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.

Is InterOil Another Tyco or Crazy Eddie?

iBusiness Reporting investigative blogger William Lobdell has published the first installment in a series of reports detailing undisclosed shady related party transactions by InterOil (NYSE: IOC) insiders that apparently include such favorable terms to enrich their relatives at the expense of company shareholders.

In an accompanying press release, Fraud Discovery Institute (co-founded by convicted felon turned fraud buster Barry Minkow) compared InterOil's related party transactions to another well known fraud involving Tyco years ago and is asking the Securities and Exchange Commission to investigate the company for possible misconduct. The undisclosed InterOil related party transactions detailed by Lobdell remind me of how the Antar family treated Crazy Eddie as a personal piggy bank, back in my criminal CFO days.

Note: iBusiness Reporting is a division of Fraud Discovery Institute. Both Barry Minkow and William Lobdell have publicly disclosed holding short positions in InterOil securities. I do research for Fraud Discovery on InterOil, but I do not own any securities in InterOil, long or short.

In March 2010, William Lobdell went to a Texas courthouse to examine documents filed in a certain litigation by the original investors of InterOil against CEO Phil Mulacek alleging fraud by him dating as far back as 1997. In his first report, Lobdell found documents backing up allegations by investors of InterOil CEO Phil Mulacek engaging in "self-dealing and secret alliances" to enrich himself and other family members at the expense of InterOil's original investors. Details of Lobdell's follow up reports can be found here and here.

In his first part of a new three part series, William Lobdell describes the lurid details of five shady undisclosed related party transactions involving InterOil insiders and their family members from 2001 to 2004 (full details of Lobdell's report here).

Undisclosed Related Party Transactions

Fraud Discovery's press release summarizes certain related party transactions and reminds us of the infamous Tyco fraud:

...iBusiness Reporting unwinds four InterOil transactions involving the relatives of director Gaylen Byker which include a multi-million-dollar deal with an investment group headed by Byker’s brother and a two-month loan from Byker’s brother that was repaid with what penciled out to be 67.5% annual interest.

The report also includes a $12.3 million investment from a mysterious company based in the Barbados that used the same mailing address and attorney as InterOil Corp.

[Snip]

“The information shows a clear pattern of fraud by InterOil,” said Barry Minkow, co-founder of the Fraud Discovery Institute. “Once or twice might be generously characterized as an honest mistake. But iBusiness Reporting has collected many blatant examples of undisclosed nepotism by InterOil.

“In our opinion, there is no difference between Frank Walsh, who plead guilty to securities fraud, wrongly receiving a $20 million payment from Tyco while serving on the board as an independent director and Gaylen Byker’s self dealing at Interoil.”

Other Troubling Financial Reporting Issues at InterOil

In my 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.

InterOil CEO Phil Mulacek

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.

In both of the situations cited above, InterOil told one story to investors in its SEC filings and financial reports and its management told a conflicting story to the courts in sworn statements. If one story is true, the other story simply cannot be true. In each of the cases cited above, InterOil misrepresented or omitted material information in its financial reports to investors, as evidenced by its management's conflicting disclosures to the courts.

Closing Comments

Beware of fraud, whenever public company insiders deceptively treat their company's resources as a personal piggy bank at the expense of other shareholders and their company has a consistent pattern of contradictory financial disclosures. Phil Mulacek and his cronies at InterOil remind me more and more of the Antar family, including myself, in the infamous Crazy Eddie fraud.

Written by:

Sam E. Antar

Recommended Reading:

William K. Wolfrum: InterOil A (unreported) family affair?

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 there, too.

Are InterOil's Auditors Capable of Finding Fraud in Plain Sight?

Fraud Discovery Institute (co-founded by convicted felon turned fraud buster Barry Minkow) is putting PricewaterhouseCoopers (PwC), InterOil's (NYSE: IOC) auditors, on notice that they must look out for possible fraud by the company as required by Statement of Auditing Standards No. 99. Fraud Discovery released a video to provide a road map to PwC "in an attempt to give investors clearer picture of the inside workings of the controversial company." Minkow believes that InterOil is "a financial crime in progress." In addition, former LA Times investigative reporter William Lobdell, who now writes for Fraud Discovery's iBusiness Reporting blog, issued a report detailing a "troubling pattern of behavior" by InterOil since its founding in 1997.




However, I am skeptical about PwC's capability to find any fraud at InterOil based on my prior experience with them as the auditors of Overstock.com (NASDAQ: OSTK) another scam company investigated in this blog. I correctly identified certain GAAP and SEC disclosure violations by Overstock.com and PwC still certified the company's financial reports as being in compliance with GAAP and SEC rules. A year later, Overstock.com admitted to those same GAAP and SEC disclosure violations exposed in my blog and restated its financial reports to correct its violations.

Both Barry Minkow and William Lobdell have publicly disclosed holding short positions in InterOil securities. I do research for Fraud Discovery on InterOil and I do not own any securities in InterOil, long or short. More disclosure at the bottom of this blog post.

Statement of Auditing Standards: Consideration of Fraud in a Financial Audit

According to SAS No. 99, "The cornerstone of an effective antifraud environment is a culture with a strong value system founded on integrity." Unethical behavior by company management is considered a red flag for possible fraud and auditors are required to increase the scope of their audits to detect potential fraud to insure that financial reports are free from material errors. Fraud Discovery Institute's InterNoOil.com website and its iBusiness Reporting blog have published many reports detailing a troubling pattern questionable behavior by InterOil management.

Forensic accountants look for a "pattern of inconsistent and conflicting disclosures" in investigating fraud at public companies, like InterOil. Likewise, PricewaterhouseCoopers is required by SAS No. 99 to look at "inconsistent and conflicting disclosures" to determine if InterOil is committing fraud, such as those described below.

Previous examples of a "pattern of inconsistent and conflicting disclosures" by InterOil

In my 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 March 2010, William Lobdell went to a Texas courthouse to examine documents filed in a litigation by the original investors of InterOil against CEO Phil Mulacek alleging fraud by him dating as far back as 1997 (Details here, here, and here).

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.

Under SAS No. 99, "Misrepresentation in or intentional omission from the financial statements of events, transactions, or other significant information" is considered "relevant to the auditor's consideration of fraud." In both of the situations cited above, InterOil told one story to investors in its SEC filings and financial reports and its management told a conflicting story to the courts in sworn statements. If one story is true, the other story simply cannot be true. In each of the cases cited above, InterOil misrepresented or omitted material information in its financial reports to investors, as evidenced by its management's conflicting disclosures to the courts.

Based on InterOil's conflicting disclosures, PwC is required to investigate such irregularities under SAS No. 99, as part of its audit of the company. However, I am skeptical of PwC's auditing abilities and it's capability to uncover any fraud committed by clients such as InterOil. So far, they seem to have ignored significant management integrity issues at InterOil, like the two issues detailed above.

