AEHI Responds to SEC Filing Alleging Fraudulent Fund Raising
In mid-December, the Securities and Exchange Commission (SEC) filed a motion against Alternative Energy Holdings, Inc. (AEHI). The motion alleged that the company was engaged in fraudulently raising funds for a $10 billion nuclear energy project. As part of the filing, trading in AEHI was halted for two weeks. At the time of the filing, AEHI was trading for 58 cents per share. When trading was restored on December 28, the market price had fallen to 8 cents per share, a drop of more than 85%.
On January 14, 2010, Don Gillispie, the founder and CEO of AEHI, filed papers with the SEC to respond to the allegations included in the complaint. You can find the filing at Nuclear Townhall at an article titled AEHI COUNTER-ATTACKS SEC FRAUD ALLEGATIONS.
This story is one that captures my personal interest for a variety of reasons. As some of you know, I am the founder of a tiny little company that once aimed high – we thought we had a shot at designing and building relatively small nuclear power plants. Along with various other participants over the years, I spent many hours over about a decade and a half talking to potential investors and sharing our story. Our efforts were not successful, but the experience gave me some understanding for the process of building something big after starting from little more than a good idea.
In my opinion, the ideas that AEHI has been promoting are good ones. They have been working to find an accommodating area with lots of land, decent water rights, and a knowledgable nuclear work force and to do the groundwork required to get permission to build a nuclear power facility on that site. Achieving that goal would fundamentally change the value of the land and attract additional capital.
In some ways, AEHI’s dream is the nuclear energy equivalent of building out the infrastructure for something as ambitious as searching the internet using left over computers and a college campus network. Most people would call such a dream impossible – except those guys named Sergi and Larry who actually accomplished the feat.
Who knows if the company will be successful, but the story was compelling enough for me to take a small portion of my savings and invest. One of the things that made the investment interesting for me was the fact that AEHI was not at all shy about telling the world how it was doing – the company issued several press releases each week. Not surprisingly, the company also attracted some highly motivated opposition. It was frequently attacked by both organized anti-nuclear groups and by admitted short sellers who were financially motivated to force the company’s stock to fall.
Even strong nuclear advocates implied that AEHI was engaging in an activity that was bound to fail; Dan Yurman, one of my good friends in the pro-nuclear blogging world, wrote a piece that applied former NRC Chairman Dale Klein’s warning that the nuclear industry was “no place for amateurs” to Gillispie and AEHI. Dan may well be right, and as a former Idaho resident he may have more personal insight than I, but it sure seems to me that the folks involved in AEHI are not amateurs and fully recognized that they were undertaking a difficult process.
Fortunately for me, less than 1 month BEFORE the SEC took their action to accuse the company founders of fraud because they had not yet succeeded in what they fully disclosed to all investors was a multi-year, phased program, my wife and I purchased a home. That event encouraged me to liquidate some stocks, including a significant portion of my AEHI holdings, so my financial hit from the government’s action was not as sharp as it could have been.
I can only imagine how AEHI’s employees and suppliers must feel – according to the filing that I just read, the company has been unable to pay any of its bills since December 14. In contrast, those short sellers are now wealthy; there is nothing quite as rewarding as selling short when the price of the stock that you shorted falls by 85% in a two week period.
My advice to you this morning is to take some time to go and read Don Gillispie’s sworn deposition telling his side of the story.
Additional Reading
ABC News/Money (January 17, 2011) Nuke Company Execs Fights Back in Federal Court
KTVB.com (Idaho News & Weather) (January 15, 2011) Nuclear power company fights SEC fraud accusations (With embedded video)
Roanoke Times (January 16, 2011) Alternate Energy Holdings Inc. CEO prepares for court fight against SEC
I liked this company too and was on their mailing list. The affidavit response from Gillispie, however does show that he was involved with some transactions that, even if they were clean, were probably unwise for someone in his position. This is particularly true if you have made the fecal roster of people like the Snake River Alliance, who don’t fight fair at the best of times.
Thanks Rod for citing my prior coverage of AEHI and also Dale Klein’s warning about the nature of the nuclear industry – it is no place for amateurs.
Although I am a pro-nuclear blogger, my coverage of AEHI has shown that it fails the “baloney test.” In my view the firm is not credible in its representation that it has the capabilities and funding to build a nuclear power plant in Idaho, Colorado, or anywhere else. AEHI fails to meet the criteria I laid out more than three years ago (URL below) .
http://djysrv.blogspot.com/2007/10/baloney-detection-for-nuclear-new.html
By comparison, NRG’s work at the South Texas Project to build two 1,350 MW ABWR reactors does meet the criteria. Here’s the list.
* Public identification of investors, markets, and suppliers
* Reactor design is already approved by the NRC
* Filed a complete COL application with the NRC
* Co-located with existing reactors to take advantage of existing infrastructure
* Construction firms and suppliers have track records building nuclear power plants
* Arrangements with manufacturers of large forgings to get them on time and within budget
* Deals to sell electricity on an existing grid to committed customers
* Experience in the nuclear energy industry running nuclear reactors
Also, with regard to AEHI’s actions in Idaho, the firm declined repeated invitations to make its case to the pro-nuclear community there. As a result, the firm’s extraordinary claims, and indefensible plans, for a new reactor became a source of embarassment for nuclear energy advocates. It also made the firm a sitting duck for attacks by anti-nuclear groups.
There is no law against stupidity. The SEC won’t be able to gain a conviction on those grounds. While AEHI is presumed innocent until proven guilty under the law, the regulatory agency’s actions have reoriented public perceptions of its chances for success.
