TheStreetSweeper in the News
- The Wall Street Journal: Northern Oil & Gas Gets a Bear Raid
- The Motley Fool: Northern Oil and Gas Shares Plunged: What You Need to Know
- Barron's: Insider Selling Accelerates at Northern Oil & Gas
- Benzinga: Will Growth Spurt Last for Northern Oil & Gas?
- Benzinga: More Trouble for Northern Oil and Gas
Untangling the Intricate Web Woven by InterOil's CEO
by William Lobdell - 6/22/2010 11:56:12 AM
* Editor’s Note: This article has been republished with the permission of iBusiness Reporting. Click here for access to the original story, complete with graphics of back-up documents, and similar investigative reports.
Since Interoil Corp.’s (NYSE: IOC) inception in 1997, CEO Phil Mulacek has made a habit out of doing business with family members and leaving many of the relationships undisclosed.
For instance, during a three-year period ending in 2005, InterOil paid Direct Employment Services Corp. (DESC) nearly $1.8 million for unspecified "services" provided by "executive officers and senior management." InterOil disclosed that 50% of DESC was owned by Christian Vinson, who was serving at the time as InterOil’s COO and a director of the company.
But InterOil didn't reveal other related-party facts. For starters, Vinson is Mulacek's brother-in-law. Vinson, who has been with InterOil from the beginning, now serves as InterOil’s executive vice president of corporate development and government affairs, a role that places him in charge of dealing with Papua New Guinea's corrupt government.
Was it nepotism or experience that landed Vinson the executive and director positions of an oil-and-gas exploration company? His previous job was manager of a modest, automated machine shop in suburban Chicago.
In addition, InterOil failed to disclose that (according to Texas corporate filings) Mulacek's brother, Pierre Mulacek, was DESC's vice president and director for the three years InterOil spent $1.8 million with DESC.
Moreover, in company filings, DECS listed its headquarters in the same building as InterOil's corporate headquarters outside of Houston.
The connections don’t end there. In 2005, when Pierre Mulacek served as DESC vice president and director, InterOil purchased DESC for $1,000. Meanwhile, two former DESC executives went on to land top posts at InterOil. Bill Jasper, previously a vice president at DESC, now serves as both InterOil’s president and the company’s COO. Another former DESC vice president, Collin Visaggio, has gone on to become InterOil's CFO. On InterOil’s website, however, the biographies of Vinson, Jasper and Visaggio never mention their work at DESC.
Today, InterOil remains in a joint venture with PNG Drilling Ventures Limited, a Barbados company whose ownership is shrouded in secrecy. PNG has the same mailing address as InterOil, according to public filings, and its trustee, lawyer Dale Dossey, was an attorney used by InterOil’s own CEO.
This isn't the first time a basically anonymous investment company used InterOil's mailing address as its own. Eurostar Fund, Ltd. and Biltrust, Ltd. at one time owned significant portions of InterOil stock, according to regulatory filings and court documents.
Both companies listed InterOil's headquarters as their mailing address on shareholder documents. But in a deposition, Mulacek said he had never heard of Eurostar, and he "recalled only that Biltrust, Ltd. might be connected with his grandfather, and that (an attorney his grandfather used) had called him and asked him to sign papers on behalf of Biltrust, Ltd.," according to papers filed by plaintiffs' attorneys in the fraud litigation.
In court documents, the lawyers for many of InterOil's original investors allege that Biltrust and Eurostar were owned and/or controlled by Mulacek's grandfather and used as "instruments to funnel large amounts of publicly tradable stock to Phil Mulacek’s family and friends."
In a recent deposition, Mulacek was asked what he knew about Biltrust.
Q: Are you familiar with a company called Biltrust Limited?
A: It's just -- I think it was on a top 20 shareholder (list for InterOil).
Q: Do you have any knowledge as to who owns Biltrust Limited?
A: No, sir.
Q: And you have never heard of Biltrust Limited other than seeing their name of the --
A: -- No, it was one of the exchanges with CTI (his grandfather's Bahamian company that counted Mulacek as its agent). Make an exchange and that was it.
Q: You mean CTI exchanged some shares with Biltrust?
A: I don't know the exact, but I think so, yes, sir.
