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PDFLithium Corporation (OTC: LTUM.OB) sure looks a whole lot prettier in paid tout sheets than it does in its regulatory filings.
In recent months, stock promoters have treated LTUM – a company with no revenue and just $855 in the bank – like a surefire winner that’s poised to supply giant automakers with the lithium they will need to power tomorrow’s battery-operated cars. The promoters offer similar reasons for their incredible confidence, led by soaring demand for lithium and LTUM’s ready access to lithium mines, while carefully excluding their compensation for touting the stock from its list of key attractions.
To some, however, even LTUM’s most “legitimate” selling points look suspect. They point to a recent article in The New York Times, entitled “The Lithium Chase,” as evidence.
For starters, the Times noted, industry experts have dismissed the popular theory that current lithium demand exceeds available supply. In fact, the Times said, lithium prices have actually fallen 20% below their five-year average in recent months. Moreover, the Times said, few mainstream analysts view Nevada -- where LTUM leases its mines -- as a promising area for large-scale lithium production.
“There are a lot of people throwing money into this,” an industry consultant told the newspaper. “And a lot of people are going to lose their money” in the end.
For now, at least, investors continue to place big bets on some high-risk lithium stocks. Less than a year after transforming itself into a lithium company – and opening at less than a penny under its brand-new trading symbol – LTUM now commands $1.25 a share. As a result, it now boasts a lofty market value of $75.7 million despite its lack of revenue and its troubling connections to some dubious penny stocks.
American Lithium Minerals (OTC: AMLM.OB), which leases lithium mines that resemble LTUM’s own, enjoyed asimilar run last year. The stock, which began trading at 31 cents a share in May of last year, more than tripled in just four short months.
After stock promoters began touting the company last fall – picking up an estimated $1.8 million for their services – AMLM rapidly soared toward $3 a share. The stock has since lost roughly two-thirds of its value, however, falling from $2.99 in late October to $1.02 this week. Even so, AMLM still sports a market capitalization of $51.5 million that – based on the company’s lack of revenue – looks quite generous to some.
Meanwhile, yet another lithium penny stock is still chasing similar gains. Li3 Energy (OTC: LIEG.OB) began trading in November at 45 cents a share and more than doubled – reaching the coveted $1 mark – over the course of the next two months. Despite increasingly expensive promotions, however, LIEG has since fallen back below $1 and now trades for just 68 cents a share.
As a result, LIEG now sports the lowest share price of the group. Ironically, when LIEG still fetched around $1 earlier this year, one big-name mining analyst -- Fox News commentator David Morgan – portrayed LIEG as the safest lithium pick in the entire penny stock crowd.
“As lithium demand continues to soar, companies have been coming out of the woodwork, operating on a wing and a prayer, just dreaming about making a big lithium discovery,” he wrote in “The Morgan Report” back in February. “I fear those dreams will turn to nightmares for many investors, which is why I made sure Li3 Energy was the real deal before I began recommending it.”
According to a fine-print disclaimer, a third party also paid $13,800 to cover the costs associated with creating and distributing Morgan’s LIEG report. In a recent interview with The Street Sweeper, Morgan said that he personally received no money for the recommendation – and owns no stock in LIEG yet – although he hopes to benefit through increased exposure and new opportunities down the road.
Meanwhile, other stock promoters have already pocketed huge sums for touting competing lithium penny stocks. They have embraced LTUM in particular, picking up millions of dollars in cash along the way.
Born Again
LTUM originally launched operations as Utalk Communications, promising to offer telephone call-back services, several years ago.
After its original business plan failed, the company arranged to lease some lithium mines owned by a Nevada family – which has since leased similar mines to AMLM – and quickly followed up by adopting its current name and trading symbol during the second half of last year. It also relocated its headquarters to a Reno office building that’s housed some rather suspicious tenants – including a recent target of government prosecutors – and hired a law partner who counts several troubling penny-stock outfits, such as Americas Energy Company (OTC: AENY.OB), among his clients.