Why I am skeptical about PwC's capability to find fraud at InterOil

PwC was Overstock.com's auditors from 1999 to 2008. During that period, every initial financial report for every reporting period issued by Overstock.com and reviewed or audited by PwC violated Generally Accepted Accounting Principles (GAAP) or some other SEC disclosure rules. Overstock.com CEO Patrick Byrne blatantly lied to investors over a ten year period about the company's financial performance, internal controls, and compliance with GAAP and other SEC disclosure rules.

Starting in February 2009, I wrote a series of blog posts correctly identifying certain GAAP violations by Overstock.com in 2008 and prior years. Both Overstock.com and PwC ignored my requests for them to correct those GAAP violations and restate the company's financial reports. Patrick Byrne responded by orchestrating a smear campaign to discredit me and other critics who agreed with my findings, while PwC improperly certified the company's financial reports as being in compliance with GAAP.

In March 2009, Overstock.com hired Grant Thornton to replace PwC as its auditors. In September 2009, the SEC started investigating Overstock.com's accounting irregularities that were pointed out in my blog. In November 2009, Overstock.com fired Grant Thornton after they agreed that I correctly identified certain GAAP violations and wanted the company to restate its financial reports. PwC still stuck to its guns and claimed that Overstock.com did not violate GAAP.

In December 2009, Overstock.com hired KPMG to replace Grant Thornton. In February 2010, Overstock.com finally admitted that the company violated GAAP and restated its financial reports to correct GAAP violations, previously identified by me. I was right and Overstock.com and PwC was wrong.

Overstock.com's financial reports that were audited by PwC were restated three times in ten years and every single audit report issued by PwC was wrong. PwC ignored serious management integrity issues at Overstock.com and I have no reason to believe that they will address any management integrity issues at InterOil.

A "troubling pattern of behavior" by InterOil

William Lobdell's latest report details even more questionable behavior by InterOil's management team. Lobdell cites "InterOil’s 12 years of hyping gas and oil fields in Papua New Guinea" and points out that InterOil still has no proven commercially exploitable reserves to date. Lobdell lists ten wells that InterOil hyped to investors, only to abandon them later on.

Many short sellers, including Minkow and Lobdell, are skeptical of InterOil's claimed estimates of contingent resources (not proven reserves). Lobdell examined the track record of GLJ Engineering, a firm hired by InterOil in 2009 to estimate its oil and gas resources. He found three major blunders by GLJ in the past and questioned the reliability of their reports on InterOil.

Then, Lobdell details how InterOil was apparently shopping for a favorable engineering report on its reserves before the company hired GLJ:

InterOil’s Netherland Sewell report is MIA.

GLJ's past mistakes might not be that much of an issue if it weren't for the "Case of the Missing Netherland Sewell Report."

In March 2007, InterOil CEO Phil Mulacek told attendees at a Raymond James conference in Orlando, Florida that three "world-class" firms were in the process of performing reserve analysis on InterOil gas fields. Mulacek named one firm, the iconic Netherland Sewell, stating that InterOil had hired the company, according to a reliable source.

This news of an imminent evaluation from Netherland Sewell was frequently mentioned in fawning investor reports by Raymond James and on blogs and message boards promoting InterOil.

But the report never came.

About 17 months later, Mulacek indicated in a conference call to investors that an international firm hired by InterOil would finish its reserve analysis report by the end of October 2008.

Again, the report never came.

So what happened to the Netherland Sewell report? Netherland Sewell nor InterOil will comment. And since InterOil is never shy about releasing good news, this should be worrisome to investors.

In the balance of his report, William Lobdell takes issue with InterOil's hype on the company's long term viability. He analyzes how InterOil is running out of cash and questions and other roadblocks facing the company in the future.

Closing comments

I cannot understand how auditing firms like PwC with their access to a company's books and records can miss red flags and financial reporting violations correctly pointed out by outsiders such as short sellers like Barry Minkow and William Lobdell and independent whistleblowers like me. Unlike us, PwC seems to be incapable of finding fraud, even fraud in plain sight .It seems that the reliability of PwC's audit reports is nothing more than pot luck in most cases.

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, 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 not own Overstock.com securities short or long. My research on Overstock.com and in particular its lying CEO Patrick Byrne is a freebie for securities regulators and the public in order to help me get into heaven, though I doubt that I will ever get there anyway.

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

I plan on meeting corporate miscreants, such as fifth rate crooks like Patrick Byrne, in hell. In addition, it is likely that InterOil CEO Phil Mulacek may join Patrick Byrne and me in hell, too. We will all fry together.

Open Letter to Morgan Stanley "Research" Analyst Evan Calio: About Your Seriously Flawed Report on InterOil

To Morgan Stanley "Research" Analyst Evan Calio:

Evan Calio

Back in the day as the criminal CFO of Crazy Eddie, some of our staunchest defenders were gullible Wall Street research analysts like you. Even as events were imploding around us, we could count on gullible and naive research analysts to pump up the price of Crazy Eddie shares, as the Antar family continued to unload stock and pocket millions of dollars in ill-gotten gains.

Like those research analysts back in the day, your recent deluge of Morgan Stanley (NYSE: MS) "research" reports seem to be more interested in defending your past hype of InterOil (NYSE: IOC), rather than accurately communicating to investors the potential substantial material adverse financial risks facing the company in the very near future, as InterOil insiders are dumping shares.

The issue is not whether the Todd Peters case will be ultimately settled or goes to trial. The case may or may not be settled or go to trial. As I will detail below, the Morgan Stanley "research report" bearing your name seems to have no issue with InterOil and its CEO Phil Mulacek making conflicting disclosures to investors and the Courts.

Your reports do not accurately consider both InterOil's and Mulacek's disclosures about the potential material adverse financial impact of the Todd Peters litigation on InterOil that is scheduled for trial in October 2010, barring a settlement. Is success that is based on either a company or its CEO to lying to investors or the Court a business plan that you endorse for your investors?

InterOil and Phil Mulacek's Potential Legal Issues

Recently, former LA Times reporter William Lobdell wrote a series of reports in iBusiness Reporting* that provides details of serious fraud allegations made in an ongoing court case by the original investors in InterOil against company CEO Phil Mulacek. Those investors are alleging that Mulacek and various entities under his control defrauded them. (Details in iBusiness Reporting: here, here, and here).

Note: iBusiness Reporting is a division of Fraud Discovery Institute which was co-founded by convicted felon, turned fraud fighter Barry Minkow. Both William Lobdell and Barry Minkow have publicly disclosed holding a short position in InterOil securities. My disclosure is at the end of this blog post.

