Alternate Energy: Power Stock or Toxic Waste?
by Melissa Davis - 10/4/2010 8:01:19 AM
Although AEHI had spent just $1,000 on research and development during the previous two years, regulatory filings show, the company boasted all sorts of remarkable inventions. AEHI claimed that it had developed a breakthrough fuel additive that could slash the costs of natural gas-powered electricity, for example, and that it was also creating mini reactors that would “revolutionize nuclear power in an urban setting.” Even better, the company said that it was poised to become “the first company to harness the natural energy delivered in a bolt of lightning” – a goal later portrayed as “hopeless” by a national lightning expert interviewed by The New York Times.
While ambitious, however, those projects ranked as mere side shows for the young public company. If possible, AEHI had even bigger plans. Despite its minimal resources, skeptics say, AEHI promised to build a multibillion-dollar nuclear power plant – the first project of its kind for decades -- in a rural Idaho desert that lacked the vast water supply and available transmission lines normally required to make such projects work.
“They have no money; they have no plans,” a county commissioner told the local Owyhee Avalanche newspaper at the time. “Most (locals) think that it’s … a daydream or a fairy tale.”
Since then, records show, AEHI has announced funding deals with at least three obscure financial firms – including one whose leader would later be charged with alleged securities fraud – but still lacks the money required for even the equivalent of a down payment on a nuclear power plant. AEHI also keeps changing the planned location for its proposed plant, local news coverage reveals, currently settling on an Idaho county already ruled out by Warren Buffett’s MidAmerican Nuclear Energy because it made no economic sense.
Nevertheless, AEHI has still managed to sell its own investors on the massive project. The company’s volatile stock, which once fetched mere pennies, currently trades for 87 cents a share. With a share count of 320 million, up from about 40 million a few years ago, AEHI now boasts a market value of $280 million.
“I’ve thought about this a lot,” says Joe Weatherby, a former planning and zoning commissioner in the first Idaho county that AEHI targeted for its plant. “If I were going to design the perfect scam, what elements I would include?
“Gillispie has preyed on ignorance and greed. He has preyed on every little thing that might make people tick.”
Weatherby was busy preparing a long-term energy plan for Owyhee County, a region where 17.5% of the population lives below the poverty rate, when Gillispie suddenly burst onto the scene. The plan, which originally excluded high-priced nuclear power (favoring the county’s abundant wind resources instead), began attracting some unexpected resistance from locals at that point.
“I found out that Gillispie had hired a hay broker who traveled all over the county and knew all of the farmers around here,” Weatherby states. “This hay broker would offer contracts to farmers and ranchers promising them power at 1.5 cents to 1.7 cents a kilowatt hour (10 times cheaper than most nuclear power) if they bought the company’s stock.
“He actually solicited his drivers to help him sell the stock,” Weatherby continues. “So a lot of locals already owned the stock by the time we started our hearings on the energy plan.”
Weatherby identified the hay broker as Jason Sells, who shows up in AEHI filings as a major stockholder himself. In anInternet bio, Sells portrays himself as a successful entrepreneur who “was a licensed commodity broker in the state of Idaho.” Even if he remains licensed to sell commodities in his home state, however, he would still need a separate “Series 7” license in order to legally sell stock.
In a recent telephone interview, Gillispie described Sells as an AEHI fan who bought the company’s stock and voluntarily promoted it to others in the local community. However, Gillispie said, the company – rather than Sells – actually sold that stock. Moreover, he added, the company took steps to make sure that it sold no stock to those who lacked the means (either $1 million in assets, excluding primary residence, or $250,000 in annual income) that would qualify them as suitable investors.
“We’re not supposed to,” Gillispie explained. “But we really can’t know … They put down what they’re worth, (and) we have to trust them.”
Despite those restrictions, AEHI found plenty of investors in one of the poorest states in the nation. All told, Gillispie estimates, almost half of AEHI’s stockholders reside in Idaho.
Bruce Day, a former securities commissioner for the state of Oklahoma who previously worked for the U.S. Securities and Exchange Commission as well, sensed possible reason for alarm.
“I would absolutely look into this,” says Day, who now serves as a partner for a major securities law firm based in Oklahoma City. “I would be shocked if Idaho regulators haven’t done that already.”
Marilyn Chastain, chief of the securities bureau for the Idaho Department of Finance, confirmed that her agency has fielded complaints about AEHI. She could not comment on the nature of those complaints, however, or discuss what actions – if any – her agency has taken in response.
Meanwhile, AEHI has long since abandoned its plans to build a nuclear power plant in Owyhee County. About two years ago, the local Mountain Home News reported, AEHI suddenly discovered fault lines – present for an estimated 500,000 years – on its proposed site and shifted its plans to nearby Elmore County instead.
There, AEHI would face an even bigger showdown.
This time, records show, AEHI tapped Jim Tibbs – a retired Boise police officer and current member of the Boise City Council – to moderate the company’s public hearings. His appointment caught the attention of John Weber, a board member for a local environmental group known as the Snake River Alliance, who worried about possible conflicts and wanted to make sure that Tibbs could be trusted to be fair.
“All I do is run the meeting,” Tibbs assured Weber in an email ahead of the first hearing. “I don’t take sides.”
Even with Tibbs in charge, the Mountain Home News noted, that meeting proved to be explosive. Police officers arrested a prominent nuclear activist and led him away in handcuffs, the newspaper reported, triggering outrage from other environmentalists in the crowd. Skeptics also raised questions about Gillispie’s credentials, which turned out to be less impressive than they first seemed.
In its original regulatory filings, AEHI claimed that Gillispie held an MBA from the Massachusetts Institute of Technology. After Weatherby secured a fax from MIT stating that Gillispie had never earned an actual degree from the school, however, AEHI revised his bio to state that he simply “completed the senior executive program” – a short, non-degree offering – at MIT instead.
(On another note, filings show, Gillispie also claimed that he operated a firm called Grace Glens Consulting – which provided advisory services to senior nuclear executives – beginning in 2002. According to Internet records, however, Gillispie never even incorporated that firm until 2005.)
Meanwhile, Weatherby came under attack following that contentious hearing. In a letter to the editor of the Mountain Home News, James E. Cooper -- identified by Weatherby as an area stockbroker and the son of a major AEHI shareholder -- portrayed Weatherby as a conflicted activist involved in “a very large wind farm business venture (with) over 5,000 windmills.” At the same time, Cooper reported no connection to the company.
For his part, Weatherby has dismissed Cooper’s claims as ludicrous. He denies any financial conflicts, while pointing out that a 5,000-turbine wind farm would eclipse the record-breaking 2,000-turbine project once planned by legendary oilman T. Boone Pickens and therefore rank as the largest wind farm in the entire world.
To critics, AEHI supporters look like the conflicted ones instead. For example, they note, Tibbs -- the so-called “independent” moderator – wound up owning stock in the controversial company after all.
According to a company filing, Tibbs received 15,000 shares of AEHI stock a month after that heated mid-2008 meeting. That filing, which surfaced about three months after the hearing, indicates that Tibbs paid 10 cents a share – or about one-third of the market price at the time – for that stock. However, his comments suggest that he may have never paid for the stock at all.
“I was compensated by AEHI for being the moderator,” Tibbs explained in a November 2008 email to Weber. “I did not go out and purchase the stock on my own.”
Tibbs shows up (along with other locals) on a long list of investors who received unregistered AEHI stock – often deeply discounted and sometimes totally free – during the company’s first few years of operation.
By September of 2008, regulatory filings show, AEHI had issued almost 75 million shares of unregistered stock – or half of its authorized shares – through such transactions. Gillispie and his family received more than one-third of those shares. AEHI Vice President/Secretary Jennifer Ransom, a former insurance agent described by locals as Gillispie’s girlfriend (30 years his junior), picked up millions of shares as well.
Since then, AEHI has issued even more company stock – much of it to insiders -- and dramatically increased both its authorized and outstanding shares. In January of this year, for example, AEHI awarded Gillispie and Ransom a combined 11 million shares of stock even as the company approached its new 250-million share limit. AEHI then doubled its authorized share count to 500 million the following month, filings show, and awarded Gillispie and Ransomanother 12 million shares a couple of days later.
According to regulatory filings, AEHI covers "living expenses" for Gillispie as well.
At first, regulatory filings show, AEHI operated out of Gillispie’s home in Virginia before leasing a small office in Idaho. Back then, AEHI employed Gillispie’s young daughter – whose thin work experience included a stint as an undergraduate college tutor and a job as a pharmacy technician – to serve as secretary of the nuclear power company. Ransom officially assumed that post in May of 2008, company records show, quickly scoring 3.5 million AEHI shares for the favor.
At that point, AEHI had already inked at least two financing deals for its ambitious project. In mid-2007, AEHIsuddenly announced that an outfit known as Cobblestone Financial Group had agreed to secure a handsome $3.5 billion for the company’s nuclear power plant. Within weeks of that news, however, the Associated Press had raised questionsabout Cobblestone – which normally caters to small operations like bars and gas stations – and its ability to fund such a deal.
Later that year, AEHI announced a more modest $150 million funding deal with a firm called SilverLeaf Capital Partners. This spring, records show, SilverLeaf Capital President Shane Baldwin wound up charged with securities fraud for alleged misconduct related to a separate investment deal. (Baldwin managed to escape jail time, The Salt Lake Tribune reported, by repaying his alleged victims in full.)
Meanwhile, local news coverage reveals, AEHI went on to ink yet another financing deal. In mid-2008, the Idaho Business Review reported, AEHI tapped a mysterious firm known only as “Powered Corporation” as its new financing partner. Powered had completed no other projects at that point, the newspaper noted, and had seen its previous multibillion-dollar deal – calling for five nuclear power plants in Yemen – killed by allegations of corruption.
The Snake River Alliance predicted, quite correctly, that the new deal would end in failure as well.
“AEHI’s latest pronouncement of financial support for this power project should be treated with the credibility it deserves – none,” the group stated in the article. “Powered Corporation’s financial health seems to be on par with AEHI’s … The fact is there’s still no money in this project, and for good reason.”
Less than a year later, The Oregonian reported, Powered quietly disclosed that it was “winding up” its business and disappeared from the scene.
By then, the local Times-News reported, Elmore County zoning officials had already rejected AEHI’s plans for its nuclear power plant. If the Elmore County commissioners followed suit, AEHI warned in the article, the company would abandon Idaho and take its project to another state.
As it turns out, however, AEHI simply shifted its project to yet another Idaho county instead. (While most states employ a strict review process, experts say, Idaho can approve a proposed nuclear power plant with favorable votes from just two county commissioners.) This time, AEHI chose tiny Payette County – the same county Warren Buffett’s company had ruled out for economic reasons, the Snake River Alliance noted, after spending millions on a detailed study the previous year.
“He just did the math on it, and he couldn’t make it work,” Weber says. “And the economics have gotten even worse since that time.”
Specifically, Weber says, nuclear projects need help from three absent forces – carbon taxes, high natural gas prices and a booming economy – in order to succeed. AEHI’s own project in Payette County faces even more formidable challenges, he says, due to limited water supplies, constrained transmission lines and an obvious lack of financing. (Arjun Makhijani, president of the Institute for Energy and Environmental Research, has issued a detailed report challenging the economic viability of AEHI’s proposed nuclear plant as well.)
For his part, Gillispie strongly disputes such arguments. He says that AEHI will have access to a nearby river with a “gazillion” gallons of water and will simply connect its power plant to a new transmission line that’s currently being built. He also claims that “mistakes” – rather than economics – drove Buffett’s firm away. As evidence, he points out that Buffett is now investigating the possibility of building a nuclear power plant in Iowa. (While true, an industry report reveals, Buffett’s firm actually owns a utility in Iowa, and that state – unlike Idaho – uses nuclear-generated power already.)
“Economics was just a smokescreen for the media,” Gillispie insists. “He’s an ‘economic guy.’ What else is he going to say?”
Regardless, AEHI critics continue to cast doubt on the company’s grand plans. If anything, they state, AEHI’s planned project looks less attractive now than it did when the company first arrived in Idaho several years ago.
From the start, they note, AEHI has touted generous federal loan guarantees promised for the first nuclear power plants built under a new government program. But AEHI has failed to clear any major hurdles since that time, they say, so the company has yet to even secure a place – behind much larger players – in that growing line. Moreover, they add, the company still faces a national application process that literally takes years to complete.
“The actual likelihood of that reactor being built is incredibly low,” says Liz Woodruff, an energy policy analyst for the Snake River Alliance. “AEHI has been successful in polishing the edges to make itself look more appealing to investors. But the company remains financially in trouble, with a project that’s unviable, so people should steer clear.”
By issuing 132.9 million shares of discounted stock (and essentially selling one-third of the company -- now valued at $280 million -- for less than $10 million), filings show, AEHI has at least managed to put a decent chunk of change in the bank this year. For example, records show, AEHI sold 50 million shares of 10-cent stock in April and May alone. While that deal cushioned AEHI’s bank account, however, it could also hurt investors who’ve been paying market rates for the company’s stock.
Based on current prices, investors who bought that cheap stock in early April (and have now held it for the mandatory six months) could start selling their stake – for a hefty 770% gain -- and put serious pressure on the shares.
For his part, Gillispie says that he has no plans to sell any AEHI stock himself. Although he filed paperwork in Augustsignaling the possible sale of 3 million shares, he says he never actually sold the stock but simply lifted the restrictions on it so he could use it as collateral for a home loan instead.
That stock looked a lot less valuable, with the shares stuck around 20 cents apiece, until a powerful promotion this May. After talking with an AEHI shareholder in a bar, Gillispie says, a newsletter writer “got excited” and penned a report that portrayed the company as “the greatest thing since sliced bread.” Fueled by that promotion, AEHI’s stock soaredfrom 21 cents to $1.45 a share in a single day. While AEHI failed to hold onto most of those gains, dropping back to 60 cents by the close, the stock has remained well above its pre-promotion price since that time.
Alternative Energy Speculator, which issued that tout, followed up with another ringing endorsement – forecasting 18,375% gains – a few weeks before Gillispie lifted the restriction on his shares. Two other outfits, the KonLin Investment Letter and WallStreetCorner.com, chimed in with bullish AEHI calls shortly afterwards.
While some investors have taken big profits at this point, however, Gillispie says that he sees no reason to do the same.
“I would be foolish to sell it at 80 cents,” Gillispie told TheStreetSweeper last week. “This stock is going to be worth a lot of money. It will probably be $2 by the first quarter – and $4 or $5 by the end of next year.”
For AEHI, Gillispie predicts, the third time will prove to be a charm. He expresses total confidence that Payette County will approve the company’s nuclear power plant by December and, once that happens, financing for the multibillion-dollar project will finally arrive.
AEHI continues to issue a steady stream of press releases, touting its nuclear power plant and other business ventures (which now include water purifiers for Pakistani flood victims), in the meantime. But at some point, critics say, the company will need to deliver some actual results in order to support its lofty market value.
“Gillispie keeps writing press releases every couple of days, trying to pump up the stock,” Weber says. “But you can’t keep a company alive with just press releases.
“Eventually,” he declares, “you have to do something.”
* Note: No member of TheStreetSweeper’s staff or advisory board has ever taken a financial position in AEHI or received any compensation from others who have positions in the stock. As editor of the site, Melissa Davis will never take a position in any of the stocks that she covers. To contact Ms. Davis, the author of this story, please send an email to firstname.lastname@example.org.
Opko Health (OPK) Street brawl: Doc and multi-billion dollar medical candidates positioned for win
Opko Health (OPK) Street brawl: Doc and multi-billion dollar medical candidates positioned for win
By Sonya Colberg, Senior Investigative Reporter
Opko Health (NYSE: OPK) may be sporting a shiner for now. But in this Street brawl, the big boy in the middle is a billionaire who wears that black eye like a badge of courage, knowing full well that adversity will make his company stronger. Besides, revenge will be so sweet.
Dr. Phillip Frost, the chief executive and chairman of OPK, is seeing a significant short position in his company. That doesn’t ordinarily bother him much, though the short interest is nearly 21 percent of the shares outstanding.
Anthony Bozza of Lakewood Capital (which is reported to suffer a 0.5 percent net loss partially attributed to its short portfolio) bloodied OPK’s nose a bit last week. He compounded the Wall Street drama when he presented his short thesis on the pharmaceutical company Friday during the Robin Hood Conference.
“We’ve always enjoyed a nice big short position,” Dr. Frost told TheStreetSweeper. “I know shorts who lost a lot of money … and later became my friends.”
Dr. Frost counts celebrity stock picker Jim Cramer, star of the “Mad Money” television show, among his many fans. A true believer in both the accomplished doctor and his company, Cramer enthusiastically recommended OPK back when it traded around the $5 range and remained bullish on the name even as the stock rocketed into double-digit territory. While Cramer understands the temptation to start booking those gains, and openly encouraged big winners to take some profits off the table a few days ago, he reiterated his ongoing support of OPK when TheStreetSweeper contacted him about the company over the weekend.
“I like it very much,” Cramer said in an email Sunday evening. “Many ways to win!”
Dr. Frost knows how to navigate the Food and Drug Administration, and is up on the latest technologies and discoveries in a complicated industry, Jake Dollarhide of Longbow Asset Management said this morning.
“You’ve got to give Dr. Frost a lot of credit for building a healthcare juggernaut,” he said.
“The next few years could certainly be a big opportunity for Opko,” Mr. Dollarhide said. “If those drug trials meet approval and those drugs are a success … we could certainly see the share price of Opko go significantly higher.”
Wall Street is stained by shaky companies overseen by shysters who happily mislead investors and then skulk away dragging bags of dirty money. TheStreetSweeper has exposed many of these fraudulent miscreants, shorted them and, in the process, tried to protect investors from painful losses.
But OPK is the rarest of rare finds for us. We like Dr. Frost. We like Opko Health. We like Dr. Frost’s assessment of his growing portfolio of sterling products:
“I’ve never been connected to any company with the potential of this one,” said Dr. Frost.more...
PhotoMedex (PHMD): No!no! doesn't cut it
Would’ve. Could’ve. Definitely should’ve. Those words ring in investors’ ears just after PhotoMedex’s (Nasdaq: PHMD) bungled earnings report. But there’s a lot more to this story as the company faces ongoing challenges.
Here are highlights from issues TheStreetSweeper has exposed about the company whose main product is the no!no! device that removes body hair with a hot wire device:
*Japan’s no!no! revenue no more. Ax falls on potentially $43 million-plus worth of product.
*Flawed stock buyback program. Insiders benefit.
*Food and Drug Administration reportable events, plus a quiet recall. Events include a fire that apparently ignited inside a patient’s throat.
*Lawsuits. With a federal lawsuit loss behind it, additional litigation possibilities loom.
*Reason to sell. Key company product is fading.more...
PhotoMedex: Just say No!No!
PhotoMedex (NASDAQ:PHMD) is stirring up a cauldron of characters and events that makes this “no!no!” hair-removal device company a hair-raising proposition for investors.
Characters include Kim Kardashian, the competition’s formerly raven-haired spokeswoman who was sued by PHMD.
And there’s Lewis Pell, board chairman and angel investor whose battered wings reportedly contributed to an initial public offering falling apart. Before he and Shlomo Ben-Haim both wound up at PHMD, he sued Mr. Ben-Haim, his frequent business partner and friend, alleging unfair distribution of assets.
Finally, insider Mr. Ben-Haim is an oft-sued Israeli biotech gentleman billionaire whose enemies once labeled a thug. His rival in one of those various lawsuits is none less than the State of Israel, which alleged he and a partner stole Israel’s technology for freezing cells and entire organs.
Here are six key PHMD issues that we believe pose risks for investors:
*Certain insiders dogged by volatile and litigious history, misappropriation guilty plea.
*Key product, already down in the U.S. versus last year, rests on flimsy, weak studies.
*Study shows key product, no!no! Hair Removal System, works no better than shaving. Further verified by significant consumer rancor.
*Possible class action litigation may be looming.
*We anticipate disappointing earnings ahead.
*Massive insider selling precedes planned $30 million stock buyback.
Now, through the light of a full moon - and TheStreetSweeper’s digging - investors can get a good look at ominous scars that may well damage the company’s future stock price.
SGMO: A fiery biotech with a product poised to go down in flames?
Sangamo Biosciences (NASDAQ:SGMO) is on fire.
One day it’s supposedly curing AIDS. A couple days later, it’s selling stock.
The Richmond, Calif. company just announced another public offering. That comes just two months after execs bragged about the company being loaded with cash - $66 million - not from selling a product since it has nothing to market, but mostly from research funding.
The offering of 6.1 million shares at $10.58 per share should produce about $65 million for “working capital and other general corporate purposes.” Underwriters may also pick up as many as 915,000 additional shares to cover over-allotment. Now many investors who've watched their $15 IPO shares tumble since 2000 face the prospects of more dilution.
Meanwhile, a cure for AIDS certainly should be shouted to the moon.
Judging by its recent presentation of clinical data at a conference in Denver, SGMO ought to be shouting. After all, when it made a measly $1 million acquisition of a riches-to-rags company, SGMO blared out the news in a one hour conference.
But it implies it’s pretty much got the cure for AIDS and that is not important enough for a conference? Just a little, carefully worded press release. Sort of like, “Umm, we can cure AIDS.”
Maybe SGMO folks are a little worried that an outright AIDS-cure announcement would expose their company to more critical questions and analysis. Well, read on.
