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Truth and Consequences

Miller has allegedly broken a few important promises of its own since Boruff first arrived on the scene.

Boruff spent most of his career in the real estate business, his corporate bio indicates, before shifting his focus to investment banking and then going on to replace his father-in-law as CEO of Miller about three years ago. He landed his first job in the securities arena at GunnAllen Financial, industry records show, a long-sullied firm finally shuttered by regulators in March of last year.

“They’ve hired a lot of shady brokers,” one recruiter told a trade publication shortly before Boruff joined the firm. “If you’re on the cusp of sloppiness, you could have a place at GunnAllen.”

Miller nevertheless relied on GunnAllen to arrange a critical joint-venture deal –with the brokerage firm and Boruff promised a combined 5.6% stake in the company for their services – and likely came to regret that transaction. Aided by GunnAllen, records indicate, Miller convinced Wind City Oil & Gas to buy $4.35 million worth of company stock and then allegedly blocked its partner from exercising an option that would allow it to reverse that deal. Wind City sued shortly after Boruff left GunnAllen to work at Cresta Capital, records show, with Miller soon hiring a Cresta subsidiary (Consoleum) to work on settling the complaint.

Miller wound up demoted from the OTC Bulletin Board to the dreaded Pink Sheets in the meantime, records show, where its stock steadily faded to an all-time low of just 2 cents a share.

In mid-2008, some two-and-a-half years after Miller forged that doomed partnership, the company finally negotiated a deal that promised to end its costly legal woes. With the assistance of Cresta and its own future CEO, records show, Miller raised $19.625 million by assigning some Tennessee leases to a larger energy company and gave Wind City $10.65 million of that – more than double the cash it had received from its former partner in the first place – so that it could put the dispute to rest.

“This is a huge deal,” Boroff told the local newspaper at the time. “The company has been literally tied up in litigation for years.”

That month, records show, Boruff left Cresta – which would go on to become the investment banker for fraud-riddled SpongeTech Delivery Systems (OTC:SPNGQ) – and landed his current job shortly after that. Boruff officially became CEO of Miller in August of 2008, records show, when the company carried out another notable change as well.

At that point, records show, Miller retained Sherb as its independent auditing firm. Six months later, armed with audited financial statements, Miller escaped from the Pink Sheets and returned to the OTC Bulletin Board once again.

“One of the first orders of business when I became CEO,” Boruff proclaimed at the time, “was to put in place the systems and relationships to assure that Miller always meet (regulatory) filing deadlines.”

Miller recently fell short of that promised goal, however, when the company missed the most critical filing deadline that it has faced since upgrading to a respectable auditing firm. The company never filed an 8-K disclosing a recent legal setback, potentially material in nature, either.

The month before Miller raised the cash that funded its big Wind City settlement, records indicate, the company allegedly promised to sell the leasing rights that it had just signed away to another firm called CNG Gas – at a much lower price – instead. Miller soon faced a new lawsuit filed by CNX as a result, records show, but actually scored a legal victory for a change when a trial court agreed in late 2008 to dismiss that complaint.

CNX overcame that ruling this May, however, when an appeals court reversed the original decision and set the case on a path toward future trial. Although Miller loudly celebrated its “huge” victory when it won that early round, the company buried news of its recent setback near the end of a 100-page attachment to an 8-K filing – easily overlooked by even astute investors – instead.

Meanwhile, Miller has long since rewarded Boruff for arranging the rival deal that triggered that lawsuit. The company named him as its top executive just two months after it inked that controversial transaction, records show, paying him a sign-on bonus of $300,000 that actually exceeded his entire $250,000 base salary for his first year. The company also granted him 250,000 shares of restricted stock and options to purchase another 250,000 – at just 33 cents a share – as well.

Miller then threw in an even bigger reward for Boruff’s “extraordinary efforts” in settling the Wind City case, corporate filings show, issuing him 2.5 million shares of restricted stock to compensate him for the “significant” payout he sacrificed when leaving Cresta to join the company. But Miller had by then already paid off Cresta itself, records indicate, giving the firm a combination of cash and warrants before showering its new CEO with a much larger stock-based award for related (if not identical) services.

