More Nepotism and Undisclosed Shady Related Party Transactions Found at InterOil

In his second installment in a series of reports detailing undisclosed shady related party transactions by InterOil (NYSE: IOC) insiders, iBusiness Reporting investigative blogger William Lobdell takes aim at certain transactions between the company and Direct Employment Services Corp (DESC).

Note: iBusiness Reporting is a division of Fraud Discovery Institute. Convicted felon Barry Minkow (co-founder of Fraud Discovery) and former LA Times investigative reporter William Lobdell have publicly disclosed holding short positions in InterOil securities. As a successful fraud investigator, Minkow has uncovered over $1.8 million of fraud involving over twenty companies and has received an official commendation from the FBI for his work in uncovering crime. Minkow and I are close personal friends and I do research work for Fraud Discovery on InterOil, but I do not own any securities in InterOil, long or short.

According to Lobdell, InterOil did not disclose that Christian Vinson who owned 50% of DESC, was the brother-in-law of InterOil CEO Phil Mulacek and Phil's brother Pierre Mulacek was a vice president and director of the company. See excerpt of Lobdell's report below:

...over three years ending in 2005, InterOil paid Direct Employment Services Corp. (DESC) nearly $1.8 million for unspecified "services" for "executive officers and senior management." InterOil disclosed that 50% of DESC was owned by InterOil's then-chief operating officer and director, Christian Vinson.

But InterOil didn't reveal other related-party facts. First, Christian Vinson is Phil Mulacek's brother-in-law. Vinson, who has been with InterOil from the beginning, is now executive vice president of corporate development and government affairs, in charge of dealing with Papua New Guinea's corrupt government.

Was it nepotism or experience that landed Vinson the executive and director positions of an oil-and-gas exploration company? His previous job was manager of a modest, automated machine shop in suburban Chicago.

Also, InterOil didn't disclose that Phil's brother, Pierre Mulacek, was DESC's vice president and director (according to Texas corporate filings) for the three years InterOil spent $1.8 million with DESC.

In filings, DECS listed its headquarters in the same building as InterOil's corporate headquarters outside of Houston.

(In 2005, when Pierre Mulacek served as DESC vice president and director, InterOil purchased DESC for $1,000. Two former DESC executives now hold top posts at InterOil. Bill Jasper, InterOil’s president and chief operating officer, served as vice president of DESC. Another former DESC vice president, Collin Visaggio, is InterOil's chief financial officer. On InterOil's website, the biographies of Vinson, Jasper and Visaggio don't mention their work at DESC.)

Note: Bold print and italics added by me.

Apparently, InterOil insiders are apparently treating this publicly traded company as a personal piggy bank by engaging in a series of undisclosed transactions for the personal enrichment of themselves and relatives at the expense of company shareholders, going back to 1997. Minkow has called InterOil a "Tyco equivalent" while I have said that the company's acts of nepotism remind me of the Antar family who fraudulently ran Crazy Eddie, back in the day.

Lobdell has traced a consistent pattern of nepotism at InterOil going back to the founding of the company. See the chart below (Click on image to enlarge):

In other blog posts, I have detailed how InterOil's disclosures to investors in various reports were contradicted by other disclosures made by the company and insiders in various court cases. In other words, InterOil apparently made certain false disclosures to investors in violation of SEC Rule 10b-5 which prohibits false and misleading disclosures.

In a June 2009 blog post entitled, "InterOil, John Thomas Financial, and Clarion Finanz: Anatomy of a Stock Market Manipulation Scheme," I detailed how InterOil filed a false report with the Securities and Exchange Commission claiming that the company paid no fees for a private placement $95 million convertible debt offering. However, documents submitted in another court case reveal that Clarion Finanz (a major shareholder of InterOil) had in fact received $5.7 million in fees, contrary to InterOil's SEC filings.

In another blog post, entitled, "Did InterOil Commit Securities Fraud?" I detailed how CEO Phil Mulacek made sworn statements in that court case which conflicted with InterOil's financial disclosures to investors. In his sworn court testimony, Mulacek claimed that a $50 million judgment against InterOil would bankrupt the company, while InterOil's financial disclosures to investors claimed that a judgment in excess of $125 million would have a material adverse impact on the company.

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 members of his family mastermind one of the largest securities frauds uncovered during the 1980's. I committed my crimes for fun and profit and simply because I could.

If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, US Attorney's Office, and class action plaintiff's lawyers who investigated, prosecuted, and sued me, I would still be the criminal CFO of Crazy Eddie today.

I do research on InterOil for Fraud Discovery Institute. However, I do not own any InterOil securities, short or long.

I am planning to go straight to hell for my unforgivable crimes and I expect to meet InterOil CEO Phil Mulacek and some of his cronies there, too.