Mark ~ FYI......pretty interesting !
Energy Stocks Are the Latest
Darlings for Stock Promoters
By STACY FORSTER
WSJ.COM
The headline-grabbing power crisis in California and soaring prices for crude oil are giving scam artists a new lure for unsuspecting investors: energy stocks.
The hype on online message boards and from stock promoters is sparking memories of the recent mania for Internet stocks that had resulted in an unprecedented wave of investment scams.
Securities regulators are worried that the latest craze could make investors, many looking for get-rich-quick ideas after being mauled by the collapse of Internet stocks, victims of con artists or purely rotten investments.
Indeed, complaints are growing about e-mail and online pitches for potentially fraudulent energy investments, says John Reed Stark, chief of Internet enforcement at the Securities and Exchange Commission.
"Some recent pitches have caused us concern," Mr. Stark says. "You're always wary when you see the flavor of the month."
Mr. Stark didn't have any statistics on energy-related fraud complaints, but Susan Wyderko, director of the SEC's office of investor education and assistance, says they have been pouring in recently in a "flurry."
Already, California regulators are poised to bring enforcement actions in 20 energy-related cases, says Demetrios Boutris, commissioner of the Department of Corporations, the state's securities watchdog agency.
One case that has attracted California regulators involves a legitimate electricity provider selling $60 million of unlicensed securities. In another, a company claims to have technology that can burn water as fuel.
The excitement over energy stocks is being driven by the growing fortunes of the sector. Energy stocks are hot as supply shortages boost oil and electricity prices -- inflating the coffers of some companies.
While oil stocks have advanced because of soaring world prices for crude, power generators have gained largely because of California's electricity crisis and a fear that it may spread across the country in the summer.
It's no surprise that energy stocks are the new craze among promoters and on the Internet. Promoters and posters who hype stocks on the Internet usually try to capitalize on hot sectors or those that are in the headlines.
Indeed, California regulators had warned consumers in March that one of the "unfortunate by-products" of the state's power crisis would be a "proliferation of investment scams" involving energy stocks.
"There's nothing new under the sun," Mr. Boutris says. "The hook simply is in the headlines."
This isn't the first time that the energy sector has been the focus of investment hype.
Stock promoters also tried to capitalize on the sector's prominence during the oil shortage in the 1970s and again during the Gulf War in the early 1990s, recalls Bill McDonald, a longtime securities regulator in California.
"The energy deals are going to be coming out of the woodwork," Mr. McDonald says. "But it's almost impossible to verify if that oil well in Texas or that coal mine in Kentucky actually exists."
Blake Hutchinson, an oil services analyst for Howard Weil in Houston, says there are strong fundamental reasons to buy energy stocks. However,he warns investors against being lured by blind excitement.
"If people are wanting to bet on energy to make up for losses in tech stocks, that doesn't sound like the soundest practice," says Mr. Hutchinson. "These things can turn on a dime."
Nevertheless, Internet message boards are flowing with wild enthusiasm for energy stocks -- many of them tiny, unproven companies that are listed on the OTC Bulletin Board.
Take Southern States Power Co., a biodiesel producer in Ontario, Calif., whose stock traded at around 24 cents Tuesday on the Bulletin Board. Postings on the company's message board at Raging Bull (www.ragingbull.com) have surged to 33,000 from 1,000 in May.
The postings about the company, which also has been talked about elsewhere on the Internet, ballooned at the same time President Bush started calling for further development of alternative fuels to deal with soaring demand, shrinking supplies and skyrocketing prices for oil.
"Stock up over 300% Monday, huge growth potential ... my 12-month price target $22.00," a participant called "dazer01" wrote recently on a Yahoo! Finance message board (www.yahoo.com).
Such expectations would appear optimistic given Southern States' most recent earnings. For the quarter ending January 31, 2001, Southern States Power posted a loss of $1.5 million, the same as the year earlier. Revenue for the quarter was $21,448, compared with $41,701 a year earlier.
Lawrence W. Taggart, Southern States' president and chief executive, says the company was not involved in promoting the stock. Indeed, he acknowledges, "Interest is growing much faster than we are." The company this month completed construction on a new plant and signed a contract to supply biodiesel fuel to the University of California at Riverside.
Message boards and stock promoters have been jumping about other energy companies that are short on revenues and profits.
Cambridge Energy Corp., an oil and gas producer based in Cocoa, Fla., has received widespread attention. The company, whose stock is worth around 18 cents, posted a loss of $93,243 in the last three months of 2000 on revenue of just $809,073 -- the most recent earnings information.
Nevertheless, Janice Shell, an art historian in Italy who informally monitors Raging Bull and other online stock-chat forums to weed out mass postings, says the level of messages about Cambridge Energy last month was the
most she'd ever seen.
One message on a Yahoo board devoted to Exxon Mobil called
Cambridge Energy "the best oil stock to own." The board participant, called "stock_incus," wrote, "At 30 cents a share, [Cambridge Energy] could earn 50 cents a share this year and this small oil company could liquidate their reserves for $5 a share!!!"
Jonathan Bates, a spokesman for Cambridge Energy, says the firm has hired an outside company, TheSubway.com, an Internet site owned by Capital Research Group, to promote its stock. But he says neither the company nor its promoter were behind the postings.
Nevertheless, Mr. Bates is optimistic about the company's prospects. He says Cambridge Energy's strategy of developing and operating oil and gas fields with proven reserves that have been abandoned by larger companies will keep costs low and make profits easier.
In a research note last month, TheSubway.com called Cambridge Energy's stock a "great buy" and predicted it would reach $3 in the short term. The Subway.com disclosed that it had received 200,000 Cambridge Energy's shares in exchange for promoting the stock.
Write to Stacy Forster at stacy.forster@wsj.com
AI