Originally, the investors sued InterOil, Mulacek, and Nikiski Partners, which is controlled by Mulacek (Todd Peters, et. al. v. Phil Mulacek et. al.). Mulacek attempted to throw Nikiski into bankruptcy (in re Nikiski Partners, Ltd.) to derail the Todd Peters lawsuit and any potential liability or other economic consequences effecting InterOil. However, the Bankruptcy Court Judge dismissed the bankruptcy attempt by Mulacek, ruling that it was filed in "bad faith" as argued by the investors.

In attempting to throw Nikiski into bankruptcy, Mulacek testified in various Court hearings. According to the December 30, 2009 Bankruptcy Court transcript, Attorney Thomas M. Kirkendall said:

InterOil CEO Phil Mulacek under fire

InterOil, as Mr. Mulacek testified that InterOil wouldn't even be able to pay a $50 million judgment, much less a 100 million or several hundred millions or a billion-dollar judgment, as the Peters group is seeking, without substantial third party financing.

The Thomas Peters lawsuit is currently scheduled for trial on October 18, 2010. In recent weeks, certain InterOil insiders seem to be hedging their bets by dumping over $10 million in company shares prior to the scheduled trial date, barring a settlement of the said action.

Morgan Stanley Defends InterOil

Right after William Lobdell reported about the above litigation affecting both InterOil and Phil Mulacek, you issued a barrage of "research reports" defending its previous guidance on InterOil and hyping the company's future prospects. In particular, the March 29, 2010 "research report" takes issue with Lobdell's reporting of the litigations.

Your research report starts off with the usual reference to Barry Minkow and William Lobdell holding short positions in InterOil and reference to Minkow's criminal past (like Morgan Stanley has no past and present legal problems itself):

What Happened Late Last Week? Negative claims regarding IOC’s management, resources and valuation (addressed below) began Wednesday evening with two stories circulating similar negative claims. These general claims have been made before over the past year and we believe they remain incorrect. On Thursday, after these stories, IOC was up in down energy tape (unclear why). On Friday, IOC gapped lower, trading on high volume (8.4MM shares) on the back of a negative claim made by the Fraud Discovery Institute and iBusiness Reporting. Both the Fraud Discovery Institute and iBusiness Reporting are entities affiliated with Barry Minkow, a convicted felon for securities law violations who publicly states it holds short positions of stocks it is “investigating” (it is “investigating” IOC).

There is no secret about the relationship between Fraud Discovery, Barry Minkow, and William Lobdell. Both Minkow and Lobdell have publicly stated holding short positions in InterOil securities. Minkow is very vocal and makes no excuses about his past criminal misdeeds, having written several books about it, discussing it openly in the media, and disclosing it on his website.

Since Minkow's past seems to concern you, consider InterOil's covert relationship with Carl Caserta, who in 1991 was barred by the Securities and Exchange Commission from “association with any broker, dealer, or investment advisor.”

According to a 2007 New York Times article, Caserta "stopped working for InterOil in 2005." InterOil Director Gaylen J. Byker claimed that that the company was "not aware of Mr. Caserta’s history when he was retained." Anesti Dermedgoglou, Vice President Investor & Public Relations, claimed that he "was not aware that the firm had hired Mr. Caserta."

It turns out that Carl Caserta continued his relationship with InterOil. In 2008, Carl Caserta helped InterOil raise $95 million in a private placement of convertible debt securities.

Emails obtained by me and turned over to FINRA show Carl Caserta as a party to various emails discussing details of the transaction with InterOil CEO Phil Mulacek and John Thomas Financial CEO Thomas Belesis.

InterOil filed a false Form D with the Securities and Exchange Commission claiming it was paying no sales commissions or finder's fees in connection with the offering, when, in fact, the company previously agreed to pay such commissions and fees. InterOil's concealment of such fees enabled John Thomas Financial to hype InterOil shares on CNBC and to investors without disclosing its investment banking relationship with the company.

As of July 2009, Carl Caserta still had an available, current, and active email address (carl.caserta@interoil.com) at InterOil.

Legal Claims

Your Morgan Stanley "research report" discusses the "legal claims" involved in the Todd Peters litigation and the Nikiski bankruptcy:

Legal Claims. The legal claims relate to two actions: (1) claims made by Plaintiff in a legal filing in 2008 in litigation between Phil Mulacek, Chairman and CEO of IOC, and early stage investors in certain refining equipment of predecessors to IOC (Peters vs. Mulacek) over ownership interests in IOC stock, and (2) a Bankruptcy court ruling and selected findings/statements (In re Nikiski Partners). We believe that both cases pose immaterial risks to IOC and reporting of selected facts in Plaintiff’s filings and statements from Bankruptcy action can be misleading. IOC has likely reached a similar conclusion, as it has not reserved any contingent liabilities.

[Snip]

Damages sought in the case vary depending on IOC’s share price; however, in the most recent AIF, the company states that actual damages could exceed $125MM. Plaintiffs also seek unspecified punitive damages, attorneys’ fees, expenses and court costs. The case is set for trial in October 2010.

The Judge already ruled that the Nikiski bankruptcy case was filed in "bad faith" and that case was dismissed. Mulacek put Nikiski into bankruptcy to avoid a material adverse financial exposure for InterOil. That material adverse financial exposure for InterOil still remains in the Todd Peters case, contrary to your claim that "both cases pose immaterial risks to IOC."

InterOil's financial disclosures contradict your Morgan Stanley "research report" claim there is no potential material adverse financial exposure to InterOil, arising from the Todd Peters litigation. In its 2009 Annual Information form, InterOil disclosed that:

If, however, plaintiffs are successful in obtaining a favorable verdict, actual damages could exceed $125,000,000.  Plaintiffs also seek unspecified punitive damages, attorneys' fees, expenses and court costs. The case is set for trial beginning in October 2010. The Company and other defendants are vigorously contesting the matter. If however, plaintiffs succeed in obtaining a judgment in the amount they seek, it could have a material adverse effect on the Company or its subsidiaries. (See: InterOil 2009 Annual Information page 43.) [Emphasis added.]

However, your Morgan Stanley "research report" failed to alert investors that InterOil's own disclosures say investor claims in the Todd Peters case, "could have a material adverse effect on the Company or its subsidiaries."

While it is true that InterOil has "not reserved any contingent liabilities", the company disclosed a loss contingency exceeding "125,000,000." At this time, InterOil simply does not have the resources to reserve for a contingent liability exceeding "125,000,000." As of December 31, 2009, InterOil reported an unrestricted cash balance of only $46,449,819. The company's net working capital (which includes restricted cash of $22,698,829) was only "$114,535,654." InterOil would require "substantial third party financing" as revealed in the Bankruptcy Court transcript quoted below:

InterOil, as Mr. Mulacek testified that InterOil wouldn't even be able to pay a $50 million judgment, much less a 100 million or several hundred millions or a billion-dollar judgment, as the Peters group is seeking, without substantial third party financing.

