AEHI's Don Gillispie: "NRC Won't Approve Our Site"

Forgive me if we have to switch down a gear today. But after revealing AEHI CEO Don Gillispie's most serious securities fraud yet discovered yesterday, topping the earlier revelations of two (here and here) other instances of severe violations of federal securities laws we'll have to make do with simple perjury today.

Maybe I wouldn't have bothered today since this is relatively minor by Don Gilllispie's standards. But since Martin Johncox accused me of perjury and called me a liar for using my name, Joe Lucid, in my written testimony (note: he had no comments on the testimony itself!) I think some retribution is appropriate and necessary.

First we look at the "Preliminary Water Availability Analysis" which is part of the rezoning application AEHI submitted to the Payette County administration. Step forward to page 45, 7.2.1. Snake River Diversion and Alignment. I quote:

The final alignment distance from the Snake River to the proposed site will likely be between about 14 to 24 miles.

What are they talking about? Since the planned site in Payette is rather distant from the Snake River a huge water pipeline would have to be built to transport the cooling water for the plant to the site.

Now let's take a look at the always entertaining and juicy blog of Don Gillispie, CEO of AEHI, the only known opportunity for a direct nuclear plant investment in the US today (Oops, smells like another public investment solicitation). Take this entry in which Gillispie talks about problems of a potential site in Elmore County:

On Jan. 12, I was invited to make a presentation before the Mountain Home City Council on our efforts to develop a large advanced nuclear reactor in Elmore County.


In November, the Elmore County Planning and Zoning Commission recommended against rezoning approximately 1,400 acres of land to accommodate our plant, saying heavy industrial development should be located in a zone near Simco Road, even as wind, solar and natural gas power are permitted elsewhere in the county.


In response to a Mountain Home City Council member’s question regarding siting of the plant in the Simco Road area, the following is my reply:


After some research we have concluded the Simco Road site does not qualify for a nuclear plant and even if it did, there does not appear to be any property available. The following are some of the reasons.


The Simco Road site has no water supply so a dedicated water line of more than 20 miles would need to be constructed. A large safety-related pipeline would add hundreds of millions in expense and create security and right-of-way concerns; the Nuclear Regulatory Commission would disapprove the Simco Road site for the water supply security issue alone. Our current site is one mile from the Snake River, an ideal location for water access without a security issue.


So Gillispie is selling Payette County on a plan he knows could never get accepted by the NRC. Now that, my friends, is perjury.

But what do you expect from a guy who can't even be honest about his hair?

AEHI's Don Gillispie's Most Serious Securities Fraud Yet

Ok, I've got to admit I was starting to feel that I needed to take some time off the blog to do more research. The last two days were just too good to be followed by some regular business irregularities at AEHI.




As you remember in these two days:

1. We caught AEHI's Don Gillispie publicly soliciting investors in the Investor's Business Daily using materially false statements.
2. Then we showed how AEHI used materially false information to con an investor into a private placement.
3. And finally we showed how Don Gillispie "forgot" to mention 116 million in unregistered stock sales in the 10-q he signed.

Enough to put anyone to jail, not even mentioning the ongoing technical manipulation and paid promotion.

But they just make it too easy, and I think I can top it one more time. 

I need to give a little background so this will fully sink in: we step back and examine the core purpose of the Securities Act of 1933.

The 1933 Act has two basic objectives:

1. to require that investors receive significant (or “material”) information regarding securities being offered for public sale; and
2. to prohibit deceit, misrepresentations, and other fraud in the sale of securities to the public.

The mechanism that was implemented to achieve these objectives is that of registration: generally no stock can be sold to the public without being registered with the SEC. The registration statement includes the risks, the financials, background information, large shareholders and so on and needs to be filed with the SEC. The SEC checks the document and if necessary forces clarifications. If and when they're satisfied they declare the registration effective and the company files the prospectus.

After that step there is a 20 day cooling-off period before shares can actually be sold. The rationale here is to give the potential investor time to consider and weigh the information provided in the prospectus and make an informed investment decision.

With that background, what would be the most outrageous violation, both in letter and spirit, of this foundation of federal securities legislation?

I'd say if a representative of a company contacts potential retail investors directly and in public, tells them a couple of very material lies about the companies immediate prospects, offers them new unregistered securities in the company for purchase, and uses pressure tactics to close the sale, that'd be as bad as it gets. Well actually - maybe he could also say that investors might send cash to the company directly. Or maybe he could encourage the public to solicit additional investors as well. 

