Today's Junk Lawsuit: CMKM Diamond Bagholders Demand Trillions

This is the kind of thing that gives shareholder lawsuits a bad name. Bagholders of the CMKM Diamonds stock fraud, as is their wont, are venting their justifiable rage not at the company's former management, the subject of an indictment, but at the SEC.

Instead of picketing or slinging mud in anonymous, loony emails, they just filed a class action suit against the SEC in California. The text of the suit can be found here. They want "3.87 Trillion Dollars."

The crux of the complaint, as best as I can understand it, is this:

32. At some date prior to June 1, 2004 the Securities and Exchange Commission in concert with the Department of Justice of the United States, together combined with Robert A. Maheu and others to utilize CMKM Diamonds, Inc. for the purpose of trapping a number of widely disbursed entities and persons who were believed to be engaged in naked short selling of CMKM Diamonds Inc. stock and cellar boxing the company.

The Securities and Exchange Commission and the Department of Justice, with assistance from the Department of Homeland Security, believed and developed evidence that said short sellers were utilizing their activities to illegally launder moneys, wrongfully export moneys, avoid payment of taxes, and to support foreign terrorist operations. To fulfill the plan to criminally trap such wrongdoers, the Securities and Exchange Commission, with assistance from the Departments of Justice and Homeland Security:

(a) Assisted in and approved the retention of Roger Glenn, an ex-SEC trial attorney and drafter of Sarbanes-Oxley, to join CMKM Diamonds Inc. for the purpose of verifying claims value, increasing authorized shares of stock to 800,000,000,000, and supervising from the inside of the company;

(b) Encouraged the company to expand its promotional activities, assisted in the set up of the “racing activities” of the company, and underwrote a substantial portion of the cost of such activities;

(c) Consented to, facilitated, and supported the sale of certain company claims to several foreign corporations;

In fact, and even some of the naked shorting types themselves admit this, the company was just a big fraud, was not a subject of "naked shorting."

I agree that there's plenty of blame to go around, particularly the failure of the Bush Administration's Justice Department to pursue an indictment. But the main responsibility, apart from the company itself, lies with the naked shorting conspiracy nutcases, many of whom were shareholders who were just too dumb or dishonest to see what was really going on.

However, I do like the idea of transferring the assets of the government over to the CMKM nutcases, as is demanded in this suit. They can junk all the B-1 bombers and ICBMs, deploying the proceeds into Overstock.com Call Options, and turn Governors Island into a Baloney Theme Park.

At Mount Rushmore, we can lose Washington, Lincoln and Roosevelt and replace them with Wacky Patty Byrne, Richard Altomare and Urban Casavant.

We could even change the name of the country. Suggestions welcome.

UPDATE: The comments to this item are classic, and I let them all go through rather than exercise editorial judgment, as I usually do in such situations. I thought I thought one (no, not the pizza delivery boy one), made some good points.

© 2010 Gary Weiss. All rights reserved.