Are you saying that Mulacek and his attorneys lied to the Bankruptcy court and we should not accept their representations to the Court as facts? If Mulacek and his attorney did in fact lie to the Bankruptcy Court, are you comfortable with the CEO of a public company, like InterOil, making false representations to the Court so long as it favorably impacts the company? Is that a business plan that you endorse for your investors reading your supposed "research" reports?

Your "research report" claims that:

Legal Actions and Statements are Not New News. The litigation is not “new,” has been under way for a number of years and has been disclosed in each IOC’s last 3 annual information forms (2007, 2008 and 2009). The act of highlighting the plaintiff’s claims (from a July 2008 court filing) and selected judicial statements in various transcripts (from a December 2009 hearing), in a sensationalistic and one-sided manner, was “new.”

While it is technically correct that the Todd Peters litigation is not "new" you seem to miss the main point of William Lobdell's report about InterOil's and Mulacek's conflicting disclosures. According to InterOil's disclosures detailed above, "...actual damages could exceed $125,000,000....." and "it could have a material adverse effect on the Company or its subsidiaries." As of December 31, 2009, InterOil reported a cash balance of only $46,449,819 and the company's net working capital (which includes restricted cash of $22,698,829) was only "$114,535,654."

What is new is that the Bankruptcy Court transcript says, "Mr. Mulacek testified that InterOil wouldn't even be able to pay a $50 million judgment, much less a 100 million or several hundred millions or a billion-dollar judgment...without substantial third party financing." As you noted above, "The case is set for trial in October 2010."

If Phil Mulacek was truthful to the Bankruptcy Court and did not commit perjury by lying under oath, InterOil failed to disclose that even a "$50 million judgment" could have a "material adverse financial effect" on the company. The company's disclosures said that a judgement exceeding "125,000,000" could have a "material adverse financial effect" on the company.

Did CEO Phil Mulacek lie to the Court and commit perjury or did InterOil lie to investors and commit securities fraud? Take your choice! In any case, lies to one venue or another don't seem to bother you or Morgan Stanley, as long as your "research reports" can keep hyping InterOil to its uninformed investors.

Your Morgan Stanley "research report" goes on to say that:

Even if Meritorious, Limited Impact to IOC. The civil case is primarily against Phil Mulacek who, directly and indirectly, owns more than 5MM shares of IOC. The value of these shares, even off Friday’s lows is likely sufficient to cover any liability.

Your claim that "Even if Meritorious, Limited Impact to IOC" conflicts with Bankruptcy Court transcripts that reveal:

Mr. Mulacek testified that InterOil wouldn't even be able to pay a $50 million judgment, much less a 100 million or several hundred millions or a billion-dollar judgment...without substantial third party financing.

In addition, your claim conflicts with InterOil's disclosure that:

...actual damages could exceed $125,000,000.

[Snip]

If however, plaintiffs succeed in obtaining a judgment in the amount they seek, it could have a material adverse effect on the Company or its subsidiaries.

Here again, the Morgan Stanley "research report" fails to consider both InterOil and Mulacek's representations to investors and the Courts.

Your Morgan Stanley "research reports" highlights areas where you could be wrong. See below:

Where We Could Be Wrong
• Exploration failure. IOC is proving its resource base and any exploration failure will likely delay development and impact price.
• Failure to enter LNG JV. IOC is unlikely to be able to finance LNG development and its continued exploration program w/o partners.
• PNG risks. 100% of IOC’s operating assets are located in PNG.
• Failure to enter JV (LNG or liquid stripping) before potential 2H10 liquidity shortage forces additional capital raise.

In addition to your failure to address certain issues detailed above, you also failed to highlight that you could be wrong if the Todd Peters litigation does not settle and the Plaintiffs win a substantial monetary reward. As I detailed above, "Mulacek testified that InterOil wouldn't even be able to pay a $50 million judgment."

In your research report, you write:

Attacks are left to credibility. Media attacked have focused on management credibility.... We focus on what management has accomplished.....

So it's just fine with you that any public company and its CEO can lie to investors and the courts, if there is a the slightest hope that it can make money in the future? No wonder Wall Street remains a cesspool. I guess its all about making making money - our securities laws and justice system be damned.

Respectfully,

Sam E. Antar

PS: Please take note of my disclosure below. As a convicted felon and former CPA who trains law enforcement to identify and catch white collar criminals, I feel uniquely qualified to comment about moronic "research" analysts like you who don't care about management integrity issues.

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, 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 not own any InterOil securities, long or short. However, I assisted Fraud Discovery Institute in researching InterOil. Fraud Discovery co-founder Barry Minkow has publicly that he has held short positions in InterOil securities.

Did InterOil Commit Securities Fraud?

In the latest salvo of its battle to expose fraud, deceit, and misconduct by InterOil (NYSE: IOC) and its CEO Phil Mulacek, Fraud Discovery Institute sent former LA Times investigative reporter, now an iBusiness Reporting blogger, William Lobdell to a Texas courthouse to pour "thousands of pages of legal documents" and discovered even more damaging information of an ongoing pattern of deceit involving the company and Mulacek. William Lobdell's detailed blog report can be read here.

iBusiness Reporting is a division of Fraud Discovery Institute (co-founded by convicted felon, now fraud fighter Barry Minkow). Both Lobdell and Minkow publicly acknowledge holding short positions in InterOil securities.

Possible Securities Fraud

Separate and apart from new information discovered by Minkow and Lobdell, this blog has uncovered troubling false and misleading disclosures by InterOil in filings with the Canadian Securities Commissions and the Securities and Exchange Commission that violate securities laws in both countries. Certain disclosures by InterOil in financial reports conflict with disclosures uncovered in two separate court cases, as detailed below.

Zeigler Litigation

For example, in June 2009, this blog exposed how InterOil filed a false SEC form Regulation D claiming it paid no fees for a $95 million private placement of convertible debt in 2008.

In a July 2009 blog post entitled, "InterOil, John Thomas Financial, and Clarion Finanz: Anatomy of a Stock Market Manipulation Scheme," I provided detailed evidence of a stock market manipulation scheme involving InterOil, John Thomas Financial, Clarion Finanz AG, and banned stock promoter Carl Caserta. I believe that they conspired to raise the stock price of InterOil's shares to force the conversion of certain outstanding convertible debt to common stock.

InterOil's material omission of fees in its SEC form Regulation D filing later enabled it to conceal in other filings John Thomas Financial's role in helping the company raise money from investors.

That deception enabled John Thomas Financial analyst Wayne Kaufman to appear on CNBC and recommend InterOil's stock without accurately disclosing his company's conflict of interest from his company's prior investment banking relationship with InterOil. Afterwards, John Thomas Financial heavily promoted Wayne Kaufman's CNBC appearance to pump InterOil stock to its customers without disclosing its prior investment banking relationship with InterOil. Over the next couple of weeks, InterOil shares rose dramatically and the company was able to force the conversion of its debt to equity.