Get a cup of coffee, sit down, relax, and read the following blog post by AEHI's Don Gillispie, CEO of Alternate Energy Holdings, which releases a newsletter to the public. He had previously sent it directly per email to potential shareholders (original here). There is no disclaimer whatsoever:

Letter to investors September 11, 2009

Posted by cleanidahoenergy in AEHI, China, Chinese nuclear energy, economic benefits, Elmore County, international, Investment news, nuclear industry. 

Tags: AEHI stock, Idaho, local process, nuclear power, nuclear reactors, stockholders, AEHI, Elmore County, rural nuclear, China

trackback

I sent a letter to investors recently. Keeping people informed about our company, its goals and status is an important to us.

September 9, 2009

Dear AEHI Stockholder,

First, let me thank you so much for your investment in AEHI. The company has several nuclear projects underway including our lead site in Idaho, as well as Colorado, a desalination reactor in Mexico and a Tar Sands reactor in Canada to remove trapped oil.

We also formed Energy Neutral, Inc last year to install wind, solar and geothermal heat pumps on homes and offices to eliminate energy bills. Currently, we plan to build our first energy free model home starting the first of October to demonstrate we can construct buildings with no power bills at essentially the same price as those with energy bills. This will help launch our first energy neutral subdivision. The Energy Neutral Trade Mark name is pending as well.

The Idaho reactor, Idaho Energy Complex, is in the process of seeking local approval and we expect it by year’s end. After the Elmore County site approval was delayed due to process problems, we began looking at other sites and now have three additional Idaho counties who are extremely interested in having our plant. A little competition is always healthy. In addition, we are reviewing state lands for potential sites. After two years of educating Idaho citizens along with support from the national media and key state leaders, we have no doubt that an approved site will happen in Idaho soon and we will be adding staff locally to accommodate. We have a funding commitment from Source Capital for the site.

In July, we opened an office in Beijing, China with some investors as AEHI China to facilitate joint ventures for nuclear components among other things and large institutional investors. With the support of the Chinese government nuclear officials, we have several companies who are interested in working with us. I now travel to China every couple of months to facilitate these deals. Also, we are in the process of negotiating on the price to bring the Korean advanced reactor, APR 1400, to the US. This reactor will be lower than the cost of the other reactors currently in the US market making us more than competitive with any new source of electricity in the country. As a backup, we have begun to talk with Mitsubishi Heavy Industries about their advanced reactor as well. Further, we have a large energy trust that is willing to loan us up to $5 billion for the plant construction phase.

Lastly, in lieu of going on the London Plus Exchange as mentioned in my last letter, we are starting the process for our first public stock offering (IPO) for later this year and a move to the American Stock Exchange. This will open the stock up to institutional and more international investors by the first quarter of 2010 allowing us to leave the penny stock category.

As you can see there is plenty of positive news in the making, we will publicly announce this information as it unfolds. If you would like some more AEHI stock or have qualified investor friends, the price is at its lowest from the company at 5 cents per share with no broker fee or volume limit like in the market. This offer will end October 31 when we file for our public offering. We doubt this price will ever be available again. Also, if you have an unrestricted investment 401K or any IRA you can transfer funds to AEHI stock as well.

Just send an e-mail to invest@aehipower.com or call 208-939-9311for more information and PPM, or you can just mail a check to AEHI if an existing investor. If you are an investor you can add to your holdings for as little as $1000 or any amount above that minimum. New investors need to review the PPM.

Again, thanks for your support as we try to help the country with jobs and clean, low cost energy that will also assist us with energy independence.

Best regards,

Don Gillispie

AEHI's Gillispie "forgets" to disclose unregistered sale of 116 million shares

Running a multi-billion merchant nuclear power company is no picnic. You're under constant attack by the rabid anti-nukes, Joe Lucid, His Dudeness and all the other lowly folks who dare to question you. Then there's all the bureaucracy, the filings, the finances, ...

So sure, it wears you down, and sometimes its difficult to keep track of all the details of the job. The printout of your annual report might not come out real straight. Sure, you could reprint it, but there are lightning bolts to harvest and there's that promising fuel additive. In other words there might just be a few more important demands on your time.

Then people don't think it's appropriate that only your daughter Taylor signed off on that annual report. And you have to refile it, now backed by an actual accountant. It sucks, you get sick of it. In other words at some point you might just start to cut corners a bit.

