(Editor’s Note: Sharesleuth has taken down the story on Virtual Piggy Inc. (OTCBB: VPIG) that appeared under this headline last Friday. We will publish a revised version shortly.)
One of Rockwell Medical Inc.’s (Nasdaq: RMTI) biggest long-term shareholders let warrants to buy more than 860,000 shares expire rather than pay $7.18 a share to exercise them.
David A. Hagelstein said in a Securities and Exchange Commission filing that a trust he controls did not exercise the warrants by their July 31 expiration date. Rockwell’s stock closed that day at $5.05.
Hagelstein had paid $1.9 million to acquire the warrants from their original holders.
Hagelstein disclosed in the same filing that he had purchased an additional 164,241 Rockwell shares on the open market, at prices ranging from $3.48 to $5.33. He said he owned 1.99 million Rockwell shares, through two trusts. That amounted to just under 5 percent of the company.
Rockwell’s stock closed Tuesday at $5.68, off 33 cents. Had Hagelstein exercised the warrants, the company would have received more than $6 million in additional capital.
Rockwell said in its proxy filing in April that Hagelstein controlled 2.67 million shares, including the warrants. That equaled a 12 percent stake, making him its third-largest shareholder after Chief Executive Robert L. Chioini and Richmond Brothers Inc.
The shares of Kandi Technologies Group Inc. (Nasdaq: KNDI) more than doubled last month, aided by an eye-popping surge in volume that followed a routine press release.
Kandi’s stock shot from $3.92 on June 4 to an all-time high of $8.50 on June 11, after the company announced that the Chinese government had approved the electric car it is developing with Geely Automotive Holdings Ltd. for sales and eventual subsidies.
Trading volume on the day that the release came out topped 18.7 million shares, an amount roughly equal to Kandi’s public float. Since then, an additional 82 million shares have changed hands.
Sharesleuth, which previously raised questions about Kandi and the people who helped bring it public, detected a spate of unusual activity on stock message boards and social media sites at the time the company’s shares were surging.
We identified a pattern of postings, on multiple sites under multiple user names, which suggested a coordinated effort to tout Kandi’s shares. Among other things, a group of new posters appeared on the Kandi message board at Yahoo Finance, issuing baseless price targets for the company’s stock, predicting an imminent short squeeze and even suggesting that Kandi was a buyout target.
We noted that several of the posters – “megsboats’’ and “stockticklers,” for instance — were touting three other companies on the Yahoo Finance boards at the same time they were touting Kandi. Those companies were Renren Inc. (NYSE: RENN), the National Bank of Greece (NYSE: NBG) and Tranzbyte Corp. (Pink Sheets: ERBB).
We also noted that at least six Twitter accounts began posting about Kandi, with a common set of messages. Like the posters on Yahoo Finance, the people behind the Twitter accounts touted Renren, National Bank of Greece and Tranzbyte, too.
Their tweets, combined with dozens of additional ones on accounts whose links led to stock-promotion sites, made it appear that Kandi had generated more buzz in social media circles than it actually had.
At the end of that week, just after Kandi’s shares hit new high in intraday trading, something unusual happened. Nearly all of those promotional posts about the company disappeared from the Yahoo boards, along with the posters. The messages promoting Kandi on the Twitter accounts we were watching also were deleted, as were some of the tweets touting Renren, Tranzbyte and the National Bank of Greece.
Although the people behind the tout campaign tried to make the messages disappear, some of their posts were preserved elsewhere, through Google’s caching system and the Nasdaq exchange’s own summary of social media posts about public companies.
Here, for example, is a tweet that was deleted from an account called @canadapetro:
Here is another that was deleted from an account called @LVhotels:
Here is a third message, from an account called @GoldMining:
Federal prosecutors have reached a plea agreement with one of 15 people alleged to have participated in an international pump-and-dump ring that netted more than $30 million.
Court records show that Mark Harris, a stock promoter who lives in Arizona, pleaded guilty to conspiracy in one of two related criminal cases. According to a document submitted last week, Harris will not be sentenced until after the trials in those cases, which currently are set for next March and June, respectively.
It is unclear whether Harris has agreed to testify against the other defendants in the case. A filing spelling out the specifics of his plea deal was sealed by the judge.
