I shorted IMGG a number of weeks back and turned a profit when it dropped after a big promotion.  The company might have some real tech, but their financial moves would lead me to believe that this is a lot of hype. Hype to sell shares in an offering (at a HUGE discount) and finance the company for another number of years.  Not sure how this isn’t illegal.  Call yourself a development stage company and all bets are off. Revenue, cash on hand, and other traditional metrics don’t matter.

When I wrote about IMGG a week and a half ago (IMGG cured something, NO!), I shorted some shares and made a few dollars from $0.67 down to $0.52.  In late September, the company issued press about their application that would be sent to the FDA on 9/30/2009.  It struck me as odd that they were referencing an event to prop their stock by naming a date that more detail would come out (9/30/2009) and believe it or not, it worked.  No one wanted to miss out. It was a brilliant move after their big promotion. It propped the stock for an entire week.

Shortly after this event (which, could honestly be a big one) they did an offering of shares at…. drum roll please….. $0.025.  That is right, when the shares were at around $0.70 they sold more than 100 million shares at $0.025!

On October 6, 2009, Imaging3, Inc. (the “Company”) completed a series of private placements of its common stock pursuant to which the Company sold a total of 107,059,027 shares of its common stock at a purchase price of $0.025 per share raising total capital of $2,676,475.68. The private placements were made pursuant to Rue 506 of Regulation D promulgated under Section 4(2) of the Securities Act of 1933, as amended.

IMGG quietly raised $2.7 million SELLING 107 MILLION SHARES AT 0.025 PER SHARE, A 95% DISCOUNT TO THEIR MARKET PRICE!

This is all very odd. Sketchy as Timothy Sykes would say.

I am currently short a few shares of IMGG and down on the position.  I shorted again after covering my initial trade and digging a little deeper into what appears to be an operation that promotes to pay.  Owners/insiders promote the shares and sell shares to cover their own salaries and expenses.   They are not doing things illegally.  However, they are creating artificial demand that is questionable.

The real kicker with stock is the unknown of how many shares are outstanding.  No one truly knows.  The SEC might just look into this one to find out.

IMGG

The Cuban v. the SEC saga continues.

Mark Cuban

Mark Cuban has been using a couple of the most interesting defenses in this case.  In fact, if he succeeds (without settlement), this could turn the insider trading rules on end.

Cuban is not afraid to go head to head.  At the end of the day, it is better for Mark Cuban.  He is a bright aggressive guy.

I do fear the abuse that will come should Mark Cuban succeed with his arguments.  Mark, please consider that.  SEC, please consider that.  You don’t want to let that genie out.  It will be free reign on Wall Street.

——————————————————

The clash between the SEC and Cuban grew stranger with the release of e-mails between Cuban and Jeffrey Norris, a trial lawyer in the SECs Fort Worth office. Cuban and Norris engaged in an acrimonious e-mail exchange about a movie studio co-owned by Cuban that considered distributing a film suggesting that the U.S. government had a role in the Sept. 11 terrorist attacks.

via SEC to Press Forward on Case Against Mark Cuban – washingtonpost.com.

When treading in the pink sheets, you will find some real doozies.  Well, Gulf Alternative Energy (GAEC.PK) certainly fits that bill.  I am currently short the shares.  I shorted a few shares when they were @ $1.60 and within a couple of days, the stock was halted due to an SEC investigation into GAEC.  The shares were suspended for a couple of weeks and reopened at $0.50 per share.  I wish my short was of significant size.

From the SEC:

GAEC suspended by the SEC:
Jul 31, 2009
Pink OTC Markets News Service

Washington, D.C.— SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934
RELEASE NO. 60410 / July 31, 2009

SEC SUSPENDS TRADING IN THE SECURITIES OF GULF ALTERNATIVE ENERGY CORPORATION

The U.S. Securities and Exchange Commission today announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the “Exchange Act”), of trading in the securities of Gulf Alternative Energy Corporation, at 9:30 a.m. EDT, July 31, 2009, through 11:59 p.m. EDT, on August 13, 2009.

The Commission temporarily suspended trading in these securities because of questions regarding the accuracy of statements made by Gulf Alternative Energy Corporation in press releases to investors and on its website concerning the quality of the company’s technology and the company’s business prospects and agreements.

The Commission cautions brokers, dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company.

Further, brokers and dealers should be alert to the fact that, pursuant to Rule 15c2-11 under the Exchange Act, at the termination of the trading suspension, no quotation may be entered unless and until they have strictly complied with all of the provisions of the rule. If any broker or dealer has any questions as to whether or not it has complied with the rule, it should not enter any quotation but immediately contact the staff in the Division of Trading and Markets, Office of Interpretation and Guidance, at (202) 5515760. If any broker or dealer is uncertain as to what is required by Rule 15c2-11, it should refrain from entering quotations relating to the securities of Gulf Alternative Energy Corporation until such time as it has familiarized itself with the rule and is certain that all of its provisions have been met. If any broker or dealer enters any quotation which is in violation of the rule, the Commission will consider prompt enforcement action.

If any broker, dealer, or other person has any information which may relate to this matter, they should contact Christopher Ehrman, Branch Chief, at (202) 551-4590, or by emailat ehrmanc@sec.gov.

There is little chatter about the company, but when you do find it, there are clearly some people who have followed the company for quite some time.

From Zekel at Hotstockmarket.com
The technology you reference has been alleged to be stolen from the inventors of the pre-processing technology. GAEC has no expertise in this field, no assets, a mountain of debt, and 30+ million shares (and counting) issued to management and friends at PAR Value – a virtual ATM machine!

