Mad J. launched the MMEX share-selling scheme 665
Post# of 4466
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Posted On: 01/01/2019 5:30:28 PM
Mad J. launched the MMEX share-selling scheme 665 days ago - almost two years ago, in March of 2017. On the surface, the Pecos County Refinery project has some appeal, across a number of fronts, ranging from U.S. energy independence, benefit to the regional economy, etc. Unfortunately, the project is nothing more than a complex charade, associated with a quasi-legal securities selling scheme.
The OTC has traditionally been ripe for varieties of equities-based securities fraud schemes, ranging from so-called “pump and dump” promotion schemes, to more complex, pyramid-style schemes, many of which are rooted in what’s known as PIPE transactions - Private Investment in Public Equities. The latter are the subject of significant SEC scrutiny. Unfortunately, the number of these schemes is overwhelming, they are difficult to investigate, and they change structurally in an attempt to skirt securities laws.
Share-selling schemes like MMEX are complex, and while they are legal in the literal sense, they exist in a grey area, skirting the intentions of securities laws. MMEX Resources is one of those schemes, walking a fine line between what is, and is not legal under U.S. securities laws.
On the surface, MMEX Resources appears to be a legitimate company, executing a legitimate business plan. Indeed, MMEX has made superficial progress on its Pecos County Project, including acquiring a 126-acre parcel of land, obtaining a TCEQ Type O Air Quality Permit, execution of an easement with UTLands, improvement of a construction haul-road - all relatively simple, and relatively inexpensive milestones, which to an unsophisticated retail investor, appear to be positive progress.
Unfortunately, all of this activity has been financed via a toxic lending scheme, fueled by “equity based lending” from the company’s OTC market capitalization. MMEX itself was formed by take-overs and reverse mergers of shell corporations that exist on the OTC market - public corporations, with zero assets, which are manipulated into publicly traded equities like MMEX. MMEX itself began as “Inkie Entertainment Group,” a Nevada-based film and entertainment company, that was eventually re-cast into MMEX Resources through five shell company reverse merger steps.
Today, MMEX Resources is an insolvent shell company, structured as a super-dilutive OTC equity. MMEX has cumulative liabilities and shareholder losses exceeding $40-million, current convertible debt exceeding $2-million, growing at a rate of about $350,000 every 60-days. The company is currently trading on the OTC Pink market as MMEX, its most recent closing price was $0.0.09125 per share.
On Nov. 15, 2018, MMEX executed a 1-for-100 reverse split - the ex-split event took MMEX from a share price of 0.0014 to 0.14. Since the ex-split, MMEX’s share price has declined on average 40% in the period from the ex-split date to the end of calendar 2018.
Over the calendar year 2018, MMEX has lost greater than 95% of its value.
In the nearly two year period since MMEX announced the Pecos County Refinery Project, MMEX retail investors have been exposed to market losses that exceed 99% of their investment value, since the early April 2017 run-up of MMEX’s share price, and more recently, exposure to greater than 70% loss in investment value, in the period between November 17, 2017, the point in time MMEX conducted its groundbreaking event, to date. MMEX failed to meet OTC QB marketplace requirements, having been in default of the QB 0.01 closing price requirement, after 30 days in which MMEX’s share price closed below that threshold. MMEX de-listed from the OTC QB marketplace, and fell back to the OTC Pink market beginning with the market opening on Monday, April 9.
MMEX Resources is unable to obtain project financing, or access conventional lending, and as such has resorted to the use of equity-based lending on a series of convertible debentures, which are structured as Private Investment in Public Equities (PIPE) transactions. These notes, in excess of $2-million are floor-less convertible debt deals - each generating a relatively small amount of cash, heavily discounted on the front-end of the note, a portion of which is paid out to the lender itself, with the remainder going to MMEX. Over the cycle of the note’s maturity, the lender will convert the debt to shares in MMEX, which in turn are liquidated on the OTC market to cash. The number of shares is virtually unlimited, because the note uses a market-price based “ratchet” instead of a fixed number of shares to repay the debt.
Most of the cash generated in the form of proceeds from these notes, MMEX’s sole income stream, have been diverted into the hands of Mad J., the company’s CEO, in the form of SG&A expenses and related-party transaction fees - the cash is siphoned out of MMEX, into a privately held shell corporate, Maple Resources. Keep in mind that MMEX has no business operations, no employees, and no assets - how is it possible to generate more than $2-million in SG&A expense?
