Echo Automotive, Inc. (fka ECAU)

[236T568]

Echo Automotive, Inc. (ECAU) issues False and Misleading Press Release regarding Financing


1. ECAU issued a press release on April 4, 2013 stating that it completed a private placement offering of $500,000 in units consisting of one common share and one warrant at $.50 per unit for 1,000,000 units, or a total of 1,000,000 common shares and 1,000,000 Warrants. In view of the fact that ECAU had only $1,879 in cash assets as of December 31, 2012, this was a very meaningful press release.

http://www.nasdaq.com/article/echo-automotive-completes-private-placement-financing-20130404-00599

The press release stated that the exercise price was $.75 per share for the Warrants.

The ECAU stock price closed at $0.35/share on April 3rd, the day before the press release, making the press release very bullish based on the common stock pricing of $.50/share and the warrant exercise price of $0.75/share.

The ECAU April 4th press release was issued at 11:05 am EST, which caused the stock price to increase significantly to $0.59 for the day, an increase of 69% from the previous day’s closing price. Importantly the April 4th trading volume more than doubled to 1.7 million shares from the previous day and was the highest trading volume day for ECAU in 2 months.

The press release failed to state the date of the funding of the $500,000 private placement, so the investment public assumed that it occurred at or around the April 4th announcement date.



2. Almost two weeks later, on April 16, 2013, ECAU filed a 10K for the 2012 fiscal year. In the 10K ECAU again stated that the exercise price of the Warrants from the private placement was $0.75/share. The date of the funding of the private placement was not mentioned – only that the receipt of the funds for the private placement occurred in the 2013 first quarter:


http://www.sec.gov/Archives/edgar/data/1453420/000138713113001336/0001387131-13-001336-index.htm

“Subsequent to the fiscal year ended December 31, 2012, in the first quarter 2013, the Company received gross proceeds of $500,000 from a private placement of 1,000,000 shares of the Company’s common stock and warrants to purchase 1,000,000 shares of the Company’s common stock with an exercise price of $0.75 per share pursuant to a financing agreement with Newmarket Traders LTD.”


In the 10K, ECAU stated that the investor was Newmarket Traders LTD, which is an offshore based PIPE investor based in the Caribbean island of British Anguilla.




3. Six days later, on April 22, 2013, ECAU filed an amended 10K with the SEC that included as exhibits the actual financing agreements for the previously announced $500,000 private placement mentioned above:

http://www.sec.gov/Archives/edgar/data/1453420/000138713113001408/0001387131-13-001408-index.htm


To the surprise of the investment public, the ECAU private placement units were sold much earlier than the April 4th date of the ECAU press release. The units were sold in four tranches on February 4th, 7th and 25th and on March 7th.

The stock price of ECAU during the sale of the units was much higher than the April 4th stock price – as high as 5 times the $0.35 price, indicating that the $0.50/share price paid for the common stock was at a very significant discount to the market price – a very bearish sign on ECAU’s business plan and ability to succeed – completely contrary to the bullish April 4th press release issued by ECAU.

As an example, the February 4th closing ECAU stock price was $1.72/share, indicating that ECAU issued the $0.50 shares in the private placement at a ridiculous 71% discount to the market price – a discount typically used by companies whose business plan is so bad there is no demand for their equity, forcing them to raise money in this type of financing structure.




4. ECAU’s deceptive ways go even further, however – to the point of fraudulent behavior. A further review of the amended 10K discussed in section #3 above shows that ECAU has falsely stated the terms of the Warrants issued in the $500,000 private placement in a very material manner, to the point of being fraudulent.

As discussed above, both in the April 4th press release and in the original 2012 10K filed with the SEC, ECAU stated that the exercise price for the Warrants was $0.75/share. This is false and misleading. From the Amended 10K, the exact terms of the Warrants are:


“…a warrant (the “Warrants”) exercisable to purchase one (1) share of common stock of the Company at an exercise price equal to the lower of: (i) $0.75 per share or (ii) the ten (10) day volume-weighted volume average price per share of Company common stock immediately preceding the exercise date, exercisable over an eighteen (18) month period (the “Warrant Shares”)…”


As can be observed, ECAU falsely stated that the exercise price is $0.75 since it is not just the $0.75 price - the investor has a choice of the lower of $0.75 or the ten day average price immediately preceding the exercise date. This structure is a type of toxic funding that puts downward pressure on the stock price of a company. The difference in pricing structure of the Warrants is substantial and considering how the common stock was priced above, at up to a 71% discount from the market price, further proves that ECAU’s business plan and future prospects are completely faulty.