A Chain is Only as Strong as its Weakest Link: Citron comments on Interoil after a 7 year hiatus.


The Interoil story that has gone widely unnoticed — Why John Paulson might get fleas

While investors might be cheering or relieved to see news that Interoil has found a new CEO, Citron believes that investors might be looking at the wrong piece of news.

For those of you short selling history buffs, you might remember that Citron was the first to write about Interoil (NYSE:IOC), documenting its questionable cast of characters and lack of reserves… back in 2005.  It has been 8.5 years since we titled the headline on our story

“If you wish to be a success in the world, promise everything, deliver nothing.”

— Napoleon Bonaparte


At the time, the stock was trading within 10% of its current price. 

More notably at the end of 2006 we warned investors:

“While unchanged in its belief that the gas IOC discovered is unlikely to be monetized ever, we acknowledge the credibility of the story opens the door for IOC to raise new desperately needed equity to keep itself in the game for a long time. Any short term catalyst for the stock to go lower has seemed to disappear.”

We will not take this time to rehash the bear case which has been told ad naseum in most every media outlet in the world.  Instead we want to focus on one coincidence that has gone widely unnoticed – which could indeed be the weak link that causes the entire Interoil story to unravel.

One of the most impressive aspects of the Interoil promotion is their constant ability to attract “brand name” shareholders who have rotated over the past 9 years.  Their current “brand name” holders are none other than John Paulson and Richard Chandler, who beyond their riches and prior successes, were both holding the bag in the Sino-Forest debacle.

The story that Citron wants shareholders to focus on now is that of the involvement of John Thomas Financial and Tommy Belesis in Interoil.

Citron White Bkgd  Hero or Pond Scum?  You Decide.   
(Click to view the last 30 seconds of this classic for a  prophetic moment)

In 2009, Interoil was facing a precarious situation.  They needed their stock price to close above $32.50 for fifteen days to force a conversion of debt to equity. 

The CEO of John Thomas Financial was none other than the colorful Tommy Belesis who was able to transform himself into a Hollywood bit-part actor, while transforming Interoil from a stock promotion into a sub-plot of the movie “Wall Street 2:  Money Never Sleeps”.

But the plot has now gone sour.  On March 22, 2013, Belesis was charged with fraud by the SEC:



April 15, 2013, three weeks later in a completely unrelated matter, Belesis was charged with fraud by FNRA.


Exactly one week later, Phil Mulacek resigned as the CEO of Interoil, which he had nursed along from its infancy for over a decade.  Citron notes how the abruptness of his resignation stands out, and comes with no logical explanation.


It should be noted that Mulacek’s relation to Belesis did not stop at Interoil.  Mulacek’s brother, also a founding member of Interoil, Pierre Mulacek, had an OTC company that also did business with John Thomas Financial.


So here is how it ties together:

Citron will make the assumption that a company like John Thomas Financial did not just one day independently stumble upon Interoil as its best idea for an excellent investment.  John Thomas was a boiler room operation, where hundreds of “phone chimps” cold-called prospects to sell them the “house stock”.  Moreover, we are making the assumption that somewhere in that relationship was an unholy alliance that involved stock manipulation and that Tommy Belesis knows a lot more about Interoil and Mulacek than anyone wants him to.

Just yesterday we read that John Thomas has pulled its registration from FNRA — the firm will cease to exist. 


We believe this is a precursor to the next piece of news, which will be an indictment against Belesis.  If you read the charges of pump and dump and physically bullying brokers, it does not take a Wall Street historian to understand this will end in the hands of a criminal prosecuting attorney. 

When that happens, what does Tommy do?  If anyone knows the secrets of IOC, it is Tommy Belesis who knows where the bodies are buried.  Does he disclose his role in the relationships with Carlo Civelli and Phil Mulacek that have dogged Interoil for years?  If in fact we learn that Mulacek was actively involved in illegally promoting Interoil stock, how will that make shareholders feel about the reserves that are allegedly in Interoil’s fields?

This stock has long been a bull vs bear battle that we enjoyed watching from the sidelines.  While the bears have won on the informational side, the stock price has been a stalemate.  Yet we all know that a chain is only as strong as its weakest link.  The new CEO, who was previously unemployed is just window dressing on a bigger story. 

Tommy Belesis and crew are not exactly the type of chaps that either Richard Chandler or John Pauslon would have over for tea or polo in the Hamptons.  It will be interesting to watch this play out over the next months and see if he delivers even more egg on their face.  Eggs Benedict, of course.  

Cautious Investing to All.