Promoter with record of penalties on a new roll
John Woods, the sage editor of Canada Stockwatch, knows well the mosquito- like lifespan of Vancouver stock deals, and the propensity of promoters to blithely skip from one promotion to another with nary a backward glance.
“ No promoter in the middle of his greatest- ever promotion,” he once told me, “ likes to be reminded of last year’s promotion.”
So it is with Harmel Rayat, who provided a less- than- warm reception when I dropped into his office at 1628 West First Ave. in Vancouver to discuss his latest and possibly greatest stock deal.
But first, let’s talk about his last promotion. In late 2002, Hepalife Technologies Inc., which trades on the dreadful OTC Bulletin Board, agreed to help fund research into an artificial liver device being developed by the U. S. Department of Agriculture.
It was a Rayat deal through and through. The company operated out of his office on West First, he served as a senior officer and director, and he was the majority shareholder.
Rayat is an experienced and skilful promoter. During the throes of dot- com mania, he ran a stock promotion company called EquityAlert. com Inc., which operated from the same office that Hepalife now occupies.
In early 2000, EquityAlert sent out more than one million e- mails per day touting the fortunes of about 18 publicly traded companies. The U. S. Securities and Exchange Commission alleged that EquityAlert accepted more than $ 450,000 as compensation from these companies, but did not tell prospective investors. Without admitting or denying the allegations, Rayat and his firm settled the matter in August 2000 by agreeing to pay a $ 20,000 civil penalty.
The following year, Rayat got into more trouble. According to the SEC, he and an associate, Bhupinder ( Bill) Mann — who became an employee of Hepalife — arranged for EquityAlert and its parent, Innotech Corp., to promote the shares of two companies trading on the OTC Bulletin Board.
One of those companies was International Mercantile Corp., which was developing fingerprint scanning technology. It agreed to pay EquityAlert 100,000 shares to promote the stock. Taking advantage of the 9/ 11 tragedy, EquityAlert advertised International Mercantile as the newest of the “ red hot” biometric companies. Share volume and value soared, enabling EquityAlert to dump its shares for $ 132,500.
The other was Virilitec Corp., which was developing nutritional supplements that would purportedly enhance sperm count. As payment, a Virilitec consultant arranged for an unnamed shareholder to transfer 40,000 supposedly unrestricted shares to EquityAlert. Thanks to its promotional efforts, EquityAlert was able to boost trading volume and dump its shares for $ 38,870.
But there was one small problem. According to the SEC, none of these shares had been registered for sale. Without admitting or denying the allegation, Rayat and the other respondents agreed in October 2003 to disgorge the full amount of their ill- gotten gains ($ 171,370), but because EquityAlert and Innotech had gone out of business, all but $ 31,555 was waived.
Rayat’s focus on promotion was also evident in the Hepalife deal. By the end of 2004, the company had spent only $ 284,000 on research and development. Meanwhile, it spent seven times as much — a total of $ 2.1 million US — on shareholder and investor relations.
Of this amount, $ 278,144 went to National Infosystems, also known as Thornhill Advisors, of Richmond Hill, Ont., to “ increase industry and investor awareness.” Of this, $ 30,000 was paid to Scott Fraser, a California stock tout who writes a newsletter called the Natural Contrarian.
Fraser suggested Hepalife stock could go to $ 50 US and urged investors to buy before this “ billiondollar biotech baby” is discovered by Wall Street. “ This may be your only chance to invest in a company on the verge of one of the greatest medical breakthroughs this century!” he enthused.
Fraser’s exuberance has sometimes gone a bit overboard. Months earlier, the SEC alleged that Fraser had made false and misleading statements in e- mail solicitations that he sent to between 25,000 and 38,000 prospective subscribers.
Among other things, he had claimed that “ over 87 per cent of my stock recommendations to my elite audience have increased an average 135 per cent in the past 28 months,” and “ over 1,170 of my subscribers have become multimillionaires buying and selling my oil- and- gas stocks over the last 24 months.”
The SEC, however, alleged that this wasn’t quite true. Without admitting or denying the allegations, Fraser agreed in September 2003 not to commit any future violations.
None of this, however, seemed to have a deleterious effect on Hepalife’s stock price. On the contrary, it soared from 27 cents US to a high of $ 5.77 US by the end of 2004. Although the company had negative equity of $ 539,000, it achieved a total stock market value of $ 375 million US.
Nimble investors would have made a killing. People who actually believed this company might develop an artificial liver device would have been killed. The stock is now trading at 76 cents, a fraction of its peak price.
But that was yesterday. Today, Rayat is concentrating his energies on Octillion Corp., yet another bulletin board company.
I n A p r i l 2005, O c t i l l i o n announced it had acquired an option on worldwide rights to nerve- regeneration technology being developed by Iowa State University of Science and Technology.
The focus shifted in August 2 0 0 6 , w h e n t h e compa ny announced an agreement with the University of Illinois to fund development of technology that would enable normal home and office windows to convert solar energy into electricity.
Rayat was Octillion’s president until several days ago when he was s te p p e d a s i d e i n favour of Nicholas Cucinelli, who reportedly has experience in the solar cell industry.
“ The last few quarters have been very exciting for Octillion, having achieved and surpassed several major milestones,” Rayat said in his usual puffy manner.
“ It’s now time to engage a seasoned management team with specific expertise in the development and commercialization of solar and photovoltaic technologies.”
But Rayat remains the driving force behind the company. He is still a senior officer, director and majority shareholder, and the company continues to operates out of his office on West First.
Under his leadership, the company has been spending heavily on stock promotion. During the nine months ending March 31 ( its last reporting period), the company spent $ 598,000 US on investor relations, compared to just $ 108,000 US on research and development.
Once again, this has had the desired result. Since May, the stock has rocketed from pennies to its current price of $ 4.32 US, for a total stock market value of $ 220 million US. Once again, this is quite a premium, considering that shareholders’ equity as of March 31 was less than $ 1 million.
With Rayat’s latest promotion on a roll, I thought Iwould ask him about his last promotion.
As mentioned, the reception was a bit frosty. I rang the security bell and an attractive woman opened the door, revealing an opulently appointed suite of offices.
After I identified myself, she summoned one of Rayat’s assistants who waved me away, saying that Rayat would call me later.
“ Get your foot out of the door,” he said.
I did as he asked, but Rayat never did call. Somehow, I wasn’t surprised. Post mortems are never fun.