favorable audit by Deloitte, and that Deloitte's audit was regarded as a "high-

risk" audit. In light of circumstances surrounding its audit, Deloitte knew that misstatements in

YBM's financial statements could materially affect the overall veracity of the financial statements.

Furthermore, under the circumstances of the audit, Deloittc knew that a favorable audit would

-25-

communicate to the investing public that the concerns raised by regulators -- which were a matter

of public record -- were unfounded_

107. During the course of its audit, Deloitte deliberately or recklessly ignored

numerous red flags, all of which indicated that YBM's representations concerning the nature of its

business activities were false_ For example, Deloitte discovered that YBM's earlier representations

concerning its sales in the North American and Middle Eastern markets during 1996 were false.

Rather than having sold $13.64 million of goods in the North American market during 1996 as the

Company had previously reported, YBM had in fact sold goods valued only at $1.8 million in the

North American market. In addition, although YBM had originally reported sales of over $3.3

million in the Middle East during 1996, Deloitte discovered that YBM made no sales at all in thc

Middle East during 1996.

108. During the course of its audit, Deloitte also became aware of a highly

irregular transaction by YBM involving $5.2 million worth of diesel oil. Although YBM had

originally represented that the diesel oil had been sold in 1996, Deloitte discovered that the diesel

oil had in fact been consigned under an installment sales contract at December 31, 1996. In other

words, the diesel oil had not been "sold" in 1996, and no revenue would be received by Y13M until

the oil was consumed by end users, presumably in 1997. The Company has recently acknowledged

that it connot provide adequate evidence of the existence of this and similar transactions.

109. Deloitte also deliberately or recklessly chose not to take adequate steps to

verify the existence of the Company's customers and trading partners. The only means of

verification undertaken by Deloitte was confirmation by mail. Subsequent investigation by

regulators has disclosed that the Company's customers and trading partners either do not exist or

that, in some cases, the addresses provided by the Company do not exist. In light of the specific

-26-

concerns raised by the ()SC and the Company's impending public offering, Deloitte's actions were

at least reckless and amount to willful disregard.

110. On October 22, 1997, YBM announced in a press release that it had received

an unqualified audit report from Debitte on its December 31, 1996 financial statements. YBM

further represented that a copy of the De/oitte audit would be contained in the Material Change

Report filed in connection with the press release.

111. In the October 22, 1997 press release, YBM also admitted that it had made

several misrepresentations to the investing public concerning the location of its sales. Although

YBM had represented on February 25, 1997 that its growth was due to its "continued penetration

of the North American permanent magnet market," and although the Company had previously

claimed in its financial statement that it had made sales of $13.6 million in North America, the

Company now admitted that its sales in North America were practically nil. The Company also

confessed that rather than having made sales of $3.3 million in the Middle East, it had in fact made

none. According to the press release, the earlier information concerning sales was "based upon the

location of the Company's distributors," but those figures had been "reclassified to reflect the

ultimate end user of the Company's product." In an apparent reference to its diesel oil inventory,

the press release also noted -- without further explanation -- that the new audit reflected "an

adjustment to record consigned inventory of $5.2 million."

112. On November 11, 1997, The Financial Post reported that YHM was expected

to file its final prospectus with the OSC. According to the Post, "The OSC's main concern with the

financing was establishing who YBM's customers are,"

113. On November 13, 1997, YBM filed a Material Change Report with regulators.

The following attachments accompanied the Material Change Report: the Company's October 22,

-2 7-

1997 press release; Deloitte's unqualified audit opinion; restated interim financial statements for the

periods ended March 31, 1997 and June 30, 1997; and Supplementary Management's Discussion

and Analysis.

114. Release of the Deloitte unqualified audit report in the Material Charge Report

marked its first public disclosure, and it was done with Deloitte's permission or knowing

acquiescence. In a letter to the YBM Board dated October 13, 1997, Deloitte represented that its

audit had been conducted "in accordance with auditing standards generally accepted in the United

States of America and in Canada." Those standards, said Deloitte, require that it "plan and perform

the audit to obtain reasonable assurance about whether the financial statements are free of material

misrepresentation." Deloitte further represented that YBM's 199(1 consolidated financial statements

present fairly, in all material respects, the financial position of the Company at December 31, 1996,

and the results of its operations and the changes in its financial position for the year ended in

conformity with accounting principles generally accepted in Canada."

115. The consolidated financial statement audited by Deloitte for the year ended

December 3 , 1996 represented that the Company had total sales of $90.3 million and that the Cost

of sales was $52.1 million, resulting in a gross profit to the Company of $38.2 million. The financial

statement further represented that the Company had earned net income of $16.2 million during the

fiscal year 1996. Perhaps most remarkably, the audited financial statements represented that the

Company's shareholders' equity now stood at $60.5 million, a two-fold increase over equity of $28.3

million in 1995, and a six-fold increase over equity of $10.5 million in 1994.

116. The notes to the Company's financial statement contained the following

representations: 1) for the year ended December 31, 1996, the Company had 12 customers that

accounted for 65% of its consolidated net sales; 2) as of December 31, 1996, the Company had $3

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million of uninsured deposits in a Russian financial institution; 3) the Company acquired Schwinn

by issuing 380,484 common shares with a fair market at the time of issuance of $1.9 million; 4)

during 1996, Ihe Company sold Arbat for $250,000, resulting in a gain of approximately $70,000;

5) during the time period 1994-96, the Company purchased certain equipment and repaid expenses

totaling $1,679,953 from YBIV1 Technologies, Inc., whose sole shareholder is an undisclosed officer

and shareholder of the Company; 6) the Company's four business segments included "operations

associated with buying crude oil, adding neodymium powder to absorb sulfur content, and selling

the oil, thereby reducing costs to refiners"; and 7) during 1997, 837,974 common shares were issued

upon exercise of options during 1997 at prices ranging from C$3.3 to C$6.65.

