InterOil: How a Deceitful Company Made a Very Dumb Deal, Too

So far this blog has shown how InterOil (NYSE: IOC) filed false and misleading reports with the Securities and Exchange Commission and lied to the New York Times about its dealings with Carl Caserta who was banned by the SEC from the securities industry. As I will detail in this blog post, besides InterOil management being deceitful to investors and the press, they seem to be very dumb, too.

On June 1, 2008, InterOil sold its 43.130% interest petroleum retention lease 4 (PRL 4) for $5 million and its 28.56% interest in petroleum retention lease 5 (PRL 5) for $1.5 million to a wholly owned subsidiary of Horizon Oil Ltd. (ASX: HZN). On May 20, 2009, Horizon Oil Ltd, in turn, sold a 50% interest in PRL 4 and a 24.82% interest in PRL 5 to Thailand based P3 Global Energy Co. Ltd. (P3GE) for $55 million. Therefore, Horizon sold a slightly higher combined stake in PRL 4 and 5 to P3 Global Energy Co. Ltd for over eight times the amount it paid InterOil to acquire those interests in less than one year!

In June 2008, Santos Ltd. (NASDAQ: STOSY) owned a 50.353% interest in PRL 5, alongside InterOil’s 28.56% interest. On June 3, 2009, Santos sold its 50.353% interest in PRL 5 to P3 Global Energy Company Ltd for $20 million. Therefore, P3 Global owned 75.17% of PRL 5, after buying a 24.82% interest from Horizon and 50.35% interest from Santos.

If InterOil had waited less than a year to sell its interest in PRL 5, they could have sold it to P3 Global for $11,343,912, on a relative basis. Instead, InterOil sold its 28.56% interest in PRL 5 to Horizon Oil for just a mere $1.5 million in May 2008. InterOil could have received over seven times that sum had it waited to sell its interest to P3 Global.

When InterOil announced its sale of PRL 4 and PRL 5 to Horizon Oil, InterOil CEO Phil Mulacek claimed, “We are selling our interests in PRL’s 4 and 5 in order to focus our resources and efforts on appraisal and development activities in the Elk/Antelope field. Despite all the hype disseminated by InterOil, its cronies at John Thomas Financial, and an anonymous web site called Shareholdersunite.com (out of the Netherlands) surrounding InterOil's Elk/Antelope field, the company has yet to report any proven commercially exploitable oil and gas reserves. Instead the company passed on huge potential profits on PRL 4 and PRL 5 to fund an uncertain energy project that as of today has no proven reserves.

In a previous blog post, I detailed how in April 2008 InterOil papered-over Carey International and John Thomas Financial's involvement in raising funds for a $95 million private placement convertible debt offering. InterOil used Clarion Finanz AG to act as a buffer between the company on one side and Carey and John Thomas Financial on the other side. On April 28, 2009, Wayne Kaufman from John Thomas Financial appeared on CNBC and pumped InterOil as "Our favorite stock...." and failed to disclose his company's relationship conflict with InterOil.

In another blog post, I detailed how InterOil lied to the New York Times about its relationship with Carl Caserta, who was banned from the securities industry by the SEC. InterOil continued to use Caserta to raise funds for the company and Caserta had an active InterOil email address, despite InterOil telling the New York Times that he stopped working for the company in 2005.

InterOil, like other deceitful companies followed in this blog, such as Overstock.com (NASDAQ: OSTK) and Bidz.com (NASDAQ: BIDZ), are a securities regulator's wet dream. Every time I take a look at their disclosures, I find even more questionable issues. InterOil, Overstock.com, and Bidz.com are like an axis of evil for investors.

One must ask the obvious: What else is the senior management of IOC concealing, papering over, not disclosing and hyping to the detriment of company stockholders?

To be continued....

Written by:

Sam E. Antar

Disclosure:

I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped Eddie Antar and other family members mastermind one of the largest securities frauds uncovered during the 1980s. I pleaded guilty to three felonies.

I am assisting Barry Minkow and Fraud Discovery Institute in researching InterOil and Minkow has a short position in InterOil. I have no position in InterOil, Overstock.com, and Bidz.com securities, long or short. My research on Overstock.com and Bidz.com are freebies for securities regulators to help me try to get into heaven for past sins, though I doubt I can ever make up for my past evil acts.

Other information:

Fraud Discovery Institute Investigation of InterOil