The Ethanol Scam (Where’s the SEC when you need them?)

Wall Street is in love with ethanol and the scamsters and vultures are circling overhead. Case in point: Xethanol Corp., Blairstown, Iowa, bills itself as a biotechnology-driven ethanol company that can turn wood chips, corn stalks and paper sludge into cheap alternative fuel.

But a Sharesleuth.com investigation found no evidence that Xethanol (XNL: AMEX) has produced significant quantities of ethanol from those raw materials. Combine that with Xethanol’s announcement that it’s poised to become one of the first companies to commercialize that technology – a sort of Holy Grail in the renewable-energy world – and you’ve got the type of inconsistency that Sharesleuth seeks to uncover with its stories.

When Sharesleuth identifies what might be considered corporate misdirection, we take a deeper look at the company, its history, its business and the people behind it.

“At Xethanol, we discovered that the shareholders whose names appeared in the company’s SEC filings over the past year and a half included no fewer than eight current or former stock brokers who have been the subjects of disciplinary actions by the Securities and Exchange Commission, the National Association of Securities Dealers or other regulatory bodies.

“One of the five biggest shareholders in Xethanol when it went public last year was William Scott Smith, who was charged by the SEC in 1995 with defrauding investors in a Denver-based shell company called Melbourne Capital Corp. The SEC said that Smith installed his nephew and two friends as officers and directors of Melbourne Capital, and that the group -- at Smith’s direction -- misused or misappropriated 70 percent of the $246,000 that the company raised from investors. The onetime stockbroker settled the charges in 1996, without admitting or denying guilt. The SEC assessed $256,000 in financial penalties and barred Smith from serving as an officer or director of any public company.

“Sharesleuth also learned that one of Xethanol’s two conventional ethanol plants, a facility it once called its Biomass Technology Center, has been idle for more than a year and no longer has water or sewer service – two prerequisites for testing or production.

“Other things that caught our attention include:
* The company’s minimal spending on research and development.
* An absence of scientists on its staff.
* Key alliances with two companies founded by the same person -- a former stock broker who now functions as a financial consultant and promoter

http://sharesleuth.com/2006/08/moonshine_blindness.html