Though SGMO happily buoys investors’ hopes by exclaiming about its “spectacular” and “unbelievably powerful” data, the signs say investors should get the red “Failure” stamp ready to go. Our investigation, reinforced by comments from renowned HIV doctor Joseph Sonnabend, suggests it’s time for a splash of cold reality on this company that’s seen its stock roughly double this year to its recent record $11.48.
Failure: SGMO’s key product, an HIV “functional cure?”
SGMO has raised money repeatedly over many years by promoting its zinc finger nuclease (ZFN) gene modification technology, described as “molecular scissors” that cut and replace gene pieces. About 300 biotech companies are working in genetic tinkering. SGMO’s key target is HIV, the virus that causes AIDs.
This is the technology that SGMO has used to entice investors since the mid-1990s. That’s right. For nearly two decades since its inception, the company has done a heap of talking. But it hasn’t moved a single product.
Here’s what SGMO has accomplished:
*It’s held six public offerings now since its IPO. These offerings total about $140 million.
*18 years of promoting an unapproved technology.
*18 years of raking in investors’ money.
*18 years of operating losses, since inception in 1995.
*Still not one marketable product. Nothing’s made it even to phase III clinical trials ... in 18 years.
*Previous attempted product using its technology for a diabetic nerve disorder failed in phase II testing.
*Consistent insider selling, including 47,000 shares sold for over $10, just a couple of buys. The last was in 2010 at about $3.
The evidence, we believe, indicates that SGMO keeps dragging out the same faulty study conclusions as a way to keep the money flowing. TheStreetSweeper would be astounded if SGMO produces a marketable anti-HIV product - ever.
We submitted trial results and graphs via email to Dr. Sonnabend, renowned HIV researcher and retired HIV clinician. He pioneered community-based research of HIV, co-founded three AIDS organizations and received the Nellie Westerman Prize for Research in Ethics.
The esteemed doctor was not impressed. He indicated that in all the information sent to him, there’s absolutely nothing to suggest SGMO’s treatment works.
“... I’d say that no meaningful evidence was presented to indicate that their treatment has antiviral activity,” said Dr. Sonnabend.
Zenyatta: Selling a Story with More Holes Than Its Celebrated Mine
CORRECTION: TheStreetSweeper has elected to remove the second story in this series after discovering on Friday morning that the CEO of Zenyatta actually worked with a different Don Sheldon than the promoter identified in the article. While TheStreetSweeper continues to stand by the other revelations included in that report, including the doubts expressed by notable industry experts about the validity of the story that the company itself has told, we have nevertheless chosen to withdraw the entire article to address the situation and compensate for this accidental oversight. We regret this error and apologize for any confusion that it might have caused.
Give Zenyatta Ventures (TSXV:ZEN.V; OTC: ZENYF) credit for this much. While that highflying junior miner has yet to deliver the most preliminary report that investors need to even begin judging the value of its celebrated graphite deposit, let alone produce any concrete evidence that its graphite rivals the best in the world, the company has managed to establish one thing for sure. As a standout performer in a crowd of junior miners that have tanked along with the underlying price of graphite – and now sports a hefty $175 million market capitalization that eclipses the market values assigned to a number of its more advanced rivals combined – Zenyatta has clearly proven that, if nothing else, the company knows how to sell a tantalizing story.
Granted, by the time that Zenyatta CEO Aubrey Eveleigh launched the company as a junior miner originally scouting for overlooked copper and nickel deposits, he had already mastered a similar pitch while steering the exploration program for another Canadian junior that obediently responded with some rather amazing – if fleeting – gains of its own. Like Zenyatta itself, MetalCorp (TSXV: MTC.V; OTC:MTLCF) looked hopelessly stuck in penny-stock land until the obscure resource player suddenly exploded to record highs after the company reported that it had basically stumbled upon a valuable discovery by complete accident. Indeed, with Eveleigh routinely surfacing as the official voice of that doomed company, MetalCorp literally spent years trumpeting a series of “lucky breaks” that kept hope alive (and the bleeding miner afloat) long enough to deplete most of its funds and finally prompt the board to kick the future chief of Zenyatta out of its own executive suite.
Four years after MetalCorp severed its ties with Eveleigh -- later credited for raising the mountain of cash that the battered miner spent -- the company now sports a total market of value of less than $1 million and trades for a mere penny a share.
While initially forced to settle for a similar post at an obscure miner that looked similarly worthless, Eveleigh soon negotiated a handy deal that would allow him to overcome the fresh stain on his record (since erased with the helpful passage of time) and provide him with the material to produce his recent encore. After securing minority rights to some remote mining claims through a consulting firm that he owns – terminated by wrecked MetalCorp, along with the executive himself, earlier that same year – Eveleigh orchestrated a lucrative related-party deal that supplied that discarded asset to a “numbered” company that could then go public with that swampy land as its flagship property and the disgraced executive in charge of the entire show.
When Zenyatta filed the official paperwork for its stock offereing the following year, of course, the company dutifully portrayed Eveleigh as a successful corporate executive with an impressive background in geology and a proven track record in the mining field. Notably, however, Zenyatta also referred to Eveleigh as an outright “promoter” throughout its prospectus and further underscored that disturbing role in a so-called “certificate of the promoter – signed by the CEO himself – at the end of that crucial document.
To be sure, with Eveleigh overseeing its business and handling its publicity, Zenyatta has followed a rather familiar path on its amazing journey to record-breaking highs. After debuting as just another obscure miner and languishing in penny-stock territory for a couple of years -- providing early investors with little incentive to exercise pricier warrants that would inject millions into its bank account -- Zenyatta suddenly rushed to capitalize on its own accidental discovery of a particularly hot resource that had spiked in price to generate plenty of helpful buzz. With the company trumpeting its graphite deposit as both extraordinarily rare and extremely valuable, while forecasting massive production rates of top-quality graphite that commands a steep premium, Zenyatta finally began to gather steam about a year ago and soon blew right past the former hotshots in its peer group to emerge with the most breathtaking gains in that fading sector by far.
A stock that fetched as little as 15 cents a share last summer, threatening to render a mountain of $1 warrants effectively worthless by the end of the year, Zenyatta has since rocketed all the way to a record high of $5 a share and continues to trade near the top of that gigantic range. Indeed, even after shedding 25% of its peak value since late July, Zenyatta still commands more than an entire group of noteworthy competitors – with both its stock and its overall market cap exceeding those of Northern Graphite (TSVX: NGC.V; OTC: NGPHF), Focus Graphite (TSVX: FMS.V; (OTC:FSCMF), Big North Graphite (TSVX: NRT.V; OTC: BNCIF) and Alabama Graphite (CN: ALP.CN; OTC: ABGPF) combined – despite the head-starts that position those miners to enter the market long before their pricier rival ever gets its own chance.
Since Zenyatta has never presented any documented evidence to validate its claims about either the abundance or the quality of its graphite deposits – and still needs to provide the first in a series of formal reviews that will likely take years to complete – the company strikes some of the most prominent veterans in the industry as a worthless promotion at worst and the riskiest name in the group at the absolute best.
“Zenyatta hasn’t done one thing to prove that they have material that can be used in the applications that they claim,” declared Asbury Carbons CEO Stephen Riddle, the fourth-generation leader of a company that has operated in the graphite space for more than a century. “Whenever it comes out that whatever they promoted isn’t going to work, the stock will collapse … Personally, I think that they’re going to put a big black eye on the entire industry.”
The ExOne Company: Irrational exuberance obscures black clouds building around 3-D printing
The ExOne Company’s (NASDAQ: XONE) surprise stock offering last week irritated investors.
The 3-D printer maker is diluting investors‘ shares to raise millions just six months after its public offering.
But the company has buried reasons for even more irritation deep within the S1registration papers it filed after the bell Aug. 21.
The chief executive and his interests get far more money under this deal than the company itself.
It’s roughly $100 million for him versus $72 million for the company. That’s 1.55 million shares and 1.1 million shares respectively at the $65 per share listed in the filing. The registration papers specify the shares will be offered by the company and by “selling stockholders.” A dig through the gibberish reveals those “selling stockholders” are actually CEO Kent Rockwell - through his two entities and trust.
Funny timing on that trust. Exactly one day before the registration announcement, Mr. Rockwell, through an entity, boldly gave his trust 450,000 shares worth about $30 million.
The stock reached $70 on the day he gave away the shares. As is common, share prices dropped right after the company announced the offering, falling for a time below $65.
And there’s more to this deal. Mr. Rockwell himself ultimately stands to benefit yearly from his charitable deed.
The “remainder trust” benefits Lafayette College, Rockwell’s alma mater. It requires Lafayette to pay Rockwell’s entity 5 percent of the trust’s assets each year for 10 years (likely over $1 million the first year). Whatever’s left over after a decade goes to Lafayette.
Once approved, the stock offering could also include up to 398,400 additional shares held by Rockwell’s entities, President David Burns (whose total 2012 compensation exceeded $3.5 million), Chief Financial Officer John Irvin (whose compensation exceeded $1.8 million) and two other execs. These are over-allotment shares exercisable within 30 days of the offering if the public demand is high enough.
The other millions of shares are locked up for 90 days or the end of November.
Yet another lockup release date hits just around the corner in early September. One minute before midnight on Friday, Aug. 30 is when the 180-day post initial public offering lockup expires, potentially unleashing more than 7 million shares onto the market. The lockup release initially set for Aug. 5 was delayed until after the company reported its 2Q earnings in mid-August.
At nosebleed valuations, the company and Mr. Rockwell are likely to sell far more stock than if the valuation had been depressed.
Personal piggy bank
XONE reported proceeds of about $92 million from the initial public offering in February. But about $16.6 million of this went into Mr. Rockwell’s pockets through his entities for things such as land payments, and repayment of loans and one entity’s entire debt. He also sold more than $10.2 million of stock in the IPO.
After subtracting costs such as offering expenses, our figures show XONE realized IPO proceeds of about $63.3 million.
The initial public offering made Mr. Rockwell about $26.8 million richer.
Indeed, Mr. Rockwell seems to be having a lot of success in making XONE his own personal piggy bank. The two offerings potentially could make him $97 million to $127 million wealthier.
Mr. Rockwell’s ownership has gone from 71.1 percent pre-IPO to about 22-23 percent or over 3 million shares, according to the filing. They’re worth somewhere around $198 million. Yet he’s apparently not afraid to pinch pennies - he charges XONE hundreds of thousands of dollars for the use of his entity’s airplane and services.
TearLab: Blind Faith in a Risky Highflier with Forgotten Tear Stains
TearLab (Nasdaq: TEAR) might feel like crying if it contacted some of the doctors listed on its own website as providers of its diagnostic test for dry eye disease and listened to the feedback from those who no longer use its glorified machine.
Take Dr. Seaborn Hunt, for example. A Florida ophthalmologist, Dr. Hunt practices medicine in a popular retirement town crowded with seniors who qualify for coverage of the $50 TearLab test under the government-funded Medicare program. While TearLab specifically identifies his clinic as one of three local practices that utilize its device – generally provided by the company, free of charge, in exchange for a commitment to purchase a steady supply of the disposable cards that its system requires – Dr. Hunt has already returned his own machine and gladly resumed his use of an old-fashioned diagnostic test for DED instead.
“It was just a pain,” one of his employees bluntly explained. “We sent it back because we found it to be inaccurate.
“I know that a lot of people are advertising it. But if you have (DED), you have it. You don’t need a machine to tell you that.”
In neighboring Alabama, yet another ophthalmologist on that list must have reached a similar conclusion. Identified by TearLab as one of only four eye doctors who offer its test in the city of Birmingham, the largest metropolitan area in the entire state, Dr. Michael A. Callahan recently pulled the plug on that medical device – portrayed as an outright “lemon” by a member of his staff – and shipped the machine back to the company, too.
“I saw them boxing up this machine yesterday,” the receptionist volunteered when contacted by TheStreetSweeper a couple of weeks ago. “And sure enough, that was it! They sent it back; they found that it was not all that it was supposed to be.”
For its part, TearLab promotes its namesake device as a tremendous breakthrough so revolutionary that eye doctors will likely adopt the test as a new “standard of care” by screening their patients for DED as a matter of routine. While TearLab acknowledged that it has fielded a “small number of device returns” from doctors who effectively bailed on their multi-year contracts, when specifically questioned by TheStreetSweeper ahead of this story, the company pointed to low reimbursement from private insurers in certain areas – never hinting at any dissatisfaction with the machine itself – as the primary reason.
Regardless, TearLab has definitely sold Wall Street on its sexy story. After all, based on virtually any normal measurement tool, TearLab arguably should remain stuck (where it languished for years) deep in single-digit territory. All told, TearLab mustered less than $4 million in revenue last year -- easily dwarfed by the $12 million operating loss that it endured while pursuing that business – and recently closed the books on a “blockbuster” quarter by generating a modest $3.5 million in sales (likely eclipsed by yet another sizable loss) even after a powerful growth spurt.
A neglected $3 stock just one year ago, TearLab has nevertheless rocketed all the way past $14 a share since that time to achieve a lofty market valuation of $410 million – a staggering 70 times its prior-year sales – with the help of bullish calls from conflicted analysts who keep on urging investors to buy the pricey stock in spite of its nosebleed multiples.more...
Coronado Biosciences (NASDAQ: CNDO): A master puppeteer’s folly?
Coronado Biosciences (NASDAQ: CNDO) is tangled amid a bizarre whipworm therapeutic candidate, jail birds, cozy relationships, crazy financing, decimated companies controlled by a master puppeteer - and just now a brand new $200 million shelf registration.
And it’s all precisely timed. The company is rolling out public stock offerings - and filed the new S-3 that will further dilute the stock with millions upon millions of additional shares - just before clinical trial results are released.
Is this because CNDO suspects its key candidate - live pig whipworm eggs - won’t work? Does the company suspect that it will never even reach phase III?
Despite several negative study results, CNDO is testing its pig whipworm eggs to treat auto-immune diseases, a medical area populated by fierce pharma companies with deep pockets.
Independent investigators recently conducted trials based on batches of 2,500 parasitic eggs, culled from pig manure, that hatched out in patients’ guts. The parasitic egg cocktails caused three to 19 times more incidences of pain and other severe side effects - typically lasting for weeks - than in patients on a placebo.
In fact, the results were so bad that over a dozen patients stopped gulping down their worm egg drinks before the study ended.
Similar risks turned up in three separate studies - all apparently ignored by Burlington, Mass-based CNDO. And even though independent study authors urged fewer eggs per dose in future testing, some patients will slurp down three times more - 7,500 worm eggs - in each dose every two weeks, under a new study that CNDO is resolutely conducting.
Set up for dilution
Despite the negatives, the stock more than tripled over the last year to reach an all-time high of $12.70 on April 23.
Days later, CNDO filed an ongoing at-the-market offering on April 29 to sell $45 million worth of stock at the company’s whim.
Was that enough? No. According to the newest S-3, the company amended the ATM offering so it could sell up to $70 million worth of stock.
And was that enough? No, still not enough. This bleeding company with a highly debatable product in fact quietly filed this new shelf registration after market close July 12. Once effective, CNDO will be able to distribute $200 million worth of stock or warrants from time to time over three years, as determined by market conditions. This represents tremendous dilution and overhang for a company with a market cap of about $234 million.
Revolution Lighting Technologies (NASDAQ:RVLT): A wild ride destined to leave investors in a heap?
A wild, sudden interest in its boring business has Revolution Lighting Technologies (NASDAQ:RVLT) soaring. Shares have more than doubled over the past three months, pushing the stock into the Russell 3000.
Rather impressive for a company that was pretty much left for dead late last year. Then Robert LaPenta, a high-roller known for both his horse sense and business sense, rode in with multi-millions of dollars to toss RVLT’s way in exchange for multi-millions of shares of stock in the light bulb company. After his financial entities’ first $6 million infusion last September, LaPenta propped up the struggling company again and again over the following months until the influx totaled $21 million.
But TheStreetSweeper believes Mr. LaPenta is beating a dead horse. RVLT just closed at nearly $4, but compared to its peers the stock should trade for about 7 cents to 20 cents per share. Even Mr. LaPenta’s entities paid what seems like a fair price of 13 cents to $1.17.
The reasons behind our position include:
*Big cash burn: dilution looks imminent.
*Based on the market cap of $305.7 million as of Friday’s close, sales are ridiculously puny.
*Most revenue depends on a recent over-priced acquisition that struggled with declining sales and no profits.
*Questionable ability to generate recurring revenues.
*Insider buying may be just a cheap way to promote the stock.
The company is still traveling through rough terrain, according to investment advisor Jake Dollarhide, CEO of Longbow Asset Management.more...
KEYW: Infecting Investors with a False Sense of Security?
* Editor's Note: The following story is the second installment in a detailed investigative report on KEYW. Simply click here for immediate access to the earlier article.
The more cash that KEYW (Nasdaq: KEYW) blows on acquisitions to pursue its capital-intensive growth strategy – without unlocking the fabulous potential that management sure liked to trumpet whenever it tried to justify those expensive deals – the more the bleeding rollup company seems to conveniently relax its standards for success.
Go back and look at the compelling story that KEYW presented to the press a couple of years ago, when it first arrived on the scene as a young public company bursting with fresh promise, and compare the glorious visions that management shared back then with the stark results that the swaggering upstart actually went on to deliver instead. In a bold (if misplaced) show of confidence ahead of an embarrassing setback, KEYW predicted that it would capitalize on its relentless shopping spree by not only enhancing its role as a prime contractor on big-budget government projects but also by maximizing the future performance of all the obscure firms that it kept on swallowing – casually boasting that “30 percent organic growth is achievable” right off the bat – once it fully digested those acquisitions into its own system and transformed them into a fresh layer of muscle.
Eager to showcase its early progress a few months after debuting on the Nasdaq exchange, KEYW bragged that it already generated two-thirds of its revenue from coveted prime contracts and practically assumed that its share of that high-margin business would further expand along with its escalating size. Unable to land a prominent $700 million government contract or even maintain some of the lucrative projects that it already supervised, however, KEYW wound up playing a secondary role on so many of the accounts that it inherited – with prime contracts accounting for barely one-quarter of its revenue by 2012 – that the company emerged from its costly shopping binge looking more like a lowly subcontractor than ever.
Since KEYW has largely manufactured its top-line growth by simply purchasing other firms and then booking their revenue as its own, the ravenous defense contractor still looks like a typical rollup company, too. To be sure, KEYW has yet to approach the impressive levels of organic growth that management supposedly regarded as “achievable” back when its young stock staged its first remarkable (if temporary) rally. Even based on the generous formula that KEYW prefers to calculate its organic growth – selectively including any new business that it has added while conveniently excluding any prior business that it has lost – the company has fallen well short of the incredible productivity gains that it originally promised and, two years later, now seem hopelessly beyond its reach.
KEYW: Drunk on Hype and Doomed to Sing the Blues?
As a fanatical “ParrotHead” with an encyclopedic knowledge of Jimmy Buffett songs, KEYW (Nasdaq: KEYW) Chief Executive Officer Leonard Moodispaw often seems more inclined to share catchy lyrics penned by his idol than useful details about the actual business conducted by his glorified rollup company. While Moodispaw likes to present snippets from those upbeat tunes as metaphors for noteworthy developments at his tightlipped cyber-security firm, however, he has somehow managed to overlook the very title that perhaps delivers the most fitting message of all: “Math Suks.”
No matter how well Moodispaw might spin its record or how much he tries to promote its next big hit, KEYW remains a bleeding defense contractor that has spent a fortune on acquisitions and – now down to its last $3 million and already burdened by plenty of debt (with limited available credit left) – still needs to prove itself.
Practically broke after raising almost $100 million through a dilutive secondary offering last fall, the war chest supplied by its initial public offering two years earlier basically gone, KEYW traveled all the way to Europe last week in an effort to strike up fresh interest in the company by hosting an apparent road show for investors halfway around the globe. A somewhat rare courtesy that largely escaped the attention of investors back home, left puzzled (but understandably pleased) by the energetic gains that KEYW recorded once that distant road show began, the move nevertheless struck some of the more cynical followers of the company as an obvious – if desperate – reach by the bleeding firm for additional funds.
While KEYW never bothered to openly publicize that important event on its official schedule, let alone divulge the actual intentions behind it, a corporate cheerleader helpfully volunteered that enlightening update from Europe himself. A former analyst who spent the end of his Wall Street career stubbornly clinging to his relentless faith in Force Protection, one of the more notorious flameouts that stained his record, KEYW Vice President of Corporate Development Chris Donaghey originally originally fell in love with the first rollup company that Moodispaw built before joining him in the executive suite at the next.
Focused since then on promoting KEYW alone, Donaghey surprised even TheStreetSweeper with news of the foreign road show when it contacted him on Tuesday seeking input from the company ahead of this story. Tied up with potential investors at the time, Donaghey promised to address probing questions from TheStreetSweeper – seeking detailed information to supplement the vague and/or opaque material that the stingy company normally chooses to share – by early this week for inclusion in follow-up stories. (Since KEYW emailed its somewhat vague responses to the questions that it chose to answer right as the market opened today, beyond the deadline that would have allowed reasonable time for their full incorporation into this story, TheStreetSweeper will simply provide a link to the the information supplied by the company at the present time.)
