Is InterOil Selling Investors Hope?

InterOil Corp (NYSE: IOC) has no proven oil and gas reserves. They may not have any "commercially viable reserves" at all.

However, those facts have not stopped Vice President of Investor Relations at InterOil Corp, Mr. Wayne Andrews from privately hyping that “we’ve got over 3 trillion cubic feet of natural gas, certified by resources by the number one Canadian engineer.”

In addition, a report issued by “Canadian engineer” GLJ Petroleum Consultants Ltd contradicts Andrews hype by not certifying any proven reserves and merely calling them “contingent resources” with “no certainty that it will be commercially viable to produce any portion of the contingent resources.”

My close friend, convicted felon turned fraud fighter Barry Minkow, co-founder of the Fraud Discovery Institute (FDI), has concluded the first phase of “a several month undercover investigation of InterOil Corp.” Minkow set up a new website called InterNoOil.com to release his findings on the company.

According to FDI’s press release:

The first release of information, with more to follow, contained an undercover, in person meeting between a licensed private investigator operative and the Vice President of Investor Relations at InterOil Corp, Mr. Wayne Andrews.

“This is a company that up until 2 days ago never reported a profit and never found oil in any material way and yet survives on hype which lead us to the “head-hyper” added Mr. Minkow, the Co-Founder of the Fraud Discovery Institute, Inc. “We focused on Mr. Andrews because he was the ‘lone analyst’ following IOC for years while working at Raymond James and is currently is the VP of Capital Markets and in charge of investor relations. With no proven oil and gas reserves and little to no earnings, we opened up an investigation into just how much “hyping goes on behind closed doors at InterOil Corp (NYSE:IOC).

According to the transcript of one meeting, the FDI operative posed as a representative of several wealthy families who expressed interest in investing between 25 and 50 million into a bulk stock purchase with a company destined for a substantial stock price increase. “Although Mr. Andrews attempts to qualify some of his statements and even goes so far as saying ‘I don’t want to go to jail’ for saying something inappropriate, he does appear to turn right around and say inappropriate things” added Barry Minkow.

To prevent quotes being taken out of context, the Fraud Discovery Institute, Inc has released both the unabridged transcript and audio portion of the in person meeting because, according to Mr. Minkow, the tape speaks for itself and needs no application.”

Minkow compares “InterOil’s public disclosures with the transcript of a private conversation, between a licensed private investigator operative posing as an investor and company Vice President of Capital Markets Wayne Andrews,” and raises “troubling questions about the company selling hope to possible investors.”

For example, Minkow cites the Roche case, where the SEC took the following position:

We long have held that predictions of specific and substantial increases in the price of a speculative security within a relatively short period of time are fraudulent. We also have held that predictions of specific and substantial increases in the price of any security that are made without a reasonable basis are fraudulent.

However, Minkow's report cites comments by Wayne Andrews which may be afoul of securities law by hyping "the level he believes the stock price and market capitalization for the company will be at in the future." See below:

1. According to the transcript, Andrews changes his hat from InterOil Vice President to analyst in a deliberate attempt to flout securities law by saying, “I’m probably not supposed to tell you what I think the share price can do, but I can tell you when I was an analyst, I covered the stock. I would talk to portfolio managers and used to tell them I believe that this is a several hundred dollar stock in the next three to five years.”

Minkow goes on to report that:

On pages 6; 14-15 of the transcript Mr. Andrews, no less than 3 times either agrees with the prediction of an IOC 200 dollar stock price or alludes to it himself.

For full details, please go to FDI's InterNoOil.com web site.

Other links:

• Click here to read FDI press release.
• Click here to read report on InterOil.
• Click here to hear audio (mp3 format) from the undercover meeting.
• Click here to read transcript of the undercover meeting.
• Click here to watch Minkow's You Tube video.

Disclosure: I am a convicted felon and former Crazy Eddie CFO. While I have no position in InterOil securities long or short, this time I assisted Fraud Discovery Institute in researching InterOil. In addition, Minkow frequently owns a short position in public companies that FDI investigates.

Comments

[Ozarker:]

Doesn't the fact that Mr. Minkow frequently owns short positions in the public companies that FDI investigates, compromise the validity of his "research"? I listened to the secret recording by his "operative" and I now want to buy more IOC, not sell it. These appear to be some weird folks trying to not lose their "shorts".

May 19 09:40 AM

[fred ohr:]

Mr. Minkow and Mr. Antar know so little about the oil and gas business that they would frighten little children in a well lit room. Their attempts to draw a distinction between proven and contingent reserves is laughable. No reserves, no matter how large are, considered proven until a plan of commercial development is in place. All real oil and gas investors know this yet Crazy Eddie and Mr. Minkow the carpet cleaner think this is some sort of revelation. IOC has uncovered substantial gas reserves which can be economically developed to serve the Pacific Basin LNG market. The discoveries have all the earmarks of a major find with the normal risk parameters of an early stage exploration project limiting the unit value placed on these reserves by the market. IF and when fully developed, the gas reserves will have a unit value of $1.25-1.75 per MCF. Liquids, if present in commercial quanties, will be worth $10-14.00 pe barrel after development costs. The upside in IOC's stock price remains substantial on a risk adjusted basis.

May 19 10:53 AM

[SupaSage:]

Actions speak louder than words to me. I'm sure Wayne Andrews was making a pretty good living at Raymond James as an analyst. Now, I don't know if he joined IOC directly from RJ or if he was unemployed at the time he joined IOC, but it's really not that relevant. For him to forgo his career as an equity analyst to become the investor relations person for IOC tells me that he truly believes that the company has significant upside. I'm sure his compensation package probably includes some stock options, which would make his stint at IOC more lucrative than if he stayed at Raymond James. But "hyping" the stock wouldn't help him if the company didn't really have any resources. If you think about it, the guy took the job at IOC for the big payday when they company's stock re-rates to reflect its current asset potential. I'm sure he wants the stock to go up, but I would think he's in it for the longer term. Bottom line is that I don't think there's any fraud going on at IOC. At the worst, maybe there's a bit of excessive optimism. And by the way... there are at least two analysts currently covering the stock with Buy and Strong Buy ratings so Wayne Andrews isn't alone in thinking IOC has potential. I'm long the stock. Given the facts, I'll make my bet on Wayne Andrews and the other two analysts that cover the stock.

May 19 11:15 AM

[Shareholder...:]

To put this laughable attempt in perspective:

seekingalpha.com/artic...

May 19 07:56 PM

[tctrader:]

Honestly...I think Mr.Crazy should seek "real" employment.

May 20 06:18 AM