Let's open on a high note
You have to hand one thing to the folks running GlobeTel (AMEX:GTE): They've got hustle.

Following my recent article questioning the reality of the impressive-sounding Russian WiMax deal that catapulted this penny stock onto the hot list at the beginning of the month, GlobeTel has been busy releasing reams of PR, as well as catching up on its regulatory filings.

An absolute pip was a multi-page Q&A, which seemed to address some of the important open questions out there. But in the end, it provided little more detail than the original PR. Of the 30 cities claimed for the rollout, only two are named. The real identity of GlobeTel's Russian investors remains a mystery, and there are those nagging questions about competition and feasibility.

How is it possible for this unheard-of Florida company, with little track record, to suddenly vault past established equipment makers like Qualcomm (NASDAQ:QCOM), Cisco (NASDAQ:CSCO), Nokia (NYSE:NOK), and Motorola (NYSE:MOT), not to mention powerful multinational telecoms? Especially since GlobeTel seems to have no technological advantage, as evidenced in its regulatory filings, where it explains that the equipment and software it uses are readily available from major suppliers on the open markets?

Step back
If you need a quick catch-up, GlobeTel is primarily a VoiP telephony provider that, until recently, was most notable for its years of heavy losses. Earlier this year, the stock made a splash with a pile of press releases (dozens, really) touting -- get this -- high-altitude blimps broadcasting wireless WiMax Internet. Never mind that these blimps have never been shown to operate in a manner that would make the service feasible. Never mind that the Internet-broadcast blimp is already a decade-old bad dream. (In the late '90s, the same scheme was being touted by a company called Skystation, whose public face was former Secretary of State Alexander Haig.) And finally, never mind that the first deal GlobeTel announced for these blimps involved anonymous Colombian investors operating via recently minted Florida companies.

Speculators responded by sending this stock through the roof anyway. But that was back then. The stock trickled from $5 a share back to well under $2 by the time the next big thing hit the PR wires and the Internet message boards.

The new new thing
The latest hubbub is a $600 million-plus Russian WiMax deal that claims to be able to offer wireless telephony, wireless Internet, and television, all over the same network. Investors have piled in again, despite the open skepticism displayed from Russian communications analysts in stories in the Russian media. (This is quite unlike the American press, which remains content to parrot GlobeTel's press releases under the guise of "news.") To take only one recent example, a Jan. 13 article in the St. Petersburg Times (the one in Russia) cited a minimal audience, maximum competition -- with 280 wireless access providers already in Russia, and more expected -- and the threat of major telecoms entering the fray.

Does anyone really think that established wireless giants like Mobil Telesys or VimpelCom (NYSE:VIP) -- which together account for some 90 million subscribers in the former Soviet states -- are simply going to let some upstart come in and eat their lunch?

For another point of reference, consider that Europe's largest broadband provider, France Telecom (NYSE:FTE), has only 10 million Internet customers -- the number GlobeTel says it aims to get in just three years in Russia. Yet France Telecom operates in the affluent regions of Spain, the U.K., the Netherlands, and France, where, according to World Bank figures, people have at least two or three times the purchasing power of Russians.

A cautionary tale
Folks out there who wonder why I'm critical of these announcements need look no further than another press release that GlobeTel released last week. It illustrates the problem precisely. GlobeTel's much-hyped foreign operating units, which are always trumpeted with promising PR, not only come under strange circumstances, but they also often do very strange things and meet with very strange ends.

In this latest press release, GlobeTel announced that it had shed a 70ish%-owned subsidiary called Consolidated Global Investments (CGI). GlobeTel's press release states that it "divests" itself of CGI assets. That piqued my interest, because according to GlobeTel filings over the past few quarters, CGI's only asset of note has been shares of GlobeTel stock. A subsidiary whose biggest asset is stock in its parent company? How does that work? It takes a bit of digging to get at the back story here, but it's well worth it. So let's begin.

