Breitling said to be latest victim of alleged pump-and-dump group [BERX --> BECC]
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Breitling said to be latest victim of alleged pump-and-dump group
By Dan Lonkevich Updated 03:05 PM, Mar-31-2014 ET
Kevan Casey, Frederick Huttner, Scott Gann and others who have been accused of taking part in a pump-and-dump scheme that defrauded shareholders of LuxeYard Inc. of some $30 million, are now alleged to be behind a similar scheme at Breitling Energy Corp. [BECC]
That’s the conclusion Ran Mires Clark & Associates, a Houston-based company that characterizes itself as a “shareholder advocacy group.” One of Ran Mire’s co-founders is LuxeYard chairman and CEO Amir Mireskandari, who has filed multiple lawsuits against the same group over the alleged manipulation of LuxeYard stock.
The other co-founders of Ran Mires are Yuval Ran, the founder of Israel Credit Lines and Don Clark, the former special agent in charge of the FBI’s New York, Houston and San Antonio offices. Mireskandari said Ran Mires grew out of his efforts to investigate and prosecute the alleged pump and dump of online furniture retailer LuxeYard.
Ran Mires has completed about five investigations and won settlements for two clients, with three cases still pending, Mireskandari said. He declined to identify the clients, saying that the cases were private.
Casey’s and Huttner’s involvement in Breitling goes back to 2010 when the company was called Bering Exploration Inc. and extends at least through last year.
The initial pump and dump at Dallas-based Breitling allegedly took place between December 2010 and October 2011. During that time, the development-stage company saw its stock increase 540% over 83 trading days, followed by a 57.5% decrease over 22 days and a 95% decrease over the following 122 days, according to Ran Mires. Volume increased 598% over 34 days.
Since then, the stock, which trades under the symbol BECC, has traded between 4 cents and 95 cents. It currently trades around 58 cents, which implies it a market value of $289.9 million.
Even so, Breitling had cash and cash equivalents of only $14,747 as of Sept. 30, 2013. It reported total revenue of only $44,886 and a net loss of $1.06 million in the six months ended Sept. 30.
Breitling had been an oil and gas exploration and development company with natural gas assets in Texas and Louisiana.
Breitling has completed six change-of-control transactions since 2004. The company filed with the Securities and Exchange Commission as Bering Exploration through Dec. 23, 2013, as Oncolin Therapeutics Inc. through October 2010, as Edgeline Holdings through February 2010, as Dragon Gold Resources Inc. through August 2007 and as Folix Therapeutics Inc. through June 2004.
In January 2013, the former Bering Exploration was the subject of a glossy mailer with a doctored photo combining the faces of President Obama and former Secretary of State Hillary Clinton, saying investors who don’t like the administration’s energy policy should invest in Bering.
The advertisement in “The Wall Street Revelator” was headlined: “A Guide To Profiting From The Hill-Bama Energy Strategy.” Below that in red letters it further read: “BERX Has JACKPOT Potential. It Could Lead You To Rapidly Turn $10,000 Into $195,333.”
According to a legal disclaimer on the promotion, Andrew and Lynn Carpenter, doing business as The Wall Street Revelator, received $15,000 to assist in the writing of the promotion.
Primo Strategies LLC paid $1 million to marketing vendors to cover the cost of the advertisements. Primo also disclosed in the disclaimer that it was paid by non-affiliate shareholders who intended to sell their shares without notice into the advertisement.
In December, the former Bering Exploration completed its sixth change in control, agreeing to merge with privately held Breitling Oil & Gas Corp. and its affiliate Breitling Royalties Corp., which had oil, natural gas and natural gas liquids assets in Texas, Oklahoma and North Dakota.
The Breitling companies claimed in December that the net present value of their assets was about $25.7 million
Breitling exchanged its assets for 461.9 million new Bering shares and Bering converted outstanding convertible promissory notes into stock.
Chris Faulkner, Parker Hallam and Michael Miller, who each owned 33.3% of Breitling, received 92.5% of the former Bering’s newly issued shares. The 7.5% remaining stake was issued to holders of the convertible debt, including Casey.
Former Bering CEO J. Leonard Ivins and Steven Plumb, who had been president, COO and CFO, stepped down and released their shares.