The first in a series of articles on the incredibly secretive cyber-security firm (with the second currently scheduled to follow in a matter of days), this broad introduction challenges the rosy image that KEYW has long enjoyed by presenting thorny evidence that pokes holes in the compelling story often sold to trusting investors as the absolute gospel. By combing through voluminous piles of regulatory filings and comprehensive databases full of revealing media coverage, TheStreetSweeper has gathered enough disturbing material to shatter some of the most powerful illusions that surround the company and in turn undermine some of the most critical arguments that favor its stock. As the opening installment in that series, this story serves as a general overview that summarizes overlooked contradictions to popular myths about the company, with the most relevant of those – related to its business strategy, its leadership team and its track record – detailed more extensively in the remaining sections of the report.
Lot78 (LOTE): A Glorified Fad Headed for the Discount Bin?
As an overhyped microcap name touted by dubious stock promoters, Lot78 (OTC: LOTE) sure looks like a fashion stock that will soon go out of style. After rocketing all the way from $1 to $9 a share in recent weeks – an inexplicable spike that has left the bleeding retailer with a bloated $500 million market value that now exceeds 1,000 times its prior-year sales – LOTE bears an awfully close resemblance to another hot fashion pick that wound up with the shelf life of a momentary fad.
Forget about all of the warnings that LOTE has included in its official regulatory filings for a moment: the modest sales, totaling less than $500,000 annually, that actually declined last year; the relentless losses and lack of cash that drove the company to borrow $40,000 from its founder just to stay afloat; the onerous debt, owed to its major shareholder, that literally exceeds the dwindling sales mustered by the company over the course of the past year; the doubt expressed by its independent auditor over its very chances of survival; even the insolvent status of the company reflected by the imbalance between the meager assets and the far larger liabilities recorded on its books.
In fact, go ahead and forget about the reverse merger that magically transformed the company from a defunct energy firm into a highflying retailer – using a vehicle long associated with “pump-and-dump” schemes – that has somehow exploded to reach double-digit prices rarely achieved (let alone maintained) on the lowly penny-stock exchange. Granted, under the terms of that reverse merger, the original owners of the empty shell wound up holding almost half of the stock that now trades under the LOTE symbol and now stand to make a tremendous fortune by unloading those expensive shares with the stock in overdrive. Of course, now that LOTE has mysteriously surfaced on a foreign stock exchange that’s particularly vulnerable to manipulation, those lucky investors could further boost their outsized gains by actually selling some of that overvalued stock short – effectively betting on its decline -- and hitting a nice jackpot on any future collapse.
Overlook the fact that the founder’s citizenship makes it virtually impossible for poor, disgruntled shareholders to seek justice, should the need arise. Indeed, filings state:
"Our sole officer and director, Mr. Oliver Amhurst, is a resident of Great Britain. As a result, it may be difficult or impossible for our investors to effect service of process within the United States upon him, to bring suit against him in the United States or to enforce in the United States courts any judgment obtained there against him predicated upon any civil liability provisions of the United States federal securities laws."
Forget that, anyway. Simply focus on the glossy newsletter mailed to thousands of potential investors – courtesy of a massive publicity campaign with a $2.5 million budget that actually exceeds the total sales achieved by LOTE to date – instead.more...
Lululemon: Sheer lunacy
Lululemon Athletica’s pants fiasco is just getting worse, forcing the yoga gear company into a futile battle that we believe will persist and lead to missed earnings.
The pants debacle cost LULU an estimated $75 million -$86 million expected to cut earnings per share by 11 cents to 12 cents. But now, the company has pulled more garments and even more recalls could be ahead.
Last Friday, the company pulled clothing made of its candy-striped Luon fabric but did so quietly, notifying only a minority of customers who happened to catch the recall mention on LULU’s Facebook page. This comes almost a month after the initial recall of the core black Luon women’s pants. TheStreetSweeper wanted to ask LULU why the candy-striped bottoms were no longer listed on its website this week but LULU declined an interview.
Even more clothes may need to be recalled because the sheerness problem would be as bad or worse than the black Luon garments because of the characteristics of the fabric, according to a source with 29 years of experience, including many years with a key competitor.
Photographs show some colored pants offer little more coverage than panty hose.
The company, meanwhile, is striding forward in its tried-and-true fashion of not discounting, Day also assured analysts during the March 21 conference call.
Here’s what she said:
“We achieved these results in a very brand-appropriate way, and did not buy our comps through discounting, which ultimately would have harmed the brand. We maintained a full price strategy up to the holidays, then used our traditional warehouse sales as an effective and low-risk way to clear our inventory.” (italics added)
Just one week after she made that statement, the company quietly held a massive weekend sale.
LULU customers in New York, Dallas, Los Angeles and other cities sorted through racks loaded - and often reloaded - with numerous garments over three days. These were not just last season’s styles and colors but also new styles, according to our checks of more than 20 stores. In one case, the sale was so secretive that an irate customer said that, the day before the sale began in a New York City store, an assistant manager left a message on her phone saying there would be no sale.
The sales - which clerks or educators typically referred to as “markdowns,” (one former clerk says the word “sale” was strictly forbidden) - are common and continuing. Indeed, significant markdowns were offered in many stores we checked on again last weekend.
Educators in Las Vegas and Seattle stores said that customers can always find a rack or two of new and older styles marked down. In fact, the sales are directed by corporate headquarters, as a Vegas educator said that, while the store can exercise autonomy, it also gets weekly calls from corporate to learn which items to mark down.
LULU’s strategy of scarcity is the coveted key to keeping customers running to its stores to buy yoga gear on the spot at full price. This is not just something she alluded to in the March 21 conference call. Day has made it obvious time and again that brand-harming discounting is not the LULU way.
“Our guest knows that there’s a limited supply, and it creates these fanatical shoppers,” Day told The Wall Street Journal last year.
And in an interview on CNBC in January, Day reiterated LULU’s disdain of promotions: “You’re either going to play in that game of discount or you’re not. And we’re in the ‘not’ category,” Day said.more...
Bio-Reference: The Chilling Results of a Lie-Detector Test
Talk about a company that knows how to test the limits of credibility. By now, Bio-Reference Laboratories (Nasdaq: BRLI) has contradicted itself so many times that its own statements establish the company as blatantly deceitful at worst and dangerously unreliable at the absolute best. As illustrated by the string of conflicting viewpoints and glaring reversals that follow, most of them directly attributable to the company itself, Bio-Reference might face more than a few challenges if it dared an attempt at passing a lie-detector test.
* Bio-Reference claim: “The company has no knowledge of any government subpoenas about its billing practices.” (Source: email from Bio-Reference to TheStreetSweeper on Feb. 25, 2013)
* Contradictory evidence: “The company has, from time to time, received subpoenas from state agencies and from the Office of the Inspector General of the U.S. Department of Health and Human Services seeking documents relating to the company’s billing-related activities.” (Source: brand-new disclosure in Bio-Reference 10-K report for the 2012 fiscal year filed by the company – and certified by its CEO and CFO as reliable – on Jan. 14, 2013)
* Bio-Reference claim: “Let me just go emphasize. In women’s health, we make these tests available. The doctors order these tests. They order the Pap smears. They will order whatever molecular test that they want. We don’t do that … We may monitor what they do and make sure, if we can, they don’t over-test … But these doctors choose it.” (Source: Bio-Reference CEO Marc Grodman downplaying the potential for excessive use of high-end specialty tests sold by its GenPath subsidiary during a quarterly conference call on May 26, 2011)
* Contradictory evidence: “$300 visit + $845 lab bill for an annual checkup. Lab is called GenPath, and they conducted fraud on my insurance and me by charging for some kind of tests that were never ordered. Seaside staff member said: ‘I think the lab is regularly overcharging patients like this and, when they charge the insurance, they don’t return anything.’ ??? After several aggravated calls to Seaside, they finally persuaded the lab to waive the out-of-pocket fees, but are still keeping what they’ve stolen from my insurance. This is wrong on many levels and could happen to you.” (Source: an online review posted in December of 2012 by Diana Konrad, a San Diego photographer who underwent a routine Pap smear only to later discover that GenPath had billed her Blue Cross/Blue Shield plan for a far more elaborate test – without prior authorization from her physician – and allegedly pulled the same trick with others on a regular basis)
* Bio-Reference claim: “The change in the BlueCard … is a complex issue which, for the most part, only became effective as of January 1, 2013. At this time, the company believes it is too early to ascertain potential impacts on its business.” (Source: email from Bio-Reference to TheStreetSweeper on Feb. 25, 2013)
* Bio-Reference claim: “Based on our current experience with billing, we believe the change in the BlueCard program will not have a material effect on our business this year … I think it’s creating a lot of confusion, (but) we’re comfortable in being able to say that, overall, the impact is not going to be significant for us.” (Source: conference call hosted by the company to review its first-quarter results and full-year outlook on Feb. 28, 2013)
* Contradictory evidence: “Something else is occurring now that could be very difficult for some of us in independent laboratories. (Soon), the easier access that BlueCard afforded the patient will be gone … If we’re shut out of the game before that change evolves, then we won’t be able to compete … Think of it this way: The Blues will be able to do what the FDA could not do to stop innovation and new testing, because you simply will have no ability – no way, no mechanism – to bill, except to have the patient pay for it out of his or her own pocket.” (Source: speech given by Bio-Reference CEO Marc Grodman to fellow lab executives in May of 2012 ahead of the nationwide BlueCard change)
* Contradictory evidence: “Some labs are seeing as much as an 85% drop in Blue Cross payments. This is going to cause regional laboratories a big financial hardship … It’s something that we’re struggling with tremendously.” (Source: fallout from the BlueCard change witnessed by Alice Carroll, president of Revenue Cycle Consultant, a firm specifically hired by labs to help enhance their billing systems and bolster their collection rates)more...
Bio-Reference (BRLI): Overdue for a Dose of Shock Therapy?
Don’t be surprised if Bio-Reference Laboratories (Nasdaq: BRLI) finds itself stuck with so many rejected claims that, after years of relentlessly pushing expensive specialty tests, the company finally starts to look like a victim of its own success.
Take the flood of denials that Bio-Reference can expect from the most dominant health insurer in the entire country. While far from the only setback that Bio-Reference has encountered -- with a whistleblower reporting government scrutiny of its past billing practices, for example, and multiple insurers disputing its claims for tests on suspected con artists – this one potentially represents the most immediate threat.
Last fall, two weeks before Bio-Reference opened its books on the quarter that it will review tomorrow, the Blue Cross and Blue Shield Association closed a major loophole in its flexible BlueCard program that stripped regional labs of their former access to BCBS plans outside their own borders. Ever since BCBS enacted that nationwide policy, records indicate, Bio-Reference has effectively operated as an out-of-network provider – subject to copayments, deductibles and routine denials – in every state except for the handful where the company actually holds contracts with local BCBS plans. As a regional laboratory that generates 60% of its revenue from lucrative “esoteric” tests that it markets all over the country, where one-third of the population relies on BCBS for health benefits, Bio-Reference could theoretically lose 20% of its business due to this overlooked measure alone.
“Some labs are seeing as much as an 85% drop in Blue Cross payments,” said Alice Carroll, president of Revenue Cycle Consultant, a firm specifically hired by labs to help enhance their billing systems and bolster their collection rates. “This is going to cause regional laboratories a big financial hardship … It’s something that we’re struggling with tremendously.”
Just ask the labs themselves. Fearing outright ruin, several regional laboratories have already raced to sue BCBS in a desperate attempt to reverse the BlueCard policy and escape the massive fallout that they otherwise expect. Their own panic devastatingly obvious, the plaintiffs warn of widespread casualties throughout the industry -- with “even the most distinguished reference labs” weathering painful blows, “hundreds of molecular and specialty labs” failing altogether and “the entire molecular industry” soon vanishing for good.
No wonder Bio-Reference started acting like some frantic last-minute shopper over the recent holiday season. Just weeks after Bio-Reference boldly predicted yet another blockbuster year, forecasting a 15% surge in revenue despite a potential dive in BCBS payments that could erase those projected gains, the company suddenly took a radical detour from its regular strategy by splurging on a couple of obscure labs far away from its Northeastern base. During a rare shopping trip that caught little (if any) attention from analysts distracted by the festive holidays, Bio-Reference blew almost $9 million – roughly one-third of the cash in its bank account – on a pair of labs down in Florida and specifically cited their local BCBS contracts as a primary reason.
Since Bio-Reference never even bothered to mention the pesky BlueCard change to its investors, long accustomed to blowout financial results, the company better hope that it can somehow land enough extra business in Florida to offset the potential losses that it faces in elsewhere throughout the country.
Blowing the Whistle on Cyberonics
(Editor's Note: TheStreetSweeper is pleased to introduce a brand-new investigative report by Infitialis under a special arrangement that gives our own readers the chance to see this groundbreaking research first. We welcome this opportunity.)
We are Infitialis, a research collective that systematically exposes fraud and folly in financial markets. Since August 2012, we have published 10 meticulously researched exposés on companies that we believed had engaged in unscrupulous behavior or exhibited unsustainable market valuations. Below you will find our track record disclosing each of our exposes, the date of publication and the subsequent price action following the publication of our research.
Price on Date
Suspended by SEC
Each and every one of our reports has contributed to a profit with an average decline of 71% from the time of publication. Today, we present our highest conviction exposé yet highlighting folly in the form of a significant valuation bubble. More importantly, we present -- with the help of a whistleblower -- very serious allegations of unscrupulous and potentially fraudulent activity on the part of NASDAQ-listed Cyberonics, Inc. (NASDAQ: CYBX). These detailed allegations have been documented in an amended complaint filed by the whistleblower in Massachusetts Federal Court just a week ago on January 16, 2013.
This is the first time these allegations and this lawsuit are being disclosed to the investing public, as the company failed to do so even as the original complaint was filed on August 8, 2012 -- well within the disclosure period of the last 10Q.
CYBX: Our Highest Conviction and Most Asymmetric Expose Yet
In this report, we present the culmination of nearly two months of research into Cyberonics, Inc. which resulted in our belief that the Company will never grow into its current $1.5 billion valuation in the bull case and may decline by 80% in the bear case should any of the allegations in the whistleblower suit be proven in federal court.
We will start by objectively reviewing the science behind the CYBX device in an effort to understand whether the device actually works or is simply being marketed by the Company as the end-all treatment for various medical conditions.
Next, we will provide an analysis on the effectiveness of the treatment for depression (a new frontier the company has been touting for years). This analysis is important, as the analyst community is currently relying on growth in the depression market to rationalize a mathematically irreconcilable share valuation.
Finally, we will unveil the very serious whistleblower allegations which we believe reveal the missing piece in the puzzle of the CYBX business model: Cyberonics management team incentivizes its sales organization to engage in unscrupulous and potentially deadly behavior all in an effort to juice its top-line revenue, while insiders sell unprecedented amounts of stock into the market.
We will end the report with three valuation assumptions for CYBX -- bull, base and bear -- that incorporate all the qualitative and quantitative data in this report.
PSS World Medical: Prognosis Undetermined
PSS World Medical (NASDAQ: PSSI) is a shopaholic with more than 100 acquired companies under its belt and a recurring need to reinvent itself to try to keep up with the competition.
The distributor of bed pans, medicine and similar items is lugging around heavy debt - and the torment of posting its lowest net income in 25 straight quarters.
A forensic accountant who reviewed some of the Jacksonville, Fla.-based company's documents also pointed out some scars in its finances.
"It wouldn't surprise me if the company was trying to hide something," said Keith Mautner, a San Diego, Calif.-based forensic accountant.
"They're doing things companies that engage in fraud also do, but that doesn't necessarily mean they are engaging in fraud themselves," Mautner added.
PSSI, market cap $1.1 billion, distributes medical products primarily to doctors' offices, but also long-term care and assisted living facilities, and home health-care and hospice providers.
PSSI management did not return telephone calls requesting an interview with TheStreetSweeper.
Some PSSI issues that deserve closer examination:
* Falling profits; history of missed estimates
* Failed buy-out shears shareholders, fires up concerns
* Heavy debt
* Restructuring bothers analysts
* Some analysts downgrade
* Losing out to big competitors
* Inadequate hospital distribution
* Insiders selling
Falling Net Income and Long History of Missed Estimates
It's been a long, long time - 25 quarters - since PSSI has reported such dismal net income. The company's income fell to $10.7 million this past quarter. That profit - damaged by increased general and selling expenses, plus new acquisitions - compares with about $20 million in each of the previous three quarters.
Investors have to look way back to June 2008 to find income that dipped as low. The income dropped to $9.4 million then.
And PSSI continues to fall short of Wall Street expectations again and again. The company has missed revenue estimates for the last five quarters in a row and missed on earnings per share for the past three quarters, recently posting 18 cents actual versus 21 cents expected.
In an email to TheStreetSweeper from Goldman Sachs, it's clear that one of the world's largest investment banks does not like the direction PSS is headed, either. Goldman maintained its "sell" rating recently and lowered its estimates of the company's future performance.
"After reporting both a top-and bottom-line miss, it is difficult to gain increased conviction in the company's ability to meet both its near and long-term goals in a clearly still difficult environment," analyst Robert Jones wrote in the research report emailed to TheStreetSweeper.
"Although management made no changes to the long-term outlook for the company, we believe investors will be looking for several quarters of positive performance before better understanding the growth trajectory."
Goldman lowered 2013 earnings estimates from $1.14 down to $1.05. The 2014 estimate dropped to $1.30 from $1.55, and the 2015 expectation dropped to $1.37 from $1.65.
"We make no change to our Sell rating, as the quarter does little to change our fundamental view of the company and industry at this point," Jones continued.
Other analysts are also debating whether PSSI can really pull off the $1.11 to $1.15 earnings per share that management has guided them to expect for its fiscal year 2013.
"The continuing operations earnings number was 18 cents ..." Larry Marsh, Barclays Capital analyst said during a recent conference call. "Obviously, if you back out the first quarter (looking at $1.11 to $1.15 earnings) … that would imply you got to do $0.30 to $0.35 a quarter for the next three quarters. You are confirming that that's very much doable based on results today?"
"Yes," PSSI chief financial officer David Bronson said.
He also conceded that there will likely be some "choppiness" in results over the next few quarters as the company completes divestitures, reorganizes, adds to sales efforts and restructures its shared service support.
A New York City doctor who views PSS from the customer's standpoint sums up his take on the situation more bluntly.
"This is a desperate company," said the urologist, who wants to remain anonymous and is short PSSI.more...
Tangoe: Dancing on an Old Grave, Digging a New Hole?
* Editor's Note: The following story is the first installment in a two-part investigative report on Tangoe (Nasdaq: TNGO), with the second article scheduled to soon follow.
Talk about tricky moves. As a young public company with a tainted leadership team and an expensive shopping habit, Tangoe (Nasdaq: TNGO) could have easily tripped over tough questions alone by now. So far, however, Tangoe has spent more than a full year successfully dancing around a maze of potential landmines.
While the previous company led by its CEO and CFO literally exploded – with the pair directly blamed for that notorious collapse – and its growth depends more heavily on acquisitions than management likes to admit, records indicate, Tangoe has yet to stumble even once since it burst onto the stage. A $20 highflier, in fact, Tangoe trades at a rich premium when compared to both the general sector overall and the specific multiples that it has paid for the companies it keeps buying to fuel its amazing growth.
Hatched a dozen years ago just as the first public company long steered by its top executives approached death, Tangoe specializes in the niche arena known as telecommunications expense management (TEM). In a nutshell, Tangoe basically promises notable reductions in a major ongoing business expense by using a technology-driven system designed to shrink the bloated bills that companies often receive for everything from Internet to landline and cell phone services.
Currently in the midst of a muscular growth spurt, Tangoe has spent the past two years gobbling up smaller players that resemble itself in order to further bulk up its own share of that tasty market. That feast has cost a fortune, however, with growth-hungry investors footing much of the tab along the way.
Tapping the capital markets twice in the span of just 10 months, records show, Tangoe has raised a combined $100 million (after fees) and effectively spent most of that to fuel the very growth that makes its stock look so appetizing in the first place. In a shopping frenzy that began around the festive season and never really stopped, records show, Tangoe has managed to run up a bill totaling more than $75 million on acquisitions so far (not counting the $4 million owed on previous deals) and still remains on the hunt for even more.
Because of that expensive (and often risky) growth strategy, Tangoe looks an awful lot like the so-called “rollup” companies that have by now given investors plenty of reason for alarm.
As the last acquisition-driven company examined by TheStreetSweeper has already proven, those highfliers can sometimes crash in spectacular fashion. Just look at Swisher Hygiene (Nasdaq: SWSH) for some timely evidence. The stock chart for that rollup company tells a horror story (briefly summarized later) all by itself.more...
Medivation: Intoxicating Rally ... Imminent Hangover?
Until Medivation (Nasdaq: MDVN) can actually produce a commercial drug that lives up to the hype – now at levels that suggest a looming blockbuster even bigger than the market that it aims to serve – it will remain the same overvalued company it has always been since its 2004 debut on the penny-stock exchange. A highflier trading on the mere promise of a breakthrough treatment ever since it originally went public, utilizing a reverse-merger process long associated with pump-and-dump scams, Medivation has still yet to introduce a single product to the marketplace.
Despite the miserable failure of its original drug candidate, a Russian antihistamine fruitlessly tested for years as a treatment for Alzheimer’s disease, Medivation has staged a phenomenal comeback. Thanks to promising late-stage trials of its remaining prospect, a prostate cancer drug that allows dying patients to live a few weeks longer than rival breakthroughs on the market, Medivation already looks like a remarkable success. With its stock exploding from $15 to a recent all-time high of almost $90 a share, Medivation has managed to achieve a $3 billion market value well ahead of the long-awaited launch of its very first drug.