Enter AEHI's form 10q for this year's first quarter, forward to PART II, OTHER INFORMATION, Item 2:

"There were no unregistered sales of equity securities during the fiscal quarter ended March 31, 2010."

Hmm, interesting, I thought they were printing like crazy? Let's check the number of outstanding shares on the balance sheet:

"Common Stock, par value $.001, 500,000,000 shares authorized; 252,361,764 issued and 251,961,764 outstanding [as of 3/31/10] and 136,150,108 issued and 135,750,108 outstanding [as of 12/31/09], respectively."

Ok, Don, you never registered any shares, so any outstanding shares must be unregistered. Between 12/31/09 and 3/13/10 you roughly doubled the share count, issuing 116 million shares. Yet there were no unregistered sales? None?

Well I'm sure there was a more important demand on your time again.

Now, I've told you this before but maybe you don't remember all that well. If you breach the covenants in section 5 of the Roswell agreement you lose the ability to raise funds from Roswell automatically and permanently. And unfortunately section 5 contains this:

"such Commission Document did not contain any untrue statement of a material fact"

116 million shares - material? Naaahhh. Termination of funding agreement - material? Naaahhh. 

Securities Fraud 2: AEHI's Land Value Estimate

One of AEHI claims that has raised eyebrows is that the land in Payette County which it intends to purchase for $5 million will be worth $1.5 billion when the NRC has approved it for construction of a nuclear power plant. And that's before the construction even starts!

Let's think about that for a moment: why should the value increase? The reason is that one could bring a power plant to market four years earlier than if starting from scratch (assuming four years for the permit process).

However $1.5 billion is a mind-boggling number and you've probably wondered how they come up with it. Well, wonder no more. A potential investor who was equally curious asked the company for the justification when considering a private placement. Here's the appraisal the company provided.

J. Eric Cooper (Doctor of Philosophy, no less) is the author and we learn that AEHI was actually very conservative in the number it uses with investors: Cooper comes up with a range of estimates between $1.5 billion and a whopping $13.5 billion.

Cooper uses a 1600 MW power plant and assumes 94% availability.

The appraisal references a couple of papers two of which we provide for convenience:

1. "The resurgence of nuclear power in the U.S."
2. "Monte Carlo Methods for Appraisal and Valuation: A Case Study of a Nuclear Power Plant"

A quick look at them reveals that they are concerned with the valuation of nuclear power plants, not just the land on which they are built. The appraisal does not provide any further details on how "Monte Carlo" or "Comparable Sales" were used to arrive at the given results. The resulting numbers for the land are higher than what the cited papers come up with as value for entire nuclear plants so lets just say some reasonable doubt exists about the claims.

In one area however Cooper does go into enough detail that we can reverse engineer the argument: NPV and IRR at EBITA. That's finance vocabulary for determining today's value of the cash the plant would generate during the first four years (remember by buying the land a power producer could bring a plant online four years earlier). 

The IRR is the interest the company wants to earn on its investments (Cooper uses 20%), so the first years cash is discounted by dividing by 1 + 20%, second years by dividing by ( 1 + 20% ) * ( 1 + 20% ) and so forth. Applying that to the $1.185 billion in cash (EBITA) per year yields a total present value of $3.07 billion, just as he provides in the appraisal.

Sounds good, right?

Well, until you look at the assumptions: 

1. Cooper assumes AEHI can sell electricity at 12c per kWh but the current market price in California is 3.5c per kWh.
2. Cooper uses EBITA (Earnings before interest, taxes and amortization) as cash per year. However interest for a $5B power plant is a very real cash outlay. 

Let's see if we can fix the calculation:

First what's a realistic interest on a 30 year loan? The US government pays 4.78%. Lets just say AEHI gets really, really lucky and gets a loan of $5 billion for 7.5%. That'd be a yearly cash outlay of $375 million. That's 2.7c per kWh.

Then lets look at the other costs. Here's a good paper on the topic. Operation and maintenance is currently at 3c per kWh and fuel costs are at 1.5c per kWh for a total cost of 2.7c + 3c + 1.5c = 7.2c per kWh.

Now lets look at our profits: for each kWh we sell to California we get 3.5c and pay 7.2c. For a loss of 3.7c per kWh or $487 million per year. And a current present value of - drum roll - negative $1.26 billion.