Because MMEX Resources is a Nevada corporation, a non-recourse state, it has virtually unlimited ability to increase its authorized, and issuable shares of common stock.
On March 31, 2017, the Company amended its articles of incorporation to provide for an increase in the authorized shares of common stock from 3,000,000,000 to 5,000,000,000 shares. In addition, the articles of incorporation were amended to provide for two classes of common shares: (i) Class A Shares, having one vote per share, and (ii) Class B Shares, with 10 votes per share.
Subsequent to January 31, 2018, the Company amended its articles of incorporation to provide for an increase in the authorized shares of common stock from 5,000,000,000 shares to 12,000,000,000 shares.
The huge number of MMEX authorized shares serves as the “fuel” for issuance of these toxic notes.
As an example, during the three months ended January 31, 2018, Vista, one of MMEX’s lenders, converted $182,170 principal into 33,836,872 total shares of the Company’s Class A common stock. The 33.8-million shares in this conversion were unregistered securities, subject to SEC Rule 144 holding period requirements. When these 33.8-million shares entered the market, after the Rule 144 holding period expiry, they became immediately tradable, and dilutive to existing retail investors. Using the average period closing price for MMEX, this single transaction resulted in gross proceeds to the lender of $329,819 - a 176% return on investment, and immediate dilutive impact to MMEX’s retail investors of those 33.8 million shares, and the equivalent dollar loss of $329,819.
On March 1, 2018, MMEX, through an amended S-1 transaction, registered 220-million shares of its stock to Vista, allowing Vista to avoid the SEC Rule 144 holding period requirement, and immediately liquidate its holdings in MMEX shares. The same process is applicable to all of MMEX's lenders, now that its S-1A registration is effective.
On Dec. 11, 2018, MMEX effected an S-3 registration, which removed the Rule 144 restriction on nearly 20-million shares held by two of its toxic note-holders, Vista, and GS Capital. Concurrently, on Dec. 13, 2018, MMEX granted options to Mad J., and The Lemon on their Class B holdings.
A summary of the mechanics of toxic PIPE financings of the nature MMEX is using is included at the end of this post as a reference, should it be useful.
With respect to MMEX Resources, and its principles, including Mr. Jack W. Hanks Jr., the following information may be useful - this information was excerpted, verbatim from MMEX’s SEC filings, including its 10-Q, 10-K and related filings, available through sec.gov:
Background of the Company
The Company was engaged in the exploration, extraction and distribution of coal from September 23, 2010 until April 12, 2016. As of April 12, 2016, the Company changed its business to the exploration, extraction, refining, distribution of oil, gas ,petroleum products and electric power. Effective as of April 6, 2016, the Company changed its name from MMEX Mining Corporation to MMEX Resources Corporation to reflect the change in its business plan.
Company History
MMEX Resources Corporation (the Company or "MMEX"
was formed in the State of Nevada on May 19, 2005 as Inkie Entertainment Group, Inc., for the purpose of engaging in the production, distribution and marketing of filmed entertainment products. On January 15, 2008, the Company changed its name to Quantum Information, Inc. In January 2009, the Company announced that it would transition out of the filmed entertainment products business and into the coal business. As part of that transition, on January 14, 2009, the Company sold all of its assets in exchange for the surrender to the Company of 4,000,000 shares of the Company's common stock, and the assumption of all of the Company's liabilities. The Company also changed its name to MGMT Energy, Inc. on February 5, 2009 to Management Energy, Inc. on May 28, 2009 to better reflect the Company's business focus. On September 23, 2010, the Company, through a reverse merger, acquired 100% of the outstanding shares of Maple Carpenter Creek Holdings, Inc., ("MCCH" a Delaware Corporation, organized on October 15, 2009 as a holding Company with an 80% interest in Maple Carpenter Creek, LLC ("MCC" , which in turn owned a 95% interest in the subsidiary, Carpenter Creek, LLC ("CC" , and at the time of the merger, owned a 98.12% interest in Armadillo Holdings Group Corp. ("AHGC" , which in turn owned an 80% interest in Armadillo Mining Corp. ("AMC" . As of April 30, 2013, AHGC owned 94.6% of AMC through additional capital contributions. The non-controlling interest of 1.88% in AHGC was subsequently acquired by MCCH on December 21, 2010 in exchange for 313,339 shares of MMEX. On February 22, 2011, the Company amended its articles of incorporation to change the corporate name from Management Energy, Inc. to MMEX Mining Corporation. On April 6, 2016 the Company amended its articles of incorporation to change the corporate name to MMEX Resources Corporation and to authorize the Company to issue up to 1,000,000,000 common shares and 10,000,000 preferred shares.
