Tuesday, August 26, 2014

SEC Charges Chimera Energy With Fraud Over Waterless Fracking Claims

UPDATE (08/15/14)

Chimera Energy has been charged with fraud by the Securities and Exchange Commission, according to reports.  Along with the company, Andrew Farmer (mentioned below in a previous update regarding the SEC investigation into Chimera), Charles Grob Jr, and Baldemar Rios are being charged.

From the Houston Business Journal:
The Securities and Exchange Commission is charging the now-defunct Houston-based Chimera Energy Corp. and its founders with alleged fraud. 
Going back to 2012, the SEC alleges Chimera was falsely touting contracts with state-owned Pemex in Mexico and was claiming it had developed revolutionary and environmentally friendly extraction technology that would replace hydraulic fracturing, or fracking. 
The SEC, which suspended Chimera trading in 2012 before filing federal charges this week, claims none of this was true. The SEC is charging the penny-stock company and four individuals behind a "pump-and-dump scheme that misled investors." 
The SEC is charging them with securities fraud, registration violations and reporting violations. 
The SEC court filing alleges that Andrew I. Farmer was behind the act, creating Chimera as a shell company and secretly obtaining control of all shares issued in an initial public offering in 2011, then launching an aggressive promotional campaign midway through 2012 to hype the stock to investors. Chimera issued more than 30 press releases in a two-month period about its supposed revolutionary technology and contracts, the SEC said. 
"While the stock was being pumped by the false claims, entities controlled by Farmer dumped more than 6 million shares on the public markets for illicit proceeds of more than $4.5 million," according to the SEC filing.
You can read the rest of that article here.

UPDATE (08/12/14):

I received a return call from Dr. Fernando Flores Avila, whose business card describes him as assistant manager in coordination of technological management northern region for PEMEX (that was translated from Spanish).  He is also one of the gentlemen whom Charles Grob, former CEO of Chimera Energy, stated would verify a relationship between Chimera Energy and PEMEX.

Dr. Flores Avila, though, stated that Chimera Energy is under investigation by the PEMEX legal department.  He referred to the numerous press releases that described agreements and dealings between Chimera and PEMEX, and Dr. Flores Avila said that these releases were not true.  Chimera appeared, in his words, to be a "big fraud" and a "ghost company" - which he noted is under investigation by the U.S. Securities and Exchange Commission (as noted below in our previous updates on this story).  Dr. Flores Avila stated clearly that PEMEX has "no link to" Chimera Energy.

UPDATE (07/29/14):

We have received communication from Charles Grob, named in the Seeking Alpha article referenced below as the head man at Chimera Energy Corp.  Grob is no longer with the company, having resigned in October 2012.

Grob included in his communications business cards for two employees of PEMEX, whom he said would verify that what was reported by Seeking Alpha is inaccurate.  I have reached out to them for comment and will update this article if and when I am able to obtain a response.

I reached out to representatives of PEMEX when this original post was created back in 2012 to attempt to confirm the relationship between PEMEX and Chimera Energy Corp.  No response was ever received.  I also attempted to call the phone number listed on Chimera Energy press releases, with no success in reaching anyone.

There have been other developments around Chimera Energy since the posting of this article back in September of 2012.

- On September 21, 2012, Chimera issued a press release (click here to view the release) stating that "Company management has selected Air Liquide as its supplier of helium for use in Non-Hydraulic Extraction on Pemex wells in the Chicontepic Basin of Mexico."

- On September 25, 2012, Aire Liquide issued this statement (click here to view it):
On Friday, September 21st, a press release was issued by Chimera Energy Corp. (CHMR) stating that Air Liquide has been selected as its supplier for an upcoming project in Mexico.

Air Liquide has no business relationship or affiliation with Chimera or its principal, Charles Grob. Chimera’s press release was issued without the knowledge or consent of Air Liquide.
- On September 24, 2012, Chimera issued a press release containing a "signed PEMEX onsite schedule letter dated September 14, 2012 regarding CHMR's Non-Hydraulic Extraction." That release can be viewed here. I reached out to multiple PEMEX representatives to try and follow up on this letter and get more information about it in October of 2012. No one replied.