117. In the Supplementary Management's Discussion and Analysis ("MD&A"),

YBM made additional representations concerning its diesel oil inventory. It said the diesel oil

inventory had been purchased and provided to a distributor in December 1996, and the contract with

the distributor provided that payments were to be made to YIKVI at such time as the diesel "was

consumed by end users and proceeds were realized.-

118. The :MD&A made additional representations concerning the errors in the

Company's geographic sales. According to the Company, a "reclassification of geographic segment

information" was required to "reflect the destination of the Company's products as opposed to the

location indicated in the Company's source documentation."

119. On November 20, 1997, YBM announced in a press release that it had

received clearance from securities regulators to file its final short form prospectus concerning its

issuance of 3.2 million common shares at a price of C$16.50 per share. The prospectus also

qualified the issuance of four million common shares issuabie upon conversion of subordinate

-29-

secured convertible notes, valued at C$48 million. The offering was underwritten by First Marathon,

Griffiths Me Burney, Scotia McLeod, Canaceord Capital, anti Gordon Capital Corporation.

120. In the prospectus, dated November 17, 1997, YBM stated that is magnetic

products were sold "throughout North America and Europe as well as in the Middle East, Asia and

the Pacific Rim." In describing its other lines of business, YBM asserted that its magnesium alloy

and computer "firmware" products were in the "development stage" and "do not generate a material

amount of revenue and earnings." Furthermore, according to the prospectus, "it is management's

intention to divest its non-core firmware and bicycle manufacturing businesses."

121. The prospectus represented that the net proceeds of the issue were to be used

to fund the expansion of the Company's neodymium production facility in Hungary ($10

to fund the Company's entrance into the polymer bonded magnet market by constructing a 250 ton

polymer bonded magnet facility in the U.S. ($10 million); 10 upgrade and expand the neodymium

magnet capacity of its Crucible Magnetics operation ($10 million); with the balance, if any, to be

used for general corporate purposes.

122. The prospectus specifically noted that among the documents incorporated by

reference was the Material Change Report dated November 13, 1997, which included "an

unqualified audit opinion of Dcloitte & Touche LLP relating to the consolidated financial statements

of the Corporation for the fiscal year ended December 31, 1996."

123. On November 26, 1997, YBM announced in a press release that it had

completed its public offering of 3.2 million shares at a price of C$16.50 per share. In addition, an

over-allotment option granted to certain underwriters was exercised in full, resulting in the issuance

of an additional 320,000 common shares. The Company also announced that all of the CS48

subordinate convertible secured notes had been converted to common shares at a conversion rate of

-30-

CS 12 per share. According to the Company, the net proceeds of the equity offering were expected

to be used to fund the expansion of YBM' s neodymium production facility in Hungary, to fund

YBM's entrance into the polymer bonded magnet market, and to update equipment and expand the

neodymium magnet capacity of its Crumax operations. Furthermore, the net proceeds received from

the sale of the convertible notes was reportedly used to acquire Crucible Magnetics and fund the

repayment of debt assumed in connection with the acquisition.

124. On December 2, 1997, YBM announced in a press release that it had finalized

plans to establish a "new state-of-the-art polymer bonded magnet operation" in Newtown,

Pennsylvania. According to the Company, the plans included "capacity for up to 250 tons annually

of bonded neodymium-iron-boron magnets using injection molding and compression molding

technology." Samples will be available in mid-year 1998, said the Company, with full production

capability scheduled for later in 1998.

125. On December 15, 1997, Plastic News reported further details concerning

YBM's announced plans to enter the "polymer-bonded, high-strength" magnet market. In a

telephone interview, defendant Bogatin stated that the Company would spend $14 million during

the next two years to build a 24,000 square foot plant and equip it with 15 injection molding

machines, 20 compression molding presses, robotic handling equipment, and other machinery.

Bogatin estimated that the Newtown plant would have annual capacity of about 500,000 pounds by

late 1998 and double that a year later.

126. On December 16, 1997, YBM announced in a press release that it had

finalized and signed an agreement to sell its "CatcHDisk Computer Security System" product line

for $4.5 million. According to the Company, the sale included all intellectual property, patents,

trademarks, inventory, and equipment.

-31-

127. On December 18, 1997, YBM reported in a press re/case that it had finalized

plans to expand the melting and production capacity at Magnex in Hungary, "in order to meet the

increased world wide market demand for sintered and bonded neodymium-iron-boron (neo) high

energy permanent magnets." According to the Company, the plans included increasing both nicking

capacity and production capacity of 500 tons annually. YF3M expected the building to be completed

and equipment installed by the end of 1998, with fail production capability scheduled for mid-1999.

The increase in melting capacity, said the Company, will provide all of Magnex's alloy needs, as

well as the neo-alloy needs for YBM's emmax Magnetics subsidiary in Kentucky.

128. As of the conclusion of 1997, YBM's reported growth and financial

performance over the past few years had been phenomenal. Between 1994 through 1997, YBM's

net sales reportedly had quadnipled, rising from $32.5 million in 1994 to $137.7 million in 1997.

Net income reportedly had risen from $2.8 million in 1994 to $25.6 million in 1997, an increase of

over nine-fold. Earnings per share soared as well, reportedly rising from 13 cents per share in 1994

to 69 cents per share in 1997, an increase of over five-fold.

129. On February 2, 1998, Y13M announced in a press release that it had entered

into a letter of intent to acquire Philips Electronics' rare earth permanent magnet business. The

transaction was expected to close before the end of the first quarter of 1998.

