08/16/2012 09:00 am ET Updated Aug 16, 2012

Dean Heller, Shelley Berkley Spar Over Diamond Scam

WASHINGTON -- Sen. Dean Heller (R-Nev.) probably never thought driving a pal's race car in 2004 could prove a campaign liability. But the joyride seems to have sparked the latest attack in Nevada's Senate race, in the form of a TV ad from his Democratic opponent, Rep. Shelley Berkley.

The spot, released late last week and roundly condemned by the Heller campaign, features Heller -- who was Nevada's secretary of state before moving to Congress in 2007 -- boasting of the job he did cracking down on fraud. It then notes that a diamond mine company allegedly carried out a $64 million fraud scheme under Heller's watch, and that Heller got a campaign donation from one of the players.

The company was called CMKM Diamonds Inc., and was found liable for selling some 800 billion shares of stock for fractions of a penny each -- nearly all of them unregistered and ultimately worthless. The firm's founder, Urban Casavant, and nine others ended up getting indicted in 2009 and 2010 by a federal grand jury in Nevada. Casavant, from Canada, is now a fugitive, the FBI said. Others also are fugitives; at least one was overseas, fighting extradition. The trial is set for January.

CMKM Diamonds, which had claimed to be digging for gems in Canada's Saskatchewan province, was also known as CMKX, the sponsor of the CMKXtreme racing series.

That's where Heller's race car ride comes in. On Oct. 30, 2004, as Heller's campaign explained it, Heller took the opportunity offered by an acquaintance, Matt Daly, to drive in the ASA Speed Truck Challenge at the Las Vegas Motor Speedway's “Bullring.” Heller, an experienced racer, knew Daly from the circuit in Northern Nevada.

The event was sponsored by CMKX, which also had its logo on Daly's cars and reportedly invested heavily in Daly's "Go Fast" racing and sports drink companies. CMKM used its race sponsorships to build credibility and left thousands of NASCAR fans with worthless investments, according to federal documents. Heller knew nothing of CMKM, his campaign said, and was simply at the race to "have fun" driving his friend's car, according to an interview he gave at the time.

But by the time Heller drove in CMKM's race, the firm, which registered in Nevada in 2002, was attracting the attention of authorities and was the subject of intense debate in online investor forums. One stock analysis site, the StockPatrol.com, was raising questions, some of them directed at Heller's office. Such questions are apparently routinely handled by staffers, although Stock Patrol reported the office was swamped with requests about the company.

Just four days before Heller had his Vegas racing debut, Canadian officials suspended trading of CMKM.

There is no indication that Heller was aware of the furor around the company. Though Heller had long sought to beef up his office's role in policing securities, such investigations are generally handled by the state attorney general. Corporate registrations in Nevada also number in the tens of thousands every year, and are handled almost automatically.

Still, the company was trading billions of shares a day, and blasted out press releases touting Heller's participation in the race. Some saw that as proof that the company was legit. Others, including Heller opponents, eventually saw it as possible evidence that Heller wasn't doing his job. Heller, according to his campaign, knew nothing about CMKM and never heard that his name was being used to promote the company.

"Dean Heller had absolutely no idea about these materials until this nonsense was being shopped around to reporters by Democratic operatives," the campaign said in a statement. "If he had, as soon as he had found out, he would have immediately asked for a cease and desist."

That wasn't the only brush Heller had with CMKM. After the U.S. Securities Exchange Commission began investigating the firm -- suspending its trading in March 2005 -- Heller scheduled a meeting in April with Urban Casavant at a Vegas hotel, listing it on his calendar as a meeting with "Urban."

Heller's campaign said neither the former secretary nor four members of his staff could recall the meeting or Casavant.

However, according to court records from the SEC case against CMKM, a lawyer for the company, Don Stoecklein, does recall a sit-down Heller held with Casavant and several others, including Bob Maheu, a Nevada legend who once served as Howard Hughes' right-hand man and had recently joined the board of CMKM.

They were looking for help sorting out the complicated issue of who actually owned the company and the billions of stock shares that were sold under the Nevada registration. According Stoecklein's sworn deposition, Heller declined to offer any advice to Casavant, saying "the problem may be far greater than the state wanted to get involved in at that point."

Stoecklein also said Heller did not know Casavant.

It is unclear whether the hotel meeting and the meeting with Maheu, Casavant, Stoecklein and at least one other person are the same, or two separate encounters.

"While Dean Heller does not remember this meeting, court transcripts show that Dean Heller did not have a relationship with the individual in question," Heller's campaign said. "Senator Heller was never contacted or questioned during the SEC investigation because he had no involvement or relationship with the company."

The Berkley campaign's ad points out one more connection -- $4,200 in contributions given to Heller in June 2005 by a man named Rendal Williams, who ran a company called U.S. Canadian Minerals Inc. Berkley's ad calls him a co-conspirator, although Williams was not indicted. His firm was mentioned in great detail in the indictment, however, which alleged it was a "shell" for CMKM that before January 2004 had been known as E-Bait Inc.

The indictment was not filed, however, until nearly four years after the contributions, and Heller's camp was especially angered by the co-conspirator line.

"Obviously, Shelley Berkley’s lies about Medicare are not working, so now she is inventing new ones," said Heller spokeswoman Chandler Smith in a statement. "Congresswoman Berkley is a desperate politician whose ambitions are being destroyed by her own ethics problems. This is a story that Shelley Berkley has been trying to sell to reporters for months, but no one would buy it because there were no facts to support her allegations. So now she has resorted to running a blatantly false negative attack in a desperate attempt to create more fiction."

Berkley herself is embroiled in an ethics probe, and some observers beyond the Heller campaign see her ad as attempt to tar Heller, a Mormon who teaches Sunday school, with ethics issues.

Noted Nevada political scribe Jon Ralston saw the issue in a similar light, hammering a fellow columnist at his paper for taking the charges seriously, saying in his morning political email that it was "drawing a still-tenuous connection between Sen. Dean Heller and a fraudster. Really? Because a bad guy invested in a company owned by a guy who Heller raced for, this is a scandal?" He added that the link was "ridiculous."

Though the CMKM probe was big enough that Heller might have known about it, no one pointed to evidence that he actually did. The only person who said he thought Heller should have known is Mark Faulk, a reporter who literally wrote the book on CMKM, and as a result served for a year as the company's CEO during the attempts to clean up the mess in the aftermath of the SEC charges.

"I would agree that it's probably overreaching to say there's evidence that Heller knew about the fraud at CMKM Diamonds. It's not overreaching to say he should have known," Faulk said.

Heller's campaign vehemently disagreed. Regardless, Heller probably wishes he was never photographed racing a souped-up truck with the CMKM logo on it and touted in a press release that could later be used against him.

Michael McAuliff covers Congress and politics for The Huffington Post. Talk to him on Facebook.



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