- On October 9, 2012, Chimera announced the appointment of Baldemar Rios as the company's new Chairman and CEO.  View the release here.

There isn't a whole lot more information available on Baldemar Rios that I can find, other than what is in the press release.  Prior to taking on this role at Chimera Energy, Rios was the President and CEO of Projects & Industrial Products LLC in Houston, Texas.  Again, not much information is turned up when you research the company.

One of the only things a search for information did turn up was a written opinion from Judge Marvin Isgur of The United States Bankruptcy Court for the Southern District of Texas Houston Division (click here to view it).  According to that court document, Rios and his wife filed a joint voluntary Chapter 11 petition on January 4, 2011.  FLSmidth Krebs Inc. filed an adversary proceeding seeking to have Rios' discharge denied, detailing how Rios repeatedly amended the value of his company during his bankruptcy case - placing it as high as $26,000,000 at one point before adjusting it down to $6,000,000.  (The case was eventually converted to a Chapter 7, and no value was recovered from the company.)

When pressed at trial for the reasons why he made such drastic amendments to the value of his company, Rios could give no real explanation.  His testimony included this exchange:
The Court: When you look at Exhibit number 2, it was filed on February 15. And then Exhibit number 3 was filed on March 3rd, so 18 days later. What events occurred that caused the $20,000,000 drop over 18 days? 
Mr. Rios: Yeah because, uh one thing that happened also that, you know ah, you know some of the places where we have some operations, we have some . . . companies have some debts, so equipment and um equipment for example and um so . . . the companies, so the subcontractors, that we owed the money, they just stop you know or didn’t pay, you know, for example, you know, one of the creditor, I mean one of the subcontractors put a lien, and then you know, put a lien on the company, and then they went with the final customer that was paying us . . . 
Rios also produced hardly any financial records for his company, which had nearly $78,000,000 in sales over the 4 years prior to the bankruptcy proceedings.

Not surprisingly, the discharge was denied.

Other than that court document, a search turns up very little reference to Baldemar Rios or his company.

- On October 10, 2012, Chimera announced that it completed its first collaboration with PEMEX at Chicontepec Basin (which is oddly misspelled as the Chicontepic Basin in the press release).  Along with that release there was this picture posted:


The caption to the photo said: Chimera Energy Corp President Baldemar Rios (2nd from left) meeting with Pemex officials Jaime Granados (center), Jose Ceron (2nd from right) and Francisco Rios (right) in Poza Rica.

I have tried to obtain contact information for any of the individuals listed in that caption in order to reach out to them for comment on Chimera, but have had no success to this point.  A search of PEMEX's website doesn't return results for the names Jaime Granados, Jose Ceron, or Francisco Rios, nor does a search of an industry directory.  The business cards provided by Grob in his emails to us were not the cards for any of these men.

The validity of the photo was questioned by Hristina Beeva of Hotstocked, a microcap market information site.  Beeva wrote:
Just a little over a year since its incorporation, the company replaced 31-year-old founder and CEO Charles E. Grob (of unverified actual existence) with a Mr. Baldemar Rios, who claims to have worked closely with Mexican energy giant PEMEX, a completely legitimate state-owned company. The only proof that Chimera Energy has the Mexican Government's backing is a single blurry picture of Mr. Rios meeting a group of people, claimed to be PEMEX representatives of unknown rank.
- On October 11, 2012, Chimera declared that it was taking aggressive action against "naked short sellers."  The press release (view the whole thing here) stated, in part:
"The most serious challenge facing our Company is not the highly competitive industry in which we operate, nor the inherent uncertainties of cutting-edge technology, but the brazen greed of the individual(s) who are actively working every day to destroy Chimera before our technology has the opportunity to revolutionize the worldwide production of oil and gas," said Baldemar Rios, Chairman and CEO. "Today we go on the offensive. No longer will we sit idle while anonymous posters and bloggers spout egregious lies about the Company and our technology."
- On October 25, 2012, the Securities and Exchange Commission (SEC) announced a suspension of trading on Chimera Energy Corporation "because of questions that have been raised about the accuracy and adequacy of publicly disseminated information concerning, among other things, the statements by Chimera in press releases to investors about the company’s business prospects and agreements."  Read the trading suspension by clicking here.  That suspension lasted through November 7, 2012.  Click here for an article looking at what that means for investors.