Calls to LTUM from The Street Sweeper went unanswered on Wednesday.
According to its regulatory filings, LTUM pays $199 a month to lease an office on the eighth floor of a building located at 200 S. Virginia St. in Reno. Several other microcap companies – including Adtomize, ESL Teachers (another new mining venture) and NetVentory Solutions – list the very same address. Their stocks barely trade, if they trade at all.
Apex Closing Services/Apex Professionals, a firm that supposedly repurchases timeshare leases, used to claim the same address as well. After state prosecutors sanctioned Apex for allegedly scamming timeshare owners last year, however, the firm suddenly announced that it had relocated to Wyoming because of its “exceedingly business-friendly environment.”
According to the Better Business Bureau, Apex never actually maintained a physical presence in the Reno office complex at all. Rather, the BBB noted, Apex simply operated a so-called “virtual office” from the location instead.
Meanwhile, LTUM has retained a law firm that’s linked to some questionable microcap companies. In a recent regulatory filing, LTUM identified Vancouver-based Macdonald Tuskey – where Gerald R. Tuskey ranks as a named partner – as special counsel to the company. A longtime figure in the murky world of penny stocks, Tuskey doubles asoutside counsel for AENY – a dubious mining venture that’s lost half its value in recent months – and has surfaced as a major player at similar outfits over the past decade as well.
Outside of promotional newsletters, LTUM looks like an unlikely stock-market winner. According to its latest quarterly report, LTUM has generated “nil” revenue since its inception while investing little – including $412 for a cheap website – to bolster its operations. In fact, that filing indicates, LTUM would need to sell almost $500,000 worth of stock simply to cover its routine business expenses for another year.
Nevertheless, stock promoters have managed to pocket huge payouts for touting this cash-poor company. Less than two months after LTUM issued its dismal quarterly update, for example, “The Small Cap Investor” scored $478,000 – enough to cover LTUM’s estimated expenses this year – for its bullish recommendation of the stock. Since then, several other promoters have collected six-figure paychecks for touting the stock as well.
Based on a fine-print disclaimer, the so-called “Intelligent Investor Report” appears to fall into that category. The newsletter, published by California stock promoter Jarret Wollstein, predicted that LTUM could jump by 900% over the course of the next year. In recent months, Wollstein has issued similarly enthusiastic projections for several penny stocks – including AENY, Jayhawk Energy (OTC: JYHW.OB) and NXT Nutritionals (OTC: NXTH.OB) – that have plunged in value following close scrutiny by The Street Sweeper and other skeptics.
This time around, however, James Rapholz – identified in press reports as a past target of securities regulators – may rank as the loudest promoter of all.
Disaster Zone
Rapholz first ran into trouble in the mid-1980s, a Florida newspaper indicates, when he raised almost $900,000 for a penny stock mutual fund without securing permission from regulators first. At the time, the newspaper said, the U.S. Securities and Exchange Commission responded by ordering Rapholz to return the funds to investors and briefly suspending his professional license.
In 1991, the South Florida Business Journal revealed, the SEC cracked down on Rapholz much harder. This time, the newspaper reported, the agency banned Rapholz and his firm Economic Advisors from the securities industry for 10 years for allegedly following “a course of business which would and did operate as a fraud or a deceit.”
After that decade ended, Rapholz surfaced with a new business carrying a similar name – “Economic Advice” – that served as a tout sheet for high-risk penny stocks. He has attracted regular media attention for his stock picks since that time.
In October of 2006, for example, The Wall Street Journal took a critical look at Rapholz after he touted Premiere Publishing Group (OTC: PPBL.OB) as “the closest thing (he’d) ever seen to a sure thing” in the stock market. With Premiere trading for around 50 cents a share, the Journal reported, Rapholz confidently predicted that the stock would jump to $5 and deliver investors generous gains. The stock steadily lost ground, however, and now sells for a fraction of a penny a share.
