It's also possible that those gains boosted the profit payouts for the hedge fund's managers. Hedge fund operators typically charge a 2 percent annual management fee, and get 20 percent of any profits their funds generate.

Energy Exploration International Inc. has raised more than $12 million from foreign investors, through sales agents who say -- or imply-- that they're working from the oil and gas company's Dallas headquarters.

But when Sharesleuth paid a surprise visit to EEI, a manager struggled to explain why the offices were virtually empty. It was the middle of the morning, and the entire sales team was missing. So was the company's president, Curtis A. Best. The man responsible for EEI's well operations, Robert H. Hucklebridge, wasn't there either.

That was the very scene we expected, though. A Sharesleuth investigation found that the people selling partnership interests in EEI's drilling ventures were actually calling from telemarketing "boiler rooms'' overseas, and that many were operating under false names.

Among Sharesleuth's other findings:

• EEI was secretly controlled by Mark S. Hutcherson, a former Atlanta-based commodities broker whose firm was shut down by regulators in 2000, and Jack F. Prather, who'd been a principal of that same firm. Both men have since been implicated in other global boiler-room schemes.
• EEI's vice president of sales, known to investors as Richard Wright, is really a convicted felon named Richard Ayoub.
• EEI outsourced its investment marketing in 2006 to a Singapore company called Pace Global Business Services Pte Ltd., which also has ties to Hutcherson and Prather. That deal is not mentioned in any material given to investors.
• EEI investors say the company's representatives told them that its drilling projects were virtually assured of success, and provided them with financial projections and payback schedules that were wildly optimistic.

Through August, EEI and its partners had drilled eight wells using the money from foreign investors. At least six were busts, yielding little or no production, according to reports filed with the Texas Railroad Commission, which oversees oil and gas activity in the state. A group of British investors is now pushing for an accounting of the $2.5 million that EEI raised for one of the projects. They say the well, in Colorado County, Texas, was declared a dry hole and abandoned before all of the tests for oil or gas were performed.

They are demanding to know why EEI made the decision to seal the well, and why money that should have been set aside for completing the well wasn't refunded to them.

Sharesleuth's investigation also found that EEI sold partnerhip interests in three wells that were never drilled. Marketing packets sent to potential investors showed that each was a $1.75 million project. Instead of returning the money to investors, EEI switched them into other projects, without seeking their consent.

In two of those deals, investors were supposed to own 85 percent of the original well. Instead, they wound up with less than 40 percent of a different well that EEI drilled in partnership with other oil and gas companies.

People familiar with EEI told Sharesleuth that it was highly unlikely that the company used all of the money it raised for the undrilled wells to buy the minority stakes in the replacement wells.

EEI did not respond to questions submitted by Sharesleuth.

In December 2001, the Nasdaq stock exchange delisted the shares of Global Capital Partners Inc., citing its ties to people with serious criminal or regulatory histories.

Nasdaq investigators concluded that two convicted felons, Regis Possino and Sherman Mazur, had acquired a substantial, undisclosed interest in the company, which operated brokerages in the United States and Europe. Global Capital's chairman and chief executive, Martin A. Sumichrast, was a direct participant in the financing deal that led to their involvement.

According to Nasdaq's findings, Sumichrast created a separate entity that bought newly issued shares from Global Capital, using money that ultimately came from companies connected to Possino and Mazur. Global Capital (Pink Sheets: GCPL.PK) later bought millions of dollars of stock in obscure public companies tied to Possino or Mazur. Nasdaq said the brokerage also sold a stake in an online subsidiary to a company headed by one of their associates, another financial felon. In addition, investigators said, Global Capital participated in a dubious $27.5 million divestiture that led it to inflate assets and earnings and to file what it called "materially misleading" financial statements for at least three quarters.

No regulatory charges were filed in connection with the deals. Nor were investors ever told the full reason for the delisting. By appearances, Global Capital's shares were removed solely for failure to meet the exchange's minimum share price.

Global Capital gave up its brokerage license in 2002 and faded from view. Since then, Sumichrast has worked as a consultant for other publicly traded companies. He also led an investor group that packaged four U.S. shell companies for reverse mergers with China-based partners. The first of those shells became China Fire & Security Group Inc., which was the subject of a previous Sharesleuth investigation.