To Wall Street, the new Medivation treatment obviously seems like a valuable breakthrough. To urologists who spoke with TheStreetSweeper, however, that medication looks like just another temporary fix with an outsized sticker price.
“Most of these drugs tend to cost around $100,000,” one doctor emphasized. “That’s a lot of money for a few months of life.”
A former member of the Medivation board actually shares that point of view. While Medivation has yet to publicly announce the price of its new prostate cancer drug, Enzalutamide (previously MDV3100), the former director pegs the cost around $120,000 – higher even than an expensive rival and more than double the reported cost of a similar drug – while portraying the benefits as limited at best. He suspects that health insurers could easily reach a similar conclusion, restricting coverage of a six-figure drug that results in even steeper medical bills for terminal cancer patients, with that push-back ultimately curtailing sales.
By now, Dendreon (Nasdaq: DNDN) has already tested the same market – with miserable results – by charging anenormous price for a breakthrough prostate cancer treatment of its own. When Dendreon first secured approval of its $93,000 Provenge cancer vaccine two years ago, Reuters noted, bullish analysts automatically expected the drug to achieve blockbuster status. With doctors reluctant to even order the vaccine because of its gigantic sticker price, however, Dendreon soon lost its popularity on Wall Street and ultimately emerged as an outcast.
Medivation currently trades at even loftier levels on the promise of a rival drug that may cost even more, but its former director wonders just how long that gigantic premium can last. While he fully expects the company to secure approval from the U.S. Food and Drug Administration to market its new therapy, he still views Medivation as a $20 stock and nothing more.
“Look, I think it’s the most overpriced pharma stock out there,” he bluntly told TheStreetSweeper after selling his own shares. “I don’t know what’s holding that stock up.”more...
Jive Software: A 'Social Butterfly' with Borrowed Wings?
Jive Software (Nasdaq: JIVE) may look incredibly hip right now, as a standout performer in the popular social media space, but the company largely owes a short-term “sympathy rally” – trumpeted by a suspicious firm that placed a bet on its stock – for its superstar status.
After debuting as a hot new Internet play last December, when it jumped 25% at the opening bell, Jive soon lost its early sizzle and spent more than a month simply trying to hold onto its original gains. That pattern continued until early February, when Facebook registered for its initial public offering and set off an explosion that ignited even long-shot players in the field. Jive itself finally caught on fire at that point, a notorious stock promoter loudly broadcasting its outsized gains, and spent two full months on a flight due north that took its stock all the way from $15 to $28 a share.
Jive executives now look incredibly rich as a result. They control almost a third of those highflying shares, records indicate, with the two young cofounders – who established Jive while in their early 20s (before Facebook revolutionized the entire industry) – boasting a combined net worth of more than $300 million all by themselves.
“Apparently, there is inherent value in any software company that has the word ‘social’ included in their business summary,” a Motley Fool contributor marveled back when Jive first escaped from the powerful forces of gravity. “But what has changed? (And) what will happen once the FB hysteria settles down?”more...
Jive Software: Current Star, Future Wallflower?
Talk about fancy moves. Before Jive Software (Nasdaq: JIVE) finally stumbled a few weeks ago, hammered by a wave of selling pressure that could dramatically escalate from here, the bleeding social media company danced all the wayfrom $14 to $28 a share – virtually doubling in a brief 70-day span – without any major breakthroughs on its part. Jive instead relied on a powerful “sympathy rally” for most of those huge gains, records indicate, suddenly exploding to life after Facebook announced plans for an initial public offering that temporarily shifted attention away from its own plight. (See the main story above for a detailed review of that hyped-up rally.)
Since Jive itself went public barely five short months ago, the company faces a looming overhang that could soon pound its richly valued shares. When Jive carried out its IPO late last year, past news coverage reveals, the company originally released less than one-quarter of its shares onto the public market and subjected the vast majority of its stock to trading restrictions that will expire very soon.
Come June, records indicate, Jive could see roughly 38 million additional shares of company stock – much of it originally priced around $5 a share or less – start pouring into the marketplace. With Jive currently fetching almost $24 a share on the open market, where daily trading volume averages around 500,000 shares (the equivalent of just 1.3% ofthe restricted shares set for release), the stock looks rather vulnerable to say the least.
Jive actually took an early hit before its lockup period officially expired, a familiar pattern among young Internet stocks– such as Zynga (Nasdaq: ZNGA), Groupon (Nasdaq: GRPN) and even current standout LinkedIn (Nasdaq: LNKD) – that enjoyed temporary honeymoons after their celebrated public offerings last year. While Jive maintained its stamina longer than some other newcomers to the sector, records show, the stock finally reversed course about a month ago. Jivelost 20% of its value in the weeks that followed, shedding much of that during a heavy two-day selling spree, with the share count in its freely trading “float” somehow expanding (despite continued lockup restrictions) along the way.
Two venture capital firms control most of that restricted stock, records indicate, with both of them already recording massive returns on their investments at this point. Corporate insiders sit on a mountain of cheap restricted stock as well,records show, including a CFO who previously kept the books for a pair of young highfliers that soon collapsed and vanished from the stock market as the result of fire sales.
“JIVE is one of the few IPOs holding up,” one investor noted last month, shortly after cutting his own stake in the company. “Gotta feeling its days are numbered.”more...
Sunpeaks (SNPK): Will This Hot Stock Go up in Flames?
Editor’s Note: TheStreetSweeper has prepared a more comprehensive report on Sunpeaks Ventures (SNPK) and the promotion of its stock, which can be accessed by clicking here.
Sunpeaks Ventures (OTC: SNPK.OB) may sport a humongous $725 million market value right now, but it’s still the same dinky vitamin distributor that captured little business – or attention – before AwesomePennyStocks decided to aggressively pump up its shares. A bleeding company with just $3,562 in revenue at the time of its latest financial report, Sunpeaks operates from an “executive office” that resembles a garage and peddles a vitamin supplement that costs three times as much as a similar product found on the shelves of CVS drugstores today.
As is often the case in the microcap arena, of course, the SNPK story is more about the extraordinary promotion of the stock than it is about the company itself. Until recently, SNPK remained an empty Nevada shell with plenty of stock – some 370 million shares – but no real business yet at all.
SNPK morphed into a vitamin seller a couple of months ago, however, with its stock bursting onto the market a few weeks later in a flurry of trading activity. Although SNPK initially rose just 1 cent to 43 cents a share on March 8, its opening day of trade, it enjoyed massive volume from the start, with 160 million shares of the stock instantly changing hands.
At that point, AwesomePennyStocks – the most powerful promoter in the business – had just begun touting SNPK to a vast network of subscribers who soon rushed to scoop up the brand-new shares. Barely one month later, with 50 promoters in charge of 351 different newsletters pumping the stock, SNPK has literally quadrupled in price and now commands $1.70 a share.
Like a select group of early investors, Whetu Inc. – a mysterious Panamanian firm that inherited a big chunk of SNPKas it emerged from its empty shell -- now sits on an outright fortune as a result. After issuing a modest $110,000 promissory note to SNPK last summer, records show, Whetu wound up with 50 million of its highflying shares. That stock, if sold at current prices, would command a whopping $85 million today.more...
Questcor: The Secret behind Its 'Miracle' Drug
* Editor’s Note: The following article is the second installment in a two-part investigative series on Questcor Pharmaceuticals that began earlier this week. The original story can be found just below this one on the homepage.
Thanks to patients like Garry Sefcovic, who suffer from a common form of multiple sclerosis punctuated by debilitating “flares,” Questcor (Nasdaq: QCOR) has seen orders for its only major product – an old drug viewed as worthless by its previous owners -- literally explode in recent years.
Yet Sefcovic, for one, wishes that he had never even tried that high-priced drug. Last winter, when he sought treatment for a painful MS flare, Sefcovic assumed that he would receive the same cheap IV steroids that had effectively relieved his condition in the past. He wound up seeing a different neurologist, however, who automatically prescribed Acthar Gel – sold by Questcor for a whopping $27,000 per dose – to address his MS flare instead.
“I have good insurance and a chronic disease fund that will pay my deductible,” Sefcovic noted when speaking withTheStreetSweeper late last year. “They made a lot of money off of me.
“Then they had to give me steroid pills after the Acthar,” he added. “I should have just been put on the IV steroids right away.”
Several giant health insurance companies – such as Aetna (NYSE: AET), Cigna (NYSE: CI) and Blue Cross/Blue Shield (BCBS) – would clearly share that reasoned point of view. In fact, as a matter of policy, they officially mandate IV steroids as a first-line treatment for MS flares and normally refuse to cover Acthar for patients who can rely on that cheaper therapy instead.
Notably, Sefcovic receives health insurance coverage from a company -- Medical Mutual -- that subjects Acthar to a careful pre-authorization process as well. Rather than automatically covering Acthar for the treatment of MS flares,records show, Medical Mutual specifically asks whether the patient “had a FAILURE or INTOLERANCE to treatment with corticosteroids” in the past and whether the patient is “a candidate to receive treatment with corticosteroids” at the present time. At that point, records indicate, the insurer then authorizes coverage of Acthar only for those patients who cannot use traditional steroid therapy to provide them with relief.
In contrast, Questcor has taken a far more liberal stand on those who should qualify for its pricy drug. Reaching beyond the narrow population of outright steroid failures, records indicate, Questcor also markets Acthar for other MS patients who simply fail to achieve the same “baseline function” that they enjoyed before their flare-ups occurred. Since many MS victims fall short of this success (as illustrated by the progressive nature of their disease), critics feel, Questcor has effectively repositioned Acthar as a first-line treatment for many patients who should receive cheaper steroid therapy instead.
Despite the clear restrictions placed on Acthar for the treatment of MS flares – the primary condition addressed by that medication today -- Questcor has achieved remarkably high reimbursement rates for its obscure drug. Even though Questcor has seen its coverage rate for Acthar slip over the past couple of years (declining from between 90% and 95% to “generally above 85%” in the latest quarter), records indicate, health insurers continue to pay the vast majority of those expensive medication claims.
That said, however, Sefcovic clearly feels that his own insurance company wasted a pile of money on an overpriced – and ultimately ineffective -- drug that he should have never even received.
“I actually would have preferred steroid treatments first, as I’ve always done in the past,” he said in a follow-up email toTheStreetSweeper earlier this week. “I lose a lot of faith in doctors this way.”more...
Questcor: A Bold Strategy Threatened by the Fine Print?
* Editor’s Note: The following article is the first story in a two-part investigative report on Questcor Pharmaceuticals, with the second installment currently scheduled for release by the end of this week. To receive immediate notification when the second article appears, click on this link to sign up for a free email alert.
As a longtime nephrologist, Dr. Gerald Stephanz felt somewhat surprised when a sales representative suggested that H.P. Acthar Gel – a 60-year-old drug marketed by Questcor Pharmaceuticals (Nasdaq: QCOR) – might help some of the patients he treats for kidney-related disorders.
Stephanz had last used Acthar decades earlier, when caring for a patient suffering from multiple sclerosis during his residency, and had practically forgotten about the ancient medication since that time. He did remember that Acthar had once sold at a relatively cheap price, however, and that it had largely fallen out of favor after powerful IV steroids –embraced as a superior alternative – arrived on the scene. So the new price tag for Acthar (more than $25,000 a dose) and the new focus on nephrology (without solid clinical data) struck him as rather odd, to say the least.
Stephanz, for one, saw no compelling reason to try the expensive drug. He also felt offended by the “aggressive tactics” that led to a follow-up sales pitch at his office.
“They have this package they give you,” he explained. “But the label doesn’t have any specific indication for any treatable kidney disease that I can see … How are they going to market this?”
By capitalizing on its high price (raised 1,300% literally overnight) and its broad label (approved in 1952 based on its perceived safety alone), Questcor hopes to transform Acthar into a true blockbuster drug. Questcor views Acthar as afull-blown pipeline, in fact, relying on that single medication for virtually all of its current revenue and its forecasted growth as well.
Although Questcor reportedly paid just $100,000 for worldwide rights to Acthar – a product abandoned by its previous owners as a hopeless money-loser – the company now charges up to $250,000 for a single course of treatment utilizing that once-neglected drug. All told, Wall Street estimates, Questcor sold more than $210 million worth of Acthar in 2011 and – if recent growth trends prove sustainable – will likely see that total soar past $330 million over the course of the current year.
Questcor originally re-priced Acthar as an orphan drug used for an ultra-rare disease, records show, but the company now derives most of its revenue from soaring prescriptions for more widespread medical problems instead. In recent years, Questcor has dramatically expanded the market for Acthar by promoting it as a second-line treatment for patients who suffer from a common type of multiple sclerosis punctuated by debilitating flares. (TheStreetSweeper focuses primarily on that core market in the second part of this investigative report.) Inspired by that growth – driven in large part, former insiders say, by heavy prescribers who can pocket unlimited “speaker fees” for promoting the drug to others in the field -- Questcor has set out to replicate that success by pitching Acthar for another medical condition as well.
Last week, however, Questcor dropped a potential bombshell about this promising frontier.
Questcor has routinely stated that it can market Acthar as an “on-label” treatment for nephrotic syndrome – including a specific kidney disease related to NS known as idiopathic membranous nephropathy (iMN) – and even announced plans, earlier this month, to double the number of sales reps focused on this profitable arena. That sales team has already generated plenty of new business for the company in the meantime, records show, with Acthar prescriptions for NS rocketing 145% (on a sequential basis) in the fourth quarter of 2011 alone. Less than a year after aggressively breaking into this brand-new market -- where each patient represents a handsome six-figure opportunity -- Questcor now counts NS as its biggest, and its most lucrative, growth driver by far.
While Questcor has long indicated that it can freely market Acthar for this condition (and has funded a minor study,focused on iMN, that serves as a critical sales aid), however, the U.S. Food and Drug Administration has expressed a far more conservative view on this important matter.
“The approval of this product for this particular use predates the modern FDA ‘efficacy’ requirement,” the agency noted in an email to TheStreetSweeper earlier this month. “For that reason, we feel that it is best to stick to the exact wording used in the label (i.e., induce a diuresis or a remission of proteinuria) and not say that they treat the disease.”more...
Universal Display: A Real Work of (Prior) Art?
For its part, UDC has long proclaimed that its research partners at Princeton University first discovered modern organic light emitting diode (OLED) technology in the late 1990s and then went on to develop the actual OLED materials that now illuminate the display screens of some popular handheld devices found on the market today. In fact, however, outside researchers actually reported similar achievements years before UDC ever arrived on the scene. Armed with evidence of that “prior art,” UDC rivals now hope to severely weaken – if not completely destroy – the broad OLED patents secured by the company.
From the start, UDC has basically relied on two early patents to serve as the foundation for its entire portfolio. The first established the design of its fundamental technology, known as the “OLED stack,” while the second covered the special “emitter” compounds – since limited to iridium by patent authorities overseas – that generate the light in OLED-powered screens. By the time that UDC received (or even requested) those far-reaching patents, however, others had already documented similar breakthroughs in the field.
UDC did not respond to questions for this story.
Phillips Electronics actually patented a multilevel OLED stack back in the mid-1990s, records show, some two years before UDC followed up by presenting that same type of design. Moreover, when Phillips described the core elements of its invention in 1995, the company used the same kind of language – at times almost identical in nature – that UDC would later include in a related patent issued to the company six years down the road.
Phillips is now challenging a European version of that UDC patent overseas, records show, using its own patent (along with the early research of others) to portray its smaller rival as a glorified copycat. In a nutshell, Phillips argues, UDC secured an unfair patent – based upon technology that “is not new” and “does not involve an inventive step” – that the company arguably should have never received at all.
Similarly, records indicate, UDC followed in the footsteps of others when formulating the “unique” OLED emitter materials – specifically those derived from iridium --covered in its second major patent as well. Long before UDC showcased this development, records show, outsiders had already traveled down that same path by establishing the power of iridium to generate light. Researchers at the University of Southern California-Santa Barbara first highlighted this breakthrough two full decades ago, in fact, with a separate group of scientists further advancing that discovery – using iridium to create light at room temperature this time – that same year.more...
RAYS of Sunshine ... or Clouds of Doom?
Raystream (OTC: RAYS.OB) recently began lighting up the skies of Pennyland by proclaiming that it had developed a new video-compression technology that outshines anything on the market today. In reality, however, Raystream appears to be selling open-source software – available at no charge – to anyone who wishes to use it. That software, known as “x264,” can be downloaded here for free.
Raystream burst into the spotlight with the help of an aggressive promotional campaign financed by an outfit known as Unlimited Trade, which also furnished startup money for the company. In a striking coincidence, covered in more detail below, Raystream and Unlimited Trade share a common link with a once-famous – but now-fallen – German Wunderkind named Tan Siekmann.
When Raystream began trading under its current symbol this fall, the company issued a press release introducing the public to its video compression software. At the time, Raystream CEO Brian Peterson proudly declared that the company’s “disruptive technology could forever alter the way business is done online.” The announcement further explained that this “proprietary” technology “could reduce the bandwidth required to stream HD video online by up to 70%.”
The next day, Raystream revised that figure to “up to 90%” and revealed that – thanks to a generous infusion from Unlimited Trade – the company now had almost $2 million in cash on hand. Raystream and its promoters spent the weeks that followed celebrating the importance of this technology, boldly predicting that it was likely to unleash a torrent of demand.
So who, exactly, is the genius responsible for this magical breakthrough? The CEO runs a Dallas-based digital signage company known as Peterson-Hines and, upon joining Raystream, brought most of his staff from that firm (who worked as salespeople) along with him. Only Raystream Chief Information Officer Roman Rumpf and his sidekick Thomas Friedl, who heads the company’s German subsidiary, appear to have any real technology experience.
More importantly, just how “proprietary” is Raystream’s video-compression technology? Not at all, it appears. On its website, Raystream invites the public to view a slick video that illustrates the technology’s capabilities. While no technology publication has reviewed -- or even discussed -- the Raystream software, a few techies took an interest in itand then took a close look at that video as well.
With little effort, they made a remarkable discovery. They found that the Raystream source code begins like this: x264 - core 112 - H.264/MPEG-4 AVC codec - Copyleft 2003-2010.
In a nutshell, that code reveals that Raystream “created” its technology using x264 – an open-source video-compression encoder based on the H.264/MPEG-4 AVC codec – that serves as the industry standard. Comically enough, Raystream never even bothered to change any of the default parameters included in that sequence.
Jason Garret-Glaser, one of the developers behind x264, told TheStreetSweeper that Raystream could have better concealed its secret by simply removing the header that included the telling “x264” within it. Thanks to that oversight, however, that four-digit introductory code jumps out as the first thing that anyone who examines the code will see.more...
Bio-Reference (BRLI): Loads of Dirty Laundry
* Editor’s Note: The following article is the second story in a two-part series on Bio-Reference Laboratories. Click hereto access the first article.
Back when Bio-Reference Laboratories (Nasdaq: BRLI) first began to capitalize on the growing market for lucrative specialty tests, the company installed a new executive – later accused of demanding “envelopes full of cash” from his underlings – to help oversee its big expansion plans.
Bio-Reference employed former Vice President of Sales John Littleton for the better part of a decade – delivering record numbers to Wall Street along the way -- before finally terminating him in early 2009 over suspected violations that had, by then, apparently dragged on for years. At that point, Bio-Reference itself calculated, Littleton had improperly collected a staggering $1.6 million by abusing his expense account and collecting secret bounties for recruiting new employees to the company. Although Bio-Reference ordered Littleton to forfeit that mountain of cash (pocketing funds allegedly owed to its extorted sales representatives instead), records show, the lab curiously stopped short of filing actual charges against him.
“BRL brought no criminal prosecution of Littleton, though his actions were self-evidently criminal,” court filings state. Moreover, “it did not inform its shareholders of the details of his actions …
“BRL simply accepted the $1.6 million – the proceeds of extortion – without returning any of it to the victims of the scheme,” the documents add. “In fact, Senior Vice President of Sales Charles Todd laughingly announced at a meeting of sales managers that BRL had just lowered its overhead by $1.6 million” as a result of that big payment.
A regular magnet for con men back in its early days, Barron’s observed this year, Bio-Reference has long blamed its checkered past on honest mistakes made by a young and naïve company. Even as a well-established laboratory, however, Bio-Reference has apparently failed to break free of that familiar pattern.
Bio-Reference still employed Littleton less than three years ago, for example, while the company continues to embrace Todd – accused of ignoring (and possibly joining) his former aide’s extortion scheme – as one of its most important leaders to this day. The company has installed an outright felon in its executive suite as well, records show, granting him the second-largest compensation package awarded to any member of its senior management team. Bio-Reference even faces some lingering ties to organized crime, court records indicate, with a suspected Gambino associate recently filing a multimillion-dollar lawsuit against the lab for allegedly breaking its promise to resume paying him once he got out of jail.more...
Is Bio-Reference Laboratories as Healthy as It Seems?
With that test, known as GenPap, Bio-Reference greatly expanded the scope of a routine screening tool used on more than 50 million American women each year. By the time that GenPap hit the market, however, gynecologists had already spent decades effectively utilizing traditional pap smears and (if warranted) cheap supplemental tests to diagnose the most prevalent disorders suffered by the patients they treat.
While those mainstream laboratory tests narrowly focus on a handful of widespread conditions, singled out as relevantby government authorities, GenPap screens for about 20 different organisms (some of them viewed as harmless) linked to both common and rare disorders alike. In fact, as detailed more extensively below, at least one of those 14 ailments -- virtually absent except for occasional cases in a limited number of states -- barely registers as a disease in this country at all.