In mid-2007, Dow Jones followed up with a story on another Rapholz tout. This time, Dow Jones noted, Rapholz was promoting Sun Cal Energy (OTC: SCEY.PK) as “a ‘sitting duck’ with a takeover price of at least $90” a share. The stock, which fetched less than $3.50 a share at the time, now trades for just 15 cents on the lowly Pink Sheets.
Less than five months after Dow Jones took aim at Rapholz, The Boston Herald followed suit. In the fall of 2007, theHerald reported, Rapholz named Pure Biofuels (OTC: PBOF.OB) his “energy stock of the year” and predicted that it would jump from $1 to $3.50 by early 2009. With the company itself dismissing such claims, the Herald labeled Pure Biofuels its “Stupid Investment of the Week.” The stock began 2009 at 7 cents a share, missing Rapholz’s bullish target by a long shot, and remains near that price to this day.
The media continued to monitor Rapholz in the meantime, with The Vancouver Sun slamming his promotion of CellCyte Genetics (OTC: CCYG.OB) following a surge in the stock – which gave the company a temporary market value of $450 million – in 2008. Notably, the newspaper pointed out, Rapholz had collected almost $500,000 from a tainted Vancouver stock promoter for issuing “outrageous forecasts” about the company.
Last fall, the SEC filed civil fraud charges against CellCyte and its leaders for allegedly endorsing false publicity about the company. Two years after Rapholz reportedly cashed his six-figure paycheck for touting CellCyte, the stock has long since plummeted from its 2008 highs to just 3 cents a share.
Meanwhile, earlier this year, Rapholz began highlighting LTUM as his next big winner. According to his official disclaimer, a third party paid $300,000 to finance that LTUM promotion.
“I’ve been making subscribers rich for two decades by focusing on stocks of still-undiscovered energy and natural resource companies like Lithium Corp,” Rapholz wrote in his newsletter last month. “And I’m the only major financial newsletter editor who’s actually started TWO mining companies.
“So listen up,” he continued. “LTUM is about to surge.”
After Rapholz first ran into regulatory trouble in the 1980s, Internet records show, he did in fact attempt to launch an unlikely mining venture. Specifically, the Sun Sentinel of Florida reported in 1987, Rapholz sought $500,000 from investors to search for silver on a Colorado claim that had not been mined for decades. Even then, the newspaper noted, early prospectors extracted just 25 ounces of silver and 6.5 ounces of gold – from eight tons of ore – that would be worth a combined $2,800 some 80 years later.
Whether Rapholz successfully launched that particular mining project remains unclear. He did manage to take a silver company public, however, which was deleted from the OTC Bulletin Board as an “inactive issue” in 2006. His other resource company, identified as a gold-mining venture, has mysteriously vanished with little evidence that it ever existed at all.
The Street Sweeper tried to contact Rapholz on Wednesday but could not reach him by telephone.
Kissing Cousins
Meanwhile, AMLM – another lithium company favored by stock promoters – has already seen some of its biggest gains disappear.
AMLM began trading around 30 cents a share last spring and went on to triple over the course of the next four months. By the time that promotional websites began aggressively touting AMLM in September, the stock had already climbed above $1 a share.
Between Sept. 10 and Oct. 12, StockPromoters.com figures show, those websites collected more than $1.5 million for recommending AMLM’s shares. Lifted by those touts, AMLM rallied hard and ultimately peaked on Oct. 22 near $3 a share.
With AMLM reversing course in the weeks that followed, however, Dow Jones decided to take a hard look at the company – and its ties to BG Capital founder Bobby Genovese – in early November. Notably, Dow Jones pointed out, AMLM had hired two BG Capital associates to help run its operations and listed a phone number in its regulatory filings that appeared to belong to BG Capital itself. In the past, Dow Jones cautioned, BG Capital has displayed “a knack for acquiring big stock positions in struggling companies on the cheap and securing large fees for its consulting services” in deals to that tended to be highly dilutive for ordinary shareholders.
