November 03, 1998, 07:32 p.m.
Buyers, SEC track penny stock
Net investment
By MICHAEL DAVIS
Copyright 1998 Houston Chronicle
Dana Moore bought Mountain Energy stock after seeing the Houston company's claim on the Internet that it owned coal and natural gas properties worth $200 million.
The free-lance graphic artist, who lives in Birmingham, Ala., was hoping to get a bargain, but he wound up with a painful loss and a job delivering pizza.
Moore and hundreds of other small investors snapped up the stock, thinking the shares would quickly run up to $5 or more per share, as touted online.
The stock had already had a striking run-up. From its inception, Mountain Energy more than tripled in value in less than two weeks.
The stock went from 43 cents per share on May 20, the day before the formation of the company was announced, to $1.53 per share on June 1, the day Mountain Energy officially opened its doors.
But the party was over almost before it began. The company born in May was out of business by August, with the Securities and Exchange Commission on its trail.
Investors and the company's former chairman say the SEC is investigating the company. The agency will not confirm or deny an investigation is under way, said John Heine, SEC spokesman in Washington, D.C.
Mountain Energy's case highlights the pitfalls for investors of buying penny stocks based on information received over the Internet. Last week, the SEC filed fraud charges against 44 individuals for stock fraud over the Internet. Mountain Energy officials were not among those charged.
On Tuesday, Mountain Energy's stock closed at a half-cent per share. It trades in the pink sheets, the most obscure market for thinly traded shares.
For his part, Moore lost $6,800 from his wife's individual retirement fund. Stung by the loss, he took a part-time job.
"I've delivered pizza in a vain attempt to repay the money I lost," said Moore, 50.
Moore and a growing number of other Mountain Energy investors -- about 170 at last count -- have banded together over the Internet to loudly protest what they believe was a blatant and intentional deception.
"What sets this apart is the Internet and how it was initially used to push the stock and how we have been able to use it to get the word out," said investor Gregg Polley, who lost $50,000 in Mountain Energy stock. "This sort of effort would not have been possible in the old days."
Investors like Polley and Moore say they understand the inherent risks in penny stocks, but they are outraged by the extravagant claim that set off the rally in Mountain Energy stock -- a press release that said it held natural gas and coal that would be worth $2.85 per share.
The company's press release claimed that state officials in West Virginia estimated its properties held minerals worth $200 million. But an official with the West Virginia Geologic and Economic Survey, the state agency that the company claimed was the source of the estimates, says the agency doesn't even know where the properties are located and never offered such an estimate.
Mountain Energy paid 50 million shares of its stock for the properties to an attorney, who says he bought the tracts solely for payment of back taxes.
Mountain Energy's trail of ownership gets somewhat murkier from that point. It is estimated that about 20 million Mountain Energy shares were swapped for shares of International Casino Cruises, the public shell company that was renamed Mountain Energy. Despite its name, International Casino Cruises' former line of business was running convenience stores in the Houston area.
John Christensen, president of International Casino Cruises, resigned after the company was renamed. He declined to be interviewed for this story. His lawyer, Stephen Newhouse, said Christensen's role at Mountain Energy was "very limited" and consisted mainly of working on the transition from International Casino Cruises to Mountain Energy.
Because of the pending SEC investigation, "I don't want my client spouting off to a newspaper at this juncture to defend himself," Newhouse said.
Christensen, his relatives and family members were some of the largest shareholders in Mountain Energy, holding about 2.5 million shares of the company's stock as of June 22, according to company documents posted on the Internet.
Jack Usleton, Mountain Energy's former chairman and chief executive, says he was misled about the company's prospects as well and lost about $40,000 of his own money in the deal. He said none of the money from Mountain Energy stock sales found its way into the company's coffers.
When asked what he tells investors who lost their shirts in Mountain Energy stock, Usleton replied, "Welcome to the club." He says he doesn't know who authored the press releases about the West Virginia properties other than to say he didn't write them.
There are still messages posted at pennypicks.com, an online trading site for penny stocks, touting Mountain Energy's stock. One assessment reads: "Explosive potential, when announcements and future projections are made, stock will buoy close to $2. Once production begins, $5-$10 then NASDAQ and in the teens."
The SEC has questioned Mountain Energy investors both in person and in a questionnaire it mailed them.
The agency has also subpoenaed all of the company's documents, said Usleton. He said he has given the SEC all of his stock trading records as well as his personal checking account statements.
