Digital Gas, Inc.(fka DIGGQ)

[Buckey]

FORBES Covers Digital Gas

http://www.forbes.com/free_forbes/2007/0226/078.html?partner=yahoomag

[EXCERPTS from longer story]

KissyKat And The Magic Diesel

Daniel Fisher 02.26.07

When the cry goes up, "Renewable Energy!" an army of penny-stock operators swings into action.

An aerial photo on the web site of U.S. Sustainable Energy Corp. shows a plant in Natchez, Miss. where the company says it will soon begin producing 1.5 million gallons a day of biodiesel-like fuel from soybeans. To put that in perspective, that's double the current biodiesel output in the entire country.

John Rivera, U.S. Sustainable's chairman, admits he gets some skeptical looks when he describes his "secret" process for turning soybeans into liquid gold at a rate (five gallons per bushel) that experts say defies the laws of chemistry and physics. "Everybody comes out here and says, 'Hey, you're full of it,' and then they see me do it," says Rivera, who in the 1990s promoted a similar process for turning used tires into fuel oil. "That's when I turn to them and say, 'Welcome to the Liars Club. Because now nobody's gonna believe you, either.'"

Somebody's buying Rivera's story. His company, which has not yet reported any revenue (it intends to start filing financials with the Securities & Exchange Commission "soon"), carries a market value of $227 million. Hey, that's nothing. A December news release from U.S. Sustainable says that the company could have "an immediate market value" of $12 billion.

. . . .

Details, details. The big picture: Everyone is in love with renewable energy--George Bush, any congressman you could name, the eminent venture capitalist Vinod Khosla, Goldman Sachs. At the upper end of the investment spectrum the field has attracted $53 billion in private capital over the last three years for windmills, solar panels and low-carbon energy sources. At the lower end there are the penny stocks.

Watch your wallet. Des Moines lawyer Steven Wandro is trying to recover $3.8 million stolen a few years ago from a group of grain farmers who thought they were investing in an ethanol plant. The money passed instead to a film studio and a Florida scamster named Jerry Drizin, allegedly at the behest of a Nigerian in Germany, as detailed in a federal judge's ruling in the case. "People are just running to this thing in a way that I think is scary," sighs Wandro, who recalls how legitimate ethanol projects in Iowa collapsed after oil prices fell in the mid-1980s. "It's a prescription for dashed expectations."

Capitalizing on the popular mania for sustainable energy, the penny-stock operators are converting failed Canadian mining outfits and Internet firms into green machines with names like Western Wind Energy and Hydrogen Power International. Western Wind, run by Vancouver mining-stock executive Jeffrey Ciachurski, paid Khandaker Partners, a New York research firm, $22,000 for a November report touting a "price target" of $11.59 a share. Ambitious, given that the price is now hovering around a buck. Western Wind is trading lawsuits with former employees who accuse the wife of the chief executive of posting unflattering comments on a stock bulletin board, including one suggesting that one of those employees was "caught shagging some Red Head" near the proposed wind-farm site. (Ciachurski denies his wife ever made such comments.) Hydrogen Power of Englewood, Colo. says it has a revolutionary method for making hydrogen fuel out of aluminum. One problem: The fuel source weighs more than the high-pressure hydrogen tank it is supposed to replace. That problem is being worked on.

Cornell Capital of Jersey City, N.J. has pumped at least $100 million into green-themed companies in the past couple of years. "Solar, wind, clean technology plays--we love the space," says Troy Rillo, a Cornell managing director. "We think the trends are great."

Great for Cornell, which gets shares at a discount that it can then sell in the open market. Great for investors paying full price?

Check out some Cornell clients. NewGen Technologies, which says it plans to build several hundred million dollars' worth of ethanol refineries, was formed out of a shell company. XsunX, formerly known as Sun River Mining, is now a solar-cell company with no revenue and no orders. Market cap: $86 million. Earth Biofuels, whose mascot is country music star Willie Nelson, raised $52.5 million from Cornell and other convertible-debt buyers but sank more than half the dough into a Louisiana ethanol refinery project that has stalled amid charges of excess costs and failed financial commitments. Power Technology is on the verge of producing what it claims is a revolutionary lightweight lead-acid battery but has yet to find any potential customers. Still, it's aiming to raise capital in a public share offering; proceeds will repay a $1.4 million loan from Cornell.

. . . .

Some schemes are outright fraud. LeeRoy Allen was ordered to pay $270,000 and barred from involvement with public companies last October after the sec accused him of converting a penny stock called J-Bird Music Group (former home of faded stars like Billy Squier and The Guess Who) into a purported biodiesel company with "no assets, funding or viable product." Allen consented to the charges without admitting or denying guilt.

In New Jersey the state attorney general last fall filed civil fraud charges against Brian Smith and his wife for promoting Digital Gas. The company lacked even a bank account yet had shares trading on the pink sheets that briefly soared to 90 cents a share last spring, giving it a theoretical value of $22 million. As he pumped the stock with press releases like the one claiming Digital Gas had a "high temperature fuel cell" that would unlock as much as 1.1 billion gallons of oil from a neglected oil shale deposit, New Jersey officials say, Smith was using stock to renovate his home and pay his attorney.

Smith insists, in an e-mail, that he's innocent and his company "is actively seeking to commercialize its energy savings, alternative energy and farming opportunities." For assets, his Web site offers a grainy image of the deed to a 178-acre granite quarry in New Brunswick, Canada. Despite Digital's legal problems, "We're still in the pipeline," says Theo van Bakkum of iccu Holding bv, a Smith partner who is working on a new method for storing electricity.

"We are here to help farmers, lessen the heavy yoke of imported fuel, help to create food and jobs for Americans and offer the greatest solution to the world's need for energy since humans harnessed the power of fire itself," says Taylor Moffit, chief executive of Originally New York, an o-t-c bulletin board and would-be ethanol producer with a grand total $331 in revenue since it launched in 2001. Dream on--you'll get a lot of investors to dream with you.