Prosecutors have identified the architects of the two schemes as Regis M. Possino, a disbarred lawyer with convictions for drug dealing and fraud, and Sherman Mazur, a former real estate mogul who also has a prior conviction for fraud. They once operated from a shared office space in Santa Monica, Calif.
The indictments announced earlier this year allege that Possino and Mazur headed two intertwined networks that fraudulently inflated the share prices of small public companies before dumping their holdings on unsuspecting investors.
The indictments said the participants in the schemes acquired a large percentage of the shares in those companies and distributed those shares to nominees to conceal their ownership. They boosted the share prices through manipulative trading and misleading press releases, then sold the shares.
Authorities said the schemes defrauded more than 20,000 investors in the United States and abroad. They said the participants in one set of alleged pump-and-dumps reaped more than $18 million, while those in the other made at least $13 million.
Harris, Possino, Moyal and Nix are defendants in both cases.
The public companies used as vehicles in the schemes included Sports Endurance Inc. (OTCBB: SENZ); GenMed Holding Corp. (OTCBB: GENM) and BioStem U.S. Corp. (OTCBB: HAIR).
According to an article in the Vancouver Sun, Harris made a fortune in the 1980s and 1990s working for offshore boiler rooms that used high-pressure sales tactics to sell shares of dubious companies to investors around the world.
Those activities were disclosed as part of a contentious divorce case. More recently, Harris has worked to promote the shares of penny-stock companies. Among other things, he paid others to conduct tout campaigns on behalf of those companies.
A jury in Florida has found Mitchell J. Stein guilty on all 14 counts related to a multimillion-dollar manipulation scheme involving shares of Heart Tronics Inc. (Pink Sheets: HRTT), formerly known as Signalife Inc.
Signalife was featured in a Sharesleuth investigation in 2008. That story presented evidence that Stein, a lawyer who split his time between Florida and California, secretly controlled the company.
It also suggested that Stein and others had engaged in market manipulation with the help of consultants who got millions of dollars in stock.
Stein was arrested in December 2011 under an indictment charging him with securities fraud, mail fraud, money laundering, conspiracy to commit mail fraud and wire fraud, and conspiracy to obstruct justice.
The Securities and Exchange Commission also filed a civil case against Stein, the company and its co-chief executives, alleging that they falsified sales, issued misleading press releases and committed numerous other violations. That case is pending.
Customs records do not support Kandi Technologies Corp.’s (Nasdaq: KNDI) claim that it sold thousands of electric cars in the United States, a Sharesleuth investigation found.
The records, which originated with the Department of Homeland Security, reinforce our earlier findings that Kandi greatly exaggerated the sales of those vehicles.
The Chinese company has said in Securities and Exchange Commission filings that it sold more than 4,600 of its mini cars from 2009 through 2011. For most of that period, the United States was the main market for the vehicles.
But a database containing detailed cargo information for vessels delivering goods to U.S. ports shows that fewer than 1,100 of Kandi’s cars were ever shipped here.
The database was created by ImportGenius.com, an Arizona company that helps businesses find sales prospects, evaluate suppliers and monitor rivals. It contains more than 79 million records drawn from the bills of lading for all ocean-freight imports.
Sharesleuth’s investigation turned up a number of discrepancies between Kandi’s reported sales of its low-speed, battery-powered cars and the actual deliveries of those vehicles to American ports.
– Kandi said in an SEC filing and an earnings release that it sold 1,141 cars in the United States in the first nine months of 2009. But the Customs records show that only 203 were delivered to American ports in that period. They also show that just 143 additional vehicles were delivered in the last three months of that year.
– Kandi said in an earnings release in 2010 that one of the main contributors to its revenue and income growth was a “strong second quarter contribution from U.S. sales of the super mini Kandi Coco.” Kandi previously had reported selling 1,005 electric-powered Cocos in that quarter, primarily in the United States. But Import Genius’ database shows that just 156 of the cars were delivered to American ports that year.
– Kandi disclosed in its annual SEC filing last year that only 658 of the 1,618 cars that it reported selling in 2010 were actually electric, and that the rest were gasoline-powered. That unexplained revision means it would have been mathematically impossible for Kandi to have sold 1,005 electric cars in the second quarter of that year, as it claimed.