- On April 18, 2013, the SEC subpoenaed Andrew Farmer and Iridium Capital for failing to provide documents requested in the investigation of Chimera.  The litigation release (which can be read by clicking here) states, in part:
The SEC’s application explains that beginning in July 2012, Chimera commenced a promotional campaign that caused a dramatic increase in the trading volume and price of its stock. The SEC is investigating, among other things, whether the claims in Chimera’s press releases are materially false or misleading. On October 25, 2012, the SEC temporarily suspended trading in the securities of Chimera because of questions concerning the accuracy and adequacy of publicly disseminated information about, among other things, Chimera’s business prospects and agreements. 
As part of its investigation, the staff in the SEC’s Fort Worth Regional Office issued subpoenas to Farmer and Iridium in December 2012 seeking, among other things, materials related to their transactions in Chimera securities and to Chimera’s business. According to the SEC’s court papers, Farmer played an integral role in Chimera’s transition from a privately held to a publicly traded company. And, before Chimera’s securities became available for purchase to the public on the over-the-counter market, entities controlled by Farmer or for which Farmer acted as agent acquired millions of Chimera shares in private transactions, while Iridium, which Farmer also controlled, assisted in effectuating these transactions. According to the court papers, once Chimera’s promotional campaign was under way, entities controlled by Farmer sold to the public a substantial number of their privately obtained Chimera shares, generating hundreds of thousands, if not millions, of dollars in profits.
- On June 19, 2013, the SEC issued a subpoena enforcement action against Thomas Massey "for failure to produce documents in [a] market manipulation investigation."  A portion from that litigation release (which can be viewed here):
As part of its investigation, the staff in the SEC's Fort Worth Regional Office issued a subpoena to Massey in February 2013 seeking, among other things, materials related Massey's work on behalf of Chimera. According to the SEC's court papers, Massey played an important role in assisting Chimera with its business development and promotional efforts. Massey's work included assisting Chimera's executives in their attempts to establish a business relationship with a certain company based in a foreign nation, and providing draft press releases for review and approval by Chimera's executives.
Please note that the Seeking Alpha articles referenced below have been updated at their source to reflect that the accuracy of the articles is disputed.

I tried to visit Chimera Energy's website (www.ChimeraEnergyUSA.com) to see if the company had issued any updates lately, but the website is not active.  Another website referenced in Chimera's press releases, zerowaterfracking.com, returns a message from GoDaddy.com:
NOTICE: This domain name expired on 7/17/2014 and is pending renewal or deletion.
ORIGINAL ARTICLE FROM 9/13/12:

A little over a month ago we posted a press release announcing a deal between Chimera Energy and Mexican company PEMEX to employ Chimera's waterless fracking technique.

Since then, Seeking Alpha has published two articles about Chimera which claim that an investigation reveals the company to be a scam.  **Again, the accuracy of these articles is disputed by Charles Grob**