130. On Febniary 3, 1998, First Marathon analyst Kaan Oran issued a "buy"

recommendation on YBM stock, emphasizing that YBM had come "out of the forensic study by

DeIoitte & Touche with flying colours."

131. On February 28, 1998, The Financial Post reported that Gerry Brockelsby at

Marqucst Investment Counsel Tile. had named YBM as one of his "top stock picks." Brockelsby

noted that the Company had gained an important foothold in the U.S. and was "methodically"

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expanding in the Middle East, Europe, and the Pacific Rim. "In all, it is able to produce very solid

earnings growth," Brockelsby said.

132. On March 9, 1998, Y13M announced in a press release "record" sales and

profits for the three months and for the year ending December 31, 1997. Net income for the year

1997 was $25.6 million, compared to $16 million in 1996, an increase of 60%. Net sales for 1997

were $137.7 miliion, compared to $903 million for 1996, an increase of over 52%. For the three

months ending December 31, 1997, net income was $9.3 million, an increase of 93% over fourth

quarter 1996. Sales in the fourth quarter of 1997 $44 million, an increase of 67% over fourth quarter

1996. YBM attributed its "exceptionally strong" results to "brisk sales" of its core neodymium

magnets, sales of magnetic applications and powder by-product, a stronger U.S. dollar, and the sale

of its "Catch.disk" computer technology.

133. On March 23, 1998, Deloitte met with the Audit Committee of the YBM

Board of Directors (the "Audit Committee") to discuss concerns raised by Deloitte about YBM's

previously announced 1997 financial results. Members of the Audit Committee included defendants

Mitchell, Greenwald, and Antes. According to the OSC's Temporary Cease Trading Order, dated

May 13, 1998 ("Cease Trading Order"), the concerns raised by Deloitte on March 23 included how

first quarter earnings might be impacted by certain transactions which Deloitte questioned. On the

following day, the Audit Committee began formulating a plan to address the issues raised by

Deloitte. None of this information was disclosed to the investing public.

134. On March 31, 1998, the Company announced in a press release that it had

completed the acquisition of the rare earth permanent magnet business of Philips Electronics in

Southport and Burseough, England. The Company said that it would operate these facilities under

the name of Crumax Magnets, Ltd. and that it expected the acquisition to be as successful as the

-33-

Crumax acquisition, "which is profitable and meeting YR M's expectations." According to the

Company, the acquisition is "part of YBM's global strategy to be the world's leading producer of

high energy permanent magnets."

135. On April 20, 1998, the Audit Committee received a letter from Deloitte

describing specific concerns, including the lack of information about certain entities with whom

YBM conducted business, particularly in Eastern Europe and Russia. Deloitte further suggested that

it would be appropriate for the Audit Committee to conduct an in-depth forensic investigation

involving legal counsel and experienced international investigators. In its May 14, 1998 press

release, YBM described the purpose of the investigation envisioned by Deloitte as being three-fold:

1) to substantiate certain specified transactions; 2) to confirm the existence of certain spixified

entities with which YBM transacts business; and 3) to confirm information about the principals of

these entities and the relationships between the principals of these entities and YBM and its

principals.

136. Deickitte's April 20, 1998 letter also stated that until the investigation was

completed and all matters resolved to its satisfaction, it would be unable to finalize its 1997 audit.

Deloitte stated that upon the completion of the investigation, it would decide whether it could

continue to act as auditor to IBM, whether it could issue an audit opinion on YBM's 1997 financial

statements, and whether it would continue to be associated with the unqualified audit opinion it had

previously given on the Company's 1996 financial statements. These developments were not

disclosed at the time to the investing public by YBM or Deloitte.

137. DeIoitte also provided, by means of a letter dated April 24, 1998 to a YBM

hoard member, particulars respecting the transactions and parties which had been identified in its

-34-,

April 20, 1998 letter. Neither the existence nor the contents oflleioitte's April 24, 1998 letter was

disclosed at the time to the public by YBM or Deloitte_

138, On April 27, 1998, despite the concerns raised by DeIoitte, YBM announced

financial results for the quarter ended March 31, 1998. According to the Company, its net income

was $9.2 million, compared to $4.7 million for 1997, an increase of 95%. Its sales were $40.9

million versus $29.6 million in 1997, an increase of 38.2%. The Company claimed that the first

quarter results included magnet and magnetic application sales of $39.7 million, which compared

to $20A million for 1997.

139. The April 27, 1998 press release contained further representations regarding

its neodymium powder "business." Included in the sales of magnets, said YI3M, was approximately

of $2 million in sales of a "magnetic by-product powder that results, in part, from the manufacturing

process for magnets." By selling this powder, YBM claimed that it was able to "reduce its overall

costs and improve its material yields." Furthermore, in 1997, -YBM had been engaged in buying and

selling diesel oil for use with the powder, "which is used to absorb the sulfur content in oil." In

1998, however, YBM "decided to sell the powder directly and will no longer trade in diesel oil."

140. In a letter dated April 28, 1998, from Deloitte to a member of the YBM board

of directors, Detoitte expressed concern over the fact that YBM released its first quarter earnings,

given the fact that the concerns that [Moine identified had not been resolved and might impact first

quarter earnings. Deloitte also confirmed that it had discussed with the Company the question of

whether there was a need to disclose to the public and the OSC that the audit of YBM's 1997

financial statements bad been suspended pending the completion of the investigation. The existence

and contents of this letter were never publicly disclosed by YBM or Deloitte.

-35-

141. In a letter dated May 8, 1998 to defendant Antes, Deloitte advised that it was

extremely concerned by YBM's disclosure of first quarter results and its failure to disclose that

Delottte's audit had been suspended until the investigation into the validity of certain "significant

transactions" had been completed. Deloittc also advised that the information it had previously

provided indicates that one or more illegal acts may have occurred which may have a material impact

on the 1997 financial statements. The existence and contents of this letter were Dever publicly

disclosed by YBM or Debitte.