Miller has painted an awfully impressive picture of Boruff in the meantime, portraying him as a veteran real estate broker – responsible for developing golf courses, convention centers, hotels and condominiums – who “created several start-up ventures that grew into multimillion-dollar companies” before he ever began his lengthy real estate career.TheStreetSweeper searched an extensive news database for evidence of those projects, however, and came away almost empty-handed in the end.

Boruff showed up on a list of players involved in a couple of real estate developments more than a decade ago, but he generated no coverage for larger projects – such as golf courses or convention centers – at all. He failed to attract media attention for the “multimillion-dollar companies” that he reportedly launched, either, although court records show that he did file for bankruptcy when doing business as CeeBee’s Rock ‘n Roll Café back in 1994 and wound up slapped with numerous liens in the years that followed.

Friends and Foes

Miller employs another key executive tarnished by a past bankruptcy as well.

The month after Miller installed Boruff as its new CEO (and Sherb as its independent auditing firm), records show, the company hired Paul Boyd to serve as its finance chief. Boyd clearly needed the job, records indicate, since his former employer – where he served as CFO for the previous seven years – had just filed for bankruptcy protection four months earlier.

More recently, Miller hired a new president to fill the post abruptly vacated by Graham in the middle of last year. David Voyticky assumed that position in June, records show, with his generous salary eclipsing that set for the Vulcan leader he replaced.

Specifically, records show, Miller has agreed to pay Voyticky a base salary of $475,000 a year (more than double the sum promised to Graham) and a potential bonus that could reach three times that amount. All told, records indicate, Voyticky could pocket $1.9 million – or more than half of the total cash listed on Miller’s most recent balance sheet – for one year of service to the company.

Miller actually welcomed Voyticky to the company in the spring of last year, records show, when it appointed him to its board and assigned him a seat on its audit committee. But the company hired Voyticky’s consulting firm to help it with financing activities a few months later, records show, so it gave another director (who met independence requirements) that committee assignment instead.

The better part of a year passed before Miller finally landed a new funding deal, records show, with Voyticky – like his predecessor before him – credited for the “instrumental” role he played in securing fresh resources for the company and winning a job as its new president in the process. Although Miller wound up with a $100 million credit line, records show, the company had to secure that loan with “substantially all” of its assets -- valued at $500 million (on its official balance sheet) to more $1.2 billion (in a particularly generous review of its Alaska prize) -- and agree to pay steep interest rates and sizable brokerage fees in return.

Under the terms of that deal, corporate filings show, Miller must give Bristol up to $3 million – on top of the $10 million in principal, plus interest, it must repay to that Kessler-led firm – in consulting fees for the credit line that the company publicly applauded (and richly rewarded) its new president for arranging instead. As it turns out, company records indicate, Keller and Voyticky have actually teamed up on other occasions and share ties – through a notorious player in the penny-stock arena -- that extend well beyond Miller itself.

Earlier this month, records show, a microcap company led by Anthony “Tony” Cataldo – a name connected to Kessler for years – appointed Voyticky to serve on its board. Both Cataldo and Kessler previously surfaced at a doomed penny-stock outfit known as VoIP, records show, before that company – later targeted by regulators, along with its auditor, for allegedly engaging in fraud – wound up forced into involuntary bankruptcy under a pile of unpaid bills.

A former finance manager at VoIP blamed both Cataldo and the company’s biggest financial backers, including Kessler himself, for that disaster and the pain that it ultimately caused.

“How could a group of intelligent, experienced men such as yourselves allow a business enterprise to self-destruct and cause so much human suffering?” Monique Costantino, the company’s former treasury manager, challenged in a letter to Kessler and other big VoIP stakeholders a few years ago. “You now have rooms full of paper, equipment and furniture … but no human resources, other than the two least experienced employees: Tony Cataldo and his son. It doesn’t sound very promising.”

Cataldo now serves as chairman and CEO of Genesis Biopharma (GNBP.OB), a microcap company – viewed as a likely “scam” by online critics of its controversial leader – that just welcomed Voyticky as the newest member of its board. Voyticky serves as a director of Best Energy Services (OTC:BEYSQ), an obscure penny-stock company (with a disabled website) that counts Kessler among its largest shareholders, as well. That stock currently trades on the Pink Sheets for a fraction of a penny a share.

Like Boruff before him, however, Voyticky sounded like a prize catch upon his arrival to the Miller executive suite. When the company introduced Voyticky as its new president, records show, it portrayed him as an accomplished investment banker – who actually served as vice president of Wall Street heavyweight Goldman Sachs (NYSE:GS) in the past – and never mentioned any ties to the penny-stock world, where Miller had spent most of its own life, at all.