A second shell company, International Imaging Systems Inc., was transformed last fall into China Bio Energy Holding Group Co. (OTCBB: CBEH.OB). A third, Forme Capital Inc., combined in March with a Chinese supermarket chain and has changed its name to QKL Stores Inc. (OTCBB: QKLS.OB). The fourth shell, Southern Sauce Co. (SOSA.OB) announced last month that it had completed a reverse merger with a Chinese company that specializes in ceramic valves and other products.

In our report on China Fire, we noted that some of the investors in the shells had previously been connected to stock manipulation schemes. Since then, we have turned up information linking Sumichrast to a succession of white-collar criminals.

Our research also shows that Sumichrast and several of his partners in the shell and reverse-merger deals have a mutual history at other public companies. One of those is in liquidation, and another is facing delisting from the American Stock Exchange. We think that anyone considering investing in China Bio Energy, QKL Stores or the Chinese valve maker should know the backgrounds of the people who have helped create them.

Huiwen Liu is part owner of a natural food store in the Vancouver suburbs. The business has only a few employees and is sandwiched between a sex shop and a clinic for drug addicts.

According to Securities and Exchange Commission filings, Liu also is sole shareholder  of an offshore investment company that got 10.1 percent of China Fire & Security Group Inc. (Nasdaq: CFSG) when it went public through a reverse merger in 2006.

That offshore company, Worldtime Investment Advisors Ltd., notified the SEC on Dec. 4 that it planned to sell 600,000 of its 2.58 million China Fire shares, for estimated proceeds of $9.6 million.

The business address listed for Liu in Worldtime’s initial disclosure form corresponded to her food store. The unlikely scenario of a shop owner in Canada holding more than $30 million of stock in a little-known Chinese manufacturer, through an investment company in the British Virgin Islands, was just one of the reasons that Sharesleuth decided to take a closer look. The quintupling of China Fire & Security’s share price in the 12 months following the reverse merger also got our attention. So did the company’s murky ownership and the mounting casualties among other “hot” Chinese stocks that have gained listings on U.S. exchanges through reverse mergers.

Sharesleuth’s investigation turned up questions about transparency and disclosure at China Fire, which has headquarters in Beijing and makes fire detection and protection systems for steel mills, oil refineries and other industrial customers. For starters, we found that Huiwen Liu is the sister-in-law of China Fire’s chief executive officer, Bin “Brian’’ Lin – a fact not mentioned in any SEC filing.

Xethanol Corp. is trying to unload a former pharmaceutical plant in Georgia that had been the centerpiece of its plan to turn wood chips, paper pulp and other organic waste into ethanol.

The Augusta Chronicle reported last week that Xethanol (AMEX: XNL) told workers who have been tending the property that it was for sale. When Xethanol and a joint venture partner bought the idled plant in August 2006, they said it would be retrofitted to produce 50 million gallons of ethanol a year, and would employ as many as 100 people.

In the wake of the news, the Chronicle’s business editor wrote this column, which we thought our readers might be interested in seeing.

We believe the information that Sharesleuth uncovers about companies like Xethanol is important not only to investors, but to the communities those companies involve in their ventures. They, too, must assess the risks.

Xethanol reported in a Securities and Exchange Commission filing in November that it had sold its mothballed ethanol plant in Hopkinton, Iowa for $500,000. It once billed that plant as its “research and development testbed.’’

The company also disclosed that it had sold 47 acres of undeveloped land in Blairstown, Iowa, the home of its only operating ethanol plant. And Xethanol said that it was talking to a potential buyer for its property in Spring Hope, N.C. The company had said it would convert the former fiberboard plant there into a facility that would produce 35 million gallons of ethanol a year.

Orthopedic Development Corp.’s president said in an affidavit in a federal court case in North Carolina that he had never engaged in business in that state, had not gone there to recruit a sales executive or “otherwise traveled there.’’

But Sharesleuth.com, which posted an investigative report on ODC on June 8, has copies of e-mails that appear to disprove those assertions.

James Doulgeris, who heads ODC, submitted the affidavit last week in connection with a motion to dismiss the case in North Carolina or halt it pending the outcome of a related case in Florida. The suit in North Carolina was brought by Dan Grayson, who was hired in November as vice president of sales for ODC's spine stabilization product and was fired in May.