142, On May 8, 1998, YBM requested that the OSC grant a 45-day extension to

file its 1997 audited financial statements. The Company represented in the application that

"subsequent to the completion of virtually all of the substantive portion of the Company's 1997

audit," Deloitte requested that YBM perform an investigation to confirm the identity of certain of

the Company's business partners and to confirm the veracity of "certain transactions underlying

YBM's business."

143. On May 8, 1998, YBIVI announced in a press release that it had requested from

the TSE and the OSC a 45-day extension from filing its 1997 financial statements, which were

otherwise due on May 20, 1998. YBM stated that the extension was needed because Deloittc "has

requested that the Board of Directors conduct an independent review of certain aspects of the

Company's business and operations in Eastern Europe." The Company also noted that an

independent review of "certain aspects of the Company's business and operations in Eastern Europe"

was being conducted, but claimed that the preliminary results of that investigation indicated that it

would not have "a material adverse effect" on the Company's operations or financial position.

144. In light of the information readily available to YBM and the Insider

Defendants, the May 8, 1998 press release was deficient and misleading. By not providing full

-36-

disclosure concerning the nature of the concerns raised by Deloitte, the Company misrepresented

the serious issues surrounding whether Deloitte would continue in its role as auditor, whether

Deloitte would certify the Company's 1997 financial statements, and whether Deloitte would stand

by its 1996 audit opinion.

145. On May 11, 1998, the Audit Committee received a preliminary report

prepared by legal counsel concerning the issues raised by DeIoittc. According to a press release

issued by the Company on May 14, 1998, the preliminary report stated: 1) no evidence had been

found of criminal activity by any officer or employee of YBM, its suppliers or customers; 2) the

businesses visited in Eastern Europe "appeared" to be "legitimate business organizations"; and 3)

no evidence had been found "to date" that the business relationships noted by Del oitte were "unusual

or otherwise not bona tide." At the same time, the preliminary report also noted that the Company

had exercised insufficient financial controls in connection with certain agreements and arrangements

with undisclosed third parties in Eastern Europe. Although Deloirtc had made its continuing

representation of the Company contingent upon acceptable responses to its inquiries, the preliminary

report confessed that "significant work remained to be completed."

146. On May II, 1998, YHM common stock fell $C2.40 to SC14.60 on news that

the Company had requested an extension of time from the OSC to file its 1997 financial statements.

According to the May 12, 1998 edition of The Financial Post, Eric Viverios, an analyst with GT1

Capital, said that he was not worried by the delay. "Let's say it could have been troubling, but with

the due diligence done by Dcloitte last fall, I don't expect new findings this time."

147. Also on May 11, 1998, Nesbitt Burns Inc. analyst Peter Sklar issitcd a "buy"

recommendation for YBM and set a target price of C$24 per share. "We continue to believe that

there are not any in-egularitics with YBM's 1997 financial statements," said Sklar.

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148. On May 12, 1998, YBM common stock fell another C1.10 to C$13.50, on

volume of 462,427 shares.

149. According to YBM's May 14, 1998 press release, the Audit Committee wrote

to Deloitte on May 12, 1998, expressing its concerns over the allegations that DeIoitte had recently-

made, "especially given the extensive, high risk audit performed by Deloitte in 1997 which resulted

in an unqualified audit opinion respecting the Company's 1996 financial statements." The

Company's letter also stated that YBM had not made public disclosure of the matters raised by

DeIoi tic because none were supported by underlying facts or appropriate information.

150. Deloitte advised the OSC on May 13, 1998 that it was unlikely to he able to

issue an audit opinion by May 20, 1998, the new deadline for filing YB.M.'s audited 1997 financial

statements. Deloitte further stated that it had not received a final investigative report, which Deloitte

said, "would have to be audited before [Deloittc] could determine (i) whether it is willing to continue

to be associated with YBM; (ii) whether it will be able to issue an audit opinion on YBM' s 1997

financial statements; and (iii) whether it will continue to be associated with YBM's 1996 financial

statements."

151. On May 13, 1998, representatives of the U.S. immigration Office, U.S.

Customs Service, the Federal Bureau of Investigation, and the Internal Revenue Service executed

a search warrant at YBM's corporate headquarters in Newtown, Pennsylvania. The search warrant

was signed on May 6, 1998 by U.S. District Judge Franklin S. Van Antwerpen and was supported

by a 70-page affidavit. Both the search warrant and the affidavit were sealed by order of the court.

152. The federal search warrant authorized agents to seize a wide variety of

corporate documents. These included banking records, accounting records, expense logbooks,

expense vouchers, wage and labor expense information, personnel and employee records, business

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tax information, minute books, minutes of directors' meetings and audit committee meetings, annual

business plans, regulatory filings, marketing and promotional material, and product samples. The

warrant also specifically authorized seizure of documents related to the audits performed by

defendants Deloitte and Parente.

153. Law enforcement officials participating in the raid declined to provide

specifics concerning the investigation. On May 27, 1998, The New York Times reported only that

an official with the Customs Service had stated that the YBM investigation centered on allegations

of "money-laundering" and the Company's "close ties to members of Russian organized crime."

154. On May 13, 1998, the OSC issued a temporary cease trade order against

YI3M's securities on the TSE. The OSC also dismissed VBM's application for a 45-day extension

to file its financial statements for the year ended December 31, 1997. At the time of the cease trade

order, YBM's common stock traded at 0514.35 and market value of over 05900 million.