Q: Do you -- well, let me take it one step at a time. Do you personally have any direct, indirect, legal, beneficial, any kind of ownership whatsoever in a company called Biltrust Limited?
A: No.
Q: Do you have any right to receive any money from a company called Biltrust Limited?
A: No.
Q: And you have no knowledge whatsoever as to who the owners or the beneficial owners of Biltrust Limited might be.
A: No, it was instructed with (his grandfather's attorney) at the time with -- through -- CTI. That's all I know.
Q: -- So you at least know that Biltrust Limited has some --
A: Yes, sir.
Q: -- connection with CTI.
A: Yes, sir.
Q: But the exact nature, even the general nature of that connection, you have no knowledge.
A: No.
Q: Do you have any idea why on shareholders records that Biltrust's address would be listed as the InterOil offices in The Woodlands (outside of Houston)?
(This portion of Mulacek's deposition contained in court documents ends here.)
InterOil never reported any related-party transactions involving PNG, Eurostar or Biltrust.
Two InterOil-related companies that Mulacek controls -- Petroleum Independent and Exploration Corp. (PIE) and Nikiski Partners -- feature just three officers: Mulacek, his wife Kathleen and his brother Pierre.
This arrangement does make for a certain efficiency. Acting for Nikiski Partners, the trio in December decided after a "10- to 15-minute meeting" to file what a federal judge has ruled was a bad-faith bankruptcy. The move was an attempt to derail fraud litigation against Mulacek and the companies he controls, according to testimony by Kathleen Mulacek, and "secure InterOil stock and to prevent InterOil from going bankrupt" in case of a large judgment.
Mulacek's panache for nepotism can be traced back to the beginnings of InterOil, and has become the subject of amassive fraud lawsuit filed against Mulacek and the companies he controls. (Click here and here for detailed stories).
In 1997, court documents show, a Mulacek-controlled company quietly gave family and friends 226,000 shares of unrestricted InterOil stock for little consideration. The family connection was not reported to initial investors, however, with the ties only later revealed during the discovery phase of fraud litigation.
Specifically, in 1997, InterOil gave 5.1 million shares of stock valued at $15 million to a Bahamian company owned by Mulacek's grandfather and controlled by Mulacek in exchange for a $250,000 piece of equipment allegedly bought by the off-shore company. (The actual buyer of that equipment remains in dispute). The family connection was not reported to initial investors or in filings. Again, most of the initial investors learned of the related-party transaction only recently because of litigation.
The court documents show that those original investors received 1.31 restricted shares of InterOil stock for each $1 invested, while CTI secretly received 20.73 unrestricted shares for every $1 that it invested.
Disclosure: After uncovering information contained in this story, William Lobdell took a short position in InterOil. All facts in Lobdell's InterOil stories have come from public information.
AutoChina: The Worst Chinese Reverse Merger Yet?
One company that has somehow managed to avoid scrutiny until now is AutoChina (NASDAQ: AUTC). However, after a deep dive into AutoChina, The Forensic Factor (TFF) has concluded that AutoChina is potentially the most dangerous Chinese reverse merger that we have examined.
As the AutoChina story gets exposed, we would expect a significant share decline of at least 50% and a material increase in the short interest. (Incredibly, less than 1% of the shares are short -- a true rarity among the Chinese reverse mergers).
TFF believes investors would be prudent to avoid AutoChina at all costs. At the same time, we implore regulators to protect the investing public and launch an investigation into AutoChina.
more...Telestone Technologies: The Great Wall of Deceit
The Forensic Factor first wrote about Telestone on Jan. 11 in a report entitled “Telestone Technologies – A “RINO” in Sheep’s Clothing.” In that report, we identified a myriad of concerns that served as the foundation of our request for the NASDAQ to halt trading in Telestone.
Despite the gravity of the questions we raised, Telestone has failed to address many of our concerns. Further, an investor update call held on Jan. 24 by Telestone management was replete with incriminating commentary that raised more questions than were answered. In this brief follow-up (to be supplemented with a much more comprehensive examination of manufacturing relationships and provincial branches), TFF will highlight these troubling issues:
* A blatant violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 that should provide sufficient ammunition for class-action lawyers and the SEC.
* An accounts receivable balance, and associated DSO level, that defy logic, and arguably GAAP accounting.
