ECOtality Scandal: Insider Trading
ECOtality, Inc. is in more trouble than a rodeo clown wearing an Obama mask.
Deep difficulties for ECOtality, once President Obama’s prized showpiece for the electric car charger industry, started long before announcing it might go bankrupt in a SEC filing earlier this month.
Unrelated to its current troubles, ECOtality was already under SEC investigation for misconduct. That investigation swirls around a $100 million 2009 Recovery Act “stimulus” grant given it by the DOE. The investigation is still pending.
President Obama identified ECOtality as a green energy “stimulus” success story during the 2010 State of the Union Address. Founder Don Karner attended as Michelle Obama’s specially invited guest. At a trade show a week before, Energy Secretary Steven Chu bragged that “we are working very closely (with ECOtality) to get EVs on the road”.
But a few months later, on 8/28/2010, cracks began to show when the SEC notified ECOtality that “certain individuals” are being investigated for insider trading.
Today, it knocks at bankruptcy’s door. What went wrong?
Under the SEC Microscope
On October 28, 2010, we and our ECOtality North America subsidiary, as well as certain individuals, received subpoenas from the SEC, pursuant to a formal Private Order of Investigation
– ECOtality SEC Quarterly Report, 6/30/2011
Among other things, under scrutiny is total compensation for CEO Jonathan Read, which increased more than ten-fold from 2008 to 2009. It went from under $400,000 to more than $4.1 million in one year!
$3.7 million came in the form of 673,506 stock shares. At first Read was awarded 3.7 million shares, but that was later reduced without explanation. He also got a $75,000 cash bonus.
That is the same year ECOtality, with just 45 employees, got a big fat $100 million “stimulus” grant on 8/6/2009.
Up front, Read scored 4% of the taxpayer’s grant money right off the top!
Read ultimately owned 10% of all of ECOtality’s common stack.
SEC Subpoena Number Two
The details of the first 8/28/2010 SEC subpoena are shadowy. It is only referenced in an SEC filing. But not the 2nd one.
On 12/11/2011, the SEC sent out a 2nd subpoena for records of all communications and correspondence of 18 company officials and stockholders.
|1-Jonathan Read||10-Min Zhu|
|2-Harold W. Sciotto||11-Yuqing Xu|
|3-Edward Slade Mead||12-Brenda Lee Heath|
|4-Stephen L. Schey||13-Brett Wayne Upper|
|5-Garrett P. Beauregard||14-Mike John Primorac|
|6-Kathleen Weikauf||15-Marianne Nelson|
|7-Dave B. Sciotto||16-Orlan Othell Nelson|
|8-Gary Weinkauf||17-Lauren R. Hart|
|9-Dan C. Morris||18-Richard Lee Dobbs|
In addition to these 18, the SEC asked for all documents and communications of meetings involving Min Zhu, Yuqing Xu and Daryl Magana.
On the day ECOtality announced the $100 million grant, when its stock price skyrocketed, CEO Read and Harold W. Sciotto were the top two stock holders. It is likely not coincidence they are also the first two names listed on the SEC investigation subpoena.
At the time, Harold W. Sciotto owned the most stock, a whopping 20%! He sold most of that in the months after the announcement.
First off, ECOtality officers, as of 6/25/2010, with large stock holdings:
- Jonathon Read: 905,173 shares – CEO ECOtality
- Don Karner: 463,240 shares – Founder, CEO ECOtality North America
- Daryl Magana: 406,096 shares – Board of Directors
- Kevin Morrow: 206,560 share – VP ECOtality North America
- Harold W. Sciotto: 95,098 shares – Secretary-Treasurer, Director
Harold W. Sciotto is especially notable since by then he’d sold down his 20% holdings of ECOtality stock to just 1%.
Read and Harold Sciotto were the two largest stock holders at the time of the August 5th $100 million bonanza announcement.
Other large investors:
- Min Zhu, Yuqing Xu (Valley 2010 Investment LLC): 1,388,888 shares – Investors
- Enable Growth Partners LP, Enable Opportunity Partners, Pierce Diversified Strategy Master Fund LLC : 898,496
- Bridgepoint Master Fund Ltd., Providence Christian Foundation Inc.: 898,496
- Marion Lynton, Ardsley Partners Institutional, Ardsley Partners Institutional, Ardsley Offshore Fund, Ardsley Partners Renerwable, Ardsley Renewable Offshore: 898,496
- Edison Enterprises: 555,556
Web of Intrigue
On the list, Min Zhu and Yuqing Xu are husband and wife. They are major ECOtality investors.
Their 1.4 million shares of ECOtality stock are listed as owned by a company called “Valley 2010 Investment, LLC”. Wife Yuqing Xu is listed as the only officer and owner.
Min Zhu invented the highly successful online conferencing software called Webex, later purchased by Cisco. Min and and his wife are business partners in the Zhu-Xu Charitable Remainder Trust that owned 9.99% of ECOtality stock.
Daryl Magana, also named in the ECOtality subpoena, was a cozy partner of Zhu’s at Cybernaut Capital, an investment firm Zhu founded. Morgana is also an ECOtality board member.
Jonathon Read’s son, Colin, is ECOtality’s VP of corporate development. He is not listed in the subpoena, but his father-in-law and mother-in-law, Gary and Kathleen Weinkauf, are.
David B. Sciotto is Harold W. Sciotto’s nephew.
President Obama’s record of picking big-ticket green energy winners and losers is dismal.
Perhaps large quantities of federal dollars thrown at infant technologies isn’t the way to go. It tends to encourage wasteful spending that ruins budding enterprises. It happened with Solyndra, SunPower, A123 Systems, Fisker Automotive, Johnson Controls, Ener1 and 33 other “stimulus” funded companies so far.
Now… Obama’s former high-flying green energy showpiece, ECOtalitiy, has troubles that go beyond this month’s SEC filing that it might go bankrupt. It is also under SEC investigation for insider trading.
Nepotism and interlinking relationships among corporate officers and top stockholders in this very small company played a roll in its $100+ million demise.
Nobody is accused of anything… yet… but where there is smoke, there is usually fire.