A joint investigation with Fraud Discovery Institute, securities litigator Howard Sirota, and this blog found Court documents in the Zeigler litigation that revealed the payment of undisclosed fees by InterOil to Clarion Finanz AG, headed by Carlo Civelli who controls a major stake in InterOil. Originally InterOil was dealing directly with John Thomas Financial in helping it raise funds for its $95 million private placement of convertible debt securities.

However, that relationship was papered over to instead make it look like John Thomas Financial was working for Clarion. In other words, InterOil deliberately set up Clarion to act as a buffer between the company and John Thomas Financial. In any case, InterOil disclosed no fees paid to Clarion or indirectly paid to John Thomas Financial in its SEC form Regulation D filing and later filings. Therefore, both Clarion's and John Thomas Financial's role in helping InterOil obtain financing was concealed.

In addition, those Court documents revealed that InterOil was still doing business with banned stock promoter Carl Caserta, after the company lied to the New York Times by telling them that it stopped doing business with Caserta.

In other words, InterOil told one story to investors (no fees paid to raise $95 million of convertible debt in SEC form Regulation D) and while its internal company documents told a conflicting story to the Court (investment banking fees paid). (Full details here.)

Nikiski Partners Litigation

Likewise, former LA Times investigative journalist now working for Fraud Discovery's iBusiness Reporting blog uncovered a similar scheme by CEO Phil Mulacek in an ongoing Court battle between him and InterOil's original seed money investors. Those investors are alleging that Mulacek and various entities under his control defrauded them.

Originally, the investors sued InterOil, Mulacek, and Nikiski Partners, which is controlled by Mulacek (Todd Peters, et. al. v. Phil Mulacek et. al.). Mulacek attempted to throw Nikiski into bankruptcy (in re Nikiski Partners, Ltd.) to derail the investor's lawsuit. In that case, Mulacek's and his attorneys made claims to the Court that conflict with InterOil's disclosures to investors, as I will detail below.

Last week, Fraud Discovery went public with its investigation and issued a press release and Lobdell published a blog report detailing their findings. Below is an excerpt from Fraud Discovery's press release summarizing Lobdell's report:

...William Lobdell details stunning allegations made by about 20 original investors in what is now InterOil. Among the claims: InterOil CEO Phil Mulacek forged documents, secretly created a shadowy Bahamian company, and ignored "crippling conflicts of interest" in order to enrich family, friends and himself.

So desperate was Mulacek to evade the consequences of his actions relating to a case going to trial this May that he filed bankruptcy for a company he controls in what seems an attempt to derail the lawsuit, which is asking up to $1.3 billion in derivative or stockholder claims.

In one candid admission, Mulacek and his attorneys testified that even a $50 million judgment for the plaintiffs would be "devastating" to InterOil. The bankruptcy testimony also showed the precarious financial condition of InterOil, with $60 million in cash and massive amounts of money needed to drill wells ($1 billion), construction of a pipeline ($900 million) and the building and construction of a liquefied natural gas (LNG) plant ($5-7 billion).

To date, InterOil hasn't found any commercial oil or gas.

Federal Judge Marvin Isgur ruled that Mulacek had filed the bankruptcy in "bad faith" and the executive's credibility was "diminished" by building a key argument for bankruptcy upon a lie. [Emphasis added.]

If even a $50 million judgment would be "devastating" to InterOil and a favorable verdict by the Plaintiff's against Mulacek would threaten InterOil's licenses for drilling on Papua New Guinea land as claimed by Mulacek's attorneys, you would never know it from the company's filings with the Canadian Securities Commissions and the Securities and Exchange Commission.

Let's review InterOil's financial reporting disclosures.

InterOil Disclosures

While the Todd Peters litigation had been going on, InterOil did not even disclose it in its 2005 and 2006 Annual Information forms. In 2007, InterOil finally disclosed the litigation but said that "management does not believe the litigation will have a material adverse effect on the Company or its subsidiaries." (See InterOil 2007 Annual Information page 50.)

In its 2008 Annual Information form, InterOil provided more details of the actual allegations in the Todd Peters litigation:

Plaintiffs contend that the defendants, including the Company, breached their fiduciary duties to the plaintiffs as part of these transactions and also assert claims for knowing participation in a breach of a fiduciary duty, common law fraud, fraudulent inducement, statutory fraud, securities fraud, breach of contract, investor oppression and conspiracy. Plaintiffs are seeking actual damages of up to $118,068,759.00 and unspecified punitive damages, attorneys’ fees, expenses and court costs, an accounting and access to books and records. The Company and other defendants are vigorously contesting the matter. Management does not believe the litigation will have a material adverse effect on the Company or its subsidiaries. (See InterOil 2008 Annual Information page 43.)  [Emphasis added.]

Finally, in its 2009 Annual Information form, InterOil disclosed that:

If, however, plaintiffs are successful in obtaining a favorable verdict, actual  damages could exceed $125,000,000.  Plaintiffs also seek unspecified punitive damages, attorneys' fees, expenses and court costs.  The case is set for trial beginning in October 2010. The Company and other defendants are vigorously contesting the matter. If however, plaintiffs succeed in obtaining a judgment in the amount they seek, it could have a material adverse effect on the Company or its subsidiaries. (See InterOil 2009 Annual Information page 43.)  [Emphasis added.]

For fiscal year 2007, InterOil reported a net loss of $28,912,908 and shareholder's equity of $96,098,569 and claimed that "management does not believe the litigation will have a material adverse effect on the Company or its subsidiaries."

For fiscal year 2008, InterOil reported a net loss of $11,797,077 and shareholder's equity of $227,133,927 and acknowledged that "Plaintiffs are seeking actual damages of up to $118,068,759.00 and unspecified punitive damages, attorneys’ fees, expenses and court costs." However, InterOil still claimed that "management does not believe the litigation will have a material adverse effect on the Company or its subsidiaries."

For fiscal year 2009, InterOil reported a net profit of $6,082,627 and shareholder's equity of $441,976,093. InterOil bragged, "The 2009 year is the first recording an annual net profit." This time InterOil disclosed that "actual  damages could exceed $125,000,000.... If however, plaintiffs succeed in obtaining a judgment in the amount they seek, it could have a material adverse effect on the Company or its subsidiaries." (Source: See InterOil News Release dated March 1, 2010.)

That same year, InterOil made the Guinness Book of World Records for its claimed “world-record” gas flow from a certain natural gas well owned by the company.