The e-mails exchanged last summer between Doulgeris and Grayson include messages from Doulgeris that provide details of his travels to North Carolina for business meetings. Those details include flight numbers and times, and the names and locations of the hotels in which he stayed.

The e-mails show that Doulgeris traveled from Tampa to Charlotte last July 6, with marketing materials and instrument samples for Grayson, who at the time ran his own medical device distributorship.

Grayson became a distributor for ODC’s spine-stabilization product, called TruFUSE, the following week.

Orthopedic Development Corp. says its new spinal implant procedure can reduce or eliminate pain for many of the millions who suffer from chronic back problems.

The approach is simple and potentially lucrative. ODC’s system uses small pieces of specially shaped cadaver bone to help stabilize the spine. The Clearwater, Fla.-based company says in its promotional material that its TruFUSE procedure gives patients a middle option between physical therapy and major fusion surgery.

It even says its minimally invasive procedure can be performed on an outpatient basis, saving money and time. But former insiders tell Sharesleuth that ODC has encountered design and performance problems with TruFUSE. They add that documents given to investors in a recent stock placement overstated the number of patients who have been treated using the procedure, and may have overstated the results.

“I believe the company misled investors to raise money to market a product whose function and benefits had not been validated through clinical studies,’’ said Dan Grayson, who was in charge of TruFUSE sales from early November until early May.

Because the TruFUSE procedure relies on human body parts instead of mechanical devices, the Food and Drug Administration does not require clinical trials or regulatory approval. That means the company is responsible for ensuring that the treatment works.

As with any medical device that requires surgery, understanding the risks and monitoring the results is critical to the health and safety of the patients.

Sharesleuth examined some of the documents given to patients and investors and found contradictions in the company’s story. We thought it was important to disseminate this information so that patients considering this operation would have more information available to them, as would people considering making an investment in the company.

(Disclosure: No one at Sharesleuth, including majority member Mark Cuban, has any financial interest or business relationship with ODC or anyone mentioned in this report.)

Two more companies that recently announced technology deals with UTEK Corp. have been identified as vehicles for securities fraud, this time in a federal criminal case in New Jersey.

The case involves a stock manipulation scheme that began in the 1990s and cost investors more than $15 million. Eight defendants have pleaded guilty and a ninth was found guilty by a jury.

A plea agreement signed by one of the defendants says that prosecutors would not initiate further charges regarding his admitted participation in securities and wire frauds involving the shares of some 30 additional companies.

The companies include Avalon Oil and Gas Inc., which last month completed its third technology transfer with UTEK, and ChampionLyte Holdings Inc., now called Cargo Connection Logistics Holdings Inc. It did a technology deal with UTEK in December.

The court filing did not allege any wrongdoing by Avalon (OTCBB: AOGN) or Cargo Connection (OTCBB: CRGO).

But Sharesleuth.com found the document in the course of its own investigation into Avalon, Cargo Connection and other companies with ties to a common network of executives, directors, consultants and promoters.

A closer look at that network revealed at least three people who did prison time in connection with previous fraud schemes and three others who either settled civil fraud charges with the Securities and Exchange Commission or were found guilty by a jury.

The network also included several more people who previously were suspended or barred by the National Association of Securities Dealers for violating brokerage industry rules.

Companies linked to the network have done numerous deals with Cornell Capital Partners LP, one of the top hedge funds providing PIPE (Private Investment in Public Equity) financing to penny stock companies.

The top company in UTEK Corp.’s securities portfolio has encountered a series of setbacks in its attempt to commercialize a powder-coating technology for kitchen cabinets, bathroom vanities and other wood products.

Trio Industries Group Inc. (Pink Sheets: TRIG) has been evicted from its offices in Dallas. Its phone and fax numbers have been disconnected and it no longer has control of the 650,000-square-foot building that it hoped to convert to a wood products plant.

UTEK (AMEX: UTK) is a Florida-based company that licenses technology from government and university labs and transfers it to other companies, usually in exchange for stock in the recipients.