The AEHI case with the SEC is now one for the courts to determine whether the firm violated U.S. securities laws. This is now a financial story. It is no longer a nuclear story.
Dan – I respect your opinion. The problem I see with your criteria, however, is that they leave no room for anyone who is not already an established nuclear plant operating company. That would not be an enormous problem except for the fact that none of the established nuclear plant operating companies has succeeded in building anything new in a very long time. For a variety of reasons, they are terrific operators and lousy visionaries.
Again, I allow for the fact that Gillispie’s plans may be completely unworkable, but there is a lot that can be done AFTER successfully attracting capital. Most of the expertise and experience required for success in the nuclear business is available for hire for an enterprise that not only has the money, but also has the determination to make it happen.
An often cited case was the fact that Warren Buffett decided against an Idaho nuclear project. However, Buffett also decided that it would be great investment to purchase a railroad whose main business is hauling Wyoming coal. From my point of view, there just might be a relationship between the fact that Buffett very publicly rejected nuclear while putting his money into an enterprise that will profit mightily if nuclear does not grow.
@Dan – one more thing – what is the current status of NRG’s plan to build two additional units? Do you still consider the project a home run, was the impressive initial connection ruled a ground rule double that requires someone like the DOE to connect for a hit in order to put on run on the board?
NRG has acquired early stage financing, ahead of issuance of an NRC license, from Tokyo Electric Power Co (TEPCO) and loan guarantees for some of its financing from the Japanese Export Bank due to the fact the ABWR reactors are being supplied by Hitachi and built by Toshiba. DOE’s loan guarantee would cover the remaining investors up to 80% of the loan value.
The cost of the project has gone up. The City of Austin, TX, backed out of being an investor, but will remain a customer. The City of San Antonio dropped its investment stake from 40% to 8%, but will also be a customer. In particular, San Antonio is worried about volatility in future natural gas prices.
NRG’s STP project still looks like it has legs. Award of a DOE loan guarantee will certainly help. NRC licences for the twin reactors are likely to be a confidence builder for additional investors.
Buffett pulled out of the Payette, ID, site for several reasons. (1) the greenfield location lacked infrastructure to support construction of a 1700 MW nuclear power station and a grid capable of delivering electricity from the reactor to customers; (2) the Mitsubishi reactor design did not have an NRC design certification and no one knew what it would cost to build one.
Also, Buffett tried to buy a major stake on Constellation’s Calvert Cliffs III reactor project, but was out bid for it by EDF. His stake in the railroads makes sense in terms of freight traffic in general and not just coal mining output hauled to major electric power utilities.
Dan – yes, there is more to Burlington Northern than carrying coal, but that single commodity accounts for 25% of the company’s revenue. I cannot determine how much of the company’s profits come from coal, but it is an awfully simple product to ship. My guess is that it represents more than 25% of BN’s profits.
http://www.dailyfinance.com/story/warren-buffetts-big-railroad-buy-raises-the-stakes-in-his-long/19222412/
The best way I can think of to fail building a nuke is going head to heat with Powder River Basin coal.
“* Co-located with existing reactors to take advantage of existing infrastructure ”
Wouldn’t locating new nuclear reactors at old coal generator sites be at least as good? The powerlines, cooling water availability & transport infrastructure would save costs.
@Kit – you are probably right about that, especially when you are right in PRB’s wheelhouse and need very little rail based transportation.
However, it is interesting to note that there was not one single coal fired power plant started in either 2009 or 2010 in the United States. Low fuel cost under today’s rules is apparently not the only decision metric being used.
One always appreciates a David and Goliath story. A “little engine that could” so to speak. Not only did Gillispie exploit the desire of well wishers of that ilk but also ever other human frailty. This has never been a nuclear story but a story about penny stock fraud. How to do it! Gillispie’s mode of operation has always to rely on ignorance and greed. So long as there are humans there will be people like Gillispie willing to part those people from their hard earned money.
I find it amazing that the SEC can file a case in court and freeze the assets of a company without even talking to them. That is scary. I guess, I wonder how a business is ever going to start a new nuclear power plant without raising new capital. If this qualifies for illegal activity I am amazed.
There is a huge difference between a scam and a potential. When you are competing with one of the largest income producing industries in the world – energy generation – you have a huge potential. A scam would be indicated if,
1. The person doing the work had NO credentials in the area.
2. There was no significant progress or work towards the stated goal.
3. The concept of risk was minimized or covered over.
In this case, I see a legit business man raising capital rather than simply borrowing money. This is exactly the way that a market capital business is expected to operate. I don’t see “greed” but opportunity. The message I am getting from the SEC lawsuit is – don’t start a large business unless you already are a large business.
Dan,
I have great respect for your blog and the information you provide. However, I would ask, if a greenfield project could ever be started in the USA with the criteria you have laid out. When we finally start building SMR’s how will we site them? Will only existing players get to be involved or could I start a company that could be involved in selling them to various markets?
I read your list and I guess I just disagree with it. Risk and Baloney are not the same thing. You eliminate all risk with your list.
Yes, probably unwise, and his inquiry to the law firm shows that there was some doubt about the nature of the transaction. I guess my take away is that unless you are perfect, not just legal but so above board for 10 to 15 years that no one can find or manufacture a fault, you cannot enter the nuclear power business. Even Daniel had a legal problem when the opposition could make his praying illegal.
SEC = Guilty until proven innocent. Stop business first and then defend yourself. blah. An investigation before the freezing of assets would have been just too much work for the SEC.
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