Mantria Update #18

BioMass Magazine published an article on Mantria in their June 2010 issue. The following is page 1 of 3:



From the June 2010 Issue ShareThis RSS Feed Print this


Unearthing Green Scams
Some renewable energy investment opportunities seem too good to be true—and occasionally they are. How can a potential investor tell a wise investment from a shell game?
By Anna Austin


Historically, the number of investment fraud cases in a given industry increases with the level of hype surrounding it. If it’s frequently in the news and on the Internet, chances are it’s also plagued by gimmicks, scams and/or embellished technological advancements camouflaged by enticing promises of high and quick returns.

Rapidly expanding and increasingly profitable, the renewable energy industry is seeing its share of fraudulent business conduct. Perhaps the most notorious case within the biomass sector was brought to light in November by the U.S. Securities and Exchange Commission, which charged Pennsylvania-based Mantria Corp. with more than 300 cases of investor fraud via a $30 million Ponzi scheme. Mantria allegedly targeted elderly investors or those approaching retirement age to finance a supposed carbon negative housing community in rural Tennessee, as well as biochar, while claiming to be the world’s leading manufacturer and distributor of biochar with multiple facilities producing at a rate of 25 tons per day.

According to the SEC, Mantria never sold any biochar and had just one facility engaged in testing biochar for possible future commercial production. Mantria’s only source of revenue was from its resale of vacant lots for its purported residential communities in Tennessee, but those sales didn’t generate enough cash to pay investor returns, rather, the company provided 100 percent financing for almost all of its vacant lot sales to buyers using other investors’ funds, the SEC says.


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Interest in biochar as a means to sequester carbon and as a substitute for charcoal has reached new heights in the past few years, a likely reason why scammers are hot on its trail, according to John Gannon of the Financial Industry Regulatory Authority. “When an area is hot for investors, scamsters understand that and so that’s where they target their scams,” he says. “When oil prices are high, we see oil and gas scams. When Hurricane Katrina hit, we saw scams there as well. Whatever is in the news is what scamsters and fraudsters target. The legitimate stories in the media help them build credibility about the purported investment that they are pitching.”


Swindling Styles

FINRA is a private corporation that oversees nearly 4,750 brokerage firms, about 167,000 branch offices and approximately 634,000 registered securities representatives. Formed by a consolidation of the enforcement arm of the New York Stock Exchange, NYSE Regulation Inc. and the National Association of Securities Dealers Inc., one of FINRA’s many functions is to issue alerts and advice to investors to help protect their money and avoid scams.

Gannon, who is FINRA’s senior vice president of investor education, says there are two main ways of being scammed. The first, which is the scam that Mantria allegedly employed, is a Ponzi scheme. Named after Charles Ponzi who became notorious for using the technique during the early 1920s, the operation pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. Mantria scammers allegedly encouraged investors attending seminars or online webinars to liquidate their traditional investments such as retirement plans, stocks, bonds and mutual funds and urged them to borrow as much as possible against their homes or businesses so that they could invest in Mantria. The funds acquired from new or existing investors were then used to pay other investors.

The other most common scam is a “pump-and-dump” scheme. “The idea is to increase the price of the stock quickly by putting out bogus press releases, touting it on the Internet and in other various solicitations, basically creating a lot of activity to quickly jack up the price of the stock, and then they sell the shares they own and gain a big profit,” Gannon says. “The prices then quickly go down when there’s no more news/hype, and the investors who bought in at that time are left holding the bags.”

In 2008, for example, the SEC filed charges against Mississippi-based Sustainable Energy, alleging that the company made false claims to boost share prices from 25 to 45 cents a share, even above 70 cents after some wildly exaggerated press releases. In one release, Sustainable Energy said it could produce 5 gallons of biofuel from one bushel of soybeans, at a price of 50 cents per gallon. As a result of the alleged embellished claims, stock prices soared quickly—and artificially—prompting Sustainable Energy CEO John H. Rivera’s girlfriend to sell more than 2.6 million shares and then transfer a substantial portion of the proceeds into a bank account held jointly with Rivera.

Whether Ponzi, pump-and-dump or other, before an investor is lured into a bad investment, Gannon says it’s likely that multiple red flags will be present that should be carefully analyzed.


Look for Red Flags

Investors should always raise an eyebrow when the initial investment opportunity discovers the potential investor, rather than vice-versa, Gannon says. “Especially when the individual or organization presenting the opportunity is unknown or fairly unknown to the investor,” he says. “Ask yourself … why would somebody you don’t know bring you a promise of the next-greatest investment out there? Why are they targeting you with this pitch? If it’s so good, why aren’t they investing themselves?”

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