InterOil CEO Phil Mulacek under fire

Mulacek's Financial Disclosures in Court Transcripts

According to the December 30, 2009 Bankruptcy Court transcript Attorney Thomas M. Kirkendall said:

InterOil, as Mr. Mulacek testified that InterOil wouldn't even be able to pay a $50 million judgment, much less a 100 million or several hundred millions or a billion-dollar judgment, as the Peters group is seeking, without substantial third party financing.

Compare InterOil's Financial Disclosures with CEO Phil Mulacek's Court Disclosures

As of December 31, 2009 InterOil's shareholder equity was reported at $441,976,093 compared to $227,133,927 at the end of 2008. InterOil reported a 2009 net profit of $6,082,627 compared to a 2008 net loss of $11,797,077. As I detailed above, that same year InterOil made the Guinness Book of World Records for its claimed “world-record” gas flow from a certain natural gas well owned by the company and the company reported its first annual operating profit.

In its 2009 Annual Information, InterOil claimed that a judgment exceeding $125,000,000 and not less than $125,000,000 "could have a material adverse effect on the Company." However, Mulacek told the Bankruptcy Court that InterOil couldn't even pay a $50 million judgment without substantial third party financing.

The fact that InterOil cannot even satisfy a $50 million judgment "without substantial third party financing" is a "material adverse event" and that threshold should have been clearly disclosed by the company in its 2009 Annual Information. Instead, InterOil's 2009 financial disclosures mislead investors into believing that a possible judgment exceeding $125,000,000 "could have a material adverse effect on the Company or its subsidiaries."

In 2008, when InterOil was in a far worse financial condition than in 2009, the company reported a 2008 net loss of $11,797,077 compared to a 2009 net profit of $6,082,627. The company's 2008 shareholder's equity was $227,133,927 compared to $441,976,093 in 2009 or about 50% less equity. InterOil claimed that the "Plaintiffs are seeking actual damages of up to $118,068,759.00 and unspecified punitive damages, attorneys’ fees, expenses and court costs." In fact, InterOil had not yet made it into the Guinness Book of World Records.

Yet, with its far worse financial condition reported in 2008 compared to 2009, InterOil claimed that "management does not believe the litigation will have a material adverse effect on the Company or its subsidiaries." InterOil gave no indication that a even a $50 million possible judgment could have a "material adverse effect" on the company.

Conclusion

The main issue is that InterOil financial disclosures conflict with and are inconsistent with disclosures in either internal company documents or representations by its CEO Phil Mulacek found in two separate Court cases. That is out and out fraud!

Whether or not InterOil eventually settles the Thomas Peters litigation, the company and Phil Mulacek have to answer for false, misleading, and conflicting disclosures to investors. Securities regulators have been notified.

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, 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 not own any InterOil securities, long or short. However, I assisted Fraud Discovery Institute (co-founded by convicted felon, turned fraud fighter Barry Minkow) in researching InterOil. Barry Minkow and William Lobdell (iBusiness Reporting) have publicly stated that they have held short positions in InterOil securities.

The InterOil Saga: Convicted Felons Battle Current Breed of Stock Market Miscreants

Updated:

Oliver Stone should take note. We may have the makings of "Wall Street 3." I am just kidding about the movie idea, but very serious about InterOil's and John Thomas Financial's misconduct uncovered so far.

Here we have InterOil (NYSSE: IOC), what I believe is a sleazy company run by dishonest CEO Phil Mulacek, aided by a stock pumping promoter John Thomas Financial CEO Thomas Belesis who apparently pretends like he wants to clean up Wall Street's image, and  mixed-up naive young actor Shia LaBeouf apparently fantasizing as if he is living out in real life a role he is playing in the upcoming movie, "Wall Street: Money Never Sleeps."

Fraud Discovery Institute (co-founded by convicted felon, turned fraud buster and short seller) Barry Minkow, iBusiness Reporting blog (a division of Fraud Discovery written by former LA Times investigative journalist, turned blogger and short seller William Lobdell), and this blog plan to continue our respective investigations and document misconduct at InterOil and John Thomas Financial.

There is a saying, "It takes one to know one." Plenty of what is going on with InterOil and John Thomas Financial reminds Minkow and me of our own felonious pasts as we continue to uncover patterns of inadequate, inconsistent, misleading, false, and contradictory disclosures by InterOil and John Thomas Financial.

Below is a summary of last week's unfolding events as quoted from various sources, media, and blogs. My additional commentary follows.

March 25, 2010: New York Post - Shia's 'slick' tip: Actor LaBeouf continues broker role off camera by Kaja Whitehouse

Actor Shia LaBeouf appears to be taking his role as Gordon Gekko's protégé in the upcoming "Wall Street" movie a little too seriously.

After preparing for his turn as a hedge-fund trader by visiting trading floors of small brokerage houses, LaBeouf in the April issue of GQ talked up the stock of an oil and natural gas exploration company that has yet to produce any of either.

"IOC's momentum is major, and it will surprise to the upside," LaBeouf said in a text message to the GQ article's author, Adam Sachs, using the trader lingo he apparently picked up while prepping for the film.

The 23-year-old star of the "Transformers" franchise was referring to InterOil, a Canadian firm with the New York Stock Exchange ticker symbol IOC that says it's searching for natural gas and oil in Papua New Guinea.

However, after seven years of exploration and drilling, InterOil has yet to produce any proven commercial oil or gas reserves.

Nevertheless, InterOil's stock is up an astounding 385 percent since the start of 2009 -- a feat critics attribute to InterOil's flurry of uplifting press releases about its drilling and exploration plans.

[Snip]

LaBeouf in the GQ article boasted that his apparent training at trading stocks helped him parlay $20,000 into $450,000

Read more here.

March 25, 2010: White Collar Fraud -  Can Shia LaBeouf Help Shed Light on a Stock Market Manipulation Scheme Involving InterOil and John Thomas Financial? by Sam E. Antar

Apparently, Shia LeBeouf learned about InterOil from John Thomas Financial. It would be interesting to find out what he knew, when he knew it, and if he traded any InterOil shares. Maybe he can provide details on how John Thomas Financial  pushed InterOil  shares on it's customers? Afterall, LeBeouf learned about how the underbelly of Wall Street operates from John Thomas Financial and other firms to prepare for his leading role in the movie.

For more details, please read my full blog post entitled, "InterOil, John Thomas Financial, and Clarion Finanz: Anatomy of a Stock Market Manipulation Scheme." In that blog post, I documented how InterOil filed a false report with the Securities and Exchange Commission claiming that the company paid no fees for a $95 million convertible debt offering. However, documents submitted in a court case show that Clarion Finanz (a major shareholder of InterOil) had in fact received $5.7 million in fees.

Those same court documents show that InterOil concealed John Thomas Financial's and banned stock promoter Carl Caserta's role in the debt offering. About a year earlier, InterOil told the New York Times that it was not doing business with Caserta.