In other words if you had the power to force AEHI to build the above plant and sell the electricity to California it would make sense for them to pay you $1.26 billion so they could start incurring the losses four years later!

Maybe a doctor in philosophy is not the right background for appraising nuclear power plants after all? 

After we've shown that the only verifiable calculation is completely off base, and if only to show that AEHI's associates are not only crooked, but also intellectually extraordinarily challenged, let me point out the following logical problem in Coopers appraisal:  

Cash flows will only be generated once the plant is operating, so after its construction is complete. Even in AEHI's rosy world construction takes four years. So any cash flow will start coming in four years after the site's been acquired and needs to be discounted by dividing by 1.2^4 = 2.07.

In summary: 

1. Cooper assumes electricity will sell for 343% of its current price in high priced California.
2. He ignores the interest on the loans required to build a plant.
3. He underestimates the maintenance and fuel costs by 1.5c per kWh.
4. He ignores the construction time which cut the value of the property in half. 

And this document is used in context of selling securities to an investor. Should sound familiar, because just like yesterdays case this is an "untrue statement of a material fact" "in connection with the purchase or sale of any security" (illegal according to rule 10b-5). Or just simply Securities Fraud.

AEHI In Securities Fraud - Broadly Violates Rule 502(c) And 10b-5

As already teased yesterday I have discovered a truly egregious transgression by AEHI and Don Gillispie. You will remember that as I've outlined here and here "Don - no-comp - Gillispie" is on a crusade to con individual investors into purchasing shares from what can only be assumed to be insiders of the company.

In my view yesterday's paid promotion in which Don stated that "I can rival Exxon Mobil in profitability" was clearly misleading and fraudulent. But what would turn this into a full blown violation of rule 502(c) and rule 10b-5 - that is securities fraud - is a general solicitation of investors to purchase publicly traded stock or contact the company about private offerings.

Get this: AEHI distributed this flyer on Saturday, 11/13, to all 210,708 readers of the Investor's Business Daily, a national investor oriented newspaper in the US. The newspaper confirmed the advertisement and provided it by fax to me (excuse the low quality).

Please read it in full, but here are a few excerpts:

"Our plant is estimated to generate about $3 billion dollars a year."

"Be part of it. Turn this page to learn about investment opportunities."

"Other sources like coal and hydro are being closed down at dramatic rates, which makes nuclear power the only option that can fill the void. It also means nuclear becomes a tremendous investment opportunity with excellent return potential."

"In addition to the opportunity to purchase publicly traded stock, there are a number of investment options - with participation from direct investments between 100 million USD and two billion USD and approximately eight billion USD in financing."

"CONTACT INFO: invest@aehipower.com"

Other than a statement that this is advertisement there is no disclaimer whatsoever.

If this isn't an offer by general advertising in "Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio" I don't know what is (illegal according to rule 502(c)).

And together with the claims in yesterday's promotion and the fraudulent claim of $3B in annual profit it's clearly an "untrue statement of a material fact" "in connection with the purchase or sale of any security" (illegal according to rule 10b-5).

We're entering the end game. To borrow from "Monopoly" it will soon be: Go to jail. Go directly to jail. Do not pass go, do not collect $200.

AEHI's Gillispie Risking His Neck To Manipulate Stock Price

Bad timing! Yesterday I wrote about AEHI's paid stock promotions and today Gillispie appears in a paid interview and says a couple of things that might just be enough to put him behind bars.

First note that the disclaimer admits that the interview is paid for by AEHI but does not specify the exact amount. That's illegal under federal securities law (quote: "The federal securities laws require the newsletters to disclose who paid them, the amount, and the type of payment. But many fraudsters fail to do so and mislead investors into believing they are receiving independent advice.").

Next Gillispie launches into truly unbelievably disingenuous misrepresentations. Read it yourself, but here are the highlights:

Claim: "We announced that we wanted to look for a western site and we were contacted by a group of farmers in Idaho who were trying to form an electricity co-op to get cheaper energy. "

Reality: Gillispie was contacted by a repeat securities fraudster. Farming was in the name of his operation only.

Claim: "We have the first phase financing to get it up through the NRC (Nuclear Regulatory Commission) approval already."

Reality: The funding agreement has already automatically and permanently terminated and would not suffice to cover the estimated expenses at all.

Claim: "Between our calculations, the price we want to get it at, and we believe that we can, we are looking at $3 to $4 billion a year in profits per site."