155. On May 14, 1998, YBM issued a press release describing the extraordinary

events beginning with Dcloitte's meeting with the Audit Committee on March 23, 1998 and

concluding with the U.S. law enforcement raid on May 13, 1998. Aside from publicly disclosing

these highly material events for the first time, the press release also announced that the Company's

board of directors had empowered the Audit Committee to assume carriage of the investigations

underway both in Canada and in the U.S. The press release criticized Deloitte's actions in

withholding its 1997 audit opinion, noting that 1) Deioitte's 1996 audit, prepared in the context of

the Company's public share offering in November 1997, had been "extensive" and "high risk" and

resulted in an unqualified audit opinion; 2) many of the procedures utilized by Deloitie in conducting

its "high risk audit" were similar to the procedures carried out by the Audit Committee; and 3)

Deloitte had not provided the Audit Committee with any facts that would support any allegations

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of wrongdoing or support any conclusion that YBM or its officers and employees had engaged in

any unlawful activities.

156. On May 15, 1998, The Financial Post reported that defendant Mitchell

claimed that the Company was mystified as to why four U.S. government agencies had seized

documents from its headquarters. "The company's not aware of anything that would cause it to be

under scrutiny by any regulatory agency," Mitchell stated.

157. On May 20, 1998, YBM issued a press release, setting forth nine matters that

it wished to "clarify" because of "certain inaccuracies and misstatements appearing in the media

recently concerning the Company." Among other matters, the Company claimed 1) that no "non-

institutional shareholder" holds greater than 3.2% of the Company's issued and outstanding shares;

2) that management and directors of the Company bold approximately 5.7% of the Company's

issued and outstanding shares; 3) that Semeon Moguilevitch had "never exercised control" or "had

any involvement in the management" of the Company; 4) that Sergei Mikhailov had never been

"associated with the business affairs" of the Company; and 5) that "information" concerning British

criminal proceedings against Arigon had been disclosed by Pratccs in 1995.

158. On May 23, 1998, Guy Scala, a Company spokesman, was quoted by the

Bloomberg News Service: "To the best knowledge here of senior management at YBM, we have

no reason to believe alai anyone in our company is or has been engaged in anything other than

totally legal and ethical business practices." According to Bloomberg, Scala further claimed that he

did not know what prompted the federal investigations.

159. On May 26, 1998, YBM announced in a press release that it had agreed with

the 0-SC to an extension of the temporary cease trade order. The Company further claimed that it

continued to carry on its business operations in the U.S. and internationally.

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160. On May 27, 1998, the TSE announced that common shares of YRM had been

suspended from trading on the ISE. According to the TSE, the suspension would continue until the

Company has filed outstanding financial statements in acceptable fbrm, until the cease trade order

implemented by the OSC was lifted, and until all conditions of the TSE were satisfied.

161. On June 8, 1998, YBM publicly released an executive summary of the

findings of the Audit Committee. Although the Company admitted that more detailed information

appeared in a full report and its appendices, the Company declined to release the full report, citing

"confidential and proprietary information." The full report was delivered to Deloitte, however.

162. According to a press release issued on the same day as the executive

summary, the Audit Committee had followed Deloitte's recommendations and engaged outside legal

counsel and a U.S.-based investigative firm to investigate the concerns identified by Deloitte.

Pinkerton Investigative Services provided investigative services to the Audit Committee. The

Philadelphia law firm of Wolf, Block, Schorr & Solis-Cohen, ("Wolf Block"), which also has

long acted as legal counsel to the Company, served as legal counsel to the Audit Committee.

163. The executive summary contained a number of highly negative findings,

including confirmation of significant breaches in corporate policy and common business prudence

by defendant Fisherman and identification of substantial transactions that required hut did not

receive board approval. In addition, the investigation found that adequate documentation concerning

customers and suppliers did not exist. The Audit Committee further noted that the Company had

not proceeded with the vast majority of transactions that initially caused Dctoitte the greatest

concern.

164. Within the "scope prescribed" to the investigators (which is not defined within

the executive summary), the Audit Committee made several findings which it termed "favorable."

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According to the executive summary, the Audit Committee "found no evidence of participation in

criminal acts by the Company, its officers or employees, or by any counterparties to contracts with

the Company in relation to such contracts." The Audit Committee also found no evidence of "any

involvement whatsoever" in the Company by Mikhailov and no involvement beyond passive--

shareholding by Moguileviteh. In addition, the investigation "readily" found office addresses and

evidence of existence for customers and suppliers as to which Deloittc had expressed concern.

165. In the executive summary, the Audit Committee also made a number of

recommendations, including the following: 1) a tightening of the enforcement of corporate policy,

particularly with respect to the Company's Ilungary-based operations; 2) the creation of a permanent

oversight committee; 3) requiring background checks from new East European business partners;

and 4) the preparation of a detailed report addressing the future of the Company's operations in the

Former Soviet Union.

166. Based on the limited information described in the executive summary, the

Audit Committee's work was deficient in the following regards: 1) no effort was made to determine

whether the Company's shareholders or their affiliates were engaged in criminal activities with

respect to the Company's business affairs; 2) no effort was made to determine whether the

Company's suppliers and/or contractual counteiparties were engaged in criminal conduct in general;

3) no effort was made to determine the bona fides of certain business activities of the Company,

including its production and use of neodymium powder and its bartering of petroleum products; 4)

the scope of the investigation with respect to YBM's subsidiaries, including Magnex, Arbat, and

Arigon, is unclear; and 5) the Audit Committee was provided legal advice that was conflicted in

nature, given Wolf B lock's simultaneous representation of the Company.

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167. On June 12, 1998, the OSC scheduled a hearing to determine whether a final

cease trade order would be imposed on YBlvl. Such an order would permanently ban YBM from

both the TSE and the over-the-counter Canadian Dealing Network.

