A walk down memory lane...Mast, "Protector" of the FreeHarbor Foundation:
Former water CEO blasted
July 8, 2006 Federal securities regulators announced Wednesday that they settled fraud allegations with the Apex-based water treatment company and its former chief executive, Dennis Mast.
But that was the same day the current CEO abruptly resigned, according to a regulatory filing. Neal Hill, a self-described "turn-around specialist" brought in to run HydroFlo, wrote in an angry resignation letter that the publicly traded company is on the verge of bankruptcy.
Hill quit Wednesday, three months after taking the $120,000-a-year position. He wrote that Mast exploits his majority ownership stake in HydroFlo to manipulate the company from behind the scenes.
Mast was charged in the spring by the Securities and Exchange Commission with issuing fraudulent news releases last fall that quintupled HydroFlo's stock price. He had resigned in April and was replaced by Hill.
The SEC alleged that HydroFlo falsely claimed to be providing water-treatment equipment in areas hit by Hurricane Katrina, touted a favorable analyst report without revealing the company had paid $19,500 for the coverage, and falsely claimed to have won a $210 million contract.
The announcements propelled the company's stock from 19 cents to above $1. The stock closed at 6 cents Friday.
HydroFlo shares are a penny stock. The term typically describes shares of companies with erratic financial histories that trade below $1 a share. Penny stocks are highly speculative and traded by a mechanism known as over-the-counter because they don't meet listing requirements of major exchanges such as the New York Stock Exchange.
In settling with the SEC, Mast agreed to pay a $100,000 fine and abide by a lifetime prohibition against serving as an officer or director of any public company, among other restrictions.
But according to Hill, Mast is flouting the agreement.
Coinciding with Hill's resignation, HydroFlo told the SEC that Mast tried "to coerce Dr. Hill into publishing favorable news to the public about HydroFlo's activities."
The notice charged that Mast is trying to inflate the company's stock price in a bid to raise capital. Hill also alleged that Mast had failed to alert the SEC and investors that four chief financial officers had quit the company in the previous year.
"Dennis, you induced me into coming to HydroFlo by multiple misrepresentations and misleading and false statements," Hill wrote in his resignation letter. "I am unwilling to serve HydroFlo's stakeholders any longer, if you expect me to be your 'yes' man."
Hill also wrote that Mast "continually exhibits a reckless disregard for the laws and regulations governing public companies."
Hill's resignation letter, dated July 5, was contained in a Form 8-K filed with the SEC.
Hill could not be reached for comment, and Mast did not return calls Friday. A receptionist at HydroFlo's office said that Hill no longer works for the company and transferred calls for Mast to his voice mail.
Mast's settlement with the SEC prohibits him from denying the SEC's allegations or even "creating the impression that the complaint is without factual basis."
He has to pay the $100,000 civil fine out of his own pocket. He is barred from seeking or accepting "reimbursement or indemnification from any source."
Mast was paid $2.1 million last year, according to HydroFlo's 2005 annual report. His base salary was $55,000. The rest of his earnings were listed as a bonus in the form of consulting fees paid to an entity identified as the FreeHarbor Foundation in Apex, of which Mast is listed as "Protector."
As of June, Mast controlled 50.5 percent of HydroFlo's shares, giving him a majority vote in the company's affairs. Hill accused Mast of using his influence to manipulate the election results at the company's annual shareholders' meeting last month by voting against a directors' proposal for restructuring the company.
"The situation simply is untenable," Hill wrote. "This company is bankrupt, but without a reorganization plan."
According to the 2005 annual report, HydroFlo reported a profit of $18.9 million in the 12 months that ended June 30, all attributed to "unrealized gain on investments." The company reported a gain of $21.5 million from the investments, offset by a loss of $2.6 million from operations. The entry for revenues is blank.
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