Tuesday, May 23, 2006

Wall Street Journal Article's Error Spawns More Of The Same

An error in a Wall Street Journal commentary by Chip Cummings has spawned a second story that is critical of ERHC Energy but ignores the findings of a joint commission of senior cabinet ministers from Sao Tome and Nigeria that formally rejected the probe report upon which all three articles were based.

That finding is available at www.nigeriasaotomejda.com; look in the Press Releases and Publicity section for the Feb. 9, 2006 statement by the Nigeria-Sao Tome and Principe Joint Ministerial Commission.

Ken Silverstein's original article in 2003 led me to invest in ERHC, and I have gained some $57,000 in profits from various sales of the stock since then. I was also one of those who called him up a few days after the story came out, and he told me then that he thought the investment should make money. I was also one who later urged him to do a follow-up.

Here is the new story, said to say:

Paved With Good Intentions:
Oil, EHRC, and the Democratic Republic of Soã Tomé

Posted on Monday, May 22, 2006.
By Ken Silverstein.


Back in May 2003, I wrote a story for the Los Angeles Times about an unknown Texas firm called ERHC, which had obtained lucrative oil concessions in the Democratic Republic of São Tomé and Príncipe in West Africa. ERHC had zero revenue, one full-time employee, and a controversial Nigerian owner, but had mysteriously secured the rights to two offshore fields in São Tomé and a significant share in several other fields. I met several people affiliated with ERHC and liked them a lot — especially Noreen Wilson, a colorful character who had helped to put together the agreement with São Tomé — but the whole deal looked murky. (For example, the Nigerian owner of ERHC had secretly made a $100,000 campaign contribution to São Tomé's president). One oil expert I talked to at the time said ERHC's agreement amounted to “a raid on São Tomé's future national treasury.”

The story was published on a Saturday, and I smugly sat back and waited for the fallout, imagining that the taint of scandal surrounding the deal would provoke popular outrage and possibly even an investigation. I had only to wait until Monday, but the impact of the story wasn't quite what I'd imagined. In place of outrage there was exuberance; the story spread across the Internet, prompting stock speculators to snatch up ERHC shares in hopes of cashing in on São Tomé's misfortune. The company's stock price more than doubled overnight, and I fielded at least a score of phone calls from individual investors and even a few money managers asking if I thought ERHC was a solid investment.

The low point came when I was called by a big institutional investor in an American company that had oil rights in Togo. Though he didn't put it this way, he had called to say that if I thought ERHC had screwed São Tomé, I should see what his company had done to Togo. It was clearly his fond hope that I would write a story detailing the whole sordid affair, and thereby trigger a similar run on his firm's share price.

So it was with some delayed gratification that I read earlier this month that ERHC had filed an 8-K form with the Securities and Exchange Commission stating that “a search warrant issued by the U.S. District Court of the Southern District of Texas, Houston Division, was executed on [the company] for various records including, among other matters, documents related to correspondence with foreign governmental officials or entities in São Tomé and Nigeria.”

The search was apparently in response to a request for an investigation submitted by São Tomé's current Attorney General to the SEC and the Justice Department. The Attorney General's office had produced a report that “singled out ERHC for special scrutiny,” according to a story in the Wall Street Journal. The report, according to the Journal's story, “doesn't identify concrete evidence of wrongdoing,” but, it says, “there is the suggestion that ERHC and its [Nigerian parent company] may have made improper payments to government officials or provided benefits to their families in order to secure the assistance of such officials in continuing the contract.”

The news about the search of its offices caused ERHC's stock price to plunge, but it's still trading at about 50 cents a share, far above the rate it was going for at the time of my story. Meanwhile, I still periodically get emails from company investors asking me to please—pretty please—do a new story that follows up on how ERHC finagled its way into such a sweet deal in São Tomé.

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