"They said they want me to testify at some time as well," Usleton said in a telephone interview from his home in Houston. He has since started a new company in Houston named Ibis Energy.
The SEC issued a press release in July saying it had halted trading in Mountain Energy while it looked into the accuracy of statements made by the company. Specifically, the SEC was looking at the company's "ownership of certain properties and the valuation of the mineral assets on those properties."
The trading ban was later lifted, and although the stock is virtually worthless, as recently as Oct. 9, 798,000 shares changed hands in one day.
The investors who lost their money are looking for where the money went. They have yet to hire a lawyer, but have been receiving legal advice on how to pursue a "disgorgement" action to recover money from the company.
Sites on the Internet hold volumes of scanned company documents showing stock ownership, the legal agreement creating the company and other documents related to the formation of Mountain Energy.
The most comprehensive of these is at twinjet.simplenet.com/MTEI, where company documents have been posted by disgruntled investors.
Another investor, Lisa Thomas, is a former teacher. She goes by the online name of Raven when posting new information about the company on the Web site she set up as an information clearinghouse for investors who feel they were burned buying Mountain Energy stock.
Thomas, a veteran penny-stock investor, alleges Mountain Energy went far beyond the fringes of legitimacy where penny stocks often circulate.
"You know when you buy these stocks that there are built-in problems," Thomas said. "They are always on the verge of doing a deal that never quite gets done and things like that, but you do not buy on the basis of a press release that is an outright lie."
After the May 21 press release saying the company had properties containing $200 million worth of coal and coal-bed methane, Mountain Energy issued a press release on June 18 stating flatly and with no sources that the properties contained 2 billion cubic feet of natural gas and 10 million tons of coal.
That same release said the new company had 20,000 acres of oil and gas properties. Later, on June 24, the company issued a release saying that the 20,000-acre number was a typographical error and that the real number was more like 5,000 acres.
The West Virginia properties that are at the core of the company's claims comprise 62 tracts totaling about 6,200 acres, which were bought for payment of back taxes, said Marc Tow, the California real estate lawyer who sold the properties to Mountain Energy.
Usleton said the company was able to make its claim that the properties held as much as $200 million in coal and natural gas based on hypothetical estimates provided by the West Virginia Geologic and Economic Survey, a state agency that researches oil, coal and gas reserves.
But Steve McClelland, head of the services section at that agency, says the agency has no idea what sort of reserves are on any Mountain Energy properties for a simple reason: It has no idea where the tracts are located, nor has anyone at Mountain Energy offered to tell anyone at the agency where they are located.
"Their statement about West Virginia properties is very, very vague," McClelland said. "When we could not get an accurate location, all we could do is tell people that we could not say for sure there was not coal or gas on these tracts."
"We are still in the dark; we are curious where the properties really are," he added.
Nor did Mountain Energy ever seek permits to drill or mine on any of its properties in West Virginia, according to a spokesman for the state's Division of Environmental Protection, the agency that issues such permits.
Tow is astonished that anyone would issue a press release saying the property was worth $200 million.
"I do not understand how those press releases got out there; it is not the truth," Tow said. He would not say how much he paid for the properties but said he paid "real money" for them.
Tow said he was the first person to talk to the SEC. Usleton says that he has been talking to the SEC since June 2.
For Tow, the Mountain Energy saga has led to a torrent of unsubstantiated allegations, all of which he says are completely false. He says he has done nothing wrong but has been pilloried on the Internet by "crazies."
"Someone called my house and told my son that his father was going to die," Tow said. "I have been tried on the Internet."
Based on the questionnaires sent to investors from the SEC, the claims about the West Virginia properties appear to be the central issue the agency is looking into. The document contains 12 questions, asking investors how they came to buy the stock, what they read about it and who they may have spoken to regarding the stock that might have influenced their choice.
In the final days of the company's existence, all eight employees were let go and Usleton, as the sole remaining director of the company, accepted his own resignation. He now says that he was never given a chance to run the company as he wanted.
His last act at Mountain Energy was signing over to himself all of the company's furniture, fixtures and equipment, as well as an oil and gas lease on 2,900 acres in the Austin Chalk near Giddings. The Austin Chalk, a geological trend that runs from Central Texas to Louisiana, is associated with oil and gas production.
The West Virginia properties are still owned by Mountain Energy.
Usleton said he bought the Austin Chalk leases with money borrowed from the bank and they are the only assets of his new Ibis Energy, which he is running from his home.
And while Ibis Energy is still a private company, Usleton says he hopes to take it public soon.
chron.com
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