A summary of the recent “chain” of shell corporation transactions on OTC: Inkie Entertainment Group, Inc. -> Quantum Information, Inc. -> MGMT Energy, Inc. -> Management Energy, Inc. -> MMEX Mining Corporation -> MMEX Resources Corporation (ignoring all the interrelated reverse merger/acquisition including MCCH, MCC, CC, AMC, and AHGC)
Recently, Hanks promoted a similar project to MMEX, a “startup refinery” that was to be built in Guatemala. That project was never realized, and a nearly identical “script” is being executed in the United States, with respect to MMEX’s Pecos County Refinery project.
Prior to that, Hanks last business, Maple Energy PLC was traded on the London Stock Exchange. It was suspended, then de-listed.
The de-listing event was due to creditor default - failure to pay back toxic notes similar to those executed by MMEX. The suspension and de-listing were advertised to the shareholders as “taking the company private”.
Here are some links:
http://www.morningstar.co.uk/uk/news/AN_14134...diary.aspx
http://www.morningstar.co.uk/uk/news/AN_14144...diary.aspx
Suspension:
http://www.morningstar.co.uk/uk/news/AN_14180...loans.aspx
De-listing:
http://www.londonstockexchange.com/exchange/n...81600.html
This list is the partial reference for many of Hank's other ventures:
MMEX Mining
Maple Resources
Latam Services
Infrastructure Fund of Texas
Maple Management
Maple Project Finance
Collet Oil Ventures
The Maple Gas Corporation
Maple Water Company
JRE Holdings
JRE Finance
Maple Gulf Coast Properties
Condor Oilfield Service
Maple PowerResources
Sting Sports Group
Maple Carpenter Creek
Montana Royalty
Maple Structure Holding
Maple Coal Services
Maple Werks
Notre Capitol Ventures
One should also take a look at Hank’s status with the Texas Bar Association, and his history back to the 1988 fraud case that was brought against Mr. Hanks:
https://www.deseretnews.com/article/7873/US-M...O-STT.html
Structured PIPE Share-selling, aka “Death-Spiral Financing"
This is a short, simplified example of the mechanics of a PIPE financing of this type - also known as “death-spiral financing".
MMEX’s “loans” against “equity” are structured PIPE transactions, which on the front-end generate a cash discount, paid to the toxic lender, and a cash component, paid to MMEX - roughly $100K chunks. Each of the notes has an associated set of terms; an interest rate, maturity date, and most important, a market-based conversion formula, or “ratchet.” These transactions are “floor-less,” because instead of a fixed number of shares obtained at conversion, the number of shares available floats, based on the company’s share price. The shares are heavily discounted. As a rule of thumb, a deal structured around a $100K principle amount, on a normalized share price of 0.01, with average ratchet terms (30% - 40% discount) translates into 30-million shares of dilution, when conversion occurs.
When there is no limit on the downward adjustment of the conversion price, the prospect of large-scale conversions and sales at declining prices can create selling pressure which pushes the issuer’s share price downward.
Structured PIPE lenders are ambivalent towards the performance of the company because they can reap substantial gains as the stock spirals downward.
To illustrate the strategy, a lender will short sell the company's stock at a price of "X" per share. A high volume of short selling pushes the share price down to X-1. The lender’s conversion price is then reset to the discounted X-1.
The lender then partially converts the toxic note at X-1 to cover the shares it sold at X, delivers the shares necessary to cover the short sales, and has a large number of shares left over, which it can then sell when the price hits X-2.
The toxic lender is able to cover its own shorts, in intra-day short & cover strategy, with zero risk, because of the huge number of shares they receive on conversion.
The more the lender pushes down the market price with this strategy, the more profit it makes on each conversion.