That deception enabled John Thomas Financial analyst Wayne Kaufman to appear on CNBC and recommend InterOil's stock without accurately disclosing his company's conflict of interest from their prior investment banking relationship with InterOil. John Thomas Financial heavily promoted Wayne Kaufman's CNBC appearance to pump InterOil stock to its customers without disclosing its prior investment banking relationship with InterOil.

Over the next couple of weeks, InterOil shares rose dramatically and the company was able to force the conversion of its debt to equity.

Read more here.

March 25, 2010: Benzinga - Shia LaPump by Joshua Brown

This Shia LaBeouf kid is apparently trying his best to make sure that any enthusiasm for the Wall Street sequel is completely drained by the time it hits theaters.

With every puff piece on how he's shown himself a 2000% return in his personal stock trading account, more eyes roll and more sighs of disappointment can be heard amongst the film's would-be core audience - Wall Street itself.

The latest ridiculousness involves Shia's pumping of an experimental oil stock that has no earnings from oil exploration or production of any kind as yet...

[Snip]

Kid, can you just talk about your movie and stop digging your credibility hole any deeper?  You seem like a nice guy and no one is rooting against you.  When you read this stuff you're saying five years from now, you're going to cringe in embarrassment like the rest of us are doing as we speak.

Try to be a little more Sheen-like circa 1987...in other words, just be cool.

Read more here.

March 25, 2010 - Economic Policy Journal - Shia LaBeouf Caught Up In Rumors He Is Touting a Possibly Edgy Stock by Robert Wenzel

Shia LaBeouf trained at John Thomas Financial to study for his role in the upcoming Oliver Stone/Michael Douglas motion picture "Wall Street 2: Money Never Sleeps," according to Sam Antar, former Crazy Eddie fraudster, turned fraud buster.

Antar claims that a stock market manipulation scheme took place awhile back involving InterOil (NYSE: IOC), John Thomas Financial, Clarion Finanz AG, and banned stock promoter Carl Caserta.

[Snip]

This the SEC may look into. A naive actor is red meat for the SEC, whether as witness or participant, unlike other potential cases.

Read more here.

March 26, 2010: iBiz Reporting - Company controlled by InterOil CEO files 'bad faith' bankruptcy; Mulacek dumps nearly $1.5 million in stock 2 days before filing for federal protection; tries to derail civil fraud case that seeks up to $1.3 billion in damages and could be 'devastating' to InterOil by William Lobdell

A company controlled by Phil Mulacek, chief executive officer of InterOil Corp. (NYSE: IOC), filed a "bad-faith" federal bankruptcy in December in an attempt to derail a potentially massive civil judgment in a fraud case against him and companies he controls, according to court documents filed in Houston.

Less than a month after the filing, federal Judge Marvin Isgur in Houston ruled that Nikiski Partners—a corporation whose $2 million investment in a used oil refinery gave birth to InterOil, one of Wall St.’s high-flying stocks in 2009—had filed the bankruptcy in “bad faith.” (Read transcript here.)

Two days before filing for bankruptcy, Mulacek, through his holdings in Nikiski Partners, dumped nearly $1.5 million worth of InterOil stock, according to the Canadian Securities Commissions.

Read more here.

March 26, 2010: Fraud Discovery Institute - Is InterOil (NYSE: IOC) Built on a foundation of fraud? by Barry Minkow

A potentially massive lawsuit by many of InterOil Corporation's (NYSE: IOC) original investors, who are seeking up to $1.3 billion in damages, worried company CEO Phil E. Mulacek so much that a certain company he controls filed a bad-faith bankruptcy in an apparent attempt to derail litigation set for trial this May. In fact, federal Judge Marvin Isgur said that Mulacek's credibility "diminished" by building a key argument in bankruptcy papers upon a lie.

In a special report released today by iBusiness Reporting ('http://www.ibizreporting.com') - a division of the Fraud Discovery Institute Inc., former Los Angeles Times journalist William Lobdell details stunning allegations made by about 20 original investors in what is now InterOil. Among the claims: InterOil CEO Phil Mulacek forged documents, secretly created a shadowy Bahamian company, and ignored "crippling conflicts of interest" in order to enrich family, friends and himself.

So desperate was Mulacek to evade the consequences of his actions relating to a case going to trial this May, that he filed bankruptcy for a company he controls in what seems an attempt to derail the lawsuit, which is asking up to $1.3 billion in derivative or stockholder claims.

In one candid admission, Mulacek and his attorneys testified that even a $50 million judgment for the plaintiffs would be "devastating" to InterOil.

Read more here.

March 26, 2010: White Collar Fraud - Is InterOil Built on a Foundation of Fraud? by Sam E. Antar

When a company like InterOil starts on a corrupt foundation, everything that follows continues to be corrupt. In many ways, Phil Mulacek's transgressions against investors remind me of me, back in my criminal days at Crazy Eddie. We both exploited the hopes of our investors with "spin and lies." During its entire existence, InterOil has issued an endless string of press releases hyping its future prospects and selling hope to gullible investors. Yet, after almost a decade, InterOil has no proven commercially exploitable reserves to show for it.

[Snip]

If Phil Mulacek can screw his original seed investors and his company has shown its capability to file false and misleading reports with the SEC, he is clearly capable of screwing anyone else as he and his cronies continue to sell hope to gullible investors.

Read more here.


March 26, 2010: Blogging Stock - Interoil's Strange Comments on Stock Price by Zac Bissonnette

Hedge fund manager Whitney Tilson is short the company and in a recent email newsletter noted that Interoil could be could be "one of the largest stock promotions ever, going on right under [the SEC's] nose..."

What's especially interesting about this latest Interoil news mention is this line from a New York Post piece: "InterOil spokesman Wayne Andrews said that although the company isn't currently making money on its oil and gas exploration, and that a plant may take to 2015 to build, the stock is not overvalued."

It is extremely unusual for a corporate spokesman of a public company to argue to the media outright that the company's stock is not undervalued. Ken Lay and Jeff Skilling used to do that in the days of Enron but, in the post-Sarbanes Oxley world, it never happens.

Read more here.

March 26, 2010: Before It's News - Shia LaBeouf (Wall St. 2) Caught Up In Rumors He Is Touting a Possibly Edgy Stock by "Lois Lane"

Shia LaBeouf trained at John Thomas Financial to study for his role in the upcoming Oliver Stone/Michael Douglas motion picture "Wall Street 2: Money Never Sleeps,"  according to Sam Antar, former Crazy Eddie fraudster, turned fraud buster.

Antar claims that a stock market manipulation scheme took place awhile back involving InterOil (NYSE: IOC), John Thomas Financial, Clarion Finanz AG, and banned stock promoter Carl Caserta.

Read more here.

