A London-based junior oil and gas exploration firm has gone down the tubes and more millions of shareholder money has gone up in smoke.
On the heels of the Onco Petroleum fiasco in which $30 million in shares became worthless scraps of paper comes an eerily similar case in which about $20 million was lost.
Echo Energy Inc., like Onco Petroleum, is being wound up by a court-appointed receiver trying to salvage something from what was once a bright dream that captured the imagination of investors and landowners alike.
Like Onco, Echo touted the wisdom of investing in regional natural gas and oil exploration in a world of rising energy prices.
Both raised millions but were delisted from stock exchanges when they failed to file required financial reports.
And like Onco, Echo crashed and burned amid strife among directors, claims of bad management and finger-pointing.
Also like Onco, many Echo investors are upset. They hold a total of 60 million shares and few are willing to reveal their identities, embarrassed at the sums they lost.
Unlike Onco, Echo actually found and shipped natural gas to market to produce a revenue stream. Echo drilled wells near Port Burwell; Onco drilled in Chatham-Kent but found nothing.
One London businessperson said he lost more than $1 million in Echo while others said they were in for about $250,000 apiece.
"As a watchdog, the Ontario Securities Commission (OSC) is a joke," fumed one irate stockholder. "They know about this and they have done nothing."
Toronto investor Jason Evdoxiadis told The Free Press he lost "a significant amount of my net worth."
He filed a complaint with the OSC last September. The commission told Evdoxiadis it was investigating, but nothing has happened, he said. The commission won't talk about complaints or whether an investigation is underway.
The OSC drew sharp criticism for its handling of Onco promoter Robert Vanier, who admitted misleading investors and regulators about his assets and for hiding his criminal past under another name.
Vanier was fined $10,000 and banned from being a company director or trader of shares, a penalty that upset investors who view it as a slap on the wrist.
"It's a little bit of buyer beware," conceded Denis Crane, a principal of County Heritage Forest Products, who declined to say how much he lost in Echo.
"I have some worthless share certificates," he said.
Crane said investing, aside from investing in a dream, is also about people.
"You are investing in those people," he said. "It's a high-risk investment and with risk comes a high rate of return."
The problem with Echo, he said, was a new management team. Crane said it moved in and took over a going concern and fumbled its affairs.
Echo investors and directors are split into two warring factions.
Some, like Crane, support Londoner Gary Conn, the first president of Echo, and feel Conn was muscled out by what they consider a less-than-competent group led by Toronto promoter Salvatore (Sam) Fuda.
The Fuda faction includes Andy Brandt, former mayor of Sarnia, former MPP and Ontario cabinet minister and longtime head of the Liquor Control Board of Ontario. The Fuda faction has accused Conn of misleading directors and shareholders and misrepresenting the extent of natural gas reserves.
Volleys of litigation have been traded.
Fuda sued Conn and the Echo board for defamation and was awarded $108,000, including costs. Conn sued for wrongful dismissal, seeking $500,000, to which Fuda-controlled Echo replied with a countersuit for $35 million.
Fuda stepped down from the Echo board and sued Conn and Echo for $2.4 million, claiming misrepresentations led to his purchase of Echo shares. Echo sued three of its directors, accusing them of inappropriate transactions.
The cost of litigation for Echo alone to date is well over $1 million.
Brandt, who was a fellow director of Fuda at Ontex Resources, a gold exploration firm, was an Echo board member and continues to sit on the board of Fuda's Micromem Technologies.
Brandt backs Fuda and questions the management of Conn.
He said Conn overbuilt infrastructure such as pipelines and compressors without enough natural gas to justify the costs, especially when natural gas prices plunged.
And then there were all those lawyer bills.
"That was ongoing throughout the entire piece because there was a problem between Mr. Conn and Mr. Fuda that continued on," Brandt said. "The litigation costs were excessive, no question."
Conn and his fellow directors spent about $900,000 trying to fend off a bid by Fuda to increase Fuda's stake in Echo and his clout on its board in late 2007. They lost the fight and were replaced by appointees of Fuda.
"He used all that money to fight me," Fuda said.
Fuda insisted he is the biggest loser in the entire Echo episode because of the extent of his share holdings. He agrees with investors who think about $20 million was lost.
"I lost multi millions," Fuda said. He remains the owner of 55% of Echo shares that once traded at $3 apiece. He said he isn't bidding for Echo assets in the receivership.
Owners of "flow-through" shares received some income tax benefits because of government policies that encourage investment in mining and oil and gas. So some investors saw some gain.
Fuda makes no apology for the extent of litigation, saying "we are all looking for answers and I hope the court will give us those answers."
Fuda said he's anxious to see if the extent of gas reserves was properly reported. An engineer hired later by Fuda found substantially less than an earlier engineering report indicated.
For his part, Conn said he developed his dream into a going concern that was producing and shipping about one million cubic feet of natural gas into the Union Gas network each day.
"We had revenue of $4 million in the first year," he noted. "It was a completely above-board operation all the way."
Conn said he isn't bitter about being turfed, adding "it's the reality of life, you know."
"It wasn't me that got hurt," he said. "It was all the shareholders that got hurt."
Conn said he met Onco promoter Robert Vanier once but never did business with him.
Chuck Edey, who followed Conn as president at Echo and backs Fuda, had a simple answer when asked why Echo failed: "There wasn't the gas there that people thought there was."
Edey said he's relying on the courts to sort out the Echo collapse.
"I'd like to believe that after the receiver's done, the Fuda faction and the Conn faction will sit in court and determine who is accountable for what happened," he said.
In the meantime, Edey, who is also president of Leader Resources, a wind power company, is managing Echo for court-appointed receiver KPMG.
He said he, along with friends and associates, put in a bid to the receiver to acquire Echo because he knows its part of the oil patch still has some value.
More than 400 property owners in the Port Burwell area negotiated gas leases with Echo and haven't been paid in about a year. Doug Dennis, who owns Otter River Farms, said he received a few thousand dollars every year for seven or eight years.
Echo found gas on a remote part of his property, he said, but capped its well when it couldn't find a way to access it by road.
Dennis said he hopes something good comes of the receivership and his payments return. He remembers the "gentlemen" he dealt with at Echo and understands what they were trying to do.
"We all need the gas," he said.