UTEK has done five such deals with Trio and has received 7.79 million shares of Trio stock. UTEK valued that stake at $11.6 million on Sept. 30, making the shares the biggest single holding in a stock portfolio it valued at $55.7 million.

Sharesleuth.com published an investigative report on UTEK in October that raised questions about UTEK’s business model, the true worth of its securities portfolio, and some of the companies whose shares make up that portfolio.

We’d hate for anyone to think that we’re fixated on one company, but when we heard about Xethanol Corp.’s latest plan to make ethanol from citrus peels, we had to take a closer look.

Here’s what we found: Xethanol’s new partner, Renewable Spirits LLC of Boca Raton, Fla., was founded and financed by Raymond Scott Stevenson, former vice president of taxation at Tyco International Ltd. Two weeks ago, Stevenson was sentenced to three years in prison after admitting that he deliberately failed to report $170 million of income on Tyco’s 1999 tax return. Letters submitted to the judge on Stevenson’s behalf included one from a U.S. Department of Agriculture scientist who worked with Renewable Spirits on the citrus-to-ethanol technology, attesting to its potential benefits to society. As part of his plea agreement, Stevenson will make a different sort of contribution to society, by paying a $250,000 fine and cooperating in any further Tyco investigations.

Renewable Spirits filed a new annual report with the Florida Division of Corporations this week, listing Stevenson’s wife, Gwenn, as manager. The company also added a new president, Doug Westfall.

Xethanol Corp.’s partner in developing ethanol projects in New England has terminated their joint venture, citing concerns about the company and its technology.

Global Energy and Management LLC notified Xethanol (AMEX: XNL) of the decision late last week. Lee R. Tyrol, a principal of Global Energy, also resigned as manager of the partnership, called NewEnglandXethanol LLC.

Tyrol confirmed the termination to Sharesleuth.com on Friday. He said that Global Energy had lined up suppliers of raw materials for conversion to ethanol, had located plant sites and had identified buyers for the end product.

In the end, Tyrol said, Xethanol was unable to deliver a production process that would enable the plants to turn organic waste into ethanol on a large-scale, commercial basis.

Xethanol has billed itself as a leader in the race to develop a method for making ethanol from biomass, such as wood chips or plant material, instead of conventional feedstocks like corn

“They were supposed to provide us with technology, which they didn’t,” Tyrol said. “Obviously, there is no silver bullet.’’

Sharesleuth published an investigative report on Aug. 7 questioning Xethanol’s claims that it was poised to produce so-called cellulosic ethanol. The story noted that Xethanol had acquired nearly all of its technology from government and university labs, had spent relatively little on research and development and had offered no evidence that it was able to produce cellulosic ethanol in large batches or at prices competitive with other fuels.

The story also raised questions about the backgrounds of Christopher d’Arnaud-Taylor, Xethanol’s then-chairman and chief executive, and others involved in the company.

Xethanol and Global Energy had announced their partnership in April. At the time, the partners told the Associated Press that they hoped to use waste products from breweries, pulp from paper plants, grass clippings and other materials to make ethanol.

The agreement called for Global Energy to contribute $1.5 million to NewEnglandXethanol -- $250,000 on the signing of the organizational and operating agreements, $250,000 within 90 days of that event, and $1 million upon approval of the plan to build the first plant.

Xethanol, which is based in New York, has two other joint ventures in the Southeast. Those entities each have acquired an idled factory that they plan to retrofit for ethanol production. One is an Augusta, Ga.; the other is in Spring Hope, N.C.

Tyrol said Global Energy initially had no qualms about getting involved with Xethanol, because several big investment firms, including Goldman Sachs and Co., had already bought millions worth of stock in the company.

"I assumed that the folks on Wall Street had more than done their due diligence on this project,'' he said.

Xethanol’s shares have fallen from a high of $16.18 in April to a closing price of $2.39 on Friday. Tyrol said Global Energy, which got Xethanol warrants as part of its deal, suffered along with other Xethanol stockholders.

UTEK Corp.’s latest quarterly report lists the value of its stake in Fuel FX International Inc. at $7.05 million. Some may question that number, given that there is no public market for Fuel FX’s shares, that its Web site lists no sales outlets or pricing information, and that its corporate headquarters is its chief executive’s house.