Nevertheless, Bio-Reference promotes GenPap as a valuable test for “essentially all women” and employs an aggressivenationwide sales force to court the doctors who take care of them. Although Bio-Reference has reported explosive growth in its young women’s health division since launching GenPap, however, even some fans of the test question its suitability for such a broad swath of the female population.
“I use it selectively,” says Dr. John Siegle, a veteran obstetrician/gynecologist who trains third-year residents in the field. “It’s very, very pricey and not really cost-effective for society.
“If used selectively and appropriately, there is a place for it,” he adds. But “they’re pushing us to do this on everybody. (And) that can’t – that shouldn’t – be done.”more...
Universal Display (PANL): Sharp Rise, Fuzzy Picture
For a company that likes to brag about the sharp images created by its superior technology, Universal Display Corporation (Nasdaq: PANL) sure has painted a fuzzy picture for investors who helped recharge its fading stock.
Less than two months ago, PANL had fallen below $25 a share – down sharply from the $63 peak it achieved this spring – on fears about a crucial contract used by Wall Street to assess the potential value of the company. PANL had by then spent more than a year simply extending its original contract with Samsung, its largest commercial customer by far, collecting royalty payments for use of patented technology that ranks as the smaller company’s primary asset. WhileGoldman Sachs and other bullish followers of the stock widely expected a jump in that royalty rate under a renegotiated deal, however, PANL ultimately revealed that the company would no longer receive royalty payments from the giant cell phone maker at all.
PANL nevertheless soared 85% the week the company announced that new long-term agreement, adding $1 billion to its market value in the span of five short days, with analysts mistakenly assuming that PANL would continue to receive royalty payments – but at an even higher rate – until the company itself ultimately proved them wrong. According to aheavily redacted version of that important contract, stripped free of any financials terms that would expose the true value of the deal, PANL will receive a mere “license fee” from Samsung – rather than royalties based on actual sales of products using its patented technology – and (unspecified) revenue from chemical sales to the giant electronics company going forward.
In other words, that contract indicates, PANL may never capitalize on the popularity of Samsung smart phones featuring the Organic Light Emitting Diode (OLED) technology that has long been viewed as the key to its own future success.
“While terms were omitted, it is clear that the Samsung deal is a license agreement” and not a royalty-based agreement,Canaccord Genuity analyst Jonathan Dorsheimer conceded after PANL finally released an actual contract that reversed his earlier view. “Details are limited and are being kept to few senior executives at both SMD (Samsung Mobile Display) and UDC (Universal Display Corporation). Both parties believe they prevailed in the terms of the agreement, none of which where disclosed in the 8K” that included the heavily redacted contract.
PANL failed to answer questions for this story.
Notably, records indicate, PANL suffered a major legal setback that could have seriously weakened its own negotiating power – while bolstering that held by Samsung – when the two parties hammered out the terms of that long-delayedagreement. Back in late March, records show, the Japanese Patent Office invalidated all of the claims covered under two important PANL patents that had previously protected the company’s OLED technology and required Samsung to pay royalties based on sales of its OLED-enabled devices. While PANL escaped an immediate hit on that overlooked court ruling, with the stock actually soaring to a record high above $63 a share the very next week, it began to spiral lowerafter The Korea Times – an English-language newspaper in the country where Samsung is based – stepped forward topublicize the development.
Barely a month after that foreign newspaper article appeared, gradually catching the attention of PANL bears in the weeks that followed, the stock had fallen to just half the record price that it had boasted in the spring. PANL continued to lose ground throughout most of the summer, sinking below $25 in early August, but the stock suddenly began toreverse course as the company finally neared the end of its drawn-out negotiations with Samsung.
PANL soared 24% to almost $35 a share the day before the company even announced that new agreement, a strikingjump on massive volume that would soon raise eyebrows at CNBC, and then rocketed straight past $40 on official news of the long-awaited deal. Although Wall Street rushed to celebrate that vague announcement as a big victory for PANL, however, The Korea Times took the opposite stand by portraying Samsung as the likely winner – poised to save “millions of dollars” in royalty fees – under that new contract instead.
“The developments could allow firms based in Asia, such as Samsung and LG, to manufacture OLEDs,” one fund manager stated in the article, “without having to pay royalties to UDC for materials used.”more...
GORO Stock: Finally Time for Sticker Shock?
Years ago, around the same time that it debuted on the OTC Bulletin Board, Gold Resource Corporation (AMEX:GORO) hired a young promoter who would later present a detailed valuation formula that – if updated with even the high end of current production estimates – now suggests that the company’s shares are ridiculously overpriced.
A recent college graduate when he landed GORO as his first client, records show, Ian Cassel dutifully set out to publicize the hot new penny stock and (with the company compensating him for his services) quickly became asignificant shareholder himself. He loudly celebrated the stock for years, touting GORO alongside some risky small-cap names that included at least one reputed fraud, and -- by his own admission last September – pocketed big gains as those shares soared ever higher.
At the time that he mentioned his profit-taking, records indicate, Cassel had just published his last big report on GORO during his final days as a vocal cheerleader for the company. Back then, with GORO fast approaching $20 a share, Cassel actually suggested that the stock looked somewhat pricey for new investors who had missed out on the rally that helped fatten his own bank account.
“My cost basis in GORO is $1.35, and I’ve sold a nice chunk along the way, so take that into consideration,” he allowed a year ago. “I wouldn’t blame anyone for being skeptical about buying at these levels after this run-up.”
(TheStreetSweeper hoped to interview Cassel before publishing this story. It could not locate him, however, because hedisabled his website earlier this year.)
Cassel sounded a whole lot more confident when he could base his analysis of the stock, which he valued at $22 a sharealmost two full years ago, on rosy production estimates rather than the actual results that the company would deliver on down the road. GORO nevertheless flew straight past his target price, eventually peaking above $31 a share earlier this year, even though the company has yet to approach (let alone achieve) the projected earnings that served as the basis for that lofty target.
His original formula, when applied to the latest production estimates for 2011 (the company’s first full year of actual gold production), indicates that GORO should trade for less than half the price that the stock currently enjoys.more...
GORO: A Rich Gold Miner That Acts Dirt Poor?
Gold Resource Corporation (AMEX: GORO) sure has raised some eyebrows with its curious spending habits.
Over the years, GORO has splurged on plenty of things – glorified promoters for its stock, hefty compensation for its insiders, expensive dividends for its shareholders – but the company has regularly cut corners, adopting a downright thrifty stand, in one critical area. Despite its evolution from a penny-stock company into a $1 billion corporation trading on a respectable exchange, GORO has long refrained from hiring accomplished experts to double-check the numbers that power its stock price.
For starters, as highlighted by TheStreetSweeper in a big investigative report already, GORO has yet to invest in a standard feasibility study that would replace its own bullish production estimates with formally established gold and silver reserves. The company has taken a frugal approach on other key services as well, records indicate, saving additional money (while further limiting outside scrutiny) by relying on a cheap auditor and a part-time CFO to oversee its books. In fact, records show, GORO spent more on the boardroom director who chairs its audit and compensation committees – identified as a “promoter” in outside corporate filings -- than it did on its auditor or its CFO last year.
Still, GORO has long rewarded the relatives who serve as its top executives with the biggest compensation packages of all. The company doubled the six-figure salaries for all three of those relatives last year, records show, and then further sweetened the deal by issuing them “discretionary” bonuses equal to their newly expanded salaries. GORO spent more than $2.3 million in cash last year on those three executives, records show, who scored another $12.5 million by dumping stock (most of it at much higher prices than those seen today) during a massive insider-selling spree that began just a few months after they snagged their handsome raises.more...
Will GORO Ever Find That Magic Pot of Gold?
Despite a sea of potential red flags -- ranging from undocumented gold reserves to closely related executives to relentless insider sales -- GORO has managed to become one of the hottest gold stocks on the market, even though the company has produced very little of that glittering treasure at all. Rather, since going public in the fall of 2006, GORO has spent most of its time making big promises (sweetened by a handy surge in gold prices) that it consistently fails to keep. The company has nevertheless seen its stock skyrocket from its original price of $1.15 to an all-time high of $31.38 earlier this year, settling near $25 currently, with insiders cashing in millions of dollars worth of profits along the way.
GORO has soared 80% over the course of the past 12 months alone, handily outperforming far more established and successful gold miners – including industry heavyweights Barrick Gold (NYSE: ABX), Goldcorp (NYSE: GG) and Newmont Mining (NYSE: NEM) – that have racked up much smaller gains, ranging from 3.6% to 23%, on the steady explosion in gold prices. With a market value of $1.29 billion, GORO is currently trading at a stunning 28 times its prior-year sales. In contrast, GORO’s three giant peers – which measure their profits in the billions – all sport traditional single-digit price-to-sales ratios instead.
Moreover, despite the eye-catching gold label included in its name, GORO actually counts silver – a less illustrious metal that sells at a tiny fraction of gold’s price – as its biggest product by far. Last quarter, for example, GORO sold just 2,384 ounces of gold – less than Barrick produces (on average) every 15 seconds -- while relying on cheaper silver for 99% of its overall production during that three-month period. In a rather curious feat, however, GORO somehow managed to report incredibly high prices for the small pile of gold that the company did happen to sell.
Specifically, GORO pegged its average gold price at $1,576 an ounce – a peak seen only one day throughout the entire second quarter -- even though the company has traditionally sold all of its gold to a single customer that, with any business savvy at all, could have requested volume discounts or simply purchased that gold at cheaper prices on the regular spot market. In contrast, despite their marketing muscle, the industry’s three largest miners all reported lower average gold prices (ranging from $1,501 to $1,516 an ounce) for the mountains of gold they sold during that same period.more...
Miller: Meltdown Continues for This Once-Hot Oil Stock
Late Friday, with its stock hammered on questions raised by TheStreetSweeper in a big investigative report, Miller Energy Resources (NYSE: MILL) rushed to soothe nervous investors with a clean – but premature – audit opinion on a tardy annual report that otherwise looked like an ugly mess.
That formal 10K filing included a crucial blessing from KPMG that lent credibility to financial statements previously approved only by a tainted small-time auditor, notorious for validating the books of dubious Chinese-reverse merger companies, instead. Three days later, however, Miller quietly published an 8K on its company website – absent for up to an hour (or more) from the official website operated by the U.S. Securities and Exchange Commission – revealing that KPMG had yet to even complete its audit of the financial statements that it had reportedly approved. Miller further disclosed that its own audit committee had determined over the weekend, a period marked by hopeful celebrations among relieved investors, that the company’s brand-new financial statements – as well as the audit attributed to KPMG and the consent to use that audit report -- “should not be relied upon” because of looming revisions down the road.
Miller’s stock, which recorded double-digit gains on reports of the audited financials early Monday morning, soon began to tank on news of the 8k filing before that document even surfaced – where investors could easily find it – on the SEC website. The shares plummeted from a high of almost $5 to a low beneath the $3 mark, sinking a total of 42.8% in less than two hours, after the company dropped its alarming bombshell. Although the stock has since clawed its way back toward $3.50 a share, it still fetches half the price that it commanded before TheStreetSweeper first exposed Milleras a risky company less than a week ago.
Peter J. Henning, a law professor who formerly served as a senior attorney for the enforcement division of the SEC, suggested that the company could face even more pain – including possible backlash from securities regulators and its new auditing firm alike – as a result of its recent actions.
“The SEC is going to notice this,” said Henning, who worked as both a regulator and a prosecutor before assuming his current post as a law professor focused on white-collar crime at Wayne State University. “You can’t file a 10K without audited financials; that’s a precondition … I suspect that KPMG will want to know how this happened and, if they don’t get straight answers, they will be gone.
“It looks like somebody, somewhere, had to have lied,” concluded Henning, who writes a popular column for the “White-Collar Watch” section of The New York Times. “It’s hard not to draw any conclusion other than that this was basically fraud.”more...
Miller Energy: Is This Hot 'Alaska' Stock about to Melt?
Before Miller Energy Resources (NYSE: MILL) purchased some abandoned assets in Alaska for $4.5 million – or barely half the price that its CEO paid for his sprawling Tennessee mansion – and then pegged the value of those assets at more than $350 million on its books, the company spent years fruitlessly trying to escape from the penny-stock arena through smaller deals that often wound up backfiring instead.
Those previous deals triggered serious legal disputes, with one of them crippling Miller for years and another – while touted as a “huge victory” for the company at the time – since quietly reversed this May on appeal. Miller could face potentially significant liabilities, far exceeding its modest cash resources, if the company fails to overcome that recent courtroom setback. Meanwhile, Miller has been slapped with a brand-new lawsuit – this one related to the Alaska deal itself – seeking piles of warrants for dirt-cheap stock from the company as well.
Despite that alarming track record, however, Miller has managed to convince investors that the company finally hit the jackpot – by snagging valuable assets that its previous owners (now bankrupt) initially could not sell – this time around. Miller’s stock, which fetched mere pennies on the lowly Pink Sheets just a few short years ago, now commands $7 a share after snagging a coveted spot on the premiere New York Stock Exchange. The company currently boasts a handsome market value of $280 million, almost 12 times its prior-year sales, even though it relied on a gigantic gain on its new Alaskan assets for the only dramatic profit that it has ever recorded since going public through a reverse merger almost 15 years ago.
But experts contacted by TheStreetSweeper, including skeptics in both the energy and financial sectors, have expressed clear doubt about those numbers. For example, an executive at Nabors Industries (NYSE: NBR) -- a $7.6 billion energy giant that decided against buying those assets for itself -- estimated that Miller actually wound up with just $25 million to $30 worth of assets, offset by $40 million worth of liabilities, through that transaction instead.
“That deal had been on the Street for over a year; everybody and their brother had looked at it,” said Jordan “Digger” Smith, who manages energy projects for Nabors – which actually operated Miller’s new properties – all across the country. “I’m a geologist, with 54 years of experience, and I can’t see how anybody can write that up on their books for $350 million … There are not $350 million worth of assets there.”more...
Portage Resources: Selling Fool's Gold with a Smile?
With the help of a powerful stock-promotion campaign, Portage Resources (OTCQB: POTG.PK) – a cash-poor company ignored by investors for years – has magically transformed itself into a valuable Peruvian miner, sporting an incredible market capitalization of almost $600 million, in a metaphorical blink of the eye.
On June 14, records show, POTG closed at a modest 11 cents a share on a quiet (if somewhat typical) trading session in which no company stock changed hands at all. When POTG reported that the company itself had changed hands the following day, however, the stock suddenly exploded – almost tripling in price on massive volume of 34 million shares – and kept soaring all the way past the $1 mark, peaking near $1.15 earlier this week, even though the dirt-poor company has no more gold or silver than it did when that breathless rally first began.
Under the leadership of its new majority owner, Paul Luna Belfiore (identified in a corporate filing as “Mr. Belfiore” and elsewhere as simply “Paul Luna” instead), POTG kicked things off with a couple of press releases – hardly earth-shaking in nature -- that seemed to miraculously revive its near-comatose stock. The first announcement simply revealed that Luna, portrayed as a mining engineer with decades of experience in Peru, had taken over as CEO and president of the company. The second, issued the same day, followed up by trumpeting the company’s plans to focus its mining activities on potentially lucrative opportunities in the South American country of Peru.
Armed with a $250,000 publicity budget, Capital Financial Media – the backer of massive promotion campaigns for such ill-fated penny stocks as Clicker (OTC: CLKZ.PK) and Horiyoshi Worldwide (OTC: HHWW.OB) – began to work its notorious market-moving powers. For the token sum of $1,000, or about double the cash in POTG’s barren bank account, CFM hired newcomer “Penny Stock Pillager” to quickly issue a bullish report predicting that POTG could rapidly surge to $3.32 a share and deliver early investors short-term gains of more than 1,100 percent in the process.
“My advice?” the Penny Stock Pillager remarked. “Stop reading this now, and consider calling your broker or logging on to your online trading account and grabbing as many shares as you’re comfortable with. You don’t want to find yourself on the outside looking in on this one.”more...
CIGX Leader: Blowing Smoke While Investors Choke?
* Editor’s: The following article is the second story in a two-part series. Click here to access the original article.
Give Jonnie Williams, the CEO of recent highflier Star Scientific (Nasdaq: CIGX), some credit. By now, records indicate, Williams has proven that he can literally sell anything – cars, houses, contact lenses and, above all, risky medical stocks – even if his customers, particularly investors, often wind up on the losing end of those business deals.
Over the years, Williams has clearly polished his act. Early on, records show, he found himself sanctioned by securities regulators for allegedly paying a stock promoter to issue bullish reports on a doomed biotech company while he was secretly dumping a big chunk of his own shares. Since then, however, he has learned to distance himself fromaggressive stock promotions that seem to magically erupt (along with his current company’s shares) without any obvious involvement on his part.
Take Star, for example, a combination tobacco-biotech play that boasts a market value of $600 million – more than 700 times its prior-year sales – even though the company has spent almost a decade operating in the red. Star has more than doubled since the beginning of the year, rocketing from $2 to $5 this spring alone and overcoming a recent slide (which took it back below $3) to climb back toward the $5 mark once again.
The stock peaked at $5.35 on May 31, when it closed above $5 for the first time in years and paved the way for Williams to exercise millions of newly issued options – priced below $3 a share – in the process. Williams and his family already owned more than 20 million shares in the company (including stock options and warrants) even before that, records show, a massive stake worth almost $100 million based on current market prices. He recently signaled plans to sell about 1 million of those shares in official corporate filings that registered more than 12 million shares sold earlier this year, for $2 or less, through the latest in a series of dilutive private placement deals.
Meanwhile, as the top executive of Star – a former cigarette company now pursuing miraculous breakthroughs in the healthcare arena -- Williams has spent more than a decade refining and perfecting one of his most powerful sales pitches of all. In the original script, the Richmond Times-Dispatch reported long ago, Williams somehow outsmarts Big Tobacco – with its gigantic research budgets and its fancy Ph.D. scientists – by developing a safer tobacco-curing process after experimenting with his microwave oven. He then sues industry powerhouse R.J. Reynolds (NYSE: RAI) for utilizing a similar system, the Associated Press has since explained, seeking massive damages from the tobacco giant for allegedly infringing on the patents for his remarkable invention.
For almost a decade, the Times-Dispatch later noted, that story has served as the primary driver behind Star shares – alternately sending them above $5 and below $1 – as the dramatic, yet inherently unpredictable, courtroom fight continues to unfold.
A few years ago, faced with a string of nasty legal setbacks that threatened its very survival, Star essentially swapped that worn-out script for a more compelling story. In this version, loudly trumpeted by speculative bulls, Williams has managed to outsmart Big Pharma – once again besting a deep-pocketed industry with massive research budgets and stables of well-trained scientists – by uncovering a tobacco-based substance that promises an effective new treatment for Alzheimer’s disease.more...
CIGX: A Hot Tobacco Stock Ignited by Wild Pipe Dreams?
* Editor’s Note: This story is the first in a two-part investigative series, with the second article scheduled to run after the Fourth of July holiday.
Over the years, regulatory filings show, Star Scientific (Nasdaq: CIGX) has often changed its pretty story -- with the former cigarette maker now spinning tobacco as the key to breakthrough medical cures – but the company has rarely changed its ugly numbers.
Star posted its highest revenue as a discount cigarette maker more than a decade ago, records show, and has generated dismal sales (and absolutely no profits) ever since shedding that traditional tobacco business. Last year, for example, Star posted total revenue of just $848,000 – or less than 1% of the $223 million in record 2000 sales it achieved as a profitable cigarette company – while recording an annual loss (a number that keeps growing) for the eighth straight year in a row.
Star nevertheless boasts a market value of almost $600 million, some 35% higher than its peak market value during the year the company achieved its strongest financial results on record, and currently trades at an astounding 720 times its prior-year sales. If investors assigned Star the same multiple now as they did back then, the company would sport a market value of just $1.68 million – with its $4.50 stock fetching barely a penny a share – instead.
For years, corporate filings reveal, Star has enjoyed far more success selling its story (and the stock it keeps issuing in order to stay afloat) than it has at actually selling its unpopular products. Star executed the latest in a series of private placements during the first quarter of this year, with enough warrants and stock options now outstanding – at average exercise prices of around $2 a share – to increase the company’s swelling share count, which totaled less than 60 millionback in 2000, by another 33% to almost 180 million shares. The restrictions on the last of that cheap stock should expire this September, records indicate, with the shares facing a potential slide toward $3 unless the company’s handsome market value further expands to absorb that looming dilution hit.
Of course, that price assumes that investors continue to value Star based on its ambitious plans and keep ignoring the company’s miserable results. Without the speculative hype provided by its long-shot dreams, which alternate betweenbeating Big Tobacco for massive damage awards and beating Big Pharma for blockbuster miracle cures, Star would arguably lose all of the appeal that makes it one of the most active (and volatile) small-cap stocks on the Nasdaq exchange.more...
JAMN Cools off While Escaping SEC Heat
When the U.S. Securities and Exchange Commission recently suspended trading in 17 dubious microcap companies, the agency spared one notorious player – Jammin Java (OTC: JAMN.OB) – that easily ranks among the most overhyped penny stocks of the entire year.
Fueled by an aggressive promotional campaign, far more powerful than those lifting the stocks actually included on the SEC hit list, JAMN exploded from 17 cents to $6.35 a share before losing more than half of its value afterTheStreetSweeper began raising serious questions about the company. Within days, JAMN quickly shed $250 million worth of its market value, as cold reality sobered up giddy investors previously drunk on overblown hype.
