kramc: Thanks for the article about Mountain Energy.
Here it s for everyone to read.
Investor burned by advice on 'Net Penny stocks and bulletin boards make a dangerous mixture Dana Moore invested his family's money in a penny stock he heard about on the Internet. The stock soon went south. Who was to blame?
By Matthew Butcher
MSNBC
October 29 — Dana Moore, a 50-year-old commercial artist, needs money badly but he's no longer looking to Wall Street for a windfall. That's because he has learned a hard lesson about taking investment advice from so-called experts on Internet bulletin boards. His errors have cost him much of his family's savings and he's now working to ensure that others don't make the same mistake he did.
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"Internet Underground"
'People should be extremely cautious when investing in non-reporting companies because they do not provide investors with the advantage of legally mandated disclosures...'
— RICHARD SAUER
Assistant Director,
SEC Division of Enforcement TIMES ARE TOUGH for Dana Moore.
Earlier this year, he invested his family's money in the shares of a thinly capitalized company he had heard about on the Internet. Now those shares are basically worthless, often trading for less than a cent.
Not so long ago, Moore, a 50-year-old commercial artist, had hoped to retire on the proceeds from his investments, which had been steadily growing. Now he wonders how he'll get by.
"Had I not sold my Apple, my Novell and my Lucent I'd be in far better shape," he says. "Now, I don't look at my brokerage statements anymore."
Moore can't work during the day because he must care for his ailing mother in-law while his wife, now 60, works a $20,000-a-year job. At night, he pursues odd jobs, sometimes taking work as a graphic designer (when he can find it) and sometimes delivering pizzas.
"Part of what I'm doing is taking a self-imposed humility pill," says Moore, referring to the pizza deliveries.
With what little time that remains in his day, Moore carries on a kind of digital penance, using the very tool that got him in trouble in the first place: the Internet. Sometimes working late at night he sends email to a growing list of prominent legislators, SEC officials and members of the press. His hope is that someone on the list will take action and start the process of returning the money that he and so many other investors believe was stolen from them.
HOW DID IT HAPPEN?
In the spring of 1998, Moore had just opened an Internet-based brokerage account. He didn't consider himself to be particularly computer-savvy but it didn't take him long to find one of the many specialized communities on the Internet where members exchange information about their stocks.
He was hoping the bulletin boards that are the trademark of such online investment communities would give him an edge. Like many members, he adopted a nickname: "Owl."
All through May, Moore followed a discussion on the boards about a small company called Mountain Energy, a Houston-based mining concern, whose stock was steadily climbing. 'I beat myself up with a stupid stick for months over this but in the end I don't feel like a fool.'
— DANA MOORE
Messages on the boards pointed him to press releases — available on the Internet — claiming that the company had purchased valuable mineral deposits in West Virginia. These deposits, the releases said, made the company far more valuable than its current share price reflected.
As is the custom with Internet bulletin boards, Moore also received a number of personal email messages from people he had met online that encouraged him to invest in the stock.
Perhaps the most persuasive inducement came from a man who had earned a reputation as a stock picker on the boards. The man, who went by the name "Macker," had already predicted the rise of several other penny stocks and the bulletin boards were abuzz with comments about his performance. One posting even read, "Macker is god."
Moore says he was confident in Macker's predictions about Mountain Energy. "I didn't think of it as high risk," he says. "This guy had been right before."
On June 1, he took his wife's retirement money and invested it in Mountain Energy at a price of $1.35 a share. His timing could not have been much worse. The stock had nearly reached its peak. In fact, within weeks it was literally a penny stock, trading for one cent or less per share.
What happened? In part, a chorus of other voices that had been questioning the validity of the company's claims finally got the attention of the SEC.
THE NAY-SAYERS
One of the loudest of the nay-sayers was Janice Shell, a 50-year-old art historian and resident of Milan. A member of many virtual investor communities, she had seen other companies hype themselves using Internet bulletin boards.
Indeed, Shell's very first posting about Mountain Energy was "Is this company operational?" In other words, did this company really exist? (A check of the SEC's Edgar database was inconclusive but in fact the company did exist). 'There are so many people out there who would jump off a short pier if you tell them to... Before you know it, they'll be blamng me for JFK's assassination.'
— RICK NICKSIC
"Macker" Shell was also leery of the possibility that investors might be getting ripped off by a "pump and dump" scam, in which the company pays representatives to hype its stock on bulletin boards even as its executives are selling off their shares.
She knew Mountain Energy was a prime candidate for a pump and dump scam: After all, it was what the SEC informally terms a "non-reporting company," a company so small it is not required to provide detailed reporting of its financials to the SEC, including information such as notifications of sales of company stock by one of its executives.