If the lender short sells at X per share, it will make much more if it can convert its shares to cover at X-4 than it will make by covering at X-2.
The "death spiral" continues until the company is forced to issue huge amounts of virtually worthless stock. The toxic lender already locked in its profit with short sales while the ordinary shareholders get crushed.
The OTC has traditionally been ripe for varieties of equities-based securities fraud schemes, ranging from so-called “pump and dump” promotion schemes, to more complex, pyramid-style schemes, many of which are rooted in what’s known as PIPE transactions - Private Investment in Public Equities. The latter are the subject of significant SEC scrutiny. Unfortunately, the number of these schemes is overwhelming, they are difficult to investigate, and they change structurally in an attempt to skirt securities laws.
Share-selling schemes like MMEX are complex, and while they are legal in the literal sense, they exist in a grey area, skirting the intentions of securities laws. MMEX Resources is one of those schemes, walking a fine line between what is, and is not legal under U.S. securities laws.
On the surface, MMEX Resources appears to be a legitimate company, executing a legitimate business plan. Indeed, MMEX has made superficial progress on its Pecos County Project, including acquiring a 126-acre parcel of land, obtaining a TCEQ Type O Air Quality Permit, execution of an easement with UTLands, improvement of a construction haul-road - all relatively simple, and relatively inexpensive milestones, which to an unsophisticated retail investor, appear to be positive progress.
Unfortunately, all of this activity has been financed via a toxic lending scheme, fueled by “equity based lending” from the company’s OTC market capitalization. MMEX itself was formed by take-overs and reverse mergers of shell corporations that exist on the OTC market - public corporations, with zero assets, which are manipulated into publicly traded equities like MMEX. MMEX itself began as “Inkie Entertainment Group,” a Nevada-based film and entertainment company, that was eventually re-cast into MMEX Resources through five shell company reverse merger steps.
Today, MMEX Resources is an insolvent shell company, structured as a super-dilutive OTC equity. MMEX has cumulative liabilities and shareholder losses exceeding $40-million, current convertible debt exceeding $2-million, growing at a rate of about $350,000 every 60-days. The company is currently trading on the OTC Pink market as MMEX, its most recent closing price was $0.0.09125 per share.
On Nov. 15, 2018, MMEX executed a 1-for-100 reverse split - the ex-split event took MMEX from a share price of 0.0014 to 0.14. Since the ex-split, MMEX’s share price has declined on average 40% in the period from the ex-split date to the end of calendar 2018.
Over the calendar year 2018, MMEX has lost greater than 95% of its value.
In the nearly two year period since MMEX announced the Pecos County Refinery Project, MMEX retail investors have been exposed to market losses that exceed 99% of their investment value, since the early April 2017 run-up of MMEX’s share price, and more recently, exposure to greater than 70% loss in investment value, in the period between November 17, 2017, the point in time MMEX conducted its groundbreaking event, to date. MMEX failed to meet OTC QB marketplace requirements, having been in default of the QB 0.01 closing price requirement, after 30 days in which MMEX’s share price closed below that threshold. MMEX de-listed from the OTC QB marketplace, and fell back to the OTC Pink market beginning with the market opening on Monday, April 9.
MMEX Resources is unable to obtain project financing, or access conventional lending, and as such has resorted to the use of equity-based lending on a series of convertible debentures, which are structured as Private Investment in Public Equities (PIPE) transactions. These notes, in excess of $2-million are floor-less convertible debt deals - each generating a relatively small amount of cash, heavily discounted on the front-end of the note, a portion of which is paid out to the lender itself, with the remainder going to MMEX. Over the cycle of the note’s maturity, the lender will convert the debt to shares in MMEX, which in turn are liquidated on the OTC market to cash. The number of shares is virtually unlimited, because the note uses a market-price based “ratchet” instead of a fixed number of shares to repay the debt.
Most of the cash generated in the form of proceeds from these notes, MMEX’s sole income stream, have been diverted into the hands of Mad J., the company’s CEO, in the form of SG&A expenses and related-party transaction fees - the cash is siphoned out of MMEX, into a privately held shell corporate, Maple Resources. Keep in mind that MMEX has no business operations, no employees, and no assets - how is it possible to generate more than $2-million in SG&A expense?
Because MMEX Resources is a Nevada corporation, a non-recourse state, it has virtually unlimited ability to increase its authorized, and issuable shares of common stock.
