From TheStreetSweeper.org, a great piece by Melissa Davis. Great work digging up the Costeau family connection. It really is always the idiot kid that gets involved in scams.
thestreetsweeper.org
Why Can't Ecosphere Score a Deal with BP?
by Melissa Davis - 6/25/2010 8:24:40 AM
Maybe Ecosphere Technologies (OTC: ESPH.OB) should have added Kevin Costner, the celebrity backer of a competing water-treatment device, to its star-studded team.
Despite ringing endorsements from its own superstars – including a big-name environmentalist and two retired professional athletes – ESPH has so far failed to secure an order from BP (NYSE: BP) for machines that, it says, can effectively address the company’s massive oil spill. Costner’s company, Ocean Therapy Solutions, fielded an order from BP for 32 of its machines almost two full weeks ago. ESPH is still waiting on an order, however, even though the company claims that it offers a superior device.
That technology, known as the Ozonix Deepwater Recovery Process, seems to grow more powerful by the day. Based on a website hosted by ESPH’s investor relations firm, the company’s purification system can filter about 200,000 barrels of contaminated water per day (roughly the same as the Costner-backed machines). Over the course of the past two weeks, however, that number has climbed higher and higher.
During a June 9 press conference hosted by ESPH’s three big-name stars -- world-renowned environmentalist Jean-Michel Cousteau and former pro quarterbacks Drew Bledsoe and Troy Aikman – the company claimed that its machines could actually clean 500,000 gallons of water a day. Five days later, when appearing on Fox News, Ecosphere Chairman and Cousteau sidekick Charles Vinick pegged that number above 1 million gallons instead. Less than a week later, during an interview on the same network, Aikman offered a far higher figure still.
“We believe that we have the technology – and, more importantly, the equipment – to be able to handle 21 million gallons a day,” Aikman stated on the air. “And that’s something that no one else can claim.”
(During a recent interview with TheStreetSweeper, Vinick helped clarify those numbers somewhat by explaining that ESPH has 20 units available that can process about 1.2 million gallons of water apiece.)
The fact remains, however, that ESPH has never actually tried to clean up an offshore oil spill. Until BP’s Deepwater Horizon oil rig exploded this April off the shores of the Gulf Coast, triggering the worst U.S. disaster of its kind, ESPH focused its attention on the natural gas shale projects that had previously dominated energy-related headlines instead.
ESPH recently completed one of those projects for none other than BP itself. That pilot project, carried out in January and February of this year, allowed ESPH to showcase its technology for BP out in the field. When BP suffered its offshore disaster two months later, however, the company – clearly familiar with Ecosphere’s machines – looked elsewhere during its frantic search for powerful remedies.
Devon Energy (NYSE: DVN), another energy giant that tried out ESPH’s technology, failed to become a repeat customer as well.
“We didn’t find the technology to be useful in the work we were doing,” Devon spokesman Chip Minty told TheStreetSweeper last week. So “it didn’t work out.”
Even so, Vinick told TheStreetSweeper that all of the tests performed by ESPH for big energy companies – including BP – delivered “very positive” results. He also said that ESPH’s recent discussions with BP about a deal in the Gulf Coast have been “going well.”
Still, ESPH insiders have been sending mixed signals to the market about its chances for a big contract. Notably, during the midst of ESPH’s busy media blitz this month, two company executives cashed out cheap stock options that could have theoretically grown more valuable over time.
When speaking with TheStreetSweeper on Thursday, Vinick speculated that the insiders had sold stock to satisfy “tax issues” while insisting that nobody inside the company was voluntarily “dumping” their shares. Even before those transactions, however, one of the sellers – CFO Adrian Goldfarb – had raised some eyebrows already because of his ties to a stock-promotion firm owned by a past target of securities regulators.
With its celebrity backers touting ESPH’s technology in numerous television interviews, the company’s stock has actually gained some ground since Goldfarb sold his shares. ESPH currently fetches $1.49 a share, giving the company a market value of nearly $200 million despite its modest revenues and escalating losses.
Expert Opinions
As an early ESPH client, Devon actually tested the company’s technology for use in ESPH’s core business of water treatment for the natural gas industry. If BP places an order, however, the company will be utilizing the machines for a brand-new purpose – illustrated in a crude drawing rushed out by ESPH this month – that has never been proven to work.
“It’s no different than what we’ve been doing,” Vinick told TheStreetSweeper on Thursday. “We have used it with pure crude and with sludge … We are very confident in the process.”
To skeptics, however, ESPH’s oil-cleanup technology looks like nothing more than a glorified water-purification system like those used in saltwater aquariums. Although such systems can effectively remove dirt and minerals from water, skeptics say, they tend to clog up when encountering even small amounts of oil.