168. On June 18, 1998, the Financial Times published a news article questioning

the Company's representations concerning its commercial applications of neodymium powder.

According to the article, Ontario regulators had been warned in the fall of 1997 by industry experts

that YBM's S20 million in sales of neodymium powder in 1996 could not be substantiated. "While

some rare earth materials have a small application in oil refining," reported the Financial Times, "no

commercial use of neodymium to desulphurise oil has ever been developed." The article cited five

experts who supported this conclusion: Fred Jones, a 35-year consultant to the peimanent magnet

industry; John Creighton, a development specialist with Grace-Davidson, a large U.S. commercial

supplier of rare earth materials to the oil industry; Tom Halford, director of process and technology

for Petro-Canada's refining division; John Giesman, gas project manager for Universal Oil Products,

the world's largest seller of licensed technology to oil refineries; and Barry Kilbom, formerly of the

rare earth producer Molyeorp, who is regarded as the world's foremost expert on uses for rare earth

materials_

169. On June 21, 1998, The Bucks County Courier Times reported that Michael

Kogan, the 26-year-old nephew of defendant Bogatin, operated a securities brokerage which at one

time occupied space at YBM's Newtown, Pennsylvania headquarters. According to Kogan's

attorney, his client was cooperating with federal investigators. Originally incorporated in July 1996

under the name of Prime Capital Securities Irie., the firm renamed itself Jefferson Gersch Inc_ a

month later. Thc sole incorporator of the firm was Jennifer L. Dombrowski, a legal assistant with

the Wolf Block law firm. After running into trouble with regulators in both Pennsylvania and

-43-

Maryland, Jefferson Gersch paid a total of $15,500 in fines and said that it would halt operations in

Pennsylvania_ During his interview, Kogan stated that he was closing Jefferson Gersch in all states

where the brokerage was located.

I 70. As reported in a June 24, 1998 article in The Financial Post, the existence of

a "friendly broker" such as Jefferson Gersch "would theoretically make it easier for someone to

manipulate a stock because there would he no need to spread orders among many nominee accounts

to hide the intent." In addition, such a broker "would also simplify buying and selling blocks of

stock for family and business associates without attracting outsiders' attention."

171. On June 21, 1998, The Globe and Mail reported that according to insider

trading reports filed with the Alberta Securities Commission, dcfcndant Davies sold 17,000 shares

of YBM common stock during the months April and May, resulting in a profit to Davies of

C$245,700. According to the article, Davies acquired 20,000 YBM shares by exercising stock

options at C$3.23 each on April 20. On that same day, DeIoitte sent a letter to YBM's Audit

Committee, saying that it would not complete its audit until certain concerns it had raised were

resolved. Beginning on April 24 and continuing for the next two weeks, Davies sold 17,000 shares,

ranging in price from a high of C$18.70 per share to a low of CS 1.6.70 per share.

172. The Globe and Mail also reported on June 21, 1998, that two other YBM

directors had sold stock after Deloitte had expressed concerns on March 23 over its ability to

complete the Company's 1997 audit. Defendant Held sold 6,000 shares on April 16 at CS19.20,

producing total proceeds to him of C$115,200. Defendant Greenwald sold 4,000 shares on April 2

at C$12.33, producing total proceeds to him of CS49,320.

173. On June 25, 1998, The Vancouver Sun reported that according to trading

records filed at the British Columbia Securities Commission, defendant Bogatin transferred some

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38'3,846 shares of YBM stock to unknown persons and another 89,338 shares to a person known

only as G. Bogatin." The transfers were all performed during the past 18 months. in addition,

defendant Bogatin sold another 25,000 shares at an average price of $12.33 per share, resulting in

proceeds of approximately 8308,250, also within the past 18 months.

174. On June 26, 1998, the Company issued a press release, stating that it had been

advised that Deloitte had resigned as the Company's auditor and therefore "would not be able to

report on the Company's 1997 financial statements." According to the Company, Deloitte had stated

in its letter; "We have concluded, based on the questions and issues which remain after our review

of the Report and the lack of competent auditable evidence, that it is unlikely that sufficient

additional audit procedures could be performed which would reduce to an acceptable level the risk

of material misstatement in YBM Man,nex International, Inc.'s financial statements for the year

ended December 31, 1997 due to error or fraud."

175. Importantly, YBM further stated that it had been advised b y DeInitte that the

1996 unqualified audit had been not been amended or revoked. In that regard, the Company

confirmed that the "customer base and accounting practices of YBM did not change materially from

1996 to 1997." The Company said that in an effort to obtain an audit of its 1997 financial results

and a resumption of the trading of its common shares, it was interviewing suitable candidates to act

as a replacement auditor.

176. According to a August 7, 1998 article in The Financial Post, Deloitte

confirmed that it would not appear at the 08C hearing scheduled for August JO, 1998. According

to the article, the I.LS.-hased Deloitte declined to provide testimony or documents for purposes of

the hearing, but met with the OSC and provided background and other information. The OSC

thereafter rescheduled the start of its hearings to August 19, 1998.

-45-

177. On August 10, 1998, YBM issued a press release, stating that David Peterson

had resigned from the Company's board of directors and that defendant Fisherman had voluntarily

agreed to a suspension from all of his duties. According to the Company, Fisherman's suspension

was part of the process of implementing the Company's response to those issues raised by Canadian

regulators and U.S. authorities. Fisherman remained a member of the board.

178. On August 17, 1998, thc ()SC announced that it was postponing YBM's

August 19, 1998 hearing indefinitely. The hearing had been "adjourned sine die, not to be brought

back on by YBM unless and until YBM has filed with the Commission audited financial

statements."

179. On August 18, 1998, the OSC placed YBM under formal investigation.

According to an article in the August 19, 1998 The Financial Post, OSC chairman David Brown said

the OSC investigation followed as a result of "serious public allegations" made against YRM.