The above examples suggest that the gains in electric-car sales that Kandi reported during pivotal periods in 2009 and 2010 were illusory. The company’s public statements regarding those sales contributed to spikes in its stock price and trading volume, and allowed certain parties to sell shares at peak levels.
Kandi, through its U.S. law firm, declined to comment on the discrepancies.
Kandi has said that because it sells its vehicles to middlemen who export them to the United States, Europe and other markets, it has no specific knowledge of where those products end up. Nevertheless, the company expressly stated in its SEC filings and earnings releases that the bulk of its car sales in 2009 and 2010 were “U.S. sales.”
The Customs data shows that although Kandi reported selling around 2,000 electric cars in the United States in the first nine months of 2009 and the second quarter of 2010, only about 500 were delivered to American ports in those years..
Kandi said in an SEC filing that it sold 1,077 cars in 2011. It did not specifically say that those sales were in the United States. But with the exception of a purported order from Italy that has yet to materialize, it did not report any large sales elsewhere in the world.
Our analysis of the records in Import Genius’ database showed that 290 of Kandi’s mini cars were delivered to American ports in 2011.
Houston American Energy Corp. (AMEX: HUSA) has given up its interest in a Colombian oil property that it once claimed held as many as 4 billion barrels of reserves.
Houston American – which was the subject of a Sharesleuth investigation in 2010 — did not receive any payment. But it added that the move released it from any claims for past, present or future capital calls related to the joint operating agreement with SK Innovation.
Houston American, SK Energy and a third partner, Gulf United Energy Corp. (Pink Sheets: GLFE), have drilled three wells on the Colombian property. All three were unsuccessful, and were plugged and abandoned.
Houston American’s shares traded for more than $20 as recently as July 2011, just before drilling began on the initial well. The company’s stock closed Tuesday at 21 cents.
Houston American had said in SEC filings and investor presentations that the CPO-4 prospect, in Colombia’s Llanos Basin, was estimated to hold anywhere from 1 billion to 4 billion barrels of recoverable reserves.
It announced in late 2011 that it encountered “strong shows of hydrocarbons” at the first well, Tamandua #1. But it later said that the well was being abandoned, in part because of damage to the formation during the drilling process.
Houston American said last April that it had received three subpoenas from the SEC as part of a formal investigation into the company. It has since disclosed that the investigation appears to be focused on claims about the resource potential of the CPO-4 prospect.
Houston American said in the announcing regarding the relinquishment of its interest in CP0-4 that it still had roughly $10 million to finance exploration activities elsewhere in Colombia.
Houston American has a 12.5 percent stake in a prospect known as Serrania. One of its partners there is Canacol Energy Ltd. (TSX Venture Exchange: CNE). Canacol acquired a 37.5 percent interest when it absorbed Shona Energy Co. last year.
The other partner at Serrania is Hupecol Operating Company LLC. Houston American has been involved with Hupecol on several earlier projects that were more successful than CPO-4.
Houston American has said that it expects the first well to be drilled at Serrania this year.
A federal judge has issued a tentative ruling in favor of Rockwell Medical Inc. (Nasdaq: RMTI) in a wrongful-termination suit brought by its former head of drug development, who was fired in September 2011..
Dr. Richard C. Yocum said in his suit that he was fired because he repeatedly complained to Chief Executive Officer Robert L. Chioini about possible violations of Securities and Exchange Commission and Food and Drug Administration rules.
The judge hearing the case did not rule on whether Rockwell Medical had, in fact, committed any violations. Instead, he considered the more narrow issue of whether the company was within its legal rights to fire Yocum.
Rockwell Medical, which makes and distributes dialysis products, is based in Wixom, Mich. The company had argued that Michigan is an “employment at will’’ state, which means that businesses can fire workers for any reason, or no reason. One of the exceptions to that rule is if an employee is fired in retaliation for reporting improper activity, either to management or outside bodies, such as regulatory agencies.
Yocum worked from his home in California, which also is an employment at will state. The law there does not require a worker to report improper activity to an outside agency to qualify for whistleblower protection.
The judge, Gonzalo P. Curiel, said in his tentative ruling that there was an “absence of evidence’’ linking Yocum’s firing to any protected activity. Curiel also said he was prepared to rule against Yocum on his claim that the firing constituted the intentional infliction of emotional distress. Rockwell Medical had noted in court filings that Yocum was soon hired by another medical company, at a higher annual salary.