Mickey Thompson, who spent 15 years as president of the Oklahoma Independent Petroleum Association, has voiced similar concerns. He, too, says that “relatively minute” quantities of hydrocarbons can “screw up” water-purification systems. He also questions whether ESPH’s own system, originally designed for natural gas projects, can actually address BP’s big mess out in the Gulf Coast.
“I have no idea whether their new ‘patented’ process can, in fact, lift oil and chemical dispersant off the ocean floor,” Thompson stated in a recent email to TheStreetSweeper. But “what they are suggesting they can do in the gulf is really only marginally related to the services they have tried to sell in the gas shale plays.”
Meanwhile, ESPH has invested little money in research and development despite its ambitious plans. Last quarter, for example, the company spent less than $27,000 on its R&D efforts. Based on regulatory filings, BP itself – a longtime sponsor of environmental research – spends that much on R&D every three minutes instead.
Nevertheless, ESPH has been confidently promoting its technology as the answer to BP’s problems. On June 1, for example, ESPH announced that Cousteau – “a world-renowned environmentalist and ocean explorer” – had officially endorsed the company’s Ozonix system for use in the Gulf Coast. While the news essentially portrayed Cousteau as an independent expert won over by ESPH’s new technology, however, the big-name environmentalist was actually connected to the company – which started out as a paint-stripping outfit – long before it invented its current device.
Cousteau joined the board at ESPH, when it was still known as Ultrastrip, about a decade ago. By 2001, regulatory filings show, Cousteau had inked a potentially lucrative deal in exchange for his services. He not only collected 200,000 shares of Ultrastrip stock, those filings reveal, but he also convinced the company to give the Oceans Future Society – a non-profit organization that he founded – 2% of its annual revenues.
By then, media reports indicate, Cousteau had already come under fire for allegedly exploiting the family name for commercial purposes. In 1995, The New York Times reported, Cousteau’s own father – the world-famous explorer Jacques Cousteau – sued him after he lent his last name to a South Pacific beach resort.
“I was given this name,” the younger Cousteau declared in the newspaper article. “And I am convinced that I have the right to call myself Cousteau.”
As previously noted, Cousteau is now using his name to aggressively promote ESPH’s business ventures. He has touted the company’s water-cleaning device in at least three different interviews, hosted by major television networks, over the course of the past few weeks alone.
During his recent conversation with TheStreetSweeper, ESPH’s chairman emphasized that Cousteau received no direct payments for that publicity but admitted that both Cousteau and his non-profit firm own stock in the company.
Hail Mary?
Like Cousteau, Bledsoe and Aikman have a financial interest in ESPH as well.
Bledsoe formed a new investment firm, known as Bledsoe Capital Group, shortly after his 2007 retirement from football and soon began hunting for attractive business opportunities. The firm settled on ESPH in the spring of 2008, Spirit magazine (a monthly publication generated by Southwestern Airlines) reported, after the company convinced Devon to try out its technology.
“Part of what gets my blood pumping is the fact that I could fail miserably,” Bledsoe admitted to Spirit at the time. “But it’s exciting to try to be successful at something because of what I can do with my wits as opposed to what I can do with my arm.”
Originally, past news releases show, Bledsoe Capital planned to buy half of Ecosphere Energy Solutions (the main operating subsidiary of ESPH) for $50 million following the successful completion of a “90-day pilot program with a major energy company in the Barnett Shale.” (That company, while unnamed in the press release, appears to be Devon.) Specifically, Bledsoe pledged $10 million upon closing of the EES acquisition with the option to supply the rest after the big pilot project came to an end.
Devon now says that it used ESPH’s technology for less than three months, however, and soon determined that it “wasn’t a good fit” for the company.
Last July, more than a year after ESPH first announced Bledsoe’s plans, the company revealed that it had secured only $10 million from the investment firm instead. At the time, ESPH was struggling with a weak stock price – of less than 50 cents a share – that showed no real signs of climbing higher.
“Bledsoe Capital continued to believe in us and stayed the course during some very rough times in the capital markets,” ESPH stated with obvious gratitude. “We are pleased to have them now as our partners.”
Even that big cash fusion from a celebrity investor failed to lift ESPH’s stock, however. The shares continued to lose ground instead, hitting their current 52-week low of 31 cents about a month after the Bledsoe deal finally closed.
ESPH never topped the $1 mark until this spring, in fact, when the company began capitalizing on public interest in natural gas shale plays and the environmental hazards they present. ESPH hit the jackpot in late March, when The Wall Street Journal highlighted the company – along with Bledsoe’s gamble on it – in a favorable article about water-cleaning technologies for the natural gas industry.
