My friend alerted me to this situation, and after analyzing it, I found it very alarming. In my opinion, InterOil's (NYSE:IOC) chairman, Dr. Gaylen Byker, was clearly engaged in a conflict of interest with his fiduciary duty towards Calvin College's and the Fuller Fund's investments. This should be looked into deeply by long and short holders of IOC, Calvin College, the Fuller Fund, and possibly the SEC.
Here's a summary of what happened:
Gaylen Byker has been on the board of InterOil since 1997. During that time period, he has accumulated a lot of InterOil shares. Byker meanwhile had been President of Calvin College from 1995-2012. Partially because of Byker's losing and risky investments, he left Calvin College's finances in shambles in 2012. One of the school's worst investments was the Fuller Fund. This fund, which Byker was also a director of, happened to have a gigantic investment in a vehicle, APRI LP, that had a gigantic investment in IOC stock. Byker also personally had a large position in APRI LP. Interestingly enough, both Byker, and the chief investment manager of the Fuller Fund, Samuel DeCamp, had both quit (got fired?) their previous jobs in 2012, and on July 2, 2012, Delcamp joined InterOil's board and Byker became the Chairman of InterOil's board.
Did Byker and Delcamp use Calvin College and the Fuller Fund to enrich themselves?
Let's dig deeper into the facts.
On the Fuller Foundation's 990 form for the year 2011, it shows that Samuel Delcamp was the executive director on page 7. He happened to get paid a whopping $1.5M in compensation, but that's beside the point.
The fund owned a 65.07% ownership of Asia-Pacific Refinery Investment LP (APRI LP)(see page 46). A 990 form is what tax-exempt non-profit companies must submit to the IRS to show there are no conflict of interests and no fraudulent activity. I couldn't find the 2010 990 form, but the 990 form filed in 2009 doesn't show any holdings of APRI LP.
As shown in InterOil's 2011 proxy (on page 5), Gaylen Byker was the owner of APRI, which directly held 14,225 shares of IOC. APRI also reportedly had a 1% general partnership interest and a 19% limited partnership interest in APRI LP. As shown in the proxy, APRI LP owned an interest in PIE Group that equated to a whopping 1,372,000 shares of IOC. PIE Group is Mulacek's vehicle to hold his IOC shares.
So this adds up to: Byker owned an equivalent of .2 x 1,372,000 + 14,225 = 288,615 shares of IOC when he was running Calvin College. The Fuller Foundation owned an equivalent of .6507 x 1,372,000 = 892,760 shares of IOC in 2011.
On page 22 of the Fuller Foundation's 2011 990 form, it shows the total value of investments the Fuller Foundation had in 2011 was $365,362,158, and at $70 per share on average, that means it had a position in IOC of $62,493,200, or 17% of the Fuller Fund's portfolio. That seems like quite a big, risky position for a non-profit agency.
Did Byker and Delcamp violate their fiduciary duties to their respective funds by investing so heavily in InterOil? Especially since, in Byker's case, he had such a huge concentrated position himself?
Did Mulacek tell Byker to have the Fuller fund invest in his vehicle, PIE Group? Was Mulacek getting any extra income through this arrangement?
It's also interesting to note that it shows in the proxy on page 5 that Byker had much more IOC stock than InterOil directors Christian Vinson, and Roger Grundy, even though all three started on May 29, 1997 as directors. Byker had 457,700 shares and 45,000 options, Grundy had 142,700 shares and 45,000 options, and Vinson had 15,000 shares and 116,667 options. Then, in the 2012 proxy, it shows Byker had a whopping 701,407 shares of IOC. Was Byker given more shares than the other two directors for doing special favors for Mulacek? Like investing in his vehicle to allow him to sell shares or receive more interest? In the 2011 proxy, Mulacek had 5,152,620 shares and 245,000 options. The 2012 proxy shows Mulacek only had 3,853,398 shares and 245,000 options. That's a difference of 1,299,222 shares - a lot of selling over the year. I expect Mulacek to report even less shares in InterOil's upcoming 2013 proxy.
Why do Byker and Mulacek need vehicles for their shares? Vinson and Grundy don't have vehicles. Is it to disguise their insider selling? Why didn't the Fuller Fund just invest directly in IOC stock, why did it covertly invest in it through Mulacek and Byker's vehicles?
I believe Byker engaged in a clear conflict of interest. Here it states:
"A fiduciary must not put themselves in a position where their interest and duty conflict. In other words, they must always serve the principal's interests, subjugating their own preference for those of the 'principal'."
Was it in the Fuller Fund's best interest to have 17% of its assets in IOC, let alone through Mulacek's vehicle? Byker surely had some sway on the Fuller Fund's investment decisions given that he was a director of the Fuller Foundation. Was it in Calvin College's best interest to invest in the Fuller Fund, or was it in Byker's best interest?
It's likely that Calvin College had no idea about Byker's conflict of interest with APRI, IOC and the Fuller Fund. I exchanged emails with the Provost of Calvin College, Claudia Beversluis, and she said: "I do not know anything about these investments"
I hope Calvin College will look into the matter. The school will likely have a budget shortfall in the coming years, and it may deserve some restitution for its investment losses.
I also don't think InterOil will be able to raise capital until they clear the air with this situation.
Disclosure: I am short IOC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.