Finally, Curiel said that Yocum had not presented evidence demonstrating that Rockwell Medical owed him any unpaid wages. According to the court docket, the judge is preparing a final written order in the case.
Curiel still must issue a written order reaffirming Rockwell Medical’s request for summary judgment for the ruling to become official.
Yocum’s suit against Rockwell Medical was the subject of a Sharesleuth story last year.
Yocum said in his complaint that press releases the company put out in 2010 and 2011 made it appear that the clinical trials for a new product called Soluble Ferric Pyrophosphate (SFP) were going better than they actually were.
Yocum was Rockwell Medical’s vice president of drug development and medical affairs, and had primary responsibility for the SFP development program.
He said in his suit that Chioini not only ignored his concerns about the trials but caused Rockwell Medical to issue press releases that included statements directly contradicting what Yocum had told him.
Yocum also said that, based on the nature of the questions he received from analysts or investors, it appears that Rockwell Medical engaged in selective disclosure regarding details of those trials.
Among other things, Yocum alleged that Rockwell Medical:
–falsely claimed that the results of its earlier Phase IIb studies of SFP were positive, despite the fact that they failed to demonstrate that the treatment was effective.
–falsely claimed that the Phase IIb trials produced clear dosing data.
–falsely claimed that the company had an agreement with the FDA on the design of its Phase III clinical trials.
– announced an unrealistic date for bringing SFP to market, disregarding Yocum’s much longer timetable.
Rockwell Medical announced in February that one of its clinical trials for SFP showed that regular use reduced the need for erythropoietin stimulating agents (ESAs) by as much as 37 percent. The company has said that such a reduction could mean big savings for dialysis providers and their patients.
Rockwell Medical expects to announce the results of its other trials later this year. Those are intended to show that SFP is safe and effective.
A former financial consultant to Rockwell Medical Inc. (Nasdaq: RMTI) has been implicated in a second securities fraud case, this one involving an alleged pump-and-dump ring that netted at least $13 million.
The consultant, Michael J. Xirinachs, was not one of the nine people charged in the case, nor was he identified by name in the court documents.
But Sharesleuth’s review of the federal indictment unsealed last week found that another of the alleged participants in the scheme — “Unindicted Co-Conspirator 2” — was identified as a hedge fund manager who controlled Emerald Asset Advisors LLC, based in Cold Spring Harbor, N.Y.
Xirinachs is the sole manager and shareholder of Emerald Asset Advisors. He also is one of the co-founders of Rockwell Medical, a Michigan-based company that makes and distributes dialysis products.
The indictment alleges that Xirinachs worked with some of the defendants to artificially boost the stock price of a company called Genmed Holding Corp. (OTCBB: GENM), so that they could profit by dumping their shares on unsuspecting investors. It says that during the promotion and manipulation campaign, campaign, Xirinachs sold at least 2.2 million shares of Genmed stock he got from the defendants.
It also says that he and some of the defendants bought shares on the open market in advance of the campaign, to create the appearance of investor demand.
The Securities and Exchange Commission previously brought charges against Xirinachs and Emerald Asset Advisors in connection with their role in a massive fraud scheme involving a now-defunct company called Universal Express Inc. (formerly OTCBB: USXP).
A federal judge found Xirinachs and Emerald Asset Advisors liable for selling billions of unregistered shares of Univeral Express. They were ordered last year to pay more than $10 million in disgorgement, interest and fines. Another person charged in the Universal Express case, a stock promoter named Tarun Mendiratta, was among those indicted last week.
Xirinachs’ alleged involvement in the Genmed case came after his contract with Rockwell Medical had expired, but while he was still holding warrants equal to more than 3 percent of the company’s common stock.
(Disclosure: Mark Cuban, the majority owner of Sharesleuth.com LLC, has a short position in Rockwell Medical’s shares. Chris Carey, the editor of Sharesleuth, does not invest in individual stocks and has no position in Rockwell Medical’s shares).
XIRINACHS AND ROCKWELL MEDICAL
Xirinachs, a former stock broker and investment banker, helped bring Rockwell Medical public in 1997. At that time, he owned more than 15 percent of its shares. He also had a consulting contract that paid him $300,000 the first year and $240,000 the second year.
