Oil From Tires, Gold From Straw

I don't care much for penny stocks. But I have a problem, and if someone can solve it I won't begrudge where they come from.

These guys, who call themselves Green Envirotech Holdings, claim they can solve a big problem in my neighborhood.

Tires.

Every spring my neighbors and I go out hunting for old tires, and every year we find tons of them. Along the road, under viaducts, down in creek bottoms. Tires thrown around by guys who are selling tires to poor people and don't care for the expense of recycling them because they're poor themselves.

If you could turn tires into money, if the tires had value, then people wouldn't be going around stealing copper, they'd be grabbing these tires and making a semi-honest living.

Green Envirotech has a process it calls PlastExtract – it supposedly turns the shredder residue created by auto recyclers (who are mainly interested in metals) or what's found in old tires into plastic resins and a form of crude oil. For raw material it can also use low-grade plastic like the liners used in agriculture.

Right now the shredder residue is dumped in landfills. Green Envirotech – GETH for those who want to Google the stock – says it can reduce this waste by 40%. Plastic is another big landfill material, and the tires – the ones we collected went to a central facility from which they, too, were trucked to landfills.

Not to say there aren't people making use of old tires. My father-in-law dumped a bunch into the holding ponds on his ranch to build artificial reefs for algae eaten by whatever fish he could grow there. And they can be turned into padding for playgrounds – today's kids bounce where my kids got boo-boos and my generation got broken bones.

Still, in March GETH got $5 million in equity financing from a specialist in such dealings, which seems to have gone into buying a Hong Kong plastics broker called Magic Bright Ltd., for a reported price of $6 million. (An executive claimed Magic Bright has revenues of $40 million per year.) Over the first 8 months of last year the company filed 17 separate sets of documents with the SEC.

Last May GETH retained a boutique investment banker called Mosaic Capital LLC based in a small Sherman Oaks office building. At the end of the year it signed a joint venture deal with a unit of ACG Companies in Irvine, which seems to specialize in extracting capital from foreign nationals under the EB-5 program, which helps foreign investors establish residency in the U.S. The release claims the relationship will build plants costing $30 million each, using the PlastExtract process.

Right now the company remains a shell with big plans. There is a plant planned for Sheboygan, Wisconsin, in a former auto parts warehouse abandoned at year-end by International Automotive Components of Michigan. This plant would turn shredder residue from auto recycling into oil and usable plastic resin, and be financed by the city through tax-free industrial revenue bonds based on the employment of two shifts, 140 people, creating 120,000 barrels of oil and 50 million pounds of plastic resin annually from about 70 million pounds of material.

 The Sheboygan Press has been following the story and wrote in October that GETH had not yet raised the start-up capital required to go into operation.

All is supposedly explained by a document filed at the end of the year, which I found at a site called Docstoc.com. This document claims that Mosaic is raising $22 million, which will go into expanding Magic Bright, which it calls a “plastic broker,” and into working capital for the Sheboygan plant. GETH claims to have a letter of intent with Stone Green Capital LLC, a New York fund manager headed by a former J. P. Morgan real estate man, Lewis Jones, which would go into both debt and equity once the bonds are put in place by an unnamed third party. That's due to be ready in March.

There's also mention of a Kansas City outfit called Ebbros I Investment Group, which would build the plant. But this company does not seem to exist online except as a name on a GETH press release. That release also states that Ebbros will re-sell the oil.

Now, about penny stocks.

Usually penny stock outfits are headed by a sharpie who has been this way before. The sharpie in this case is Gary De Laurentiis. He was previously in another penny stock recycler, called Eco2Plastics. Eco2 has been flogging a “new” way to recycle plastic bottles for over a decade. After De Laurentiis left that company, they went through bankruptcy and emerged as a private company  – that was its last press release, and it's dated June, 2010.

Here's De Laurentiis getting interviewed on Youtube (in a GETH press release).

For me, Eco2 is the “tell” in this case. It was a similar deal – new recycling technology, solution for a popular problem, patents and deals and Gary De Laurentiis, hurry, hurry, hurry, step right up…and get burned.

So when I saw a press release touting GETH's presence in the tire recycling market, and I got a tweet from someone I never heard of before touting the stock, my spidey sense started tingling.

GETH has been as high as four cents, it's been at less than one cent, and it's at about three cents now, following the tweet campaign. It's showing $30,000 in revenue for the last quarter on which it had gross profits of $20,000 and “general administrative expenses” of $360,000.

So what is going on? Who is Ebbros, and why does GETH need them? Where is Magic Bright's revenue, because it's certainly not on GETH's books. When is someone going to be turning earth in Sheboygan? What about these foreign investors – are they just buying entry into the U.S. or are they going to multiply the Sheboygan “success” (when it comes) into something investors can profit from?

No retail investor should touch a deal like this until there's a plant built, operating, and working according to claims. Should that happen all this rigamarole is the market doing its job.

If it doesn't?