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March 4, 2004

Reno, Nev. -  A Las Vegas resident and her business partner who allegedly got people to invest in a corporation that they touted had developed a process to extract gold from volcanic cinder ore, have been indicted by a federal grand jury, announced Daniel G. Bogden, United States Attorney for the District of Nevada. DIANA LEE FLAHERTY, age 55, of Las Vegas, and MICHAEL GARDINER, age 45, formerly of Las Vegas, but now a resident of San Diego, were indicted on Tuesday, March 2, 2004, and charged with one count of Conspiracy to Commit Securities Fraud and one count of Securities Fraud, both felonies. The Indictment was sealed until today to permit law enforcement officers to execute arrest warrants. If convicted, they are facing up to five years imprisonment and a fine of up to $250,000 on the Conspiracy count, and up to 20 years imprisonment and a fine of up to $5,000,000 on the Securities Fraud count.

The Indictment alleges that beginning in June 1993, DIANA LEE FLAHERTY and her now-deceased husband, Robert F. Flaherty, controlled and managed a Nevada corporation called Phoenix Metals U.S.A. II, Inc.(Phoenix Metals). MICHAEL GARDINER was a business associate of Robert and DIANA FLAHERTY and shareholder in Phoenix Metals.

In 1996, Robert and DIANA FLAHERTY acquired a mill site claim and refining equipment on public lands near Searchlight, Nevada. They referred to the site as the "Black Mountain Refinery".

According to the Indictment, DIANA LEE FLAHERTY, Robert F. Flaherty, and MICHAEL GARDINER devised a scheme to make themselves rich by fraudulently promoting and selling stock in Phoenix Metals, which was publically traded on the Over-The-Counter (OTC) Bulletin Board under the symbol PMTU. They convinced investors to purchase stock in Phoenix Metals by claiming that the company owned a proprietary process that could extract gold and other precious metals from volcanic cinder ore.

They communicated these claims to potential investors by distributing promotional materials and retaining a public relations firm, and by contracting with financial investment writers to publish favorable articles about Phoenix Metals. Among other things, the defendants asserted that Phoenix Metals had more gold reserves than any gold producer in the United States, and that it had acquired control of at least 17 volcanic cinder cones, three of which were estimated to hold recoverable gold reserves worth twenty-five billion dollars.

In September 1997, the Securities and Exchange Commission brought a civil suit against Robert F. Flaherty and Phoenix Metals alleging essentially the same fraudulent conduct as in the Indictment. In January 1998, a Judgment was entered against Robert F. Flaherty and Phoenix Metals permanently restraining them from making false statements and engaging in fraudulent business practices regarding the sale of securities.

Despite the entry of this judgment, Robert F. Flaherty and DIANA LEE FLAHERTY are alleged to have continued to promote and sell the stock of Phoenix Metals. Throughout 1998, they published press releases purporting that gold, platinum and other precious metals had been recovered at Black Mountain, and in March 1998, they hosted a "Grand Opening" of the Black Mountain Refinery and disseminated financial statements representing that Phoenix Metal's assets were valued at almost three billion dollars. The indictment alleges that in fact, Phoenix Metals never commercially produced or economically extracted gold, silver, platinum, or other precious metals at the Searchlight refinery, and never produced gold from volcanic cinders, nor had the capability to do such.

Beginning in March 1998, the BLM began investigating whether Phoenix Metals was using the public lands for purposes consistent with the mill site claim. In August 2001, following a lengthy administrative process, the U.S. Department of Interior found that Phoenix Metal's mill site claim should be revoked because their purported technique for extracting precious metals from volcanic cinders had no scientific or technological validity and the cinders contained no valuable mineral content.

Robert Flaherty died in December 2001, and despite the corporation's expulsion from public lands and its inability to extract or produce precious metals, DIANA LEE FLAHERTY and MICHAEL GARDINER perpetuated the "gold from cinders" scheme and continued to make misrepresentations for the purposes of promoting and selling shares of Phoenix Metals' stock through at least January 2002.

Defendant FLAHERTY is alleged to have used funds belonging to the corporation for her own personal purposes, which included making car payments to Jaguar Credit Corporation and to the mortgage company for her residence at 2816 Coast Line Court in the Lakes Estates in Las Vegas.

DIANA FLAHERTY was arrested at her home in Las Vegas on Wednesday, March 3, 2004. She appeared in court at 3:00 p.m. today for an Initial Appearance and Arraignment before United States Magistrate Judge Peggy A. Leen, and was ordered temporarily detained pending a detention hearing. An arrest warrant for MICHAEL GARDINER is outstanding.

It is estimated that numerous persons from Nevada fell victim to the defendant's alleged scheme. Any individuals who believe they may have been victims of this alleged scheme are asked to contact FBI Special Agent David Nanz at (702) 385-1281.

This case is being investigated by Special Agents with the Federal Bureau of Investigation and the Bureau of Land Management, and is being prosecuted by Assistant United States Attorney Timothy S. Vasquez.

The public is reminded that an indictment contains only charges and is not evidence of guilt. The defendants are presumed innocent and entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

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