A tiny Alaska company claims access to a half-billion barrels of oil on the North Slope, but its assertions and finances are being questioned by the Securities and Exchange Commission, which suspended trading of its stock this week.
Polar Petroleum had seen its stock shoot from pennies a share to $5.75, before the SEC suspension. That's despite the company having no revenue and no prospects for any in the near future, according to its SEC filings.
The company has been aggressively marketing its stock, drawing attention from those who watch for stock fraud, both officially and unofficially.
Polar officers, including President Dan Walker, and others doing work for the company have been paid in stock. They can benefit personally if the stock value runs up and they can sell it.
Pump and dump
Polar spent $2.6 million on a promotional campaign, far exceeding what it spent on developing its Alaska oil leases. According to Polar's most recent quarterly report, it had total expenses of $280,000 since its inception in 2011.
To Seattle-area independent stock watchdog Yolanda Holtzee, that stock promotion effort looks like potential fraud.
"It's what's known as a 'pump and dump,'" she said, where people sell hyped stocks that are likely to fall after the insiders sell.
Holtzee, who issued her warning prior to the SEC action, praised regulators for taking action this week. She was among those who got the promotional emails.
"This is an exploration company. Wouldn't that money be better used doing a little drilling?" Holtzee asked.
An emailed promotion for Polar that was made to look like an independent newsletter said, "This tiny oil stock COULD MAKE YOU RICH!"
It also includes a picture of Gov. Sean Parnell and a prediction that the recently signed Alaskan oil tax cut "could spark a second Alaskan oil rush" that Polar investors could profit from.
The newsletter is labeled "confidential" and has a listed price of $29.95, but in the fine print it indicated that promotors are providing the Polar recommendation. The fine print acknowledges its publisher was paid $1.46 million to produce and distribute the newsletter.
Questions of 'adequacy and accuracy'
The SEC said in its order suspending trading in Polar stock that it took action due to "questions regarding the adequacy and accuracy of assertions by Polar, and by others, to investors in press releases and promotional material concerning, among other things, the company's assets, operations, and financial condition."
Polar did not respond to email and phone questions to its investor-relations department.
At share prices and outstanding volumes prior to the suspension, the company would now be worth $248 million.
Columnist David Merkel of the Seeking Alpha investment website said he got the Polar promotion in a paid email from the Washington Times newspaper, and he urged the publication to not participate in such schemes.
Polar's promotion effort is "likely being used by the promoters to do a 'pump and dump,' where affiliates do a series of transactions that inflate the price of the thinly traded stock, and use this promotion to dupe people into buying out their shares at inflated prices, leaving them holding stock of a worthless company," Merkel wrote.
Shortly after the trading suspension, the SEC and the Financial Industry Regulatory Authority issued an investor-alert warning. "Don't trade on pump-and-dump stock e-mails," designed to trick unsuspecting investors, it urged.
Polar does have actual assets, including 10,714 acres on which it holds leases, according to the Alaska Division of Oil and Gas.
Leases purchased from Donkel
Those and other leases were purchased from Donkel Oil & Gas President Dan Donkel, who has long acquired oil-and-gas leases and then sold them to larger companies after they increased in value. Donkel retains a royalty interest in the leases he sold to Polar and will get them back if Polar doesn't fulfill its obligation to drill at least one well within two years.
Ironically, Donkel was an outspoken opponent of Parnell's Senate Bill 21 that the Polar newsletter is now touting, saying it shifts the state's tax system to benefit existing producers and eliminates the kind of incentives small explorers need to develop new oil fields -- measures contained in the existing ACES oil tax system.
"Based on my long, successful history in attracting oil-and-gas companies to Alaska, I believe SB 21 is a deal killer," Donkel said in legislative testimony this year.
Among the companies he told legislators he'd sold leases to were Apache Corp. and Polar, as well as numerous others.
Donkel said this week he's skeptical that Polar would do anything unethical, but his responsibility ends when he sells the lease.
"In a perfect world I would like to sell all leases to only those oil companies that will guarantee me that they will drill and discover giant oil and gas fields -- and never make any mistakes. But we don't live in a perfect world," Donkel said.
He said he expects the SEC review to clear Polar.
The Polar trading suspension ends June 24. Merkel of the Seeking Alpha website said he had been predicting the stock will fall to 50 cents per share within the year. Following the trading suspension, it could go there as soon as June 24, he wrote.
The promotional newsletter had predicted a stock price of $27 a share.
Contact Pat Forgey at pat(at)alaskadispatch.com
CORRECTION: An earlier version of this story in correctly reported who sold the leases to Polar Petroleum. Donkel sold leases he owned personally, not through Donkel Oil & Gas.