On March 31, 2017, the Company amended its articles of incorporation to provide for an increase in the authorized shares of common stock from 3,000,000,000 to 5,000,000,000 shares. In addition, the articles of incorporation were amended to provide for two classes of common shares: (i) Class A Shares, having one vote per share, and (ii) Class B Shares, with 10 votes per share.
Subsequent to January 31, 2018, the Company amended its articles of incorporation to provide for an increase in the authorized shares of common stock from 5,000,000,000 shares to 12,000,000,000 shares.
The huge number of MMEX authorized shares serves as the “fuel” for issuance of these toxic notes.
As an example, during the three months ended January 31, 2018, Vista, one of MMEX’s lenders, converted $182,170 principal into 33,836,872 total shares of the Company’s Class A common stock. The 33.8-million shares in this conversion were unregistered securities, subject to SEC Rule 144 holding period requirements. When these 33.8-million shares entered the market, after the Rule 144 holding period expiry, they became immediately tradable, and dilutive to existing retail investors. Using the average period closing price for MMEX, this single transaction resulted in gross proceeds to the lender of $329,819 - a 176% return on investment, and immediate dilutive impact to MMEX’s retail investors of those 33.8 million shares, and the equivalent dollar loss of $329,819.
On March 1, 2018, MMEX, through an amended S-1 transaction, registered 220-million shares of its stock to Vista, allowing Vista to avoid the SEC Rule 144 holding period requirement, and immediately liquidate its holdings in MMEX shares. The same process is applicable to all of MMEX's lenders, now that its S-1A registration is effective.
On Dec. 11, 2018, MMEX effected an S-3 registration, which removed the Rule 144 restriction on nearly 20-million shares held by two of its toxic note-holders, Vista, and GS Capital. Concurrently, on Dec. 13, 2018, MMEX granted options to Mad J., and The Lemon on their Class B holdings.
A summary of the mechanics of toxic PIPE financings of the nature MMEX is using is included at the end of this post as a reference, should it be useful.
With respect to MMEX Resources, and its principles, including Mr. Jack W. Hanks Jr., the following information may be useful - this information was excerpted, verbatim from MMEX’s SEC filings, including its 10-Q, 10-K and related filings, available through sec.gov:
Background of the Company
The Company was engaged in the exploration, extraction and distribution of coal from September 23, 2010 until April 12, 2016. As of April 12, 2016, the Company changed its business to the exploration, extraction, refining, distribution of oil, gas ,petroleum products and electric power. Effective as of April 6, 2016, the Company changed its name from MMEX Mining Corporation to MMEX Resources Corporation to reflect the change in its business plan.
Company History
MMEX Resources Corporation (the Company or "MMEX"
was formed in the State of Nevada on May 19, 2005 as Inkie Entertainment Group, Inc., for the purpose of engaging in the production, distribution and marketing of filmed entertainment products. On January 15, 2008, the Company changed its name to Quantum Information, Inc. In January 2009, the Company announced that it would transition out of the filmed entertainment products business and into the coal business. As part of that transition, on January 14, 2009, the Company sold all of its assets in exchange for the surrender to the Company of 4,000,000 shares of the Company's common stock, and the assumption of all of the Company's liabilities. The Company also changed its name to MGMT Energy, Inc. on February 5, 2009 to Management Energy, Inc. on May 28, 2009 to better reflect the Company's business focus. On September 23, 2010, the Company, through a reverse merger, acquired 100% of the outstanding shares of Maple Carpenter Creek Holdings, Inc., ("MCCH" a Delaware Corporation, organized on October 15, 2009 as a holding Company with an 80% interest in Maple Carpenter Creek, LLC ("MCC" , which in turn owned a 95% interest in the subsidiary, Carpenter Creek, LLC ("CC" , and at the time of the merger, owned a 98.12% interest in Armadillo Holdings Group Corp. ("AHGC" , which in turn owned an 80% interest in Armadillo Mining Corp. ("AMC" . As of April 30, 2013, AHGC owned 94.6% of AMC through additional capital contributions. The non-controlling interest of 1.88% in AHGC was subsequently acquired by MCCH on December 21, 2010 in exchange for 313,339 shares of MMEX. On February 22, 2011, the Company amended its articles of incorporation to change the corporate name from Management Energy, Inc. to MMEX Mining Corporation. On April 6, 2016 the Company amended its articles of incorporation to change the corporate name to MMEX Resources Corporation and to authorize the Company to issue up to 1,000,000,000 common shares and 10,000,000 preferred shares. A summary of the recent “chain” of shell corporation transactions on OTC: Inkie Entertainment Group, Inc. -> Quantum Information, Inc. -> MGMT Energy, Inc. -> Management Energy, Inc. -> MMEX Mining Corporation -> MMEX Resources Corporation (ignoring all the interrelated reverse merger/acquisition including MCCH, MCC, CC, AMC, and AHGC)
Recently, Hanks promoted a similar project to MMEX, a “startup refinery” that was to be built in Guatemala. That project was never realized, and a nearly identical “script” is being executed in the United States, with respect to MMEX’s Pecos County Refinery project.