Complaints have been issued to the SEC, including allegations that they (management at GFET/GAEC) stole over 6 million shares of partnering company, AETE.

William Carmichael, former CEO of GAEC, has audaciously taken GAEC’s equipment down the street to a new private venture called Proven Technologies, pretending to have clients (CNFO, Biotricity) and pretending to have proprietary equipment (which is the GAEC’s same equipment they are alleged to have stolen from AETE).

To say that this isn’t the first go round with the SEC might be putting it mildly:

From: http://www.sec.gov/litigation/litreleases/2009/lr20961.htm

Two Texas men, who perpetrated a massive e-mail spam campaign to drive up the demand for low value stocks they owned, will pay nearly $4 million in penalties and fines and will no longer be able to trade penny stocks under an agreement reached with the Securities and Exchange Commission.

The agreement, which was entered today in the form of two final judgments by Judge Kenneth Hoyt of the U.S District Court in Houston, prohibits Darrel T. Uselton and his uncle, Jack E. Uselton, from violating antifraud provisions of the federal securities laws and trading in penny stock. Darrel Uselton also agreed to pay $2,838,866.72 in disgorgement and prejudgment interest and another $1 million in civil penalties.

Another incredibly interesting point is the fact that I am placing a limit order to short shares @ $0.50 per share and the transaction is going off at higher price than my offer.  This reeks of a market maker who is in on the game.  A higher transaction price could be viewed as a positive for the stock. It appears as though the stock is up 10% today due to the transaction that I placed @ $0.50 hitting at $0.55.  My hunch is that if I were to offer 100 shares for sale @ 0.12 that my trade might just go off at $0.55 or $0.60.  I would try it but I don’t want to waste the trading fee.

Look at the history of the folks behind GAEC (GFET @ $0.03, no volume | AETE @ $0.13, no volume)

Here is another Gem from the March 31, 2009 quarterly report:

We do not have enough cash to satisfy our capital requirements for the next twelve months and we rely on shareholder loans and sales of common stock to pay our operating and research and development expenses.

B. Management’s Discussion and Analysis of Financial Condition and Results of Operation

We currently have few assets and no income. We are continuing to develop our cellulosic ethanol feedstock manufacturing facilities.

Gulf Alternative Energy

Looks like Mario Gabelli loves Omnova.  I am not sure of when Gabelli, and related entities, purchased the shares, but it is clear that they love Omnova (OMN).

Here is the ownership detail in a recent 13d filing.

Gabelli Funds
1,492,000 shares
3.40% of class

GAMCO
3,294,843 shares
7.51% of class

Teton Advisors
250,000 shares
0.57% of class

Mario Gabelli is deemed to have beneficial ownership of the Securities owned beneficially by each of the foregoing persons. GSI is deemed to have beneficial ownership of the Securities owned beneficially by Gabelli & Company. GBL and GGCP are deemed to have beneficial ownership of the Securities owned beneficially by each of the foregoing persons other than Mario Gabelli and the Foundation.

Full filing can be found at: 13d filing for Omnova 13d

Mario Gabelli

Gulf Alternative Energy Corp (GAEC) is a rather sketchy company.  I shorted and made a few dollars from 2.45 down to 2.13 (11.8%).   The support at any price appeared to unravel and I attempted to short again at $1.60.  I was unable to get much as they fell, but ended up with 55 shares.  This trade might just pay for lunch.  Lunch at Subway or Moe’s.

The SEC halted trading in the shares for the following reason:

It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Gulf Alternative Energy Corporation (trading symbol: GAEC) because of questions regarding the accuracy and adequacy of information contained in press releases and on its website regarding the quality of the company’s technology and the company’s business prospects and agreements.

Full detail at: http://www.sec.gov/litigation/suspensions/2009/34-60410-o.pdf

I am no expert, but that sounds bad.  Real bad.  Not good.  Bad!  What is surprising is that the SEC is picking up this blip that barely even garnered a reaction on the Yahoo stock message boards.  You are almost always able to find chatter around some of these P.O.S. companies on the YHOO finance boards.  Someone must have blown this company in.  I can’t see any way that it would be on the radar otherwise.  My hunch is that it is a jealous, or bitter, former employee or partner.

From TimothySykes
GAEC I shorted because the company is the sketchiest thing I’ve seen in a while as evidenced by its top two shareholders being named “Joe Schmoe”…the stock is being manipulated high from 25 cents to $2.50 in the last month, I’m short 800 at $2.36 and will hold…the key here is simply finding shares to short, the stock shows no signs of stopping so I’d love to get squeezed so I can take a greater position at higher prices as this kind of manipulation almost always ends in 50%+ intraday collapses.

We’ll see how it plays out.  I am short a whopping 55 shares @ $1.60.  My hope is that it opens up on 8/14 (that is when the SEC stated it will) and that it will be at around $0.50.  I’ll cover and take a buddy to Moe’s with my $50.

Wow.  I just went to the Gulf Alternative web site to grab a logo for use in this story.  The site is a wreck (seem image below).

Gulf Alternative Energy

Actually, it isn’t as bad as it first appears.   Well, it is, but not if you know how to find the real site:

Dead: http://www.gulfalternativeenergy.com
Real:  http://www.gulfalternativeenergy.com/index.php

It actually appears as though this company was recently GFET.  Odd and sketchy to say the least.

When I bank my small gain on GAEC, I’ll probably take the guy to lunch who brought Omnova to my attention (OMN).  I picked up OMN @ $2.90 and it has surged to $6.30.  It shows no signs of slowing.  The chemical sector is hot and earnings are behind them.  There is room to continue.