“They may be called ‘penny stocks,’” the SEC observed when announcing its recent crackdown, “but victims of microcap fraud can suffer devastating losses.”
While the SEC excluded JAMN from its net, focusing on older favorites of penny-stock promoters instead, the agency cited many concerns that look quite relevant to JAMN itself. Like most of the stocks caught in that SEC halt, JAMN clearly surged on paid promotions – recording huge gains in both its trading volume and its share price – since the company’s dismal operational results, including barely $1,000 in annual sales, could hardly inspire even a meager rally in the shares. Moreover, like the promotions that boosted those other penny stocks, the JAMN campaign has relied on shadowy figures hiding behind mysterious websites and financed by obscure “third-party” outfits to set the company’s stock on fire. As covered in more detail below, the JAMN campaign also bears striking similarities to another aggressivepromotion – touting shares of Big Bear Mining (OTC: BGBR.OB) – that has already ended horribly for gullible investors.more...
JAMN Finally Spills the Beans -- And It's an Ugly Mess
To be sure, the 10-K offered investors little reason to sing. For starters, the filing reveals, this once-hot “coffee company” sells no coffee of its own at all. JAMN relies on a supplier based in frigid Canada – far away from the tropical Jamaican home of its co-founder Rohan Marley – to provide the company with an actual product to sell to its customers instead.
Back in April of 2010, JAMN inked a “supply and toll agreement” with Canterbury Coffee of British Columbia that gave it access to some brew. According to that agreement, JAMN relies on Canterbury to fulfill every role – save a minor one – normally satisfied by a firm that classifies itself as a coffee company. Canterbury purchases the coffee beans. It roasts them. And it then packages them in bags supplied by JAMN – the company’s only real product – for sale to the public.
JAMN signed this deal more than a year ago, right before Shane Whittle – a notorious Vancouver stock promoter – officially resigned as CEO of the company. But the company never mentioned that agreement, seemingly material enough to warrant at least a quiet 8-K report, in a single regulatory filing until now.more...
Jammin Java (JAMN): Hot Stock ... Bitter Aftertaste?
It’s time to wake up and smell the coffee! That’s exactly what Jammin Java (OTC: JAMN.OB), a heavily promotedcoffee company, and – for very different reasons – TheStreetSweeper would like investors to do.
Since the beginning of the year, JAMN has miraculously risen from the ashes of the “Grey Market” graveyard to become one of the liveliest – and richest – stocks in the entire microcap arena. JAMN has seen its stock shoot straight toward heaven, soaring from 55 cents to peak above $6 a share on massive daily volume, with its market value nowtopping $355 million despite the company’s limited resources and operating history. (As covered in more detail below, two of the Internet tout sheets pushing JAMN the hardest effectively vanished -- disabled by their Internet servers -- on the day the stock’s trading volume exploded past 20 million shares.)
For starters, as the company well knows, JAMN comes complete with a very seductive story. JAMN counts Rohan Marley – one of seven children fathered by iconic Jamaican musician Bob Marley – as both current chairman and original cofounder of the company. Thanks to Marley’s son, JAMN has found itself with an attention-grabbing asset.
Through a private firm known as Marley Coffee LLC, corporate filings show, Rohan Marley has granted JAMN an “exclusive, transferrable, worldwide license” to use the “Marley Coffee” name to market the expensive coffee it apparently began selling just a few months ago. JAMN imports its coffee beans from Africa and Central and South America (rather than Jamaica itself), the company said, and then roasts them right here in North America before ultimately marketing the finished product – retailing for up to $72 (for a variety pack) before discounts -- with help from the beloved Marley name.
Since JAMN was still classified as a “shell” corporation when it filed its latest financial statements in December, reporting no revenue or cash in the bank at all, investors have been bidding up the stock based on mere faith – as opposed to actual evidence – that the company can drum up huge demand for its high-priced coffee. If the multiplesassigned to industry powerhouse Starbucks (Nasdaq: SBUX) serve as any guide, investors are basically treating JAMN like a company that sells almost $150 million worth of coffee a year already and boasts healthy profit margins (approaching 10%) on those sales to boot.more...
NOG: Putting a Pretty Face on an Ugly Deal?
Now that Northern Oil and Gas (AMEX: NOG) has finally hired a respected “Big Four” auditor to review its books – blessed internally by an audit chair who reportedly overlooked Enron’s massive fraud – the company could find itself with a lot of explaining to do. The possible questions range from obvious ones, like those covering the decline rates and depletion expenses for NOG’s gushing Bakken wells, to bizarre ones like this: If NOG has accumulated such a valuable portfolio of acreage out in North Dakota, the most attractive region in the oil-soaked Bakken shale, then why has the company sold rights to wells on more than 15% of its North Dakota leases to a mysterious firm established by a young cosmetologist – but officially led by one of its largest original shareholders -- while booking nominal proceeds, at best, from those potential related-party deals?
NOG has spent years loudly promoting its frenetic acquisitions in the oil-rich Bakken region, pushing its market capitalization above $2 billion at its peak, but the company has never even mentioned the pile of assets it sold along the way. All told, state records show, NOG has purchased approximately 400 leases in North Dakota during its breathless shopping spree. Meanwhile, that database reveals, NOG has sold roughly 80 North Dakota assets – the vast majority to an obscure firm that’s struck only a handful of deals with other sellers in the state – and, in some cases, has recorded no apparent proceeds from those transactions at all.
NOG transferred its interest in at least 70 North Dakota oil wells to an outfit known as Ashwood Resources, records indicate, a firm that operates out of a post office box in the same tiny Minnesota suburb that the company itself calls home. Notably, records show, Ashwood currently lists Brittany Reger – the wife of NOG Chief Michael Reger – as the official contact person for the firm.more...
Could Swisher Hygiene Go Down the Toilet -- Again?
Shunned like trash before its rescue by Wayne Huizenga and Steven Berrard, longtime business partners credited with building the giant Blockbuster (OTC: BLOBQ.PK) chain during its pre-bankruptcy glory days, Swisher has managed to repackage itself as a future powerhouse – worth more than $1 billion – in the mundane sanitation business. The pair paid less than $20 million for the original Swisher, records indicate, a company sullied at the time by past fraud allegations and a criminal conviction that sent its namesake founder to jail. The duo operated Swisher as a private company for about five years, records show, then took it public again last November through a reverse merger with a Canadian shell caked with some muddy baggage of its own.
They tried to dress Swisher up with acquisitions in the meantime, corporate filings show, but their familiar “roll-up” strategy failed to deliver consistent revenue gains – let alone actual profits – along the way.
Nevertheless, Swisher saw its market value swell to almost $1.7 billion last month following a breathless rally that had more than doubled its share price since the beginning of the year. While its market value has since fallen to $1.3 billion, following a recent slide in its stock from $11.43 to $8.77 a share, Swisher still commands a rich premium – trading at 19.6 times sales in a sector where the dominant player trades for just two times sales instead -- that looks downright gigantic based on traditional measurement tools.
Swisher faces the threat of massive dilution, too, which could expand its share count from 148.5 million to almost 260 million (or by 75%) over the course of the next year. The company also carries some less obvious weight, research suggests, with the potential to hammer its stock long before that time.more...
LEXG: The Biggest Snow Job of the Year?
They can still be promoted and played, of course, as veterans of the shady penny-stock world well know. And companies promising to search for lithium, which powers the batteries used in new and increasingly popular electric cars, rank among the clear favorites in this risky space.
Today, LEXG stands out as the biggest star by far. The company generates no revenue, corporate filings show, and will likely need years to do so if it manages to survive that long. It had no cash on hand at the end of 2010, either, and it managed to raise a mere $250,000 through a private placement deal earlier this year. But thanks to a $3.3 millionpublicity campaign – possibly record-breaking in price – LEXG has skyrocketed from 12 cents to almost $4 a share in barely a month and now boasts a market value that’s approaching $200 million.
If history serves as any guide, however, LEXG will fail to hold onto even a fraction of those remarkable gains. A year ago, TheStreetSweeper scrutinized three similar companies in a detailed report entitled “Can the Batteries Last on Overcharged Lithium Stocks?” That question has long since been answered, alas, with all three stocks sinking from impressive highs to increasingly miserable lows.more...
NOG: The Dirt-Filled Cracks in the Rags-to-Riches Story
* Editor’s Note: The following is the second story in a two-part series on Northern Oil and Gas. Simply click here to access the earlier article.
In just two short years, NOG has managed to overcome its dark history as a dubious penny-stock company to become one of the brightest stars in the entire energy sector. With its stock rocketing from $2 to $29.44 during that brief period, including a 150% jump since last May alone, NOG now sports a generous $1.8 billion market value that rivals those achieved by far more established players – with far less baggage – in the red-hot energy space.
Of course, NOG proudly showcases the company’s best features – its exploding revenue, its perfect drilling record, its heavy focus on the oil-soaked Bakken shale – in the pictures it paints when seeking to impress Wall Street. Meanwhile, throughout its recent rally, NOG has managed to escape the harsh public spotlight that burned it once but has since faded away and allowed fresh dirt to gather under the safe cover of dark.
Still, corporate filings reveal, those blemishes – the tainted company founders, the incestuous business arrangements, the fishy transfer agent, the sanctioned stock promoter, the relentless insider sales (which skyrocketed last week) – lurk just below the surface ready to grab the attention of curious bears or even distracted bulls who suddenly decide to open their eyes and take a careful look. Just one of those festering sores, let alone a combination of all of them and more, could prove damaging enough to leave permanent scars on NOG and its gorgeous stock price.more...
NOG: Lasting Fairy Tale or Looming Horror Story?
* Editor’s Note: The following is the first story in a two-part series on Northern Oil & Gas.
To some, Northern Oil & Gas (AMEX: NOG) looks like a Cinderella stock without the fairy-tale ending.
An obscure microcap company just a few short years ago, NOG has magically transformed itself into one of the hottest names in the energy sector by capitalizing on easy oil discoveries in the Bakken shale to generate a huge – if unsustainable – explosion in growth. With its revenues tripling and its profits more than doubling over the course of the past year, records show, NOG has understandably won over a growing crowd of fans.
NOG’s highflying stock recently hit a record of almost $34 a share, up 1,500% from its 2009 lows, before finally giving up some of its breathless gains earlier this month. Even at its current price of $28.25, however, NOG still boasts a $1.72 billion market value that reminds skeptics of Cinderella on that wondrous night just before midnight struck.
To be sure, as recent headlines clearly indicate, NOG comes with a powerful bull story. In a nutshell, the bull case – which magically addresses the key issues raised by company bears in the past – goes something like this. NOG employs a well-connected CEO who has used his family’s deep roots in Montana and nearby North Dakota to negotiate valuable leases in the oil-rich Bakken shale. Moreover, NOG has secured that land at cheap prices – spending a fraction of the amount paid by larger Bakken players – by focusing on small “non-operated” properties that have yet to be explored. The company has then kept its overhead to a minimum, employing fewer than a dozen full-time workers, by partnering with established operators that actually drill the wells in exchange for a majority share of the gains that flow from those projects.
As a result, NOG has managed to minimize risks and maximize returns – without a single report of a dry hole – while generating massive gains for the company and those who have purchased its popular stock.
NOG has posted an impressive string of record-breaking numbers throughout that breathless rally. This month, however, NOG quietly disclosed a special “adjustment” that jumped out at skeptics of the company. Specifically, critics note, NOG recorded a $3.5 million depletion charge – signaling a potentially material slowdown among its fast-gushing wells – that caused a big spike in its fourth-quarter depletion expense. With Bakken wells notorious for their rapid depletion rate, critics say, NOG has long faced that inevitable hit.
“Their depletion numbers have appeared low,” says John Hempton, chief investment officer of Bronte Capital Management in Australia. “I think they will be taking more depletion charges – which may be very large – in the future … When you’ve extracted the oil, but you haven’t depreciated the land and the wells necessary to obtain it, that’s basically the end game.”more...
CCME: Few Signs of Life at 'Healthy' Chinese Firm
Also, and this cannot be understated, hanging out on a sidewalk in Fujian–the sidewalks double as parking spots when the streets, which appeared to have been designed in the Han Dynasty, fill up–was not a viable option. There was also the matter of the world-class headache the Financial Investigator was developing from Fuzhou’s diabolical smell, an epic conflation of poor sewage treatment, air pollution and the smell of cabbage that made getting the hell off Dongjie street a matter of vital importance.
The Financial Investigator and his traveling companion for the trip, an American investor with extensive experience in China, decided to head upstairs despite our interview with the CFO having been cancelled at the last minute (with no explanation given.) We thought a quick tour of the offices and meeting a few other executives might open our eyes to a few things.
Though the language barrier was a little steep with the young receptionist–when we asked for writing paper, she provided Kleenex–we were in short order shown to their conference room and told to wait. It did not escape notice that pride of place in the conference room belonged to a framed certificate of participation from the Fall 2010 Rodman & Renshaw conference, the World Cup for reverse merger companies and the pumpers and touts who peddle them.
Eventually chief operating officer James Yu came down and after spending 30 minutes trying to understand who we were, concluded that giving us a tour wouldn’t hurt. Soon enough, his colleague, Vinne Ye–the chairman’s assistant–came out and took us around.
It was most eye-opening.more...
IBIO: Time for a Painful Shot of Reality
Originally spawned by Integrated Biopharma (OTC: INBP.OB), an obscure vitamin seller that currently trades for less than 20 cents a share, IBIO has seen its own stock rocket from 55 cents to a high of $6 during its past 12 months as a stand-alone company. To critics who have followed both companies for years, however, IBIO looks a lot less healthy than its current share price.
First and perhaps foremost, they say, IBIO faces a looming secondary offering that will allow holders of low-priced stock – including a tainted brokerage house with a buy rating on the name – to cash in huge gains on millions of cheap shares. By increasing IBIO’s share count by 45%, they note, that offering alone could slash the company’s stock price by almost half. But even without the threat of massive dilution, they say, IBIO looks like a grossly overvalued company that resembles its former parent far more than it does a promising biotech play.
To be sure, corporate filings show, IBIO and INBP share plenty of common traits. For starters, both companies employ CEOs from the same family. Robert B. Kay runs IBIO, while his brother E. Gerald Kay runs INBP and founded the original corporation (Chem International) that launched those intertwined firms. IBIO also counts Gerald Kay and his two daughters, INBP Executive Vice Presidents Christina Kay and Riva Sheppard, among the company’s largest shareholders. In fact, regulatory filings show, those INBP insiders boast larger stakes in IBIO than the company’s own CEO does.
All told, IBIO’s latest proxy statement shows, INBP insiders presently control more than half of IBIO’s outstanding shares.more...
Cougar Oil & Gas: Ready for a Bloodbath?
Despite the bullish claims -- and the wild price targets – showcased in paid promotions for Cougar Oil & Gas Canada (OTC: COUGF.OB), the company cannot overcome the powerful forces of reality. In short, the hype looks a whole lot prettier than the following ugly facts.
COUGF has recorded no significant changes in its oil production over the course of the past year, while the company’s stock has inexplicably tripled in price during that same period. Nevertheless, COUGF promoters – hired as part of a massive six-figure publicity campaign -- have issued price targets that call for the stock to rocket even higher, soaring as much as 1,000% or more, despite the speculative gains it has already enjoyed.
Without those promotions, COUGF looks like an odd candidate for such a breathless rally. For starters, COUGF is actually owned by another company that has been operating at a deficit for years and needs emergency financing in order to survive. Moreover, COUGF itself is a cash-starved company that plans to use dilutive equity-based financing to cover its own business expenses going forward.
Given that troubling set of facts, TheStreetSweeper offers these words of caution: If you have purchased COUGF shares (or considered doing so), you should first determine just how much that investment is really worth. It just may be a little less than the $7.25 -- or the even higher $62 -- price target you saw on the promotional tout sheet that landed in your mailbox.more...
RedChip: Cashing in on a Dangerous Stock Game?
When RedChip comes under fire for promoting risky stocks in companies that pay for its bullish reports, as it recentlydid on CNBC following its touts of L&L Energy (Nasdaq: LLEN), the firm likes to respond by portraying itself as a legitimate research house with a slew of accomplished analysts and a long history of success. But in reality, records show, RedChip doubles as a paid mouthpiece for small (and often dubious) companies, while relying on an industry rookie to oversee its stock research and the accomplishments of its previous owners – who recommended companies without charging them – to greatly enhance its image.
To be sure, records indicate, RedChip once enjoyed a solid reputation and boasted a long track record decorated with homerun calls on Starbucks (Nasdaq: SBUX) and other stocks that would later become major hits on Wall Street. But the RedChip credited with discovering Starbucks back in 1992, when it reportedly issued the first-ever independent research on the legendary coffee chain, is not the same RedChip that makes its money by touting the likes of L&L Energy (and all kinds of obscure penny stocks) today.
Since changing hands in 2005, records show, RedChip has transformed itself into a full-blown “investor relations” machine that caters to microcap companies hungry for big stock gains and willing to pay for the well-spun hype that tends to deliver them. So while its history may still serve as a handy selling point, critics say, RedChip bears little resemblance to the old-fashioned research firm that made a big splash with its early call on Starbucks – and made its living by selling its reports to paid subscribers – beyond its name and the fading credibility that’s still attached to it.
Even so, as its debate with CNBC clearly shows, RedChip likes to milk those leftover assets as much as it can. The firm rushed to trumpet its past on “The Strategy Session” earlier this month and, when hosts Herb Greenberg and David Faber refused to listen, kept singing the same song in two defiant rebuttals with screaming headlines – “CNBC’s Irresponsible Innuendo” and “Walking into a Buzz Saw on CNBC’s Strategy Session” – posted on its website since that time.
RedChip had already caught TheStreetSweeper’s attention before its heated contest with CNBC first erupted, due to the firm’s heavy focus on the same risky microcap arena that has sparked many of this website’s investigative stories. In fact, TheStreetSweeper had just published a big article on L&L Energy – exposing numerous red flags at the company and highlighting RedChip’s celebration of the stock – hours before CNBC and RedChip began their memorable on-air argument.more...
L&L Energy: Could This Hot Stock Go up in Smoke?
L&L Energy (Nasdaq: LLEN), a relatively new Chinese coal miner accused of misleading investors in the past, has managed to become a stock-market winner by posting some of the most incredible numbers recorded in the entire industry.
Just a few years after reinventing itself as a Chinese coal-mining company, L&L currently boasts higher margins than virtually any player – including Chinese giant Yanzhou Coal Mining (NYSE: YZC) and U.S. veteran Peabody Energy(NYSE: BTU) – in the red-hot sector. L&L also touts a remarkable growth rate, filings show, with revenue soaring from $23.4 million to $109 million -- and profits skyrocketing from less than $1 million to $32.9 million -- over the course of two short years.
In other words, those numbers suggest, L&L has managed to pull off an outright miracle.
Under the leadership of founder and current CEO Dickson Lee, an accountant and tainted ex-broker with no obvious coal-mining experience, L&L has spent the past few years buying cheap Chinese coal mines and then somehow transforming them into lucrative money-making machines. L&L paid just $4 million last year for the newest of its three coal mines, for example, and then released pro forma numbers suggesting that the mine – which posted a meager $362,545 profit the year before its sale – would have delivered more than $8 million in 2010 profits if the company had overseen its operations for all (rather than just half) of that fiscal year. If so, L&L struck quite a bargain by paying less than 0.5 times future earnings – in a sizzling industry with generous price-to-earnings ratios – for that valuable coal mine.
The company, based in Seattle despite its Chinese focus, worked similar wonders with its first two coal mines as well. In public statements, however, the company has offered a rather simple – and incredibly vague -- reason for that success.more...
HHWW: Another Hyped-Up Stock That's Dressed to Kill?
The corporate headquarters for Horiyoshi Worldwide (OTC: HHWW.OB), located within blocks of several Los Angeles homeless shelters servicing Skid Row, looks rather modest for a high-end fashion company that recently sported a market value approaching $200 million.
Earlier this month, TheStreetSweeper sent some locals to HHWW’s home office after watching the company’s stock rocket from $1 to $3 a share on a blizzard of paid promotions. They found a tiny operation, manned by a single staffer (focused on investor relations), that housed little more than two clothing racks containing about 20 T-shirts apiece.
Based on prices supplied in HHWW’s regulatory filings, those T-shirts represent an estimated $6,000 worth of inventory for the company. While meager, that figure nevertheless eclipses the $912 in total sales reported by HHWWfor the second quarter of this year.
To be fair, HHWW has yet to release third-quarter results that might reflect an uptick in sales following the company’s adoption of an aggressive growth strategy. Still, corporate filings show, HHWW actually saw its quarterly revenue plummet – sinking from $152,175 to less than $1,000 – in the months leading up to that grand plan.
Even so, stock promoters – paid huge sums to tout HHWW – have painted an incredibly rosy picture of the company. Last month, for example, Eric Dickson of Breakaway Stocks predicted that HHWW could soar more than 4,500% by the end of this year. The stock, currently trading at $1.63, must somehow find a way to reach $45.38 a share over the next few days for that wild forecast to come true.more...
Regulators Turn up the Heat on Alternate Energy
Two months after TheStreetSweeper began sounding alarms about Alternate Energy (OTC: AEHI.PK), federal regulators have officially filed charges against the company and two of its officers for allegedly fleecing investors through a long-running pump-and-dump scheme.