Reality: A realistic calculation shows that claim to be completely indefensible.

Claim: "One of the things that I tell people is that you want to think about profitability; if I build six units in Idaho and are able to build them at the cost that I think I can and sell at current market prices on the west coast, then I can rival Exxon Mobil in profitability."

Reality: At current prices nuclear energy is borderline profitable. Legitimate businesses have given up for the time being. This is just crystal clear securities fraud.

AEHI Paid Distribution: The Third Factor In Penny Stock Fraud

Let's see how far we've come: I summarized some of the misrepresentations behind AEHI. In a sense this is the original sin in penny stock fraud. I also talked about how technical market manipulation is used in the case of AEHI to directly manipulate the share share price.

But if you want to make money selling shares to retail investors you also need to get the news in front of them. Let's call that aspect "Distribution", it's mostly accomplished via email, fax or mail. Paid distribution is related to astroturfing which AEHI is also engaged in as we've discussed in an earlier post.

It's important to note that paid distribution's only purpose is to drive up or hold up the price for someone who's selling.

No real company would engage in paid distribution campaigns for the following reasons:

1. They hurt the company because of the direct costs.
2. They hurt incoming shareholders long term because they buy at inflated prices.
3. They don't bring in money for the company, only for the sellers.
4. They are unethical and borderline illegal.

Luckily paid distribution campaigns without disclosing compensation are illegal. That makes it easy to identify them. But the disclosures are buried in the fine print so you do have to look for them.

Lets look at the news coverage about AEHI on Google Finance. In addition to the exaggerated, fluffy and misleading releases of the company we find the following releases:

1. 12/2/10: Breakthroughstocks.net: EXPLOSIVE news on: (PINKSHEETS:WTCT) - (PINKSHEETS:MMUH) - (OTCBB:AEHI) 
2. 12/2/10: ShamrockStocks.com: Lucky Picks of The Day: (PINKSHEETS:MMUH) - (OTCBB:AEHI ... 
3. 12/2/10: OTC ADVISORS, LLC: Huge Alert On: (OTCQB:AEHI) - (OTCBB:MONT) - (PINKSHEETS:DTSL)
4. 11/30/10: ShamrockStocks.com: Lucky Picks of The Day: (PINKSHEETS:SPPH) - (OTCBB:ECRY)- (OTCBB:AEHI) 
5. 11/22/10: OTC Tip Reporter: Hall of Fame Beverages, Inc. (PINKSHEETS: HFBG), China Medicine Corporation (OTCBB: CHME), Alternate Energy Holdings (OTCBB: AEHI)
6. 10/14/10: ShamrockStocks.com: Lucky Picks of The Day: (NASDAQ:GNBT) - (OTCBB:AEHI)- (OTCBB:MNDP) 
7. 1011/10: OTC Stocks with Top News: AEHI, GMTD, NUBL and MXOM 

Most of these releases are distributed by email to anybody who signed up to their mailing lists. And lets see whether AEHI paid for these distribution campaigns:

• Breakthroughstocks.net: AEHI — Alternate Energy Holdings, Inc.: We have been compensated $5,000 from Alternate Energy Holdings, Inc.
• Shamrockstocks.com: AEHI — Alternate Energy Holdings, Inc.: We have been compensated a total of $10,000 from Alternate Energy Holdings, Inc.
• Otc Advisors: AEHI - Alternate Energy Holdings, Inc.  We have been compensated a total of $10,000 from Alternate Energy Holdings, Inc.
• Otc Tip Reporter: Doesn't disclose compensation by company. However the release itself contains this disclosure: Since OTCtipReporter.com receives compensation and its employees or members of their families may hold stock in the profiled companies, there is an inherent conflict of interest in OTCtipReporter.com statements and opinions and such statements and opinions cannot be considered independent.
• OTC Stocks with Top News: Because Omni receives compensation for LBNEWS’s dissemination of the Information (as disclosed in our Compensation Disclosure Section), predominately in the form of common stock shares (the”Shares”), our publicy disseminated publications should not be regarded in any manner whatsoever as independent. 

In summary there's overwhelming proof that AEHI does in fact use paid distribution to entice retail investors to purchase its stock.

Note how the promotions have become more intense recently, just as the technical manipulation, yet none of the two have created a sustained advance in the stock price. These are signs that we're close to the end of the life cycle of this operation. There are other signs which I'll discuss in a later post.