Brown further stated that the OSC had not decided whether it would seek a subpoena forcing

Deloitte to hand over documents "explaining its decision to quit as YBM's auditors without signing

the 1997 financial statement."

180. According to a news article published in the August 21, 1998 edition of The

Globe and Mail, two Toronto law firms, both of whom provided legal services to YBM, announced

that they would no longer represent YBM. Neither provided a reason for their resignations

181. On September 22, 1998, the Company's board of directors was reconstituted.

The new board consisted of defendants Bogatin and Mitchell, plus Gordon MacDougall, Wesley

Voorheis, and Stephen Coxford. On September 24, 1998, the Company announced that Wesley

Voorheis had been named the new Chairman of the Board of Directors.

-46-

182. On December 8, 1998, the Company confirmed the worst fears of its

shareholders -- its businesses are hopelessly mired in criminal conduct, its commercial activities are

impossible to audit and verify, and its common stock will almost certainly never trade again.

According to the Company, there is "good reason" to believe that the U.S. Attorney's Office will

marshal credible evidence of criminal wrongdoing and that the Company will not be able to defend

a criminal indictment As a result, the current board of directors has resigned and requested that The

firm of Ernst Se. Young be appointed as "receiver and manager" of YBM's assets and property.

183. The Company also announced that through the services of Miller, Tate & Co.

("Miller Tate"), a Philadelphia-based forensic accounting firm, it had confirmed that supporting

documentation does not exist for critical aspects of YBM's purported businesses. For example,

Miller Tate was unable to substantiate YBM's geographical segmentation data for its sales revenues

with respect to either of the audited financial statements performed in 1996 by defendants Deloitte

and Parente. Likewise, Miller Tate was unable to confirm the existence of purchases and resales of

neodymium magnets for the years 1996 and 1997 or the purchase and safe of dicscl oil for the years

1996 and 1997. On the basis of these and other findings by Miller Tate, the YBM directors

understandably questioned the accuracy of YBM's prior financial results for the years ended

December 31, 1996 and 1997.

184. In concluding the Company's December 8, 1998 announcement, the Board

stated its belief that YBM shareholders now face a bleak fate. There is no 'reasonable prospect,"

said the Board, of shareholders ever being able to sell their YBM shares, Shareholders also cannot

expect to liquidate their investment through a distribution from YBM, since the Company expects

"severe" financial penalties which could "deprive YBM of substantially all of its assets."

-47-

FIRST CLAIM(Violations of Section 10(h) oLthe Exchange Act

aruiRule 106-5 Promulgated_There_under Against all Defendants)

185. Plaintiff repeats and realleges the allegations set forth above as though fully

set forth herein. This claim is asserted against all defendants.

186. During the Class Period, defendants, and each of them, carried out a plan,

scheme and course of conduct which was intended to and, throughout the Class Period, did: (i)

deceive the investing public, including plaintiff and other Class members, as alleged herein; (ii)

artificially inflate and maintain the market prices of YBM common stock; and (iii) cause plaintiff

and other members of the Class to purchase YBM common stock at artificially inflated prices. In

furtherance of this unlawful scheme, plan and Course of conduct, defendants, and each of them, took

the actions set forth herein.

187. Defendants employed devices, schemes, and artifices to defraud; made untrue

statements of material fact and/or omitted to state material facts necessary to make the statements

not misleading; and engaged in acts, practices, and a course of business which operated as a fraud

and deceit upon the purchasers of the Company's securities in an effort to maintain artificially high

market prices for YBM common stock, in violation of Section 10(b) of the Exchange Act and Rule

10b-5. All defendants are sued as primary participants in the wrongful and illegal conduct charged

herein.

188. In addition to the duties of full disclosure imposed on defendants as a result

of their making of affirmative statements and reporis, or participation in the making of affirmative

statements and reports to the investing public, all defendants had a duty to promptly disseminate

tnnhful information that would be material to investors in compliance with the integrated disclosure

provisions of the SEC as embodied in SEC Regulation S-X (17 C.F.R. § 210.01 et seq.) and S-K (17

-48-

§ 229.10 ct seq.) and other SEC regulations, including accurate and truthful information with

respect to the Company's operations and performance so that the market prices of the Company's

publicly traded securities would be based on truthful, complete, and accurate information.

189. Defendants, individually and in concert, directly and indirectly, by the use of

means or instrumentalities of interstate commerce and/or of the mails, engaged and participated in

a continuous course of conduct to conceal adverse material information about the business,

resources, properties, business practices, finances, financial condition, performance, operations,

value and future prospects of YBM as specified herein. Defendants employed devices, schemes and

artifices to defraud, while in possession of material adverse non-public information and engaged in

acts, practices, and a course of conduct as alleged herein in an effort to assure investors of YBM's

value and performance and continued substantial growth, which included the making of, or the

participation in the making of, untrue statements of material facts and omitting to state material facts

necessary in order to make the statements made about YBM and its business, resources, properties,

operations and future prospects, in the light of the circumstances under which they were made, not

misleading, as set forth more particularly herein, and engaged in transactions, practices, and a course

of business which operated as a fraud and deceit upon the purchasers of YBM COMMOD st ock during

the Class Period.

190. Each of the Insider Defendants' primary liability, and controlling person

liability, arises from the following facts: (i) each of the Insider Defendants was a high-level

executive and/or director of the Company during the Class Period and/or was a member of the

Company's se-Mar management; (ii) each of the Insider Defendants, by virtue of his/her

responsibilities and activities as a senior executive officer and/or director of the Company, was privy

to and participated in the preparation of the Company's financial statements and reporting of the

-49-

Company's financial condition, operations and performance; (iii) the Insider Defendants ertioycd

significant personal contact and familiarity with each other and were advised of and had access to

other members of the Company's management team, internal reports, and other data and information

about the Company's resources at all relevant times; and (iv) the Insider Defendants were aware of

the Company's dissemination of information to the investing public which they knew or recklessly

disregarded was materially false and misleading.

