EVFL, EBOF you may recall my blog posts about them in 2009 and early 2010. Here is a great follow up article from FORBES. It also concerns BMGI. The basic theme is how EVFL, BMGI took your money. The good thing is you were not alone.
Willie's not going to get rich on Bio-Willie fuel. Image via Wikipedia
Dennis G. McLaughlin III has to be one of the world’s best salesmen — and one of the world’s most incompetent business executives. The flashy University of Oklahoma grad once talked Morgan Freeman, Willy Nelson and Julia Roberts to endorse his debt-laden biofuels company despite a record of financial failure. Now McLaughlin’s in Chapter 7 bankruptcy liquidation, fending off more than $27 million in claims from creditors and disgruntled former business partners. But you’d never know that from the financial filings and statements by his latest publicly traded companies, Evolution Resources and Big Star Media, which tout his previous ventures without mentioning how they turned out.
Which raises the question: Why does the Securities and Exchange Commission let Dennis get away with this? I first exposed his shenanigans back in 2007, when he was touting Earth Biofuels and its “Bio Willie” fuel, named after the outlaw singer and onetime director Willie Nelson. Investors in that ill-fated outfit, which once included Freeman and Roberts among its cheerleaders, never knew that McLaughlin had presided over a $100 million gas-trading bankruptcy in 2001 amid allegations of fraud by its creditors. McLaughlin later ran Ocean Resources, a penny-stock marine salvage operation that fired him over allegations he’d milked cash out of the business through a consultancy he controls. No acknowledgment of that, either, in Earth’s filings. (McLaughlin said Ocean’s claims were baseless and the firm owed him money.)
The SEC investigated McLaughlin in 2006, according documents insiders shared with FORBES, expressing a particular interest in the constellation of consulting firms that surround the businesses he runs. But the probe seems to have fizzled out (the SEC refuses to comment on investigations). I tried to reach McLaughlin himself, but lawyers listed in his Chapter 7 filings say they no longer represent him and the phone for Evolution Resources wasn’t working.
A disgruntled creditor did talk, however — and offered some insight into how McLaughlin might keep the cash flowing. The creditor says McLaughlin tried to pay off a debt with common stock in his company, even recommending a Boca Raton, Fla. broker, since sanctioned for penny-stock scams, who could supposedly sell the shares on the open market.
Steven Benevides sold his telecommunications company to McLaughlin in 2005 for $450,000 in cash and a $1 million debenture. As he has done repeatedly over the years, McLaughlin never paid a dime on the debenture (ask the folks at Sandell Asset Management, who lent him $50 million for some inexplicable reason). When Benevides pressed him to pay up, McLaughlin offered him Earth shares instead. He says McLaughlin also directed him to a broker at Newbridge Securities in Boca Raton, Fla. who could sell the stock for cash.
McLaughlin said “let me put the shares in your account and this guy can sell `em for you,” Benevides recalls, laughing. “I told him `If the stock is worth something, you sell it and give us the money.’”
Good thing Benevides rejected the offer. Newbridge’s owners were sanctioned in 2008 by the SEC for failing to supervise a broker who helped penny-stock artists pump up share prices and then unload their stock for millions of dollars in profit. The broker Benevides was urged to call was later fired and dropped his license over penny stock improprieties.
Benevides sued instead, and won a $1 million fraud judgment against McLaughlin, Earth Biofuels, Blue Wireless, TKM Oil & Gas and other companies he controls. McLaughlin signed that judgment, in which the judge cites “clear and convincing evidence” he defrauded Benevides.
That was in January 2010. You’d think the acknowledgment of a $1 million fraud would rate at least a mention in Evolution’s 10-K filed in July. Ditto McLaughlin’s personal bankruptcy filing in August, in which he listed less than $100,000 in assets and $50 million t0 $100 million in liabilities. Normally companies file an 8-K when something of that magnitude occurs to the chief executive. Evolution didn’t even mention it in its October 10-Q.
Meanwhile McLaughlin operates his public companies, including Big Star (is the estate of the immortal Alex Chilton getting a royalty?), which describes itself as “a multi-faceted entertainment and information distribution company focused on web-based presentations of live music events.” Big Star announced a $7 million equity deal in September with AGS Capital Group, which says it specializes in helping companies “periodically sell …common shares when the price is attractive.” Right now the price is not so attractive: half a cent per share.
Evolution’s latest SEC filings show that company has issued 7.3 million shares “for services” since 2009. The company also says McLaughlin has earned nothing. Yet his bankruptcy records, filed under penalty of perjury, show he pulled $500,000 in salary from Evolution’s predecessor Earth in 2008, when that company was insolvent, and another $820,000 through September of last year from an outfit called OSA Employment that lists its address as the same suite of Dallas offices as McLaughlin’s other ventures.
Perhaps those other businesses are generating all that cash. It can’t be DGMAC, one of the consulting firms that the SEC was interested in back when it was poking around in McLaughlin’s affairs. In his bankruptcy filings, McLaughlin lists himself as 100% owner of DGMAC LLC, stating its value as $0.
With monthly income of $40,000, and an estimated $14,000 a month left over after paying alimony and other costs, Benevides doesn’t think McLaughlin should even be in bankruptcy. His lawyers filed an objection to the proceedings on Jan. 3. He says he’s also shared the information he’s gleaned with the SEC, so far to no avail. In the meantime, Benevides says he regrets the day he walked into McLaughlin’s Dallas office, festooned with photos of celebrities and mementos of his checkered business career.
“You wanna like this guy — he is an absolute, phenomenal salesman,” Benevides says. “But the last five years’ history has led me to know its all b.s.”
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