In this article I'm going to outline why I believe Bluforest Inc. (OTC:BLUF) has a significant chance of being investigated by the SEC.
The SEC recently has gotten more aggressive stopping pump and dump schemes this year and has also warned investors about the dangers of such scams more frequently. That combined with some recent moves from the company makes me think this stock is likely to be in the SEC's watchlist for enforcement action.
BLUF has been promoted by several stock promoters for months now. There are also many so called "research reports" on this company with big price targets, this can be "good" for the insiders in the short-term because it draws naive buyers and squeezes short sellers but it can also be bad because such large price target in an OTC company is usually suspicious as most unlisted stocks eventually do not succeed.
The SEC has gotten very aggressive this year against misleading press releases and aggressive stock promotions. It started in the beginning of the year but they really went all out in June 10 when the SEC suspended trading on POLR (OTC:POLR). Anyone that has been trading OTCs and knew this was a major surprise because the SEC usually only stepped in when a stock promotion was long gone and the stock was down 90%+ from its highs. POLR was actually at all time highs when it got suspended, with the promotion and efforts to squeeze shorts at full force. The stock collapsed from the high $5s all the way to $0.5 a loss of about 90% when it reopened in the Grey sheets.
The reason of the suspension was "because of questions regarding the accuracy and adequacy of assertions by Polar, and by others, to investors in press releases and promotional material concerning, among other things, the company's assets, operations, and financial condition". The company had put out misleading PRs where it dropped names like Exxon Mobil simply to get naive investors to believe the company was credible.
Two days later the SEC released a warning to investors about pump and dump schemes. On June 25, the SEC suspended another major promotion, BIZM (OTC:BIZM), leading to a devastating loss to shareholders. Once again the promotion was still going on with hard mailers being reported and ads in the NYT and the Rush Limbaugh radio show. The motive for the suspension was a technical one regarding rule 144 of the Securities Act of 1933, to me that was not the "real" reason. OTC scams violate this and other rules all the time, the reason was because this stock drew too much attention to its pump and dump scam through ads in major media distribution systems and the fact the SEC is now lead by Mary Jo White who promised to be aggressive against Wall Street. Once they saw the scam the lawyers just came up with whatever violation they had to stop it.
Bluforest Business Plan
The company describes itself as "BluForest Inc. is a development stage company that is a publically traded carbon offsets marketing and renewable energy company. BLUF is executing its strategy to become a leading marketer of carbon offsets in the voluntary markets under the UN principle of Reducing Emissions from Deforestation and forest Degradation (REDD+)."
It is essentially trying to monetize a forest asset it purchased in Ecuador (for not a lot of money). The company is trying to obtain carbon credits so it can sell to pollution emitters and make a profit in the transaction.
The company was also exposed recently by another SA author.
Did BLUF bluffed investors on its PRs?
I believe the answer is yes, recently it had this press release:
Now, what is the problem with moving almost $700M of intangible assets to tangible?
In this report from KPMG you can see that carbon credits are supposed to be recorded as intangible assets, but the big issue is that the company provided no reason in its press release on why the company was making the move from intangible to tangible, which raises questions "regarding the accuracy and adequacy of assertions .... to investors in press releases" a big reason why the SEC suspended many stocks this year. The company doesn't provide a reason but it does provide how much in tangible book value the stock is supposed to have.
Another major red flag is the fact that the company plans to sell its carbon credits from its properties in Ecuador but the company has not obtained authorization from the Ecuador government to generate those credits. In its 10-Q Going Concern section the company states:
"We are in the Development Stage and while the Company is currently working to monetize certain assets acquired to allow revenues to be generated from the sale of carbon offsets, there are a number of steps to be undertaken prior to being able to realize any revenue from these operations, including but not limited to: (1) obtaining local and national authorization and/or permitting as may be required to meet the necessary criteria to market carbon offsets; (2) industry standard certifications that validate and verify the nature and value of carbon offsets to allow sale of these offsets to global markets; "
Not just it doesn't have government approval, by its own admission it says it doesn't use industry standard certifications to verify the value of its carbon offsets. Somehow investors are supposed to believe that its assets are "tangible" and worth several hundred million dollars.
In the 10-Q the company hypes its own valuation of the property:
"... the Company considered several factors including (1) an appraisal report on the Property as prepared by M. Paúl Tufiño, a respected authority in the valuation of such environmentally based assets as the Property which provides for a minimum recoverable value of $5,000 USD per hectare or approximately $525,000,000; (2) a future discounted cash flow analysis prepared by management based on criteria applicable to the monetization of the Asset including certification allowing for the sale of VER and REDD carbon offsets, the carbon offset market and values realizable for the sale of carbon offsets globally, the Property's available hectares, deforestation rate and the available carbon tax credits per hectare as considered acceptable by Industry. The discounted future cash flow analysis extends over a period of 25 years discounted at a rate of 10% and provides a minimum realizable value of approximately $540,000,000. As a result of this review, Management determined to impair the asset in order to reflect the value of the third party appraisal report received on the Property, and accordingly has provided for an impairment allowance of $75,000,000 on the Valuation Date, leaving a capitalized value of $525,000,000 which has been recorded on the balance sheet as Property for Developing carbon assets."
The 800-pound gorilla in the room is how can the company book a "tangible" asset at an exact price when it doesn't use industry standard valuation methods and it doesn't have government approval to realize the value of those assets?
Company Pre-Sells Inexistent Credits at Five Times The Market Value to Inexistent Company
Another big red flag is the fact that the company announced that there was interest in its credits (or "future credits") at five times the market value even though it doesn't even have government approval from a company that doesn't even exist anymore. Really, I'm not making this up, the company is really that aggressive in its press releases. It is really amazing that the company went out of its way to put the revenue number in the PR:
"BluForest Inc. Signs an LOI Entering Into Discussions of the Pre-Purchase of Carbon Credits Which May Result in a Potential 12 Million Dollar Annual Revenue"
An analysis by REDD monitor exposes the farce
With the SEC's new level of assertiveness stopping aggressive promotions this year, it's hard to see how they will let this one pass.
Company Is Being Sued For Being a Pump and Dump
As if all of this weren't enough recently the company was sued for participating in a pump and dump scam. That along with questionable PRs and heavy participation in paid promotional emails (from the promoters like BestDamnPennyStocks whose stocks typical collapse 60-90% from its highs) makes it obvious that there is more in this company than a simple "make the world a better place" carbon credit company.
The SEC's new leadership and the enforcement division have been busy lately suspending stocks and warning investors about pump and dump schemes. Given aggressiveness of BLUF PR's and questionable accounting it is very likely to be on the SEC's watchlist for an investigation. Ultimately I believe the company will suffer enforcement action and shareholders are likely to lose most of their investment
Disclosure: I am short OTC:BLUF. 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. I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only and I can't guarantee the accuracy of all the information presented in this article. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and consult your investment advisor. Investing and trading includes risks, including loss of principal.