191. Defendants had actual knowledge of the misrepresentations and omissions of

material facts set forth herein, or acted with reckless disregard for the truth in that they failed to

ascertain and to disclose such facts, even though such facts were available to them. Defendants'

material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose

and effect of concealing YHM's true operating condition, resources, properties, finances, business

practices, value, and future business prospects from the investing public and supporting the

artificially inflated price of its stock. As demonstrated by defendants' misstatements of the

Company's business, resources, and finances throughout the Class Period, defendants, if they did

not have actual knowledge of the misrepresentations and emissions alleged, were reckless in failing

to obtain such knowledge by deliberately refraining from taking steps to discover whether those

statements were false or misleading. Deloitte knew, or recklessly failed to know that YBM's

financial statements contained materially false representations, including representations of revenue,

earnings, and earnings per share, but nonetheless rendered an unqualified opinion on those financial

statements.

192. As a result of the dissemination of the materially false and misleading

information and failure to disclose material facts, as set forth above, the market price of Y

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193. common stock was artificially inflated at all relevant times. In ignorance of

the fact that the market price of YBM common stock was artificially inflated, arid relying directly

or indirectly on the false and misleading statements made by defendants, or upon the integrity of the

market in which YBM common stock trades, and the truth of any representations made to

appropriate agencies as to the investing public, at the times at which any statements were made,

and/or on the absence of material adverse information that was known to or recklessly disregarded

by defendants but not disclosed in public statements by defendants during the Class Period, plaintiff

and the other members of the Class acquired YBM common stock during the Class Period at

artificially high prices and were damaged thereby.

194. At the time of said misrepresentations and omissions, plaintiff and other

members of the Class were ignorant of their falsity, and believed them to be true. Had plaintiff and

the other members of the Class and the marketplace known of the time business practices, properties,

and prospects of YBM, which were not disclosed by defendants, plaintiff and other members of the

Class would not have purchased or otherwise acquired their YBM common stock during the Class

Period, or, if they had acquired such common stuck during the Class Period, they would not have

done so at the artificially inflated prices which they paid.

195. By virtue of the foregoing, defendants have violated Section 10(b) of the

Exchange Act, and Rule I Ob-5 promulgated thereunder.

196. As a direct and proximate result of defendants' wrongful conduct, plaintiff

and the other members of the Class suffered damages in connection with their purchases of the

Company's securities during the Class Period.

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SECOND CLAM

(Ear Vio/ation_of Seotion_2_0(a) of Ihe_Exchange ActAgainst the Insider Defendants)

197. Plaintiffrepeats and realleges the allegations set forth above as if set forth fully

herein. This claim is asserted against the Insider Defendants.

- 198. The Insider Defendants acted as controlling persons of YBM within the

meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level

positions, participation in, or awareness of the Company's operations or intimate knowledge of the

Company's financial condition, products, and the actual progress of its development and marketing

efforts, the Insider Defendants had the power to influence and control and did influence and control,

directly or indirectly, the decision-making of the Company, including the content and dissemination

of the various statements which plaintiff contends are false and misleading. Each of the Insider

Defendants was provided with or had unlimited access to copies of the Company's reports, press

releases, public filings, and other statements alleged by plaintiff to be misleading prior to or shortly

after these statements were issued and had the ability to prevent the issuance of the statements or

cause them to be corrected.

199. In particular, each of the Insider Defendants had direct involvement in the day-

to-day operations of the Company and, therefore, is presumed to have had the power to control or

influence the particular transactions giving rise to the securities violations as alleged herein, and

exercised the same.

200. Pursuant to Section 20(a) of dic.- Exchange Act, by virtue of their positions as

controlling persons, the Insider Defendants are liable jointly and severally with and to the same extent

as the Company for the its violations of Section 10(b) of the Exchange Act and Rule lOn-S

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promulgated thereunder. As a direct and proximate result of defendants' wrongful conduct, plaintiff

and other members of the Class suffered damages in connection with their purchases of the

Company's securities during the Class Period.

THEREFORE, plaintiff prays for relief and judgment, as follows:-

i) Determining that this action is a proper class action and certifying plaintiff as

class representative under Rule 23 of the Federal Rules of Civil Procedure and approving his counsel

as Lead Counsel;

ii) Awarding compensatory damages in favor of plaintiff and the other Class

members against all defendants, jointly and severally, for all damages sustained as a result of

defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;

iii) Awarding plaintiff and the Class their reasonable costs and expenses incurred

in this action, including counsel fees and expert fees; and

iv) Such other and further relief as the Court may deem just and proper.

Dated: December 11, 1998 Respectfully submitted,

MILBERG WEISS BERSHADHYNF.S 8.E LERACH

By:c---X-2.A..-4..' ,... C' C-01,L,—___14G

)ft-Steven . SchulmanMichael C. SpenserPeter A. LennonOne Pennsylvania PlazaNew York, NY 10119Telephone: 212-594-5300

-and-

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BARRACK, RODOS & BACINE

By:Leonard BarrackGerald J. RadosSamuel R. Simon3300 Two Commerce Square2001 Market StreetPhiladelphia, PA 19103Telephone: 215-963-0600

-and

YETTER & WARDEN, L.L.P.

By: \)----\7)(,„„klatgr, I Gj

R. Paul Yetter600 Travis. Suite 3800Houston, Texas 77002Telephone: (713) 238-2000

ATTORNEYS FOR PLAINTIFF

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