Mesa Energy Inc. was already a publicly traded company when it did a reverse merger with a second one, a shell that began life as Mesquite Mining Inc.
The unusual deal last August moved Dallas-based Mesa from the Pink Sheets to the Over the Counter Market and brought it the financing it needed to buy a promising natural gas prospect in western New York, Chief Executive Randy M. Griffin said.
It also put 14 million cheap – and free trading — shares of the combined company, Mesa Energy Holdings Inc. (OTCBB: MSEH.OB) into the hands of four stockholders from the Mesquite Mining side of the transaction. A Sharesleuth investigation found that one of them was a limited partnership linked to a convicted felon — an ex-stockbroker barred from the securities industry for his role in a fraud and manipulation scheme that cost investors more than $100 million.
That ex-broker, Samuel DelPresto, has close ties to Adam S. Gottbetter, the New York lawyer and investment banker whose firms have handled securities work for Mesa and arranged its private placement financing. DelPresto and Gottbetter also have longstanding ties to Corporate Evolutions Inc., Mesa’s investor relations consultant.
SEC filings show that one of Gottbetter’s own companies was among the four entities that came away from Mesa’s reverse merger with 3.5 million shares each. Collectively, their holdings represented a 36 percent stake in the company. Based on ownership figures in a new filing last week, those four entities have sold at least 6 million of their shares.
Mesa’s stock rose sevenfold between Dec. 14, when the first shares trading on the Over the Counter market, and March 23, when they reached their high of $3.50. At that price, the company had a market capitalization of $140 million.
For the past month, Mesa’s trading volume has averaged well over 1 million shares a day, thanks in part to web sites (see examples here and here) and printed brochures that have been touting the company and its prospects.
Mesa also sought to boost its visibility and credibility by appointing former New York Gov. George E. Pataki as chairperson of its recently established advisory board.
Sharesleuth noted that the efforts to promote Mesa’s stock involve several individuals or firms that have previously appeared in our investigations.
The latest version of one of the brochures, produced by newsletter publisher Jarret B. Wollstein, notes that they were created and distributed at a cost of more than $700,000, using money provided by an unidentified Mesa shareholder.
Mesa put out a press release April 9 saying that it had not approved, authorized, endorsed or financed any of the independent reports about the company. Its stock ended last week at $1.40, down from $2.67 at the start of the month.
(Disclosure: No one associated with Sharesleuth.com has any position, short or long, in any of the stocks mentioned in this story.)
DelPresto, Gottbetter and Corporate Evolutions have worked together in the creation, financing or promotion of other small public companies that had notable surges in their stock prices, followed by sharp declines.
Two examples are Kentucky USA Energy Inc. (OTCBB: KYUS.OB) and Charys Holding Company Inc. Charys’ shares rose from a low of 21 cents in 2005 to a high of $10.75 in 2006, before the company sank under the weight of numerous acquisitions and went bankrupt.
Sharesleuth found that Mesa’s reverse-merger deal was almost a carbon copy of the one that Kentucky USA used to go public in 2008. The shell companies used in both transactions had the same attorney and the same auditor. Each sold an identical amount of stock, at an identical price, to investors that wound up owning a substantial stake in the combined company for a minimal amount of money.
Kentucky USA’s stock more than doubled in the month following the completion of its reverse merger. It then fell almost as swiftly, and has continued on a long, steady decline.
Gottbetter is a prominent player in the world of reverse mergers and PIPE (private investment in public equity) financing. Barron’s reported last year that federal prosecutors in New York were investigating whether Gottbetter and an associate manipulated the shares of another of his reverse-merger clients, Alternative Energy Sources Inc. (Pink Sheets: AENS.PK). That ethanol company went public in 2006 and ceased operations in the summer of 2008.
Gottbetter denied the allegations, calling the story a “hatchet job” in a written reply to that publication.