In a formal complaint this week, issued just days after halting AEHI’s stock, the U.S. Securities and Exchange Commission flatly accused the company and two senior executives – CEO Donald Gillispie and his girlfriend Vice President Jennifer Ransom – of scamming investors while secretly enriching themselves. Since it went public four years ago, the SEC says, AEHI has raised millions of dollars by promising to build a nuclear power plant even though the company has “no realistic possibility” of ever achieving that goal. Meanwhile, the SEC says, AEHI insiders have quietly dumped big chunks of stock while publicly expressing strong confidence in the company.
“The company has made multiple misrepresentations, including claims that its executives had such confidence in AEHI that they had not sold a single share of company stock,” the SEC stated on Thursday. However, “records obtained by the SEC show that Gillispie and Ransom have instead secretly unloaded extensive stock holdings and funneled the money back to Gillispie.”
According to the SEC, both Gillispie and Ransom have sold at least 1 million shares of AEHI stock through secret accounts and then used the money for “lavish personal expenses.” With Gillispie paying stock promoters to manipulate AEHI, the SEC claims, the defendants managed to cash in their shares at artificially high prices.more...
Regulators Pull the Plug on Alternate Energy
Four years after Alternate Energy (OTC: AEHI.PK) went public, courting investors with grand plans to build a multibillion-dollar nuclear power plant, the U.S. Securities and Exchange Commission has finally suspended trading in the controversial penny stock.
This week, the SEC halted AEHI due to questions about “the accuracy and adequacy of publicly disseminated information” about the company. When cracking down on AEHI, the SEC cited concerns about several issues – including company finances, executive compensation and insider sales – examined by TheStreetSweeper in its recent coverage of the company. (Click on these three links to access those stories and the backup documents used to prepare them.)
AEHI critics, who have been sounding alarms about the company for years, expressed clear relief at the long-awaited news.
“It was a scam from the beginning,” declared Joe Weatherby, a former planning and zoning commissioner in AEHI’s home base of Idaho. “This has been a long time in coming.
“I didn’t think it was ever going to happen,” he added. “So it was a great Christmas present.”more...
Can CyberDefender Protect Itself from a Crash?
Last month, CyberDefender disclosed plans to reverse a suspect accounting practice that – for a brief, but crucial, period – allowed the company to look like a profitable operation. Thanks to that accounting change, which improperly slashed CyberDefender’s advertising expenses, the company managed to report its first-ever pretax profit just months before securing a coveted listing on the Nasdaq exchange.
The stock remained strong, always commanding at least the $4 minimum bid required by Nasdaq, ahead of its mid-2010 move from the OTC Bulletin Board to the larger exchange. It fell below that $4 threshold less than three weeks later, however, and has largely traded below that price ever since. Down 2 cents on Wednesday, following a delisting threat from Nasdaq, the thinly traded stock currently fetches $3.29 a share.
The only analyst who covers CyberDefender, James Ragan of Crowell Weedon, still has a buy rating and an $8 price target on the company’s stock. His forecasts have so far proven wildly optimistic, however, and continue to bank on future profits – subject to massive dilution and dependant upon drastic improvements in the company’s shrinking margins and dismal renewal rates – that now seem hopelessly elusive to some. Far from objective, he also stands to benefit from his bullish call since he owns stock in the company himself.
In contrast, skeptics view CyberDefender as a dubious company that should have never escaped from the penny-stock arena at all. They portray CyberDefender’s computer-protection service as an outright scam, unable to compete with popular software sold by giant rivals McAfee (NYSE: MFE) and Symantec (Nasdaq: SYMC), and attribute the company’s eye-popping growth to sensational advertising – costing more than the revenue that it ultimately generates – rather than legitimate demand for its products.more...
Suntech Power Burns Investors Once Again
The giant solar company needed major help from a notorious related-party deal, first scrutinized in detail byTheStreetSweeper six months ago, just to post third-quarter profits that even approached Wall Street expectations. Technically, the company reported a profit of 18 cents a share that fell a full nickel short of the consensus estimate. However, critics note, without the generous new value assigned to solar projects recently completed by the Global Solar Fund (GSR) – a firm 97% owned by Suntech and its CEO – the company would have generated a much tinier profit of just 6 cents a share instead.
Axiom Capital analyst Gordon Johnson, a longtime Suntech bear, refused to include that handy benefit in the company’s results when reiterating his latest call for investors to sell the volatile stock. Johnson presented a compelling argument, as summarized below, while stating his case against the company.more...
Alternate Energy: Another Radioactive Stock Pick?
Alternate Energy (OTC: AEHI.PK) investors might want to take a closer look at some of the outfits that have embraced the company’s stock.
Just last month, two different firms – both known for risky microcap picks -- rushed to defend AEHI with bullish recommendations after TheStreetSweeper raised legitimate concerns about the company. The first one, Pinnacle Digest, owns AEHI’s stock and admitted in a disclaimer that it plans to “sell every share” for its own profit without advance notice to its followers. The second one, WallStreetCorner.com, regularly collects cash and/or stock from the companies it endorses and has directed investors into some notorious losers along the way.
Years ago, for example, WallStreetCorner’s Larry Oakley touted a company known as Accident Prevention Plus that served as the vehicle for an illegal pump-and-dump scheme. The so-called “mastermind” behind that scam wound up sentenced to 10 years in prison last month – just three days before Oakley issued his ringing endorsement of AEHI – as punishment for his crimes.more...
AEHI: The Story, the Holes and the Secrets They Hide
Alternate Energy (OTC: AEHI.PK) has spent the past four years selling investors an incredible – if incomplete – story.
The basic plotline goes something like this: AEHI will somehow secure the funding and approval necessary to build a multibillion-dollar nuclear power plant in Idaho that’s virtually guaranteed to deliver eye-popping profits for investors. That version of the story contains some gaping holes, however, filled with pesky secrets that threaten to ruin this fairy-tale ending.
Take the first chapter in this ongoing saga, just for starters. Initially, AEHI CEO Donald Gillispie said the company would build its nuclear power plant in Owyhee County – touting a deal inked with “prominent Idaho landowner and businessman” James Hilliard -- and spent the next year portraying that site as a suitable location for such a project. In the spring of 2008, however, AEHI suddenly announced that it had abandoned that site due to troubling fault lines and shifted the project to nearby Elmore County instead.
In a sworn deposition that surfaced last month, however, Gillispie offered far different reasons for that abrupt change of plans.
“There were two things going on,” he states in that document. “First of all, we had not received funding because we lost our silent partner there … The other thing going on was that Hilliard would not – he had been extending the contract whenever it came up, like a six-month contract – and in early ’08, he didn’t extend it.”more...
Local.com CFO Pulls a Vanishing Act
Last week, Local.com (Nasdaq: LOCM) CFO Brenda Agius suddenly vacated her post just after the company pre-announced another blockbuster quarter that would soon require her to certify the accuracy of those financial results.
The news came as a surprise to many, since Local seemed to magically flourish with Agius in charge of its numbers. The company reported a string of record quarters, pushing its stock from $1.60 to almost $9 a share, during her first 14 months on the job. The stock began to lose steam after that time, however, and ultimately suffered a massive hit whenTheStreetSweeper raised questions about Local in general – and Agius in particular – a couple of months ago.
For its part, Local has chosen to downplay the abrupt departure of its top finance executive. In a press release issued after the market closed last Tuesday, the California-based Internet company stated that Agius had left for “personal reasons” so that she could be near her new husband on the East Coast. Moreover, Local stated in its official corporate filings that her “separation from the company is not as a result of any disagreement with the company, its management or its auditors.”
But Local actually terminated Agius – while at least suggesting that she left willingly – just six months after renewing her annual contract, those records show, and promised her a generous severance package if she signed a confidentiality agreement that would prevent her from sharing information about the company.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...
SMED: The Band-Aid That Looked Like a Miracle Cure
Until early 2009, when the company secured an incredibly generous contract from the federal government, Sharps toiled in relative obscurity as a tiny outfit specializing in the disposal of used syringes and other medical waste. The company, long overshadowed by much larger players such as Waste Management (NYSE: WM) and Stericycle (Nasdaq: SRCL), was reporting meager profits – after years of posting steady losses – and trading on the lowly OTC Bulletin Board before scoring its lucrative government deal. Once it landed that $40 million contract, however, Sharps soon became ahighly profitable company with massive operating margins that dwarfed those generated by its giant rivals in the fiercely competitive industry.
Sharps inked that mysterious deal, awarded outside the traditional competitive bidding process, with apparent help from some well-placed government veterans. Steven Bice spent years as a high-ranking official at the Centers for Disease Control, the source of that high-margin contract, before joining Sharps (where another powerful CDC alum already served as a consultant) as the company’s vice president of government relations.
“We were working on that contract for a long time,” Sharps spokesperson Deborah Pawlowski told TheStreetSweeperthis week. But “we didn’t have it signed when (Bice) started with us … He was with us a year or so before that.”
Sharps never revealed that Bice had joined its executive team, even though he boasts the sort of impressive credentials – including a national Homeland Security Award – that most small companies love to tout. Bice carries a permanent stain on his record, however, due to a felony conviction that resulted from his involvement in a high-profile government corruption case almost two decades ago.more...
RMCP: The Tiny Syringe Maker Stings Investors Again
* Editor’s Note: TheStreetSweeper first began uncovering risks at RMCP when the stock hit its peak last week. Because RMCP crashed before TheStreetSweeper could write and fact-check this investigative report – with the stock plunging another 25% after the company was emailed questions for this story – TheStreetSweeper will begin sending out early alerts about risky penny stocks that it plans to cover in the future.
Less than four years after changing its name in an effort to put its checkered past behind it, Revolutions Medical (OTC:RMCP.OB) is suspected of engaging in the same sort of stock-boosting activities that led regulators to crack down on the company in the first place.
Ever since RMCP filed the paperwork last month to clear the way for massive sales of its stock, the company has been issuing a flurry of press releases containing increasingly upbeat news. RMCP kicked things off with a couple of announcements about its MRI technology in mid-August, which proved effective enough to push the company’s stockfrom 28 cents to 40 cents a share. When RMCP shifted its attention to the company’s new “safety syringes,” however, the stock really started to fly. By Sept. 13 – less than a month after RMCP began churning out its steady stream of good news – the briskly trading stock had soared to an all-time high of $1.74 a share.
Three announcements, issued over a one-week span this month, fueled most of that surge.
The first two celebrated a manufacturing deal, calling for the production of 5 million safety syringes, inked with an obscure firm led by an apparent insider of the company itself. (As noted in more detail below, that firm does not seem to exist.) The third, even more powerful, announcement hinted at a looming syringe order from none other than the federal government.
With RMCP plummeting back below $1 last week, however, some investors clearly wonder – perhaps with good reason -- if those deals will turn out to be real. After all, Internet records show, RMCP announced a similar manufacturing deal for its syringes years ago but has never generated 1 cent of revenue since that time. Moreover, despite its recent announcement, RMCP has apparently yet to land a formal order from the federal government.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.
Internet Brands: Deal-Maker or Deal-Breaker?
These days, Internet Brands (Nasdaq: INET) may have reason to worry about its own brand name.
In recent years, company filings show, INET has spent huge sums of money acquiring websites in an effort to bolster its growth. But the former owners of two of those websites – including one that accounts for a major chunk of INET’s traffic – have accused the company of refusing to fully pay off those strategic deals. Meanwhile, longtime fans of other INET-purchased websites have threatened to leave over rate hikes and reported failures in customer service.
With INET under fire from both its past acquisition targets and its inherited customers, the company could face challenges pursuing its ambitious growth strategy going forward. Moreover, regulatory filings indicate, INET has so far failed to capitalize on the websites it has already bought.more...
China Sky One Medical Caught in the Eye of a Storm
Hurt by mounting government scrutiny, China Sky One Medical (Nasdaq: CSKI) – once a Wall Street darling – has found itself in a world of incredible pain.
In a press release issued late Friday, when many investors had already left work for the long holiday weekend, CSKI dropped a devastating bombshell. The Chinese pharmaceutical supplier, already a prime target of bears suspicious of its regulatory filings, suddenly slashed its full-year guidance as its own distributors attempt to distance themselves from the controversial company. Specifically, CSKI revealed that it will fall well short of revenue and profit targets for 2010 because “several major distributors” had severed ties with the company – the subject of a formal investigation by the U.S. Securities and Exchange Commission – due to unwanted government scrutiny of their own business practices.more...
Clicker 'Body-Slammed' after Tout by Pro Wrestler
Shawn Ambrosino may have retired from professional wrestling, but as a penny stock promoter – touting the likes of Clicker (OTC: CLKZ.OB), Clenergen (OTC: CRGE.OB) and Enhance Skin Products (OTC: EHSK.OB) – he can still inflict an awful lot of pain.
This month, Ambrosino delivered his latest knockout blow with a powerful recommendation of CLKZ that has since left investors reeling. With CLKZ sitting at $1 a share, Ambrosino urged investors to buy the stock before it surged past $20 as the company – a cash-poor outfit with just a handful of employees – conquered Craigslist to become the new heavyweight leader of the online classified advertising world. CLKZ did march higher on that paid tout, ultimately reaching $1.37 a share on Wednesday, but never approached even Ambrosino’s $5 short-term target before staging a remarkable collapse.
The stock, hammered by a sudden selling spree that began the same day it peaked, now fetches just 53 cents a share. Even at that lower price, however, CLKZ still boasts a market value of $31.2 million that looks rather lofty for a company that – just six weeks ago – cautioned that it lacked the funds necessary to finance its operations for more than 30 days.more...
Tradeshow, Skymark Kicked off the Stage
The Alberta Securities Commission has issued a cease-trading order for TSHO’s stock, while banning Skymark from trading or recommending any securities, after uncovering tell-tale signs of a classic pump-and-dump scheme. When explaining its move on Monday, the ASC cited concerns originally raised by TheStreetSweeper in a detailed investigative report almost six months ago. (Click here for the original story, complete with links to backup documents.)
Specifically, the ASC claimed that TSHO had soared on bullish Skymark forecasts secretly generated by relatives connected to the company. The ASC also noted that John Kirk, the sole director of Skymark and the son of TSHO’s founder, “held a significant number of shares” in the company – as did TSHO founder Bruce Kirk himself – at the time of the stock-boosting promotions. It pointed out that Ben Kirk, another son of the founder, worked for Skymark during the publicity campaign as well.more...
Liqiudmetal: Keeping Mum about Apple and Far More
This year, Liquidmetal Technologies (OTC: LQMT.PK) has kept some telling – and arguably material – secrets from its investors.
Take LQMT’s recent deal with Apple (Nasdaq: AAPL) as an obvious example. In a cryptic 8-K filing on Aug. 9, LQMT suddenly announced a contract with Apple that – on the surface – seemed to warrant a full-blown press release. Specifically, LQMT revealed that it had signed a “master transaction agreement” that would allow Apple to commercialize its technology for future use in its consumer electronics products.
LQMT never disclosed the terms of that licensing contract, however, allowing hopeful speculation to fuel the company’s shares instead. LQMT’s stock, which fetched just 13 cents a share a month ago, rocketed to a multiyear highof $1.76 last week before swiftly crashing on the lack of details associated with that high-profile deal. The stock, down another 10.6% on Wednesday, has now lost most of its Apple-related gains and currently trades for just 76 cents a share.
This spring, in the months leading up to that dramatic deal, LQMT kept quiet about another important development as well. In an even shorter 8-K filing on March 8, LQMT quietly disclosed that longtime Chairman John Kang had left the company without giving any reason for his departure. One week earlier, Kang was convicted at trial on fraud charges – carrying a potential five-year prison sentence – for inflating the financial results of another company he had previously led.more...
Local.com Rolls the Dice on Another Troubling Deal
Last month, Local agreed to pay $5 million -- plus another $5.9 million in potential earn-out bonuses -- for a startup technology company that provides “domain-based local advertising solutions” to small business customers. When announcing that transaction, which looks rather extravagant for a company that’s recorded net losses for the past five years, Local identified its buyout target as Octane360 and the firm’s leader as Adam Rioux. Local only later revealed in an official 8-K filing that it had actually purchased Simply Static, doing business as Octane360, a company co-founded by Rioux and a second man by the name of Mark Roah.
Local may have buried this information for a reason. In 2003, Roah agreed to plead guilty to criminal charges for artificially inflating the revenue at L90 – an Internet firm where he served as senior vice president of business development – and another web-based company called Homestore.com. According to Internet records, Roah received a one-year prison sentence, followed by three years of supervised release, as punishment for those crimes. A man with the same name and age as Roah served time in federal prison, an official database shows, regaining his freedom less than three years ago.more...
Has Local.com Moved into a Bad Neighborhood?
Local.com. (Nasdaq: LOCM) investors might want to take a closer look at corporate insiders and the recent deals they’ve inked in order to boost the company’s growth.
CEO Heath Clarke has issued bullish projections, lifted by aggressive acquisitions of website customers, and thendumped almost half of his stock in the company. CFO Brenda Agius has been placed in charge of finances even though her past experience at that post, racked up at former Internet highflier FindWhat.com, ended in disaster for investors. Moreover, one of the company’s directors has worked as an investment banker at several firms – including two with connections to a shady penny-stock outfit known as SpongeTech (SPNG.PK) – that have left stains on his record as well.
Meanwhile, in an effort to expand beyond its core Internet search-engine business, Local has been acquiring customers from companies with some black marks of their own. Local purchased most of those subscribers from LaRoss Partners, a firm that appears to be led by a past target of securities regulators with links to two Internet businesses accused of billing customers for website hosting services they never ordered. It has acquired the rest of its subscribers from LiveDeal (Nasdaq: LIVE), a company with an “F” rating by the Better Business Bureau due to massive customer complaints.more...
TheStreetSweeper Helps Investors Escape Massive Losses
Cramer raked in millions during his past life as a hedge fund manager, but he has still made mistakes – and suffered withering criticism – as a celebrity stock picker willing to make his calls in public. He cannot avoid offering at least some bad tips, given the unpredictable nature of the stock market, and he cannot avoid taking some real heat when that inevitably happens.
With this in mind, I was initially hesitant to track the performance of stocks we cover here at TheStreetSweeper. We focus on exposing risky stocks that look poised for massive losses, after all, in a broader market that typically delivers consistent gains instead. To me, it seemed, we would be working without gravity – or even luck – on our side.
That was nine months ago. Remarkably, as the official "Stock Report" to the right shows, we have gone on to achieve a near-perfect track record since that time. (At the end of last week, Suntech -- which rebounded this month from a steep decline – stood out as the sole gainer in the pack.) Even better, we have helped our readers escape more than $2 billion worth of stock-related losses along the way.more...
AIG and Goldman Sachs: The Deceptive Blame Game
The question is this: “How did AIG really collapse?” It is not: “How did the company get in trouble?” Nor is it this: “Who is to blame?”
Rather, the curious still want to know: What led a firm with a AA rating, around $160 billion in market value and $14 billion in profits – with real cash-generation capacity to boot – in fiscal 2006 to effectively go out of business two years later? The answer is not Goldman Sachs (NYSE: GS).more...
Ecosphere: A Clean Energy Company with a Dirty CEO?
Either Ecosphere Technology (OTC: ESPH.OB) CEO Dennis E. McGuire simply shares a lot in common with a twice-convicted drug felon – a coincidence of remarkable proportions – or he is the former jailbird himself.
Based on public records and news stories gathered by TheStreetSweeper, supplemented with a 63-page personal background report, the CEO and the ex-con look very much the same. The names and birth dates match. The names of multiple relatives come up as matches, too. Other key identifying traits – including addresses, business ties and even partial social security numbers – correspond as well.
McGuire’s original corporate bio, published in regulatory filings, hints at further parallels. That bio begins when McGuire graduated from community college in 1974 and, following a long and unexplained hole, picks up in detail when he invented his first cleaning technology (armed with a mere associate’s degree) more than 15 years later. The mysterious gap in between corresponds with the very period when the convicted McGuire operated a drug business, news reports show, and twice served time in jail.more...
DLR: Reading between the Lines for Signs of Risk
As corporate bromides go, this is a palatable one. Among other things, it provides that investors be given all available information on the relationships between a corporation’s officers and directors and the companies they do business with. But that is not to say it’s perfect.
For example, an investor reading Fannie Mae’s 2003 proxy statement would, around page 30, discover this: Ken Duberstein, a board member and Republican political arm twister, had spent the previous 11 years providing “consulting services” to the company, with his most recent fees totaling $375,000. Yet, when the deluge came in 2004, investors seemed totally caught off guard.
This brings to mind Digital Realty Trust (NYSE: DLR), a San Francisco company that has been a darling of Wall Street for some time now.more...
PennyStockChaser Fails to Outrun the SEC
PennyStockChaser, a promotional website that caught the attention of TheStreetSweeper seven months ago with its breathless recommendations of dubious microcap companies, cannot run away from government authorities any more.
The U.S. Securities and Exchange Commission cracked down on PennyStockChaser this week, filing charges against the website, its two owners – Carol McKeown and Dan Ryan – and two investment firms under their control. In its formal complaint, the SEC accused the defendants of “clandestinely selling millions of shares” in the same stocks that it was urging investors to buy. All told, the SEC estimates, the defendants pocketed at least $2.4 million from their so-called stock-scalping scheme.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...
Why Can't Ecosphere Score a Deal with BP?
