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<B.A.T.: Tiny company, big controversy
Firm shines light on loosely-regulated world
After a spin on the California Speedway one day in mid-January,
Joseph LaStella stepped out of his Geo Metro boasting that he
had developed a revolutionary diesel engine capable of getting
100 miles from a gallon of fuel.
LaStella, 58, the president of tiny B.A.T. International, seemingly
closed in on his goal last week. In his purple Geo - waxed to
a high luster by a pair of investors - LaStella achieved 95 miles
to the gallon in a low-speed demonstration.
However, his public barnstorming - on the race track and in Internet
chat rooms - appears also to have helped spark a short-lived
trading mania in the company's over-the-counter stock and an investigation
by the Securities and Exchange Commission (SEC).
B.A.T.'s share price briefly hit $3 1/4 on Feb. 5 - a 4,000% gain
for 1998 - on trading that topped 24 million shares. Since then,
the stock has tumbled, closing Wednesday at 72 cents.
The SEC is now investigating B.A.T.'s technology claims, its business
ties and LaStella's use of Internet chat rooms and press releases,
all of which appear to have contributed to the trading frenzy.
Neither B.A.T. nor LaStella are accused of wrongdoing in the SEC
subpoena served on B.A.T. offices Feb. 11. This week, LaStella
promised to stop participating in Internet talks among investors,
saying B.A.T. was victimized by "impersonators" making
wild claims on his behalf. In such chat rooms, participants often
can identify themselves under any name they choose.
Detroit automakers - each with fuel-efficient vehicles - liken
LaStella's demonstrations on the racetrack to a stunt designed
to draw extraordinary attention to an ordinary achievement.
LaStella, distressed that attention seems to have seized on B.A.T.'s
stock rather than its technology, says he believes the shares
were manipulated by professional traders. Under LaStella's theory,
brokerages that make a market in the company's stock pocketed
large profits at the expense of small individual investors.
B.A.T. market maker Byron Barkley of the Wilson-Davis brokerage
in Salt Lake City says he has "no clue" to the origin
of the recent activity in the company's shares.
The SEC investigation shines a spotlight on the loosely regulated
world of more than 3,000 small companies traded on Nasdaq's "bulletin
board" over-the-counter market.
Unlike companies traded through Nasdaq's National Market, those
smaller companies have not been required to file audited financial
statements with the government, though changes under a Nasdaq
rule scheduled to take effect Monday. And company principals appear
prone, in press releases and Internet communications, to promise
investors spectacular gains against the unspoken backdrop of potentially
staggering losses.
"A lot of these . . . companies are being used as vehicles
for market manipulation," says California securities regulator
Bill McDonald.
The SEC inquiry also draws a bead on tiny B.A.T.'s claims, which
have varied over the years, reflecting LaStella's experiments
with electric cars, ultralight gliders and battery-powered bicycles.
LaStella long has operated on the margin, merging his Utah-based
Battery Automated Transportation into a publicly traded shell
in 1992, thus causing some confusion in investors' minds between
his company, B.A.T. International, and British conglomerate B.A.T.
Industries Plc.
And B.A.T.'s business alliances often evoke familiar corporate
names when the ties are nominal or nonexistent. For instance,
on Feb. 2 the company announced a joint carmaking venture with
Skoda Elcar of the Czech Republic, which is unrelated to Czech
carmaker Skoda Auto. Earlier, B.A.T. abortively pursued a venture
with Dunlop India, which is unrelated to the U.S. tiremaker.
Chris Martin, former president of the B.A.T. Electrobike subsidiary,
says the company changed direction so often that "I didn't
think anything would come to fruition."
Martin, who was paid with a combination of cash and stock, says
when he quit in mid-1997 he didn't pick up the stock certificates
owed to him, believing they were worthless.
At its peak, Wall Street valued B.A.T.'s stock at $224.3 million.
A man on a mission
At the entrance to B.A.T.'s headquarters next to Burbank Airport,
LaStella points proudly to a glass-encased red couch said to have
belonged to automaker Henry Ford.
