IN THE MONEY: Eden Energy And The Secret Buried In Nevada
7 September 2005
11:19
Dow Jones News Service
By Carol S. Remond
A Dow Jones Newswires Column
NEW YORK (Dow Jones)--You have to wonder if even a supermarket tabloid could dream up such a claim.
"The Second Saudi Arabia?" the headline screams on a promotional newsletter that suggests oil reserves in central Nevada and Utah could equal or exceed "all the riches of Saudi Arabia."
And of course, a tiny startup with no history in the business, Vancouver-based Eden Energy Corp. (EDNE), is poised to take advantage of this little secret as it is sitting on acre after acre of "this hydro-carbon hotspot" in Nevada.
Add to that record crude prices and some investors are clearly gushing over the possibilities, placing a value on Eden Energy of about $200 million.
But before piling any more money into Eden Energy shares, investors may want to check out the track records of some of the Vancouver insiders involved with the company or those of some of the promoters marketing it.
Propped by an aggressive promotional campaign highlighting and drawing parallels to a recent oil discovery in Utah by private company Wolverine Oil & Gas, Eden Energy's stock jumped to a high of $9.96 a share on Aug. 1. A key relationship with geologist Alan Chamberlain, the owner of a "proprietary $200 million stratigraphic database" that could help Eden Energy find oil was also underscored as a plus for the company.
"Eden Energy could make the first of a series of incredible discoveries later this year -- or it may not...But what if Alan Chamberlain continues to be right as he was about Wolverine finding a billion-barrel deposit?," one publication called Gold & Energy Advisor wondered, urging investors to "move fast on EDNE..."
Yeah, what if? Well, what if according to Wolverine's exploration manager Doug Strickland, Chamberlain had nothing to do with Wolverine's oil discovery. And what if Strickland thinks that the oil province discovered by his company in Utah doesn't extend to Eastern Nevada where Eden holds land leases?
Chamberlain wasn't available for comment. Paul Mitchell, an investor relations officer for Eden Energy, said that no one was available for comment. Mitchell said he had no comment about newsletters promoting Eden.
Eden Energy came to life through a reverse merger in April 2004. Documents filed with the Securities and Exchange Commission show that most of E-Com Technologies Corp. shares, a corporate shell since renamed Eden Energy, were acquired for $400,000 by Donald Sharpe, Eden's president, Richard Coglon, GM Capital Partners, Court Global Ltd. and Tiger-Eye Holdings Limited.
SEC filings also show that soon after it went public, Eden acquired land leases in Nevada through a deal with Fort Scott Energy Corp. and its subsidiary Frontier Explorations ltd. Fort Scott got 500,000 shares of Eden and a $500,000 promissory note in exchange for its interest in a participation agreement with Chamberlain's Cedar Strat Corp. That note was recently converted into 2.1 million shares at 25 cents a share and 1 million warrants exercisable at 50 cents each. Eden Energy stock traded at about 24 cents back in April 2004, giving the deal with Fort Scott a value of about $620,000 back then. At a current price of about $6.91 a share, the stock and warrants held by Fort Scott after conversion are worth about $22 million.
Although the transaction doesn't appear to be between related parties, Nevada corporate records show that Coglon, the same guy who, another SEC filings shows, held 3 million free trading shares of Eden in April 2004, is Fort Scott's sole officer. Corporate records also show Coglon and Eden's president Sharpe are the only two officers of Frontier Explorations. A close look at an SEC document filed in September 2004 also shows Coglon identified as president of Fort Scott but that fact was never spelled out for investors.
This is not the first time Coglon and Sharpe have worked together. Both are also involved with Heartland Oil & Gas (HOGC), a company that was the subject of an "In The Money" column in August 2003. At the time, Heartland was trading around $5 a share but the stock is now languishing at 56 cents a share. According to its most recent quarterly filing with the SEC, Heartland had losses of $11.6 million for the first half of the year, including $10.3 million for property impairment, compared to $746,575 in 2004. Coglon is president, chief executive officer and a director of Heartland. Sharpe is a consultant for Heartland and one of its directors.