That day, ESPH hit an all-time high of $1.88 on record volume of 6.22 million shares. The stock soon reversed course, however, ultimately tumbling well below $1 – on soaring volume – the day after ESPH’s CFO formally adopted a trading plan that would allow him to start selling his stock.
Checkered Past
By the time Goldfarb officially took over as CFO of ESPH in 2008, he had already established an intimate business relationship with the company.
The previous year, ESPH gave Wall Street Resources – a firm connected to Goldfarb – 200,000 shares of stock and $15,000 in cash to provide “investor relations” services for the company. (ESPH continues to pay $8,000 a month for those services.) Wall Street Resources operates a related company, known simply as WSR Consulting, that Goldfarb co-founded with a partner who has a checkered regulatory past.
Gerald Kieft had already come under fire by industry watchdogs before he helped Goldfarb launch that company. While working for Makefield Securities in Stuart, Fla. – ESPH’s home base – Kieft allegedly issued bullish stock reports that misled public investors. The Financial Industry Regulatory Authority (FINRA) cracked down on Kieft in 2004, claiming that he had created a website that distributed research reports that contained “exaggerated and unbalanced statements” and that he had personally generated at least one such report himself.
Kieft was temporarily banned from the industry and ordered to pay a $10,000 fine before he could begin working for a registered financial firm again. According to FINRA records, Kieft never registered with the agency after that time.
As a founder of both Wall Street Resources and WSR Consulting, however, Kieft has remained quite busy. As Kieft’s recent partner, Goldfarb has capitalized on multiple “business opportunities” as well. (Goldfarb also owns yet another firm, known as G3Pra, that has made high-interest loans to ESPH.)
In fact, Internet records show, Goldfarb still doubles as the CFO of both ESPH and GelStat (OTC: GSAC.PK) – another WSR client – to this day. Through WSR, Goldfarb began providing services to GSAC in April of 2008 and officially became the company’s CFO a few months later. Kieft joined him as CEO of GSAC, a position he apparently still holds, at that time.
“We want to send a signal to the financial community that we believe in the future of GelStat,” Goldfarb stated when WSR first began providing consulting services to the company. “To make that message loud and clear, we have agreed to 100% equity compensation.”
Thus, he added, “our incentive is clearly aligned with GelStat’s investors to build long-term shareholder value.”
That strategy has so far failed to pay off, however. Two years later, GSAC still trades on the lowly Pink Sheets for less than a nickel a share.
Mixed Reviews
In comparison, ESPH looks like a real homerun. Still, Wall Street Resources spent years promoting the stock – with relatively meager results – before the shares finally took off.
In a bullish report last fall, for example, Wall Street Resources predicted that ESPH was “on the cusp of triple-digit revenue growth and/or a major liquidity event” that could provide investors with “exceedingly above-average returns.” Although the firm continued to tout ESPH through the end of last year – and ESPH did report a huge jump in revenue – the stock nevertheless continued to hover below the 50-cent mark through most of that span.
By the time that Wall Street Resources issued new recommendations on ESPH this spring, however, the stock had finally begun to rally. Kieft himself sent out an email blast on ESPH in late March, just one day before The Wall Street Journal published the favorable article that pushed the stock to record highs.
More recently, another paid promoter has started touting the shares as well. Earlier this month, MonsterStockPicks.com – which pocketed $20,000 for its services -- predicted that ESPH was “poised for a monster move” after filing a new patent application for technology aimed at assisting BP with cleanup efforts in the Gulf Coast.
Since then, ESPH has gone on to suggest that it could land a BP contract any day. As time keeps passing without a deal, however, investors have begun to ask some difficult questions.
With a respected environmentalist serving as an advisor and a former director of the Federal Emergency Management Association (FEMA) sitting on its board, they wonder, why can’t ESPH seal the deal? Since BP has already used ESPH’s technology in the past, they add, why wouldn’t the company order some machines if it believed they might actually work? Meanwhile, they continue, why haven’t other big ESPH customers offered public endorsements that could help the company’s case?
Since retiring as president of the OIPA in 2005, Thompson has remained an active player in the Oklahoma energy scene. Although ESPH counts Oklahoma among the handful of states where it has conducted water-treatment projects, however, Thompson had never even heard of the company before TheStreetSweeper approached him with questions for this story.
“I’ve asked one of my partners, who runs our company in the field, if he knows whether any of the pilot projects that have been tried in southeastern Oklahoma … have met with any success,” Thompson stated in his recent email. “I assume the answer to that is ‘no.’
“Otherwise,” he concluded, “you would see some incredible testimonials on the Ecosphere website – right?”
* To contact Melissa Davis, the author of this story, please send an email to editor@thestreetsweeper.org. |