To illustrate, Dow Jones highlighted BG Capital’s past involvement in two companies -- Spectrum Sciences and Software and Clearly Canadian Beverages (OTC: CCBEF.PK) – as examples. In the first case, Dow Jones stated, BG Capital wound up paying $3.25 million to settle a lawsuit filed by a Spectrum shareholder who lost money on the company’s stock. In the second, Dow Jones added, BG Capital achieved only fleeting gains on its “turnaround” of Clearly Canadian – despite hype from a TV reality show – before the stock crashed to its current 6-cent range.
Prior to launching BG Capital, Internet records show, Genovese worked as a Vancouver stock promoter who embraced several other doomed companies as well. Nevertheless, The New York Times revealed in 2005, Genovese himself enjoys the life of a multimillionaire. At the time, the newspaper noted, Genovese owned a $7.5 million summer “cottage” on the Muskoka shoreline near Toronto – a favorite haunt of Hollywood celebrities – along with a place in the Bahamas and 10 other residences.
Meanwhile, investors who purchased AMLM near its $2.99 peak have suffered massive losses. The stock closed at just 51 cents a share on the first trading day of this year, although it has climbed back above the $1 mark since that time. Even though AMLM has secured access to lithium mines near those that have fueled LTUM’s share price, however, the stock has failed to stage a full comeback.
Neither AMLM nor BG Capital returned phone calls from The Street Sweeper seeking comments for this story.
Third Wheel
By now, a few stock promoters have already moved on to LIEG as their next big lithium pick. Morgan, the commentator for Fox News, helped kick off the campaign last month by portraying LIEG as a “potential $1 billion-plus big-time player” in the lithium arena. He tried to separate LIEG from the pack by pointing to the company’s balance sheet – which actually shows more than $3 million in cash – and its “rock-solid” management team.
Morgan praised LIEG CEO Luis Saenz in particular by highlighting his past experience in the investment-banking and metals-trading industries. He overlooked Saenz’s more recent jobs, however, including his leadership posts at two other microcap mining companies – Genco Resources (OTC: GGCRF.PK) and Loreto Resources (OTC: LRTC.OB) – that are still hunting for success.
According to regulatory filings, in fact, Saenz still serves as CEO of the latter company. Moreover, he made big promises at LRTC that sound eerily similar to the claims he has since made as the leader of LIEG.
When announcing a private placement for LRTC in September of 2008, for example, Saenz stated the following: “This financing represents the first, very small, sign to our investors that we have begun operations. Over the next few months, we will be investigating possible corporate property acquisitions and joint-venture opportunities, and we are optimistic that we will soon be in a position to complete our first transaction.”
When assuming the top post at LIEG as the stock began trading last November, Saenz said almost the very same thing.Specifically, he stated: “These corporate actions represent the first steps in our new operations and will aid us in our focus to identify corporate and/or property acquisitions and joint-venture opportunities … We are optimistic that soon we will be in the position to announce and complete our first transaction.”
For LRTC, at least, those predictions never came true. In a January regulatory filing, LRTC disclosed that it had abandoned a mining plan in Peru and begun searching for other opportunities. The company’s stock, which appears to be stuck at 50 cents a share, has not traded since that time.
In contrast, interest in LIEG has remained quite strong. During its brief four-month life, LIEG has enjoyed healthy volume – with more than 1 million shares changing hands on some days – but no lasting strength in its stock price. Although LIEG topped $1 on early publicity, the stock has since lost one-third of its value and hovers well below the lofty targets (of $2.50 to $8.90 a share) established by Morgan a couple of months ago.
In an interview this week, Morgan said that he feels somewhat concerned that LIEG has been underperforming other lithium penny stocks that seem to carry more risks. He continued to express confidence in LIEG, however, while admitting that he has made some mistakes in the past.
“I always say that serious money goes into serious companies” with solid balance sheets and complete financial reports, Morgan stressed. Still, “everyone loves to speculate … I try to find value, but that can be tough.
“I’ve made some really good calls,” he added. “But I’ve made some boo-boos, too.”
* To contact Melissa Davis, the author of this story, please send an email to editor@thestreetsweeper.org.