Casey, saw his 36.5% stake in the former Bering diluted to less than 2%. Breitling agreed to indemnify him from any liability connected with Bering.
Huttner, who had been CEO of Bering in 2013, also saw dilution in the value of his options to purchase 1.3 million shares, which were worth $440,000 based on a Black-Scholes valuation when given.
Faulkner, who had been founder, chairman and CEO of Breitling, became CEO of Breitling. The name change became official in January.
Following the change in control, Breitling noted in a filing with the SEC that Ivins, Plumb, Casey and Huttner may have violated reporting requirements of Section 16(a) of the Securities Act.
Section 16(a) requires a company’s officers and directors and persons who own more than 10% of a registered class of stock to file initial reports of ownership and changes in ownership to the SEC.
Breitling noted in a recent filing that Ivins had not filed a Form 3 statement of beneficial ownership with the SEC and was late in filing a Form 5 annual statement of ownership and a Form 4 statement of change in ownership. Plumb had also not filed a Form 3 and was late in filing his Form 5 and Form 4.
Huttner did not filed any required forms and Casey did not file a Form 4 or Form 5.
Since the name change, Breitling has issued at least nine press releases including the announcement of new CFO Judson Hoover.
Hoover previously had been CFO of Sun River Energy Inc., a Dallas-based oil and gas developer that effectively shut down after not being able to raise money and being engulfed in litigation.
Hoover’s tenure at Sun River was not mentioned in the press release, although it is covered in his bio on the Breitling’s website.
Breitling also has hired Gilbert Steedley, Sun River’s former outside investor relations representative, to handle its IR function.
Casey also was involved with Sun River, agreeing, as the trustee of Silver Creek Holdings, to purchase New Mexico Energy LLC, which consisted mainly of Sun River stock, from Harry McMillan for $2.85 million in 2011.
McMillan was a significant shareholder of Sun River who helped it acquire oil and gas assets, and brought in new management for the company.
Sun River later terminated its contract with McMillan’s company Cicerone Corporate Development LLC for cause and later pushed him into involuntary bankruptcy proceedings, which are still pending.
Similarly, LuxeYard also was pushed into involuntary bankruptcy proceedings. Mireskandari alleges that the bankruptcy was filed to prevent it from pursuing civil fraud litigation against Casey, Huttner and their alleged pump-and-dump group.
Huttner also is connected to Sun River through its CEO Donal Schmidt Jr., who also served as CEO of INTREorg Systems Inc. when Huttner was on its board.
Gann, an associate of Casey and an investor in LuxeYard, also is connected to Sun River through his attorney in the LuxeYard case, David Clouston, who represents Sun River in a lawsuit against McMillan.
In an e-mail, Clouston declined to respond to the allegations against Gann and the others in the group regarding Breitling and Sun River.
Instead, Clouston cited an episode from Mireskandari’s past in 2005 when the LuxeYard founder agreed to settle charges that he failed complete the regulatory element of the former National Association of Securities Dealers’ continuing education requirement and failed to make required disclosures and certifications in a research report that reported on a publicly traded entity in 2002. Mireskandari had been a registered principal of Lugano Group, a New Orleans-based brokerage firm. Without admitting or denying the charges, he agreed to pay a $5,000 fine and be suspended before the NASD for 10 days.
“It is our collective opinions that the litigation tactics of McMillan and Mireskandari are similarly motivated — to create fictional smokescreens to hide the misdeeds of others,” Clouston said in the e-mail.
He previously told The Deal that LuxeYard’s lawsuit was an attempt to cover up mismanagement at the company. He asserted that LuxeYard lost much of its investors’ money and turned to so-called death-spiral private placement financing as the only way it could raise more capital.
“They can throw mud,” Mireskandari said in an e-mail. “They don’t have much to throw.”
Meanwhile, Breitling’s other press releases in February and March provided an update on the company’s Hope Lime discovery and disclosed the acquisition of acreage in the Permian Basin through a farm-out agreement with Steller Energy and Investment Corp. for an undisclosed amount.
The company also disclosed the acquisition of a 35% overriding royalty interest in 53 proved producing wells and 15 drilling sites located in Dimmit, Zavala, Frio, and La Salle Counties, Texas, from Gaston Kearby for wellbores operated by SN Operating LLC for $3.2 million.