March 26, 2010: Deal Breaker -  Shia LaBeouf Pawn In John Thomas Financial’s Attempt To Pump InterOil Stock? by Bess Levin

Yesterday we mentioned that thespian, Level III CFA candidate and noted stock picker Shia LaBeouf had been talking up InterOil, an oil and natural gas exploration company. “IOC’s momentum is major, and it will surprise to the upside,” LaBeouf said in a text message to the GQ article’s author, Adam Sachs, who wrote about ShiLa’s new hobby (making it rain all from the comfort of his boxers) for the magazine’s April issue. But where did the master trader get the idea? Sure he meets with Goldman Sachs execs on the reg and is thisclose to becoming a CFA but is he really that good? I’d like to give him the benefit of the doubt (he’s going to be running one of the most powerful hedge funds in the world one day so trying to stay on his good side and all that) but others are thinking the budding BSD had some help from his friends at John Thomas Financial (the people who brought you the pride rally and breasts as napkins).

Read more here.

March 26, 2010: Business Insider - What's The Story Of Shia LaBeouf Pumping InterOil? by Lawrence Delevinge

LaBeouf and InterOil?

Earlier this week, we noted the actor's investing tips from a GQ profile, including energy company InterOil:
"Look at IOC. IOC's momentum is major and it will surprise to the upside."

Hey, plenty of people are betting on oil, so why not?

But there's a back-story to the very specific pick. As felon-turned-financial blogger Sam Antar and others have implied, the apparent reason for choosing IOC at virtual random is Shia's relationship with brokerage John Thomas Financial.

As part of his Wall Street preparation, LaBeouf spent time at John Thomas in New York to understand high finance. So good was the training, LaBeouf says, he turned a $20,000 investment into $489,000 with the help of advisers at John Thomas and others.

It's not clear if any of that investment was in IOC, which is still up nearly 150% over the past 12 months despite slipping recently. But at least knowledge and interest in the company appears to come from LaBeouf's mentors at the upstart Wall Street brokerage.

John Thomas' Wayne Kaufman has called IOC their "favorite energy stock," and the financial brokerage has a prior investment banking relationship with InterOil, via Clarion Finanz, according to Antar. (Antar has accused InterOil, John Thomas, and Clarion of a stock market manipulation scheme; in response, Thomas Belesis, CEO of John Thomas, calls Antar a liar and an "idiot.")

Read more here.

March 26, 2010: William K. Wolfrum Chronicles by William K. Wolfrum

So who do you get your stock tips from, these days? How about 23-year-old actor Shia Labeouf? Yes, in studying for his role in the upcoming film “Wall Street 2,” Labeouf spent time at John Thomas Financial. At John Thomas, InterOil (IOC) is their “favorite energy stock.”

So guess which stock LaBeouf is praising?

“IOC’s momentum is major, and it will surprise to the upside,” texted LeBeouf to a GQ writer.
That InterOil is beset with controversy, lawsuits, and a distinct inability to find proven reserves of oil or natural gas doesn’t seem to dissuade the young actor.

Of course, maybe he could have researched a little better. From Sam Antar’s White Collar Fraud:

When a company like InterOil starts on a corrupt foundation, everything that follows continues to be corrupt. In many ways, Phil Mulacek’s transgressions against investors remind me of me, back in my criminal days at Crazy Eddie. We both exploited the hopes of our investors with “spin and lies.” During its entire existence, InterOil has issued an endless string of press releases hyping its future prospects and selling hope to gullible investors. Yet, after almost a decade, InterOil has no proven commercially exploitable reserves to show for it.

Read Antar’s lengthy look at InterOil here for more, and see for yourself if John Thomas has found a willing patsy to pump InterOil stock.

Read more here.

March 26, 2010: Going Concern - Quote of the Day: Sam Antar Is Ready to Rumble by Caleb Newquist

I challenge John Thomas Financial CEO Thomas Belesis to a match on the Jerry Springer show. To even the odds, he can bring Overstock.com CEO Patrick Byrne. Two crooks versus a convicted felon born in Brooklyn. They can bring actor turned stock pumper Shia LaBeouf for added muscle, too.

~ Sam Antar, reacting to Thomas Belesis calling him an idiot after Antar suggested that Shia might be able to shed some light on the goings-on at John Thomas Financial involving InterOil. And if you forgot, Sam and Patrick have a bit of a history.

Read more here.

March 28, 2010: Jr Deputy Accountant - What I'm Beating TLP With This Week by Adrienne Gonzalez

Is InterOil Built on a Foundation of Fraud? InterOil better look out, you don't want Sam Antar on your ass (I'm not scared, he's afraid of me and I'm training him for his next bout).

Read more here.

Stay tuned

This blog will continue to expose corporate misconduct in real time, just like my successful battle against Overstock.com CEO Patrick Byrne, another masquarading stock market reformer, who is now under investigation by the Securities and Exchange Commission, as a result of reporting in this blog. Recently, Overstock.com (NASDAQ: OSTK) was forced to restate its financial reports for the third time in three years, after this blog exposed GAAP and SEC disclosure violations by the company.

Phil Mulacek and Thomas Belesis need to get ready for a very long forensic accounting colonoscopy, like Overstock.com and Patrick Byrne. Pricewaterhouse Coopers (PwC) was Overstock.com's former auditors and every single financial reported audited by them turned out to be wrong because of GAAP and SEC disclosure violations. Apparently, PwC ignored management integrity issues at Overstock.com. It turns out that PwC is InterOil's auditors, too.

Shia LaBeouf

Shia LaBeouf should not let fame get to his head, unless he wants to infamously end up like Barry Minkow and me, back in the day. LaBeouf is probably a good young man and is surely a great actor with a promising career. He should stick to his acting talent instead of trying to internalize his roles in real life. Wall Street is a dirty filthly cesspool that is polluted by the likes of John Thomas Financial CEO Thomas Belesis, who uses his current claimed efforts to improve Wall Street’s image as a "wall of false integrity."

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 members of his family mastermind one of the largest securities frauds uncovered during the 1980's. I committed my crimes, 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 not own any InterOil securities, long or short. However, I assisted Fraud Discovery Institute (co-founded by convicted felon, turned fraud fighter Barry Minkow) in researching InterOil. Barry Minkow and William Lobdell (iBusiness Reporting) have publicly stated that they have held short positions in InterOil securities.

I do not own any Overstock.com securities short or long. My research on Overstock.com and in particular its lying CEO Patrick Byrne is a freebie for securities regulators and the public in order to help me get into heaven, though I doubt that I will ever get there anyway. I will probably end up joining corporate miscreants such as Patrick Byrne in hell.

In any case, exposing corporate crooks is a lot of fun for a forcibly "retired" crook like me. Analyzing Overstock.com's financial reporting is a forensic accountant's wet dream and Patrick Byrne is about to become the SEC's new orgasm.