Aches and Pains

In fairness, Miller has also installed some actual veterans of the energy industry to help it run the show.

When Miller purchased CIE -- issuing warrants for 3.5 million shares of stock, priced at a penny to $2 a share, as payment -- the company also hired CIE’s top three executives as part of that celebrated deal. Miller awarded all of them multi-year contracts with six-figure salaries, records show, but terminated the CFO Troy Stafford barely five months later.

According to court documents, Stafford arranged a key consulting agreement with an outfit known as VAI that ultimately led to the acquisition deal. In recent months, records show, both Stafford and VAI have sued Miller for allegedly failing to honor its obligations after that acquisition closed.

Stafford sued the company in May, seeking more than $650,000 in cash (for wages and severance) and warrants valued at roughly $2.7 million at the time. He may need those funds, records indicate, since he faces a default judgment in a separate case that accuses him of swindling an investor – by selling 20% of a bogus seafood company – to raise money for his own 20% stake in CIE ahead of its lucrative sale.

The month after Stafford sued Miller, records show, VAI filed an even bigger lawsuit against the company. According to that complaint, VAI played a critical role in Miller’s acquisition of CIE but -- despite written agreements in advance – never received any payment for its services. VAI is now seeking court-ordered enforcement of those alleged agreements, with demands for warrants to purchase 1.75 million shares of Miller stock (the equivalent of 4.4% of the company’s outstanding share count) priced at just a penny a share.

Meanwhile, Miller has appointed two directors to its board – Jonathan Gross and Don Turkleson -- who lost their jobs at Cheniere Energy (NYSEMKT:LNG) when that company almost collapsed a few years ago under a staggering mountain of debt. Gross became the first major Cheneire executive terminated during that crisis, a trade publication noted at the time, with a once-bullish analyst slashing his former $20 target price on the company’s stock to just $1 a share right before Gross walked out the door.

Turkleson hit the exit the following year, records show, resigning from his longtime post as the company’s CFO with just a single month of severance pay and some restricted stock that he could not unload during a well-timed insider selling spree. Turkleson personally sold more than $5 million worth of Cheniere stock at double-digit prices during that massive insider dump, records show, prompting at least one nervous analyst to recommend that ordinary investors shed their own stock in the company – as it continued a hairy march all the way below $1 – as well

“There are so many fine energy companies,” Bernard Picchi of Wall Street Access told the Houston Chronicle at the time. “Why would you want to mess with this one?”

Although Cheniere has rebounded off the dismal lows it set after Gross and Turkleson departed, the company – still burdened by an onerous debt load -- never fully recovered and in fact landed on a list of possible bankruptcy candidates as recently as February of this year.

Meanwhile, despite its stunning gains, Miller has since lost some analyst support of its own. C.K. Cooper downgraded Miller from buy to hold in March, records show, and then followed up this week – shortly after the company missed the deadline to file its audited financials -- by dropping coverage of the name altogether.

Notably, on the very day that Miller reported a delay in filing that crucial report, The Motley Fool sounded its own alarm about the company’s stock. It portrayed Miller as a risky highflier – its shares boosted by possible accounting games -- that could soon find itself spiraling back to earth.

“Since the purchase (of its Alaskan) assets and subsequent one-time gain, Miller’s stock has nearly tripled,” The Motley Fool observed about two weeks ago. “But is this warranted? I’d say no …

“Miller Energy Resources continues to work its slight-of-hand tricks on paper,” the Fool declared, “but it’s not fooling me!”

Disclosure: TheStreetSweeper, through its members, began establishing a short position in Miller Energy Resources on June 24 and has now shorted a total of 129,441 shares of the company’s stock at an average price of $7.07 a share. It expects to profit on future declines in the stock by covering its short position at a lower price and will fully disclose the details of its transactions as they occur.

Disclaimer: As a matter of policy, TheStreetSweeper prohibits members of its editorial staff from taking financial positions in the companies that they cover. To contact Melissa Davis, the editor of this website and the primary author of this story, please send an email to editor@thestreetsweeper.org.

Source: Miller Energy: This Hot 'Alaska' Stock May Be About to Melt (Part 2)