Here is a portion of the first article from Seeking Alpha:
The Business
The most effective exercise in demonstrating to readers that CHMR is a scam is to review its chronology from inception to now through the perspective of Charles E. Grob Jr. the 31 year old who is the only named employee in the company, as well as through the role of the unnamed Houston promoter that owns the 20,000,000 free trading shares purchased for $.0038.
Charles Earl Grob Jr.
August 5, 2011
Incorporates a company in Nevada named Chimera Energy by issuing to himself 10,000,000 shares @ $.0001 per share for a total investment of just $10,000.
August 22, 2011
Borrows $100,000 @ 15% interest from Kylemore, Corp. anoffshore company incorporated in the Marshall Islands.
September 1, 2011
Rents a Virtual Office in Houston for $200 a month
October 10, 2011
Pays a total of $10,950 to become publicly traded ($1,500 transfer agent, $4,000 auditor, $5,000 legal) through form S-1
December 21, 2011
Receives approval for his S1 from the SEC
January 6, 2012
Sells 5,000,000 free trading shares relying on the S-1 filed with the SEC to "third parties" @ $.015 per share.
Here the roles split…
Charles Earl Grob Jr.
Unnamed Houston Promoter
March 1, 2012 - As the sole CEO/COO/CFO and Director, awards himself a salary of $2,500 a month.
April 2012 - Sets up a cloud server hosting account with Rackspace in San Antonio Texas. This account will be used to host the websites and promotional referral sites used in the scams CHMR and NVMN.
June 26, 2012 - Effectuates a 4:1 Forward Split lowering his average cost to $.00025 and that of the 20,000,000 free trading float shares owned by the unnamed Houston promoter to $.0038.
May 2012 - Hires an Indian web design company to build the websites:chimeraenergyusa.comnova-mining.com,zerowaterfracking.com,foxmarketreport.com,
July 26, 2012 - Licenses a technology from a Chinese company nobody has ever heard of for $5,000 a month in a 4 page contract with no mention of any patent numbers or description of the technology.
June 2012 - Produces a 2:29 minute long promotional video full of sound bites and generalities relating hydraulic fracturing. Aside from conjecture relating to the conceptualization of the licensed technology no tangible evidence is provided to as to the history, effectiveness or existence of this potentially world-changing service.
July 30, 2012 - Puts out a sensational press release touting a technology licensed less than 90 hours prior as a "breakthrough" that will replace an industry standard drilling technique employed by multi-billion dollar energy companies for nearly a decade.
July 2012 - Sets up and funds a Google AdWords account as well as accounts with other online PPC (pay per click) companies. Sets up and funds an account with the Wall Street Journal online network for display ads that will run on: WSJ.com, Barrons.com, and MarketWatch.com. Initiates the distribution of the ads coinciding with the first press release issued by Charles Earl Gorb Jr. on July 30, 2012.
From August 1, 2012 - August 10, 2012 puts out 6 press releases in 8 trading days discussing everything from how the recent drought makes his technology even more attractive to how he plans on attending a conference anybody with $475 can attend while making sure to cram as many multi-national stock symbols into the press releases like (HAL) (SLB) (ECA) and (CLR) so that na├»ve investors browsing those company's financial news feeds might accidentally see these releases and be duped into investing their hard-earned savings.
July 30-Present - A blitzkrieg of display and text ads is ultimately successful in duping retail investors into purchasing CHMR shares directly from the promoter. During this period the promoter liquidates some of the 20,000,000 shares that were purchased for $.0038 at a minimum price of $1.00 and as high as $2.00. From July 30th until August 10th over 5,288,000 shares of CHMR trade hands at an average price of $1.55 for $8,218,000 worth of dollar volume.
Further, in the second article:
But in the interest of entertainment let us for a moment pretend that somehow someway 31-year old Charles Grob, the sole employee of Chimera Energy pulled it off. Wouldn't you assume that the investor relations department for Pemex would know about this epic and revolutionary development?
On August 22nd, we called the investor relations department for Pemex and spoke to Mrs. Carmina Moreno, one of the Investor Relations Managers. She told us that they are fully aware that Chimera Energy has been touting this hypothetical relationship and that under no circumstance did they have any contract or relationship with Chimera. She told us that Pemex's legal department had started looking into this and that they would consider making a public response as too many investors were calling to ask about this and it was beginning to concern Pemex. We then put out a tweet to investors on our twitter page warning them that investor relations at Pemex denied the existence of any relationship or contracts with Chimera and provided the email and phone number of Mrs. Carmina Moreno for anyone to verify themselves.
On August 24th we received an email from an investor who recorded a conversation with Rolando Galindo - head of investor relations at Pemex. We urge all investors to listen to this conversation as it is yet another piece of smoking gun evidence that confirms there is no relationship between Chimera and Pemex and that the contents of the press release are a complete fabrication:
Chimera Energy not only touts a fake relationship and contract with Pemex it has a logo of Pemex on their investor website. This is the page investors land on from the pay per click ads. Also note the fake quote from USA Today by Charles Grob. The audacity of these perpetrators has never before been encountered by Infitialis.
Read much more in the first article here, and the second article here.

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