The Vancouver Sun (British Columbia)
December 17, 2003 Wednesday Final Edition
No tools at company 'developing' artificial liver
David Baines
If you believe that the stock market always reflects real or potential value, then let me introduce you to Hepalife Technologies Inc., another questionable Vancouver-based company that trades on the OTC Bulletin Board in the United States.
Hepalife describes itself as a "development stage biotechnology company focused on the research, development and eventual commercialization of technologies and products to treat various forms of liver dysfunction and disease."
But don't look for any beakers or test tubes or microscopes at the company's office at 216-1625 West First Ave., at the gateway to Granville Island. All you will find is the expensively appointed business office of Hepalife president Harmel Rayat.
And you won't even find Rayat, not if you are a reporter. When I visited on Monday, he remained hunkered down in his office. "We have a no-comment policy with respect to the media," said one of Rayat's staff, refusing to identify himself.
Hepalife purports to be "working toward the development of an artificial liver device" for people with damaged or diseased livers. This has great promotional value, especially when you are reminded of all the people who suffer from hepatitis-C and cirrhosis of the liver.
But scratch away the gloss and there isn't much there. The company has agreed to provide $293,000 US over a two-year period to the U.S. department of agriculture's research service to finance development of an artificial liver "utilizing the pig liver cell line." So far, it has funded less than half that amount.
In an interview Tuesday, Dr. Neil Talbot, one of the agriculture department researchers working part-time on the project, acknowledged it will take years and millions of dollars to develop an artificial liver. "Right now, there is not a lot that is new. We are just confirming data that has already been published," he said.
But if you looked at Hepalife's stock chart, you would think the company is on the verge of a medical breakthrough. The share price has surged from a low of 27 cents US in January to $3.02 US at Tuesday's close. With nearly 57 million shares outstanding, the company now has a total stock market value of $172 million US ($225 million Cdn).
Considering that the company is not generating any revenues and had only $79,000 in assets as of Sept. 30, this is pure magic. Or is it sorcery?
Rayat has been promoting Vancouver penny stocks for years; not only his stocks, but also other people's stocks.
During the throes of dot-com mania, Rayat ran a stock promotion company called EquityAlert.com Inc., which operated from the same office that Hepalife now occupies. In early 2000, EquityAlert sent out more than one million e-mails per day touting the fortunes of about 18 publicly traded companies.
The U.S. Securities and Exchange Commission alleged that EquityAlert accepted more than $450,000 as compensation from the companies, but did not tell prospective investors. Without admitting or denying the allegations, Rayat and his firm settled the matter in August 2000 by agreeing to pay a $20,000 civil penalty.
The following year, Rayat got into more trouble. According to the SEC, he and an associate, Bhupinder (Bill) Mann -- who is now an employee of Hepalife -- arranged for EquityAlert and its parent, Innotech Corp., to promote the shares of two companies trading on the OTC Bulletin Board.
One of those companies was International Mercantile Corp., which was developing fingerprint scanning technology. It agreed to pay EquityAlert 100,000 shares to promote the stock.
Taking advantage of the 9/11 tragedy, EquityAlert advertised International Mercantile as the newest of the "red hot" biometric companies. Share volume and value soared, enabling EquityAlert to dump its shares for $132,500.
The other was Virilitec Corp., which was developing nutritional supplements that would purportedly enhance sperm count. As payment, a Virilitec consultant arranged for an unnamed shareholder to transfer 40,000 supposedly unrestricted shares to EquityAlert. Thanks to its promotional efforts, EquityAlert was able to boost trading volume and dump its shares for $38,870.
But there was one small problem. According to the SEC, none of these shares had been registered for sale. Without admitting or denying the allegation, Rayat and the other respondents agreed on Oct. 23 to disgorge the full amount of their ill-gotten gains ($171,370), but because EquityAlert and Innotech had gone out of business, all but $31,555 was waived.
Hepalife is being promoted by Scott Fraser, a California stock tout who writes a newsletter called The Natural Contrarian. Earlier this month, he suggested the stock could go to $50 US and urged investors to buy before this "billion-dollar biotech baby" is discovered by Wall Street. "This may be your only chance to invest in a company on the verge of one of the greatest medical breakthroughs this century!" he trumpeted.
Trading volume and value picked up considerably. But judging by U.S. regulators, Fraser can't be trusted. In a cease-and-desist order issued in September, the SEC alleged that Fraser had made false and misleading statements in e-mail solicitations that he sent to between 25,000 and 38,000 prospective subscribers. Among other things, he had claimed that "over 87 per cent of my stock recommendations to my elite audience have increased an average 135 per cent in the past 28 months," and "over 1,170 of my subscribers have become multi-millionaires buying and selling my oil-and-gas stocks over the last 24 months."
Without admitting or denying the allegations, Fraser agreed on Sept. 25 to stop making any false claims in future.
There is another reason to view Fraser's pronouncements with skepticism: he gets paid for making them. According to the disclaimer in his newsletter, Hepalife gave $278,144 to National Infosystems, also known as Thornhill Advisors, of Richmond Hill, Ont. to "increase industry and investor awareness." (Note that this is nearly as much as Hepalife has committed to developing the artificial liver). Of this amount, Fraser received $30,000 for his promotional efforts.
Another firm that is touting the fortunes of Hepalife is stockupticks.com. On July 29, it advertised Hepalife as "one of the most interesting and potentially life-changing profiles we've ever had the privilege to publish."
It also had the privilege of receiving $15,000 compensation from National Infosystems.
dbaines@png.canwest.com |