LaStella set out from New York in search of his fortune 20 years
ago, with a gold-mining process he says was used by another of
his heroes, Howard Hughes. He speaks now like a man on a mission.
He has a deal with the Defense Department to build hybrid electric
vehicles in Hawaii, he says. He hopes to build such lightweight,
fuel-efficient cars in Asia and Europe. And he is preparing to
build an advanced-technology battery plant in India.
Each of the claims is loosely verifiable, though none has generated
much revenue. Indeed, the Defense Department "contract,"
was a $65,000 grant B.A.T. must match.
Other deals seem to fade away.
Acme Electric Chief Executive Robert McKenna, who negotiated the
sale of his company's aerospace division to B.A.T. - a deal that
fell through when LaStella couldn't raise the necessary funds
- says, "I never want to see the guy again. He is very good
at grabbing headlines. I haven't seen him follow through with
anything he says he's going to do. He takes information and stretches
it."
A tangle of subsidiaries
B.A.T. survives on the sale of company stock to individuals, several
of whom volunteer their services to the company. The private-issue
stock, which originally could not be resold for one to two years
and now is restricted only for a few months, is discounted up
to 66% off the public trading price, LaStella says.
As of Dec. 31, 1996, the last year for which B.A.T. published
a financial statement, the company reported a cumulative loss
of $2.8 million. Its only revenue was from stock sales. It had
just $5 in cash on its balance sheet. And its auditor, Stonefield
Josephson, raised "significant doubt as to the company's
ability to continue as a going concern."
According to the financial statement, B.A.T. apparently "ceased"
operations in early 1995, succeeded by an entity called B.A.T.
California, which subsequently spun off its assets to seven subsidiaries
for stock.
In an interview, LaStella said B.A.T. California was disbanded
last year and the subsidiaries again are under the public umbrella
of B.A.T. International. However, Utah officials dissolved B.A.T.
International's charter in October after the company failed to
to file an annual financial statement.
Whatever B.A.T.'s provenance, company materials show that shareholders
own a minority interest - 43% - in the "pulse charge"
engine technology LaStella demonstrated last week, and which he
has described as "a billion-dollar product." It is not
clear who owns the balance.
Indeed, shareholders' primary claim to the "super car"
technology lies in marketing it through another subsidiary, wholly
owned by B.A.T.
LaStella himself owns 8 million shares, or about 11.6%, of the
parent company's stock.
Utah securities regulators say they found a large quantity of
LaStella's B.A.T. stock certificates when serving a search warrant
on the Salt Lake City offices of David Jay Orr last July in a
fraud investigation.
LaStella says he hired Orr to set up an estate trust for his family.
"I've got stock in my children's trusts. And I have a right
to do that," he says. Utah officials returned the stock certificates
to LaStella.
Orr declined to comment for this story. He was ordered last week
to stand trial on securities fraud charges unrelated to B.A.T.
'I don't do any tricks'
LaStella, professing a lack of interest in the details of corporate
governance and undeterred by his past business setbacks, opens
the hood of his Geo Metro to reveal the engine he says is capable
of getting 100 miles to the gallon.
"I've been fighting with Detroit for five or six years now,
all right?" he says. "Their goal is a 2,000-pound car.
I've got a 2,000-pound car. They use diesel fuel. I use diesel
fuel. They got low-roll-resistant tires. I got street tires. They're
performing all the tricks. I don't do any tricks," he says.
Among LaStella's supporters is Keith Harper, a test driver for
General Motors. "There aren't any hidden fuel cells, extra
(fuel) lines, anything like that," Harper says.
"There's no trick in testing," agrees James Heffel,
senior engineer at the Advanced Vehicle Engineering Lab of the
University of California, Riverside. Heffel certified last week's
test results.
"This is not the proverbial black box. Everybody knows who
we are," LaStella says: "I'm going to sign contracts,
and (then) I'm off and running."
By Elliot Blair Smith and Julie Schmit, USA TODAY> |
