GlobeTel: Back to the Minors

No excuses
Well, no one can say it came without warning.

Friday, after the markets closed (of course), GlobeTel (AMEX: GTE  ) announced that it would be delisted from its current exchange and move to the pink sheets, effective Oct. 11. In the same press release, it revealed that the Securities and Exchange Commission had opened a formal inquiry into the company's accounting practices, including "certain accounting issues, including the treatment of certain acquisitions and the valuation of certain intangible assets."

But read the rest of the sentence. GTE "today announced that it has learned that the Securities and Exchange Commission has issued a formal order of investigation concerning, among other things, certain accounting issues." [emphasis mine].

What, pray tell, are those "other things?" I don't know, and the SEC is always silent in such matters (and GlobeTel refuses to correspond with me). But I've got my suspicions.

AMEX ahead of the SEC?
Could the SEC finally be interested in the issues that resulted in GTE's run-in with the American Stock Exchange? Problems that the AMEX described, and that led to this week's delist, included allegations of:

  • Providing materially false and misleading information and statements to the Amex staff, hindering its investigation of the company's compliance with Amex listing requirements.
  • Acting to interfere with the operation of a fair and orderly market by issuing public statements not warranted by the company's affairs that were intended to affect the price of its common stock.

Of course, I've long suggested that GlobeTel's incredible (and by that, I mean both bombastic and unbelievable) announcements were motivated by a desire to see the stock go up. That's because it's a serial cash burner that has depended on infusions from small-time investors who tend to receive warrants and other nifty convertibles that pay off when the stock moves up.

Incredible promises, predictable reality
This is only one reason I've been so skeptical. The other is the nature of the press from GlobeTel. Management, especially CEO Tim Huff, has often made claims to upcoming VoIP and airborne and ground-based WiMax operations that would have had the tiny, Florida-based upstart leapfrogging giant, established communications equipment and service providers such as Nokia (Nasdaq: NOK  ) , Motorola (NYSE: MOT  ) , Cisco (Nasdaq: CSCO  ) , Vimpelcom (NYSE: VIP  ) , Verizon (NYSE: VZ  ) , and AT&T (NYSE: T  ) . None of it ever made a shred of sense to me.

Remember the Russian WiMax deal? The check, apparently, was not really in the mail.

How about the WiMax blimps? The much-hyped, promised "flight" test of those (scaled-down prototype) airships passed CEO Tim Huff's August deadline and still hasn't occurred, to my knowledge. (Back then, Huff blamed the lag on carbon-fiber tacos -- which is not the name of a college rock band.)

More to lose
Despite naive cheerleading from mainstream press (and a few financial writers who should have known much better), what we appear to have today is a company that's finally being taken to the depths by the slow arrival of reality. This morning's announcement took the stock down another 35%, and if you ask me, it's got a lot more falling to do. The cash burn is serious, the authorities are bringing the hammer down, and the last of the big GTE promises looks like it's turning out to be so much hot air.

If the blimp biz were on track, would Apogeo Enterprise -- the outfit that was reportedly GlobeTel's partner that would pay to float WiMax blimps over Colombia -- have been declared inactive by the state of Florida? Does it have anything to do with the similar administrative dissolution of Delta Aero -- a joint venture between GlobeTel CEO Tim Huff and GlobeTel's lead blimp man, Bob Jones?

Foolish bottom line
GlobeTel hopefuls who bought in early January, when I first warned on this company, are now down more than 90% in only 10 months.

Investors who are looking in dark places for the next big thing should take a close look at the hard lessons of GlobeTel story. Learn how and why this happened, then govern yourself accordingly.

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Seth Jayson would still LOVE to see those Russian-Brazilian bank wires. At the time of publication, he had no positions in any company mentioned. View his stock holdings and Fool profile here. Fool rules are here.


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