Idaho judge keeps lid on AEHI spending plans

The penny stock firm that wants to build a $6 billion nuclear reactor is back in business

The improbable fortunes of Alternative Energy Holdings Inc (OTC:AEHI) took another surprising turn this week when U.S. District Court Judge Edward Lodge lifted the freeze on $7 million in assets held by the firm.

The action allows AEHI to resume operations. The company immediately issued a press release to notify stockholders and banks that for now things have returned to normal more or less.

"As I said before, the SEC was simply wrong about allegations that AEHI officials were defrauding their investors. After our evidence was laid before the judge, he agreed and made the decision to release the funds," said Richard Roth, Esq., of the Roth Law Firm, PLLC, from New York City, AEHI's attorney.

Judge Lodge required the firm to report any expenditure of more than $2,500 to the SEC. For its part, AEHI accepted the judge’s terms.

Setback for the SEC?

Attorney Roth had argued in court that the SEC failed to prove AEHI had violated federal securities laws. The regulatory agency had contended that AEHI engaged in a scheme to illegally pump up the price of its penny stock.

The SEC also alleged that CEO Don Gillispie and his VP Jennifer Ransom had used the company as a personal fund for expensive cars and other trappings of the rich and famous lifestyle.

SEC lawyer Mark Fickles said the SEC investigation into AEHI would continue. In the Feb 3 hearing he introduced copies of email messages, some four years old, in which Gillispie appears to be telling another person to purchase AEHI stock to boost the price which would attract new investors.

Fick told Judge Lodge, “What we’re alleging is a broad based scheme to defraud investors.”

The emails appear to have had no impact on the judge’s decision. They may come back to haunt Gillispie if the SEC is able to take its case to trial. Unfreezing the funds doesn’t stop the agency’s investigation. Other allegations about AEHI's business practices remain to be answered by the firm. Future dates for the firm to appear in court are on the judge's calendar.

Setback for the Snake River Alliance

The Snake River Alliance (SRA), an anti-nuclear group in Boise, had repeatedly alleged that AEHI was a scam. At one point, AEHI sued the SRA for slander, but later withdrew the suit. SRA director Andrea Shipley, who’s fiery rhetoric got the activist organization into hot water, has since left it, in an unrelated decision, to work at another nonprofit in the Boise, ID, area.

The SRA took credit for pushing the SEC to investigate AEHI. Last December SRA spokesperson and policy analyst Liz Woodruff said that "victories in our business don't come often, but this one counts." The SRA’s website does not list a news release about this week’s federal district court ruling.

Success factors scarce

Pro-nuclear groups in Idaho have told this blog they don’t have much to say when AEHI’s name comes up. The main reason is that many regard the firm’s claims it will attract investors to build a $6 billion nuclear reactor in Idaho as failing to pass the laugh test.

CEO Gillispie has repeated turned down invitations to talk to pro-nuclear business and civic groups especially those in eastern Idaho which is home to the Idaho National Laboratory.

There are multiple reasons why the case for construction of a 1,000 MW reactor in Payette, ID, doesn’t add up. There isn’t enough transmission and distribution capability, or market demand, in the region to take the output of the plant. The greenfield site has no infrastructure to support the construction activity.

Financing falls short

AEHI has gone through three investment banking firms none of which raised the billions needed to build a reactor. The second firm charged AEHI $25,000 in fees, but never delivered on its promises. The firm’s CEO subsequently pleaded guilty to charges of investment fraud.

AEHI answers questions about the lack of investor financing by saying it plans to take the project only as far as getting the NRC license and then offering it to the highest bidder. This is an untried business model. It will require $50 million to get there. AEHI’s now unfrozen assets of $7 million fall short of that number.

Even if the stock rose to $1/share, the firm would have to offer 50 million more shares adding to them to the 323 million shares outstanding. On Feb 4, the stock closed at $0.32/share. Financially, AEHI has a long way to go to achieve its objective.

Reactor design not under review at the NRC

The main argument against AEHI success in the U.S. is its insistence it can get the NRC to issue a safety evaluation for a South Korean 1,400 MW reactor in the next four years. The NRC has no schedule to review the reactor design for a U.S. license. However, the reactor is referenced in a $20 billion deal between South Korea and the United Arab Emirates. The first two units are expected to be in revenue service by the end of this decade.

All of these factors resulted in MidAmerican, a Warren Buffet company, to withdraw from a proposal to build a 1,700 MW Mitsubishi reactor in the same area in Payette county, ID. Among Buffets’ reasons, the APWR reactor was years away from being certified by the NRC and no one knew how much it would cost to build one. In Texas Luminant has proposed to build two of the Mitsubishi reactors, but the lack of a federal loan guarantee places the project on a slow track to construction even if it obtains an NRC license in the future.

Small reactor option?

Sensing the problems with size, last June AEHI tagged up with Hyperion Power to assess opportunities to develop a 25 MW fast reactor at the Payette, ID, site. So far not much has come of the deal. For its part, Hyperion appears to be focused on marketing its reactor in eastern Europe as a replacement heat source for coal-fired boilers.

The licensing path forward in the U.S. for the small modular reactor at the NRC is perilous and expensive since the agency as yet has not determined what it needs to do to review such a radical design. This huge uncertainly makes it more likely Hyperion’s initial sales efforts will be focused overseas. However, Hyperion is pursuing development of a prototype at the Savannah River site in South Carolina.

Stockholder lawsuits

AEHI has another problem, and that is multiple class action lawsuits by skeptical investors who think that where there is smoke, e.g., the SEC action, there is fire. A typical complaint alleges the same mis-deeds as those first aired by the federal government.

“The Complaint alleges that throughout the Class Period, AEHI and certain of its officers and directors engaged in a scheme to manipulate and artificially inflate the market price of AEHI stock by:”

• (1) paying stock promoters to create artificial demand in the marketplace through end of day purchases,
• (2) misrepresenting that Company officers and directors never sold any shares AEHI stock, and
• (3) misrepresenting the AEHI’s true financial condition and potential business prospects.”

While the lawyers are circling AEHI, the firm is again pursuing its objectives in Idaho and has revamped efforts to open an energy park in Pueblo, CO. There AEHI supporter Don Banner told the Pueblo Chieftain he wants to secure land for construction of a new nuclear reactor.

CEO Gillispie and VP Ransom had taken leaves of absence from their positions during the SEC freeze on AEHI’s assets. Now that the freeze is lifted, the first expense the SEC is likely to see is back pay for both executives. Whether investors will ever see a reactor built in Idaho remains an open question.

Highlights of blog coverage of AEHI

• December 2010 – SEC files fraud charges against AEHI
• December 2010 – SEC suspends trading of AEHO stock
• April 2010 – Payette approves land use
• January 2010 – KEPCO reactors not certified in US
• June 2009 – AEHI gets another banker
• June 2009 – Nuke suit stopped
• September 2008 - Idaho Statesman skeptical about AEHI
• December 2007 – AEHI claims $150 M for start up
• April 2007 – Idaho's invisible nuclear power plant

# # #