* A definitive admission from Telestone management that revenue is indeed being recognized on a percentage-of-completion basis, confirming TFF's suspicion that a restatement is necessary
* Sixteen additional questions that the company failed to address, ranging from: a distributor that was incorporated 15 months AFTER Telestone claims to have started the relationship to an unusual interest-free loan from a related party that represented nearly 50% of the company's cash on Sept. 30 and a history with an entity that appears to have had accounts frozen with large quantities of Telestone stock.
more...The Promoter behind TSTC and Other Chinese Stocks
A Sharesleuth investigation found that Kelley and several equally anonymous partners helped create a string of U.S.-listed Chinese companies, including Telestone Technologies (Nasdaq: TSTC) and Kandi Technologies (Nasdaq:KNDI). Documents show that Kelley and his partners packaged the Chinese companies for reverse mergers with shell companies, paved the way for their listings on U.S. exchanges and promoted their stock afterward. One of the partners even fronted the legal and accounting bills for some of the companies.
In return for their assistance, Kelley and the other participants in the venture got millions of shares of stock at low, pre-market prices. Their roles were not discussed in those companies' SEC filings; nor were their share deals disclosed.
The SEC has taken the position in previous enforcement actions that anyone who is compensated for acting as a finder or facilitator in a reverse-merger transaction must be registered as a broker/dealer. Sharesleuth could not find anyone who participated in Kelley's Chinese deals who met that requirement. In fact, one person who was involved in at least three of the reverse mergers was previously charged by the SEC with violating that rule.
more...Rare Element Resources: Formula for Disaster?
Rare Element is a Canada-based company that owns the Bear Lodge mine located in the northeastern corner of Wyoming. The stock price is up more than 500% since early July and more than 65% in the past three days. With the euphoria of the strong move in RE element stocks, speculators have bought first and asked questions later. We believe Rare Element investors will wish they had conducted more diligence before piling into a company with a potentially worthless plot of land. We believe Rare Element is a heavily promoted stock with questionable management and massive risks to a business plan that, under the rosiest scenario, will not be at full production until 2015 or 2016. By that time, we expect the world could suffer from a glut of RE supplies. As a result, we believe current investors face at least 70% downside from current levels.
more...The Complicated Math Lesson Taught by InterOil
* Editor’s Note: This story has been republished with permission from thefinancialinvestigator.com. To access the original article, complete with links to numerous backup documents, click here.
In the world of finance theory, a company’s credible suggestion that it is being forced to raise cash at exorbitant rates – or that it is valuing its assets sharply below where the market has valued them – traditionally means a death sentence for the company’s stock price. The reasons for this are straightforward enough: Investors hate desperation, but not as much as they hate making an asset play and being wrong on the value of the assets.
Then there is InterOil (NYSE: IOC).
An international oil and gas producer that has been touting a potentially epic find in the wilds of Papua New Guinea for more than a decade, InterOil recently raised cash at exorbitant rates and appears to be internally valuing its assets well below what the market appears to think they are worth. Yet all is well in the share-price department.
The story is none too complicated. InterOil, a company whose shares are seemingly made of titanium, is paying rates for cash that only credit cards aimed at those with bad credit normally obtain. Better still, the person pulling InterOil’s eyeballs out is its longtime sponsor and key investor, Clarion Finanz AG, and its controversial chief, Carlo Civelli.
more...Houston American: How Slick Can This Oil Company Be?
An oilfield services company headed by one of Houston American's directors, John P. Boylan, also went under, in part because he took hundreds of thousands of dollars in loans from the business without the knowledge or consent of his partners.
A third member of Houston American's five-person board, Edwin C. Broun III, was described in court documents last year as suffering from alcohol-related brain damage that could affect his ability to "process information and make sound decisions." The filing, submitted in his defense, characterized him as a recluse who slept all day, drank all night and hadn't opened his mail in two years.
more...CGA and CSKI: Lost in Translation?
SpongeTech: The Dirty Mess It Left Behind
That conclusion really needs to be revisited.
SpongeTech was no ordinary pump-and-dump penny-stock scheme; it was, to play off Churchill’s famous definition of Russia, a fraud wrapped in a stock-market rig inside a money-laundering conspiracy.
more...