Prior to that, Hanks last business, Maple Energy PLC was traded on the London Stock Exchange. It was suspended, then de-listed.
The de-listing event was due to creditor default - failure to pay back toxic notes similar to those executed by MMEX. The suspension and de-listing were advertised to the shareholders as “taking the company private”.
Here are some links:
http://www.morningstar.co.uk/uk/news/AN_14134...diary.aspx
http://www.morningstar.co.uk/uk/news/AN_14144...diary.aspx
Suspension:
http://www.morningstar.co.uk/uk/news/AN_14180...loans.aspx
De-listing:
http://www.londonstockexchange.com/exchange/n...81600.html
This list is the partial reference for many of Hank's other ventures:
MMEX Mining
Maple Resources
Latam Services
Infrastructure Fund of Texas
Maple Management
Maple Project Finance
Collet Oil Ventures
The Maple Gas Corporation
Maple Water Company
JRE Holdings
JRE Finance
Maple Gulf Coast Properties
Condor Oilfield Service
Maple PowerResources
Sting Sports Group
Maple Carpenter Creek
Montana Royalty
Maple Structure Holding
Maple Coal Services
Maple Werks
Notre Capitol Ventures
One should also take a look at Hank’s status with the Texas Bar Association, and his history back to the 1988 fraud case that was brought against Mr. Hanks:
https://www.deseretnews.com/article/7873/US-M...O-STT.html
Structured PIPE Share-selling, aka “Death-Spiral Financing"
This is a short, simplified example of the mechanics of a PIPE financing of this type - also known as “death-spiral financing".
MMEX’s “loans” against “equity” are structured PIPE transactions, which on the front-end generate a cash discount, paid to the toxic lender, and a cash component, paid to MMEX - roughly $100K chunks. Each of the notes has an associated set of terms; an interest rate, maturity date, and most important, a market-based conversion formula, or “ratchet.” These transactions are “floor-less,” because instead of a fixed number of shares obtained at conversion, the number of shares available floats, based on the company’s share price. The shares are heavily discounted. As a rule of thumb, a deal structured around a $100K principle amount, on a normalized share price of 0.01, with average ratchet terms (30% - 40% discount) translates into 30-million shares of dilution, when conversion occurs.
When there is no limit on the downward adjustment of the conversion price, the prospect of large-scale conversions and sales at declining prices can create selling pressure which pushes the issuer’s share price downward.
Structured PIPE lenders are ambivalent towards the performance of the company because they can reap substantial gains as the stock spirals downward.
To illustrate the strategy, a lender will short sell the company's stock at a price of "X" per share. A high volume of short selling pushes the share price down to X-1. The lender’s conversion price is then reset to the discounted X-1.
The lender then partially converts the toxic note at X-1 to cover the shares it sold at X, delivers the shares necessary to cover the short sales, and has a large number of shares left over, which it can then sell when the price hits X-2.
The toxic lender is able to cover its own shorts, in intra-day short & cover strategy, with zero risk, because of the huge number of shares they receive on conversion.
The more the lender pushes down the market price with this strategy, the more profit it makes on each conversion.
If the lender short sells at X per share, it will make much more if it can convert its shares to cover at X-4 than it will make by covering at X-2.
The "death spiral" continues until the company is forced to issue huge amounts of virtually worthless stock. The toxic lender already locked in its profit with short sales while the ordinary shareholders get crushed.
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