The Law Society of British Columbia in 2003 found that Coglon engaged in "serious, flagrant, obvious and indefensible" conflict of interests when he helped funnel undisclosed investments into a subsidiary of B.C Hydro while acting for the subsidiary. The Law Society is in the process of setting a penalty hearing after Coglon abandoned his appeal of the finding. Penalty can range from reprimand to disbarment and fines.
Like Eden Energy, Heartland's stock was heavily promoted by newsletters: "America's Kuwait...A Natural Gas Basin So Rich and Reliable, It's Almost Impossible to Drill a Dry Hole" trumpeted one newsletter called The Intrepid Investor in early summer 2003.
The parallel with Eden Energy is striking: "The Second Saudi Arabia? Possibly one of the world's all time great oil discoveries" clamors the Gold & Energy Advisor that began arriving in mailboxes in late July.
According to a disclaimer, the Gold & Energy Advisor was subsidized by Mokandi International, a non-controlling shareholder of Eden Energy. There is no information about Mokandi in SEC filings or elsewhere.
The Intrepid Investor and Gold & Energy Advisor have one thing in common: Capital Financial Media, an entity that managed a $540,000 production budget for the Heartland and Eden newsletters. In both cases, Capital Financial Media also got options to purchase 400,000 shares of the companies. In Eden's case, the disclaimer shows that Capital Financial Media will receive from Mokandi options to purchase 200,000 shares at $2.43 and another 200,000 shares at $4.86.
As previously reported, Florida state records in 2003 indicated some ties between Capital Financial Media and Baltimore newsletter publisher Agora which that same year was sued by the SEC for disseminating false information.
Records have since changed and it's unclear whether there is any current affiliation between Capital Financial Media and Agora. But Gold & Energy Advisor editor James DiGeorgia is no stranger to Agora.
The SEC alleged in a suit filed in the U.S. District Court for the District of Maryland that Agora and a subsidiary called Pirate Investor LLC engaged in a scheme to defraud investors by disseminating false inside information about USEC Inc. (USU) in several Internet newsletters sold to investors for $1,000. According to documents introduced by the SEC in the case, subscribers of 21st Century Investor, another newsletter published by DiGeorgia, were among those who received the USEC tip. According to an Agora employee's deposition, DiGeorgia and Agora have a handshake agreement under which they share some promotions and split revenues 50/50.
The Agora case went to trial earlier this year and both sides are awaiting a ruling by Judge Marvin Garbis. DiGeorgia and 21st Century weren't named in the case. DiGeorgia on Tuesday said that 21th Century didn't disseminate the USEC insider tip but that Agora rented 21th Century's subscribers list. DiGeorgia said the Eden Energy write-up was an advertisement not a newsletter.
Meanwhile, Scott Fraser, another newsletter promoter who extolled the value of Eden Energy back in April this year had a run-in with securities cops back in 2003.
The SEC issued a cease-and-desist order against Fraser and his newsletter, the Natural Contrarian, alleging that he disseminated false and misleading statements relating to the performance of some previous stock picks in e-mails sent to attract new subscribers. Fraser consented to the order without admitting or denying the SEC findings.
Promotional newsletters aside, there is at least one other factor that investors may want to consider before putting money into Eden Energy shares: Just how valuable is the information contained in Chamberlain's database?
Chamberlain "has been working at this for years and hasn't had any real success," said Wolverine's Strickland who has himself more than 25 years experience prospecting for oil in Utah and Nevada. "He is a very good promoter of his database" said Strickland who added that friends had called him after they came across promotional material about Eden in Las Vegas casinos. "This is typically not how oil and gas deals are sold," Strickland said.
(Carol S. Remond is an award-winning columnist and one of four who write the "In The Money" feature. Most recently, she won a 2005 Gerald Loeb Award for best news service content with a series of articles on three companies titled "Exposing Small-Cap Fraud.")
-By Carol S. Remond; Dow Jones Newswires; 201 938 2074; carol.remond@dowjones.com [ 09-07-05 1219ET ]
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