In addition, Breitling disclosed that its CEO Chris Faulkner was honored as the oil executive of the year in 2013 by American Energy Research Group, which advocates on behalf of small oil and gas companies.
“We decided to award Mr. Faulkner, CEO, Breitling Energy, because he’s a strong advocate for domestic oil and gas,” said John Browne, CEO of American Energy Research Group, in an e-mail. “There’s not many days that pass without seeing Mr. Faulkner discussing America’s oil and gas outlook on television.”
Mireskandari said in an interview that Ran Mires has a client who was a shareholder of Bering before the merger with Breitling, who wants to pursue litigation related to the alleged pump and dump.
While Ran Mires suspects Casey, Huttner and others of orchestrating an initial pump and dump of the former Bering in 2010 and 2011, it is still trying to find out whether the new management of Breitling is involved in an ongoing campaign, Mireskandari said.
“We don’t know if the new guy is connected,” he said, referring to Faulkner. “If we start litigating, it may mean he’s going to be sued just for acquiring a bad company. That’s not right.”
In the meantime, Ran Mires sent a letter to Breitling COO and general counsel Jeremy Wagers dated March 13 in which Clark disclosed that the firm is investigating potential fraud related to Bering stock transactions. The letter was re-sent by fax on March 25.
“Ran Mires represents shareholders of a company called Luxeyard, Inc.,” Clark wrote. “Some Luxeyard shareholders have filed suit against numerous individuals and entities because of their alleged involvement in a ‘pump and dump’ securities fraud scheme involving Luxeyard stock.”
Clark said in the letter the defendants include Casey, Huttner, Gann, Joseph Lee, and Lawrence Isen and that “Luxeyard shareholders contend that these same individuals were also involved in a pump and dump scheme related to Bering.”
In light of Breitling’s merger with Bering, Clark said LuxeYard shareholders “demand that Breitling preserve all records” related to Bering, Casey, Gann, Huttner, Lee, Isen and stock transactions involving them and the companies they control.
“Take great care to be certain that you do nothing that results in the destruction of any material, whether tangible or electronic, that could be evidence in litigation,” the letter states. “Especially in light of the fact that some Bering shareholders are also considering legal action.”
Wagers said in an interview he had not received the letter sent from Ran Mires. “No one in this office has,” he said.
Wagers also said he was aware of the allegations made against Casey and Huttner involving LuxeYard, and concerned enough about them to do due diligence to ensure they could not do something similar at Breitling.
Casey, Huttner and the others in the alleged pump-and-dump group have less than a 2% stake in Breitling and are restricted from selling, he said.
Wagers also said that he did due diligence on Hoover’s tenure at Sun River and satisfied himself that Hoover was not involved in any of the litigation tactics espoused by McMillan.
“I have done a lot of due diligence on these issues,” he said. “Any shareholder concerns we take very seriously. Not only do we think [a pump and dump is] not occurring, we know it’s not occurring and wouldn’t allow it.”
Casey, Huttner and Gann could not be reached for comment.
“Mr. Casey vehemently denies the baseless allegations against him and intends to vigorously defend himself in court,” said Jason Hopkins, a partner with the law firm of Greenberg Traurig LLP in Dallas. “While we do not comment on ongoing lawsuits, Mr. Mireskandari’s newfound allegations about purported pump and dump schemes demonstrate a fundamental lack of comprehension of both the facts and the applicable law. For example, neither Mr. Casey nor any entity he controls has sold a single share of Breitling Energy Corporation stock in more than three years, and the shares he currently holds are subject to a lockup.”
Jeff Karchmer, a Houston-based attorney who represents Huttner, said in an e-mail that his client has testified that he was not part of any pump and dump and also plans to defend himself from the LuxeYard allegations vigorously.
Karchmer did not, however, address Huttner’s connections with Breitling and Sun River.
If Faulkner and his partners are not part of the alleged pump and dump scheme, “we’ll have a hard time bringing a case,” Mireskandari conceded.
Any case Ran Mires helps bring would be a shareholder derivative action in which shareholders sue the company on behalf of other shareholders.
“This is a great way to erase their tracks,” Mireskandari said, referring to the merger with Breitling and the indemnification agreement between Casey and Breitling.
“Casey was very smart in getting Breitling to indemnify him from liability,” he said. “He knew a lawsuit was coming.”
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