Shell's concern was that ordinary investors would not be able to check whether or not Mountain Energy's owners were quietly selling off the stock even as press releases and paid representatives touted it (such actions are illegal).
"I tried to warn them but they just wouldn't listen," says Shell.
Two months after Moore's entry into the market the SEC instituted a halt in trading on the shares of Mountain Energy Inc. The Commission's press release, issued on July 29, stated: "The Commission ordered this trading suspension because of questions raised as to the adequacy and accuracy of publicly disseminated information concerning Mountain Energy. This information concerns, among other things, Mountain Energy's ownership of certain properties and the valuation of the mineral assets on those properties."
Moore says he was aware of Shell's concerns about Mountain Energy.
"I beat myself up with a stupid stick for months over this but in the end I don't feel like a fool," he says.
Moore had been doing research on his own and talking to people whom he considered more knowledgeable than Shell. One of these people was a friend who actually visited Mountain Energy's CEO, Jack Uselton, in his Houston offices.
Moore's friend had made numerous investments in energy companies in the past and was convinced after his meeting with Uselton that Mountain Energy was "the real deal."
Beyond his meetings with interested shareholders, Uselton had also made himself available to almost anyone who cared to call him — including "Macker," the man whose stock predictions held so much sway for Moore.
Macker, a man named Rick Nicksic, of Hebron, Indiana, told MSNBC that he spoke several times to Mountain Energy CEO Jack Uselton. He claimed Uselton told him that the mineral deposits would double or triple the company's value. 'People hear what they want to hear and interpret it the way they want to.'
— JACK USELTON
Former CEO,
Mountain Energy Uselton says he never made false claims about the value of his company to any of the people who visited or called him. "People hear what they want to hear and interpret it the way they want to," he says, and adds that others are responsible for the false claims that were made.
Was Nicksic a paid representative in a pump and dump scheme masterminded by Uselton? Moore says he doesn't think so. And Nicksic claims he is just a novice in the arena of investments, noting he lost tens of thousands of dollars in Mountain Energy.
"There are so many people out there who would jump off a short pier if you tell them to," says Nicksic. "Before you know it, they'll be blaming me for JFK's assassination."
As for Uselton, he says the SEC has served him a subpoena but he says he has nothing to hide. The SEC will not comment on the matter but Richard Sauer, Assistant Director of the Commission's Division of Enforcement, has a sobering note for people contemplating an investment in thinly capitalized companies like Mountain Energy.
"People should be extremely cautious when investing in non-reporting companies because they do not provide investors with the advantage of legally mandated disclosures, including audited financial statements," says Sauer.
He should know. Sauer was the man who issued the trading suspension on the Mountain Energy stock. And his division was the one that filed 23 enforcement actions Wednesday against those the SEC says used the Internet to unlawfully tout more than 235 so-called "microcap" companies.
WHAT NOW?
Moore and hundreds of others who lost money in Mountain Energy are convinced that something illegal brought about the stock price's plunge. They are waiting for word from the SEC, hoping there will be a criminal investigation and restitution.
But they are not waiting passively; they are using the community they forged during the high times to hasten the day when they get their money back.
Moore sends email to a growing list of legislators and SEC officials while maintaining contact with a core group of shareholders who believe, as he does, that they were scammed.
One close contact of Moore's is a retired teacher named Lisa Thomas, who lost about $5,000 on Mountain Energy. Thomas has constructed a Web site called "The MTEI scam" that thoroughly documents what she feels are Mountain Energy's illegal activities ("MTEI" is the company ticker symbol).
The site contains an extensive timeline and links to questionable press releases and scanned documents that Thomas says details the scam. There is also a section called "The Great Hype," which links to bulletin board messages that hyped the stock.
Other people in contact with Thomas and Moore provide whispers and rumors about an SEC investigation and the clandestine dealings of Mountain Energy's officers.
And then there is Shell, one of the people who first cautioned against investing in Mountain Energy.
"I think it's been very healthy for shareholders to band together to publicize the scam, but this is a very typical case," she says somewhat scoldingly.
Shell hopes that the SEC will go forward with a proposal it recently circulated to strengthen reporting requirements for small companies that trade in the over-the-counter market (companies like Mountain Energy).
"Why shouldn't companies file forms?" she asks. "It shouldn't be easy for them."
Mr. Moore agrees about the need for reform.
"Unless there are profound changes, there will be many, many more MTEI's," he wrote in a recent email. "It's a very depressing situation, one that taught us all a hard lesson — a lesson too late for many who won't recover to benefit from the learning."
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