Meson Capital Partners
There were two new disclosures on the most recent Odyssey Marine
) conference call held in March 2014:
1) Oceanica (OMEX's 54% controlled Bahamas>Panama>Mexican
mining venture) has less than $400k in the bank.
2) Oceanica has a payable of $10mm to OMEX for services
These likely indicate Mako has a very compromised status with
respect to their rights as investors, and potentially indicate that
Mako investors did not conduct their proper Due Diligence or may
have been misled. Is this why they chose not to exercise their
options December 31, when they were due to expire?
OMEX raising cash via Mako appears to us to be a "backdoor"
capital raise that circumvents the SEC securities registration
rules required for public companies. Let's understand why OMEX's
Oceanica Capital Raise was very different than a typical venture
capital round, and not something we have ever seen before, because
of the unnecessary weakness and danger for investors:
(click to enlarge)
(click to enlarge)
Why would Mako investors agree to such an unfavorable investment
structure? With OMEX as both the controlling shareholder AND senior
security holder, they could potentially demand payment on their
$10mm payable and wipe out the
insolvent equity position (as Oceanica appears never to have
directly raised equity itself). Given the enormous capital
requirements to test and prove a mine (still waiting for the
NI43-101 report…?), why would Mako be OK with their $27.5mm instead
of being directly injected into Oceanica, going to OMEX to pay for
compensation and other unrelated expenses? Didn't Neptune/Dorado's
original investors get impaired in 2012 exactly because of this
"Odyssey has provided approximately $10 million of services to
the Oceanica subsidiary… if Oceanica were to raise funds itself,
then they would pay $10 million of cash to Odyssey in the future"
- Philip Devine, CFO, March 17, 2014 OMEX conference call
Now, if Oceanica tries to raise capital directly, guess where
that cash is going? It is going to cost a LOT more to prove and
build a mine, and $10mm is going to go directly back to the OMEX
parent to… pay compensation and expenses
to Oceanica? Mako doesn't earn a dime if OMEX is successful at
their other projects (though this has historically not been a
potential outcome). Why are they OK with being "behind the
elephant" in their lower seniority position as investors?
What is Mako Resources exactly?
Mako Resources is managed by Josh Adam out of a one-bedroom
apartment next to NYU, according to the
SEC form D
. Josh Adam represents himself to be a CFA charterholder, and as
manager of Mako, has a legal fiduciary duty to those investors who
have apparently given him $27.5mm. Given Josh's other connections
to OMEX via Neptune Minerals, we have questioned whether these are
truly arm's-length transactions, and these new disclosures deepen
Still unanswered: Why does Oceanica need to be structured
through multiple layers of offshore subsidiaries in the Bahamas and
Panama? We discussed in depth their Panamanian partner, DNA Ltd.
Inc.'s director's multiple connections to alleged criminal activity
in our original report at
on Oct 31, 2013, which has still not been credibly addressed by
What other capital raises has Josh Adam been involved
Neptune Minerals, OMEX's other undersea mining venture, where it
owns 30%. While apparently deeply insolvent, Neptune has been
trying to raise capital at a valuation far lower than OMEX's most
recent representations to public investors. See our
last Neptune smoking-gun
for more details.
More interestingly, though, is a
recent SEC disclosure
, where Neptune (where Josh Adam is senior VP of Finance) finally
discloses what brokers has helped them raise capital. We understand
from our friends in Tampa that Josh boasts of bringing in the
("Certified Rich Guys") from his NY connections. Who helps him (for
fees of $388k at Neptune) bring in the capital?
We'll start with National Securities Corporation, a firm that
57 regulatory events
on file with FINRA. The list is long, but we will cover only some
of the highlights here. The full list is available on the FINRA
National Securities Corporation
In 2011, National Securities Corporation was censured and
ordered to pay a fine of $175,000 in restitution to investors for
failing to have reasonable grounds for selling private placements
(is this similar to the Neptune deal currently being attempted?) to
customers of the firm, and for failing to conduct due diligence
into the offering. The findings also stated that Mathew Portes (a
broker with the firm) and the firm became aware of multiple red
flags regarding an offering, including liquidity concerns, missed
interest payments and defaults, that should have put them on notice
of possible problems, but the firm continued to sell the offering
Given Odyssey just wrote off the money loaned to Neptune last
quarter (implying the junior equity security is worthless - watch
that $10mm payable carefully Mako!), we find this similarity
FINRA found that Portes reviewed the PPMs of these offerings and
diligence reports others prepared, but the review was cursory.