Despite ringing endorsements from its own superstars – including a big-name environmentalist and two retired professional athletes – ESPH has so far failed to secure an order from BP (NYSE: BP) for machines that, it says, can effectively address the company’s massive oil spill. Costner’s company, Ocean Therapy Solutions, fielded an order from BP for 32 of its machines almost two full weeks ago. ESPH is still waiting on an order, however, even though the company claims that it offers a superior device.more...
CGA and CSKI: Lost in Translation?
Dick Fuld: From Wall Street Highs to Penny Stock Lows
There were benefits to this beyond the likely $500 million in compensation Fuld booked between 2000-2007 (although that did help in acquiring some trophies). All agree that he wore his reputation like a glove.more...
Suntech Power Still Seeking Shelter from the Storm
Yes, Suntech beat revenue expectations for the first quarter and even raised its production outlook for the rest of the year. But the company also encountered multiple headwinds that left investors in a rather dark mood.
As expected, Suntech suffered a big hit from the falling Euro that triggered a rare earnings miss. Even worse, the company reported glitches with the breakthrough technology that’s supposed to fuel its future sales. Meanwhile, the company still hasn’t collected the cash for deals inked by the Global Solar Fund (GSF) – a mysterious firm that it largely controls – more than a year ago.more...
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...
Junior Mining Companies and the 'Temple of Doom'
Ever since AmeriLithium (OTC: AMEL.OB) purchased some mining assets from GeoXplor -- a Vancouver outfit led by the so-called “Indiana Jones” of the lithium trade -- the company has taken investors on a wild and, at times, thrilling ride. If history repeats itself, however, AMEL investors better not count on a happy ending to their journey.
After all, GeoXplor has sold mineral claims to several other microcap companies that met with rather ugly fates. Even worse, government records show, GeoXplor founder Clive Ashworth has been previously banned from the securities industry for an alleged scam – which resulted in criminal convictions for two stock promoters – involving yet another resource company.
Nevertheless, Ashworth continues to win over junior mining companies and those who promote their risky stocks alike.more...
Suntech Deals Cast Dark Cloud over Company
Take Suntech’s massive sales to its majority-owned Global Solar Fund (GSF), for example, which have hung over the company like a dark cloud for almost a year. Thanks to those transactions, which accounted for almost one-third of Suntech’s quarterly revenue at the time, the Chinese company managed to satisfy Wall Street growth expectations and follow up with a secondary stock offering that prevented a potential liquidity crisis. Based on extensive research byTheStreetSweeper, however, Suntech apparently sold those solar products to itself and is still awaiting payment on 95% of the resulting revenue that it booked to this day.more...
Untangling the Intricate Web Woven by InterOil's CEO
* 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.more...
Putting Together the Puzzle at Big Bear Mining
If Big Bear Mining (OTC: BGBR.OB) would risk hiring a bankrupt CEO with a checkered past to serve as the “public face” of the company – and essentially give him $30 million worth of stock for the favor – then investors might want to search for even darker secrets that the junior gold miner is still trying to keep.
They could start by examining BGBR’s original address. That address, listed in past BGBR regulatory filings as 1728 Yew St. in Vancouver, shows up in filings for several other penny stock outfits as well. Those companies share at least one glaring trait: They count Shane Whittle, a busy Vancouver stock promoter, among their top executives.more...
Fearing Risks, Big Bear Promoter Tells Investors to Flee
Big Bear Mining (OTC: BGBR.OB) has scared off one of its most powerful fans.
James DiGeorgia, editor of the Gold and Energy Advisor newsletter, this week suddenly reversed his “strong buy” recommendation on BGBR and started urging his followers to sell the stock instead. His abrupt about-face came just one day after The Street Sweeper raised serious questions about BGBR’s true value and the paid promoters – including DiGeorgia himself – who have been touting the heavily traded stock.
“Based on new information I received in the last 24 hours that I was not presented with when I initially reviewed and recommended the stock, I believe it would be in the best interest of any investors holding shares in this company to sell them,” DiGeorgia stated in an official press release on Tuesday. “It doesn’t matter if you’ve made money or lost money holding BGBR.OB. Everyone who has based their purchase of shares on my recommendation should sell their shares.”more...
Could Big Bear Mining Investors Get Caught in a Trap?
Four years ago, regulatory filings show, Aaron Hall – the founder and largest stockholder of Big Bear Mining (OTC:BGBR.OB) – worked as a security guard at a Vancouver nightclub while dabbling in mineral claims on the side. When BGBR’s stock soared this month on paid promotions, however, the young Canadian suddenly found himself worth $175 million before the company found a single ounce of gold.
If Hall sold his 72-percent stake in BGBR, still valued at $121 million despite a hit to the stock last week, the 33-year-old Canadian could afford to retire right now as a very rich man whether the company ever strikes gold or not. According to BGBR, however, Hall has agreed to walk away from that fortune instead. (BGBR refused to provide Hall’s phone number, so The Street Sweeper could not call him about his decision.)more...
Are Medifast and Pre-Paid Legal up to the Same Tricks?
MSEH: The Secrets behind Pataki's Favorite Penny Stock
Does the NanoLogix Rally Make Any Sense?
The NanoLogix (OTC: NNLX.PK) stock chart featured on a YouTube video – set to the catchy “Money Song” tune from Monty Python – looks rather outdated following this spring’s incredible, if inexplicable, spike in the company’s share price.
When that video first surfaced in the fall of 2007, NNLX was still focused on increasing hydrogen production with the help of grape juice while allowing Nutra Pharma (OTC: NPHC.OB) – the company’s former partner – to pursuebreakthroughs in its current business of diagnostic technology. (NPHC’s own volatile rally, staged late last year, has already come to an end.) Back then, NNLX’s stock had almost doubled in a month but still fetched only 15 cents a share. Since moving into the medical arena and converting a barn-like structure into a “clean room” for producing diagnostic testing kits (with the construction project captured in yet another YouTube video), however, NNLX has seen its stock rocket more than 200% in recent weeks to pass $1 a share.
Even Bret Barnhizer – NanoLogix’s own CEO – cannot explain that move.more...
With China Tel, Has Tobin Smith Been 'Outfoxed' Again?
Tobin Smith, co-star of Fox News Channel’s popular “Bulls & Bears” investment show, recently declared a challenging new “mission in life.” In an upbeat message to his 2,700-plus followers on Twitter last week, Smith promised to helpChina Tel Group (OTC: CHTL.OB) – a penny stock company he has been touting for months – secure the financing it needs in order to survive.
To be sure, CHTL could use some assistance. More than a year ago, CHTL agreed to pay $195 million for a 49% stake in Chinacomm – an Asian broadband wireless company that ranks as its primary asset – but it still lacks the money required to actually pay for that deal. Although CHTL has inked plenty of financing agreements in the meantime, most recently with two mysterious firms known as Excel Era and the Isaac Organization, the company never seems to collect promised cash from those backers in the end.more...
Storm of Controversy Continues to Brew over InterOil
One fact that InterOil fans and skeptics can agree on is this: Mulacek's integrity and business history are critical factors in assessing the company's future success. more...
InterOil Case Packed with Explosive Bombshells
And sifting through the papers in the Todd Peters et al. v. Phil Mulacek et al. lawsuit, one gets a better sense of why Mulacek attempted a legal Hail Mary three months ago and had one of the companies he controls file for bankruptcy protection, a move Mulacek's attorneys said was calculated to get the Peters' litigation swept into federal bankruptcy court and derail a potentially massive judgment. (See iBusiness Reporting’s original story here.)more...
Has Atlantic Wind and Solar Been Fueled by Hot Air?
Atlantic Wind and Solar (OTC: AWSL.PK) is suspected of blowing a lot of hot air in an effort to inflate the company’s stock price.
A year ago, AWSL supposedly acquired a 47.5% stake in Hybridyne Power Systems – later touting Hybridyne’s “best-in-class” technology and its access to an expansive research team – for $2 million worth of its own stock. After publicizing a string of stock-boosting projects secured by Hybridyne, however, AWSL suddenly announced this month that it had canceled its acquisition of the company due to an “unfortunate default by the vendor” that rendered the transaction “null and void.”
Notably, Hybridyne itself now claims that the acquisition never took place at all.more...
InterOil CEO Slapped for 'Bad Faith' Bankruptcy Filing
Can the Batteries Last on Overcharged Lithium Stocks?
Lithium 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.more...
Look Again: CSKI Appears to Be Deteriorating Fast
Following a swift decline in sales, China Sky One Medical (Nasdaq: CSKI) is no longer the picture of health that it once seemed to be.
With a Rare Earnings Miss, CSKI Is Looking Rather Sick
China Sky One Medical (Nasdaq: CSKI) looks like it could use a miracle cure.
Toreador: The Story behind the Stock's Wild Bull Run
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Shortly before New York Times reporter Zachery Kouwe resigned for plagiarizing the work of others, he wrote a speculative column about Toreador Resources (Nasdaq: TRGL) that – in an ironic twist -- spawned copycat reports by competing journalists. Those stories, suggesting an imminent buyout of Toreador that failed to materialize, raised some eyebrows even before Kouwe’s public fall from grace.
At the time that Kouwe penned his Jan. 20 “DealBook” column, Toreador desperately needed to raise money for looming debt obligations that could trigger massive payments later on this year. As a small resource company with ambitious plans, Toreador also needed cash to finance an expensive drilling program in Paris – home to its controversial new vice chairman – in order to reinvent itself as a major energy player on the international stage. more...
With Yuhe Losing its Auditor, Could CSKI Be Next?
* Editor's Note: This report has been republished with the permission of its author, Manuel Asensio, an accomplished investor with a track record for spotting possible fraud long before the market itself. Click here to read more of Asensio's research on CSKI and other companies.
CSKI Auditor Accused of Blessing Fuzzy Math
* Editor's Note: This report has been republished with the permission of its author, Manuel Asensio, an accomplished investor with a track record for spotting possible fraud long before the market itself. Click here to read more of Asensio's research on CSKI and other companies.
A private investor has filed a lawsuit against the auditor of China Sky One Medical (NASDAQ: CSKI), alleging "fraudulent misconduct" and violation of securities laws for failing to correct CSKI's "materially false" financial statements.
The complaint states: "MSPC became aware of the fact that the CSKI financial statements were materially false and misleading and its unqualified opinion with respect to them was baseless. Despite becoming aware of these problems, and despite having a duty to correct the information that it knew to be false which had been disseminated into the market via the 10-K, MSPC failed to issue corrected statements or withdraw its support from the CSKI financial statements." more...
Is IMGG's CEO Pulling the Plug on His Company?
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To some, Imaging3 (OTC: IMGG.OB) CEO Dean Janes appears to be giving up on his own company.
On Feb. 11, exactly one month after IMGG announced the latest in a series of regulatory setbacks, Janes reportedly began pitching a new investment opportunity to his 1,000-plus “friends” on Facebook. In his biggest insider transaction on record, Janes then sold 2.6 million shares of IMGG stock the very next day. more...
Tradeshow Marketing Knows How to Sell Its Stock
Give Tradeshow Marketing (OTC: TSHO.PK) some credit. For a company riddled with so many ugly conflicts, TSHO sure knows how to put on a pretty face for investors.
TSHO can thank SkyMark Research – a promotional firm operated by the apparent son of TSHO’s own founder – for reshaping its public image. For years, TSHO looked like a failed business with limited appeal to even speculative investors willing to place bets on high-risk penny stocks. After SkyMark launched favorable coverage of TSHO late last year, however, the company saw interest in its long-overlooked stock suddenly skyrocket. more...
CSKI Linked to 'Counterfeit' Drugs in China
* Editor's Note: This report has been republished with the permission of its author, Manuel Asensio, an accomplished investor with a track record for spotting possible fraud long before the market itself. Click here to read more of Ansensio's research on CSKI and other companies.
Eight products manufactured by China Sky One Medical (NASDAQ: CSKI) appear in a Chinese government notice of "counterfeit drug products," which states that pharmacies should "immediately stop the sale" of these products.
The government document is titled "Notice of the Ministry of Health of the People's Republic of China," dated November 5, 2009, and is available on the China State Food and Drug Administration website. Click here for the full notice, and click here for a translation. more...
If Genoptix Is So Healthy, Why Are Insiders Selling?
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Genoptix (Nasdaq: GXDX) CEO Tina Nova keeps sending mixed – and potentially troubling – signals about the value of her company’s stock.
Take Nova’s latest insider sale, for example. On Feb. 3, Nova pocketed more than $500,000 by exercising cheap stock options years before they were formally set to expire. She sold that stock for $31.13 a share – near a four-month low – even though analysts were forecasting a $10 rise in the company’s share price. more...
AENY: Look What's Hiding beneath that Former Shell
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Americas Energy Company (AENY.OB) exposed some ugly flaws when it emerged from its corporate shell.
Following its heavily hyped reverse merger, AENY now counts CEO Christopher Headrick – a longtime dealmaker with a history of failure – as its sole officer, director and member of its staff. Although AENY has announced plans to expand its senior management team, the company aims to do so by hiring leaders who have benefited handsomely from a series of generous related-party deals. One of those potential executives, already identified as a company vice president in the past, has agreed to plead guilty to felony tax evasion charges and could face up to five years in prison for his crime. more...
AENY: The Plot, the Players and the Shadowy Past
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Americas Energy Company (AENY.OB) has managed to reinvent itself with backing from a network of long-connected players in the murky world of penny stocks and offshore financing.
Last week, AENY suddenly announced that it had completed a merger that would transform the company into a legitimate coal-mining operation. The move came as a surprise to many, since AENY had delayed the merger – pending an additional $8 million in financing – just a few weeks earlier. With skeptics portraying AENY as an overvalued corporate shell, however, the company abruptly finalized the deal after raising less than half of the $8 million called for under its new financing arrangement. more...
Jayhawk, No Longer a Highflier, Crashes to Earth
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Following a swift plunge that cut its stock price by almost half, Jayhawk Energy (JYHW.OB) stepped forward this week to blame the recent volatility on outside promotions followed by aggressive profit-taking – a classic, if softened, description of a “pump-and-dump” scheme – with no connection to the company’s actual operations. JYHW insisted that the company itself played no role in the stock’s short-lived rally, even though its top officer profited from the stock’s big run-up before its subsequent crash. more...
AENY: The Dirty Truth behind the Pretty Coal Stock
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Last fall, around the same time that British Columbian regulators issued a cease-trading order for Americas Energy Company (AENY.OB) stock, U.S. investors began fielding bullish emails urging them to buy the company’s shares.
The Intelligent Investor Report, a promotional newsletter published by Jarret Wollstein, highlighted AENY (then trading under the ticker symbol TRET) as his top coal pick of 2009 and predicted that the company would be producing more than $100 million worth of coal annually by the end of next year. He portrayed AENY – a shell company with limited operations -- as a likely “10-bagger” for fast-acting investors willing to buy the shares early and then hold onto them for the long term. more...
IMGG Fails to Paint a Pretty Picture for Investors
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The picture at Imaging3 (IMGG.OB) just got a whole lot uglier.
IMGG dropped a bombshell on investors this week, when it revealed a major setback in its lengthy battle to secure regulatory approval of its Dominion 3-D scanning device. For months, IMGG has indicated that the company simply needed to resolve one minor issue – involving the Dominion’s label – in order to satisfy reviewers at the U.S. Food and Drug Administration. During a conference call with shareholders on Tuesday, however, IMGG reported that it has now fielded more than a dozen questions from FDA staffers who are evaluating the company’s device. more...
IMGG Investors Grow Tired of Holding Their Breath
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Imaging3 (IMGG.OB) suffered another major setback this week, triggering a massive selloff in its stock, as the company fielded additional questions from federal regulators about its Dominion scanning device.
By now, IMGG investors have waited years for the U.S. Food and Drug Administration to clear the company’s Dominion scanner for sale under a 510(k) process that normally takes just a few short months to complete. More than 900 days after IMGG first submitted its 3-D scanner for review, however, the company is still waiting for the FDA to bless its breakthrough device. more...
For NXTH Investors, 2010 Could Be Hard to Swallow
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NXT Nutritionals (NXTH.OB) shareholders who trust the company’s sweet outlook for 2010 could wind up with a bitter taste in their mouths.
The company’s rosy forecast included plenty of hype about its SUSTA-brand sweetener but none of the actual financial projections that normally dominate official guidance. It also failed to mention a looming threat – massive dilution – that could soon hammer its generous share price. more...
NXTH and The Shaq: A Sweet-and-Sour Deal?
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When NXT Nutritionals (NXTH.OB) recently announced that basketball legend Shaquille “Shaq” O’Neal had agreed to endorse the company’s sweetener, investors rushed to celebrate their good fortune. That blessing could turn into a curse, however, if history serves as any guide. more...
Talk Is Getting Cheap at Imaging3
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Imaging3 (IMGG.OB) is learning an important, if painful, lesson: A picture really is worth a thousand words.
IMGG has been trying for years to secure regulatory clearance for a new device that, it says, can produce real-time 3D images that will revolutionize the practice of medicine. Now that yet another projected date for approval of the device has passed without results, however, investors are starting to ask a very basic question. Specifically, they want to know why IMGG has failed to share the remarkable images that its device is supposed to be capable of delivering. more...
AWSL Chairman Has Some Skeletons in His Closet
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Gilles Trahan, the chairman of both Atlantic Wind & Solar (AWSL.PK) and MSE Enviro-Tech (MEVT.PK), better hope that investors don’t start judging him by the company he keeps.
After all, Trahan has ties to Basil Meecham – a past target of securities regulators – that date back at least eight years. The two men remained connected as Facebook friends as recently as last month, although they have since taken steps to block visitor access to their personal information. The Street Sweeper captured evidence of that Facebook friendship weeks ago, however, in anticipation of such changes. more...
The Picture Gets Even Fuzzier at Imaging3
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Imaging3 (IMGG) is now fielding questions from two regulatory agencies.
More than two years after submitting its Dominion 3-D scanner for clearance by the U.S. Food and Drug Administration, IMGG is still trying to address concerns raised by the agency about its breakthrough medical device. Meanwhile, the company is now attempting to overcome issues raised by the U.S. Securities and Exchange Commission – which derailed its annual shareholder meeting -- as well. more...
NXTH & CLRH: Connected Like Siamese Twins
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Investors blinded by the pretty stock prices for NXT Nutritionals (OTC.BB:NXTH) and Clear-Lite Holdings (OTC.BB:CLRH) might want to take a closer look at other – less attractive – traits shared by these two companies.
After going public through reverse mergers with shell companies earlier this year, both NXTH and CLRH promptly hired the same part-time CFO to keep their books in order. They also retained the same auditing firm in Boca Raton – a region viewed by regulators as a hotbed for securities-related fraud – to bless their financial statements. They even chose the same tainted public relations firm to attract potential investors. (That firm failed to answer questions about the companies for this story.) more...
IMGG Investors Still Waiting for Judgment Day
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The story at Imaging3 (OTC.BB:IMGG) is following the same familiar plotline made famous by the popular movie “Groundhog Day.”
Every morning, IMGG investors wake up with high hopes that the U.S. Food and Drug Administration will finally clear the company’s Dominion 3-D scanning device for sale. Every night, they return to bed with a sense of disappointment lightened only by the chance that tomorrow will somehow be different and bring the good news they so crave. more...
Are Those Dark Spots on That X-Ray of Imaging3?
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Based on comments made in a spring episode of “Health This Week with Don Baillargeon” – a program hosted by a repeat target of securities regulators – Imaging3 CEO Dean Janes has been waiting six months for an urgent phone call from the U.S. Food and Drug Administration that he will probably never receive.
Janes appeared on the show in May with high hopes that the FDA was finally nearing approval of IMGG’s Dominion 3-D imaging device. Although two years had passed since IMGG first submitted the Dominion for FDA review, using a speedy 510(k) process that often takes just months to complete, Janes acted as though the agency’s long-awaited blessing might come at any moment. more...
The Truth Behind the New 'Salt-Free' Diet at AWSL
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When Atlantic Wind & Solar (AWSL) issued its latest investor update, the company buried a potential bombshell – disclosing plans to abandon a celebrated project with Morton Salt – beneath announcements about a revised business strategy and a new corporate headquarters.
Just two months ago, AWSL claimed that it had landed a contract with Morton to carry out a feasibility study for the generation of renewable power at the company’s big salt-producing facility in the Bahamas. Back then, at least, AWSL seemed excited by the deal and the opportunities it might bring. more...
Surgeon Seeks to Cut Influence of Device Industry
Charles Rosen is a soft-spoken spine surgeon who has earned the kind of reputation that’s normally assigned to a hard-nosed cop.
He first blew the whistle on a giant healthcare company a decade ago, when a hospital owned by Tenet – the second-largest publicly traded hospital chain in the country – failed to inform him that its operating-room sterilizer had not been working properly for months. As the hospital’s chief of surgery, Rosen was asked to minimize the problem during an upcoming inspection by the Joint Commission on Accreditation of Healthcare Organizations. Instead, Rosen sounded an alarm during JCAHO’s annual visit and promptly resigned in protest when the agency – which counted one of the hospital’s directors among its own board members – ignored his concerns. more...
Force Protection Gives Management Royal Treatment
Michael Moody, who earned seven figures as Force Protection’s brand-new CEO in 2008, could score even more this year despite plummeting orders for the company’s military vehicles. Originally, Force Protection guaranteed Moody a salary of at least $540,000 – and a bonus that could equal up to 75% of that amount – under his formal contract with the company. With a recent amendment to that agreement, however, Force Protection essentially removed any limits on Moody’s 2009 cash bonus.