The Florida-based technology transfer company (AMEX: UTK) valued its stock in Advanced Refractive Technologies Inc. at $4.8 million. That company has no revenue, reported just $286 in cash at the end of its most recent quarter and was in default on its debt, which is secured by the company’s assets.

A Sharesleuth.com investigation suggests that the stated values of the stock that UTEK received through its technology deals with numerous small companies should be examined closely.  If so, the company’s financial results also should be scrutinized, because the shares are its chief source of revenue, and the value assigned to them is a major determinant of its earnings.

UTEK’s own share price has risen as the pace of its deal-making has accelerated. Its stock closed at $19.01 on Wednesday, up 38 percent for the year.

UTEK reported $21.6 million in revenue from the sale of technology rights in the three months that ended June 30, versus $1.5 million in the same quarter last year. It said net income from operations was $9.77 million, up from $28,713 a year earlier. Much of the additional revenue comes from companies whose stock is listed on the Pink Sheets or Over-the-Counter market. The shares of some of those companies trade in small amounts, when they trade at all.

Sharesleuth’s findings also raise questions about the level of due diligence that UTEK performed when approving technology transfers and alliances. Our analysis of the roughly 45 companies that have licensed technology through UTEK turned up no fewer than seven whose executives or large shareholders had previously been charged with violations by the Securities and Exchange Commission, the National Association of Securities Dealers, state regulators or other entities

The SEC recently brought fraud cases against two more of UTEK’s technology partners, HydroFlo Inc. (Pink Sheets: HYRF) and WebSky Inc. (Pink Sheets: WKYN). The SEC said HydroFlo and WebSky were involved in “pump and dump’’ schemes fueled by false announcements about lucrative deals.

An executive behind four other companies that did technology transfers with UTEK in its early years also wound up facing an SEC fraud suit. The case involved a fifth company that had retained UTEK to identify potential license acquisitions.

Still another person who has been chief executive of two more UTEK technology partners was targeted last year in an SEC investigation. A court filing said the SEC was probing whether a group of attorneys, accountants, securities transfer agents, consultants and others were working together to manipulate the share prices of small public companies through misleading fax blasts and spam e-mails(  )

UTEK declined to comment on Sharesleuth’s findings. The company never responded to messages left by telephone and e-mail.

Xethanol Corp. has replaced Christopher d’Arnaud-Taylor as chief executive officer.

The new boss is Louis B. Bernstein, a member of Xethanol’s board and a retired assistant general counsel at Pfizer Inc. Xethanol said Bernstein would run the company on an interim basis while it searches for a permanent CEO, as well as a chief operating officer.

A spokesperson for Xethanol (XNL: AMEX) told Reuters that d’Arnaud-Taylor will remain an adviser to the company.

A standard background check shows that Bernstein has been a Xethanol director since June 2005, a few months after the company went public through a reverse merger with Zen Pottery Equipment Inc. of Denver. He recently retired from Pfizer after 30 years of service.

Bernstein also is a director at United Energy Corp., a New Jersey company that sells specialty chemicals used in oil and gas production, photo finishing and other fields. He joined its board in September 2003.

A check of United Energy’s SEC filings shows that five people connected to that company also have ties to Xethanol.

I was planning to publish our first major investigative piece today.

But two things happened Friday that led me to add one more step to the process. First, an attorney for the company at the center of our debut story politely noted that we could be sued, or even face "criminal liability'' if any of the contents are false or misleading. No surprise there.

Then, I did a live interview with Report on Business Television, a Canadian cable channel similar to CNBC. The biggest stumper the anchor asked, in reference to our mission of exposing questionable activity, was who will be monitoring my behavior. I responded that Sharesleuth.com would be a transparent operation; that we'd link to evidence used in our stories, that we'd disclose any conflicts and that we'd let readers make their own judgments. But he raised an interesting point. I'm a one-man operation at this point, acting as both reporter and editor.

Over the weekend, my partner Mark Cuban and I settled on a plan that addresses both of those issues. We're going to pay an independent fact checker to review our stories and ensure that the details are correct and the conclusions are neither false nor misleading.

That means the publication of the first piece will be pushed back a few days. However, the story will be even stronger as a result.

Thanks for your patience, and for keeping the story tips and site suggestions coming.