FINRA also found that the due diligence reports noted significant
risks, and specifically provided that its conclusions were
conditioned upon recommendations regarding guidelines, changes in
the PPMs and heightened financial disclosure of affiliated party
practices, but the firm did not investigate, follow up on or
discuss any of these potential conflicts or risks with either the
issuer or any third-party. In addition, FINRA determined that the
firm, acting through Mathew Portes, failed to enforce reasonable
supervisory procedures to detect or address potential "red flags"
as related to these offerings; and the firm, acting through Mathew
Portes, failed to maintain a supervisory system reasonably designed
to achieve compliance with applicable securities laws and
What kind of due diligence has National Securities Corporation
done on Neptune? Are they aware that Neptune appears to be
currently insolvent, according to Odyssey public filings?
Further, why would the management of Neptune/Odyssey choose to
work with a firm with such a consistently questionable track record
unless they were absolutely desperate?
It doesn't end there, here are just a few more of the recent
multiple fines National Securities Corporation has paid due to
publicly known problems:
In December of 2012, to resolve allegations that the firm
ignored red flags involving instances of potentially suspicious
securities transactions and failed to report those activities as
required by the bank secrecy act, they paid FINRA a
fine of $65,000.
In May 2011, to resolve allegations that their sales and
supervision of Reg D/private placement offerings was deficient,
National Securities was censured and required to pay restitution of
In one case, National Securities Corporation has even been named
a defendant in a
And these are just the recent cases, it actually gets worse and
goes back for over three decades. In fact, National Securities
Corporation is so bad that it's had
different FINRA regulatory events against the company going back to
the early 1980s - these are not one-off incidents. Meson has
already uncovered shady ties between Odyssey and unnecessary
offshore Panamanian and Bahamian subsidiaries - which Odyssey has
still never explained. The question is, why would you trust these
people with your money when they're intentionally tying up with
these multiple, very questionable business partners?
International Assets Advisory
International Assets Advisory, the other broker touting Neptune
stock, isn't much better. Although IAA "only" has six regulatory
events on record with FINRA, the firm and its brokers have been
tied to some legendary blow-ups.
In one case, Jeffrey Rubin, a broker at International Assets
Advisory at the time, was behind an investment scheme that lost a
staggering $40,000,000 for
31 NFL players.
It's unclear what role, if any, IAA played in this melt-down, and
the investigation is ongoing. Mr. Rubin has since been barred from
the industry by FINRA.
In our opinion, it's clear both of these firms represent the
bottom of the barrel among capital raising opportunities, so it's
unclear why Neptune would even consider working with these groups
unless they were desperate - but what we do know is the
1. Neptune paid these firms ~$388,000 in commissions in
conjunction with their last
2. Neptune has continued to flounder, and is now back in the
market for equity, capital that we believe will be squandered
needlessly like all the previous capital Neptune has raised.
3. As we highlighted in our last report, Odyssey is no longer
claiming Neptune is an off-balance sheet source of wealth creation
(they removed the slide in their most recent presentation,
validating our concerns).
We continue to believe the Odyssey is in the business of selling
the dream of a lottery ticket stock - a ticket that has been proven
worthless over 16 years, costing shareholders over $180m in
cumulative losses, while insiders have earned over $20mm cash.
Conclusion: Mako investors need to ask questions
Mako and Neptune investors need to start asking tough questions
of the people that owe them a legal fiduciary duty.
1) Why was Mako's $27.5mm in capital not injected directly into
Oceanica, where it could be used to build the business?
2) How much of Mako's $27.5mm has gone to paying OMEX's
corporate salaries and perks?
3) How much of the $27.5mm is still in OMEX's US bank accounts
and could be sent back, avoiding likely total loss?
4) How did OMEX determine that $10mm was a fair price to charge
their controlled subsidiary, Oceanica, for services?
5) How is Oceanica supposed to do anything with only <$400k
in the bank, when it takes millions to develop any mine? (Nautilus
Minerals Inc. has spent >$300mm, and still has negative cash
6) How is J.P. Morgan actually involved? Is it merely a local
Florida Chase Private Client branch trying to sell unregistered
Oceanica securities to HNW investors?
In case you are losing track of all of the interrelated entities
in the OMEX universe, here is a helpful diagram:
(click to enlarge)
I am short OMEX. I wrote this article myself, and it expresses my
own opinions. I am not receiving compensation for it. I have no
business relationship with any company whose stock is mentioned in
Ryan Morris publicly dedicated his personal profits from shorting
OMEX to charity in March 2014.
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