Rockwell Medical signed Xirinachs and Emerald Asset Advisors to another consulting contract in November 2008. Its stock more than doubled in the 15 days following the signing of the agreement, which called for Emerald Asset Advisors to introduce the company to licensing partners, acquisition candidates, analysts, brokers and institutional investors. Rockwell Medical’s shares surged at a time when the overall stock market was slumping because of the global financial crisis.
Emerald Asset Advisors got 700,000 warrants as compensation, exercisable at prices ranging from $1.99 to $ 7 a share. Sharesleuth calculated last year that those warrants likely were exercised at a profit of somewhere between $2.5 million and $3.2 million.
A federal grand jury has indicted 15 people, including three who were spotlighted in Sharesleuth investigations, alleging that they participated in a series of “pump-and-dump” schemes that netted more than $30 million.
The defendants include Regis Possino, a disbarred lawyer with convictions for drug dealing and fraud; Sherman Mazur, a onetime real estate mogul with a prior fraud conviction; and Edon Moyal, the former chief executive of Who’s Your Daddy Inc., a publicly traded energy-drink company. He is currently awaiting sentencing in an unrelated criminal case.
The FBI said in a press release that its investigation included a series of wiretaps that resulted in the interception of more than 60,000 phone calls and 24,000 text messages.
Who’s Your Daddy was the subject of a Sharesleuth story three years ago. Entities connected with Possino provided early funding in exchange for notes that could be converted to large amounts of stock.
Who’s Your Daddy now is called Fitt Highway Products Inc. (OTCBB: FHWY).
Companies tied to Possino and another of the defendants, Grover Henry Colin Nix, also provided to financing to Pure Play Music Ltd. (Pink Sheets: PPML) and got millions of shares of stock. Sharesleuth detailed those connections in a pair of stories in 2009.
The indictments unsealed this week allege that Possino, Mazur, Moyal and Nix were part of two networks that fraudulently inflated the share prices of small public companies before dumping their holdings on unsuspecting investors.
The indictments said the participants in the schemes acquired a large percentage of the shares in those companies, distributed those shares to nominees to conceal their ownership, boosted the share prices though manipulative trading and misleading press releases, then sold the shares.
Authorities said the schemes defrauded more than 20,000 investors in the United States and other countries.
–Sport Endurance Inc. (OTCBB: SENZ)
–GenMed Holding Corp. (OTCBB: GENM)
–BioStem U.S. Corp. (OTCBB: HAIR)
–FrogAds Inc., previously known as Imobilis Inc. (Pink Sheets: FROG)
–Empire Post Media Inc. (Pink Sheets: EMPM)
It appears from certain details in the court documents — such as the reported proceeds from the schemes involving those five stocks and the overall profits of the purported “pump-and-dump’’ network — that even more public companies were involved.
The indictments against Possino, Mazur, Moyal, Nix and the other defendants were issued last year, as part of ongoing investigations being conducted by the FBI and the Internal Revenue Service’s criminal division.
The indictments were unsealed Wednesday after 14 of the 15 people charged in the cases were arrested. The other, who authorities said operated from Switzerland and Dubai, remains at large.
Possino, Moyal, Nix and a stock promoter named Mark Harris were charged in both indictments. Mazur was charged in one. Those documents identified Possino and Mazur as the leaders of the schemes.
The other people who were indicted include Julian Spitari, the chief executive officer of FrogAds, and Dwight Brunoehler, the chief executive of Biostem. The FBI said four of the defendants allegedly participated in the schemes while on pretrial release in other criminal cases.
That group included Moyal, who was convicted last year of conspiracy to distribute marijuana. The new indictments allege that Moyal used another of his companies, 8 Sounds Inc., to pay promoters for touting the stocks used in the manipulation schemes. They say he also received a cut of the proceeds.
Another of the defendants, Tarun Mendiratta, pleaded guilty in 2009 to conspiracy and tax evasion charges in connection with a fraud scheme at a public company called American Fire Retardant Corp. According to the indictment, Mendiratta boasted of grossing more than $75 million from stock-manipulation schemes over the past decade.
The Justice Department has asked that Possino be held without bond, adding that he has considerable assets overseas and is a flight risk.