The wayback machine
This Australian unit first appears in the GlobeTel saga under the name Advantage Telecommunications (ATC). In the most recent 10-Q, that subsidiary's latest iteration -- it's called Consolidated Global Investments (CGI) -- was described as being 73.15% owned by the parent. (I'll generally refer to the entity as ATC/CGI.) Although Globetel claimed as recently as that fall 2005 10-Q that it intended to make ATC/CGI into an operating company, ATC/CGI had little chance of becoming so, as the public record clearly shows.

The first reference to ATC/CGI comes in a 2003 10-Q, and curiously, it doesn't mention operations of any kind. In that filing, GlobeTel describes a "strategic investment," a $1.2 million convertible, 12% note transaction -- though the parties agreed that no interest would be paid, according to later filings. These non-interest-bearing 12% notes were convertible into "one share of $0.01 (Australian $0.01) of stock and one free attaching option exercisable at $0.01 (Australian $0.01)." The deal would let GlobeTel have up to 50% of ATC/CGI, as well as control of its board.

The PR blitz
In typical GlobeTel fashion, the press release heralding this venture was a bit more bold. The Sept. 22, 2003 press release claimed that this combination would create "a new force in global telecommunications." It also said that ATC had operations in the U.K., Hong Kong, China, Germany, Macau, Vietnam, Sri Lanka, Bangladesh, Mauritius, Cambodia, Indonesia, Pakistan, and Taiwan. It estimated the "replacement value" of ATC's network at $30 million and claimed that ATC had revenues of $10 million from 2001 to 2003, ramping at a 500% clip.

Sounds pretty impressive, eh? A million three for a half share of a $30 million network, and a partner growing revenues toward the sky? Keep in mind the context. Back in 2002 and 2003, GlobeTel's annual revenues were just more than $11 million. A claim on half of the reported revenues at ATC/GCI would have represented a nearly 50% increase for GlobeTel's top line. Unfortunately, the good folks at GlobeTel, including current CEO Tim Huff, neglected to mention a few facts.

For instance, they didn't disclose that until 2002, ATC was, according to the Australian Securities and Investments Commission's (ASIC) records, a publicly traded firm called "Nugold Hill Mining." (FYI, the new, Russian-Globetel WiMax joint venture is to be called "NuTel." Strange coincidence, eh?) GlobeTel also neglected to mention that this up-and-coming gold mine-cum-telecommunications powerhouse was actually burning through cash like crazy, selling its services for less than it cost to provide them -- as GlobeTel does, by the way. This major cash burn caused the Australian securities regulators to question, as early as 2002, whether ATC would continue as a going concern.

But if you think that would have been enough to keep GlobeTel from playing with this particular fire, you haven't seen anything yet.

The quiet scandal
Nugold/ATC/CGI was the key character in what some in the Australian press called one of the biggest embezzlements and securities frauds in Australian history. According to ASIC, from March 2001 until September, 2002, the company was the subject of a very complex stock manipulation by an Australian securities dealer named Upul Samantha Anthony, who worked for Cogent Securities. During that time, Anthony stole more than $16 million from his employers and funneled $10 million directly into ATC/CGI and affiliates. Additional details reported from police records by writers for the Australian Financial Review (FR) shed even more light on the scheme.

Anthony sent $7 million of the pilfered money in "loans" to ATC/CGI in order to shore up the cash-hemorrhaging company, and he sent another $3 million to Nugold -- via another telecom, Futurstel -- where it was used to finance the purchase the remainder of ATC/CGI. (The rest of the money went toward trying to manipulate the penny stock's share price on the Australian market via Nugold/ATC/CGI stock purchases through various fronts.)

When Anthony finally came clean in September of 2002, ATC/GCI claimed it knew nothing about the scam. That's pretty tough to swallow, given that, according to FR, Anthony actually lived with two of ATC's founders, Andrew Boyd and Hastings Singh, and it doesn't appear that the company would have survived long without the money Anthony stole.

Anthony, who cooperated extensively with Australian securities investors, said he was promised a job at ATC/CGI, as well as a large slug of shares, if he could secure capital injections needed for ever-increasing amounts of network equipment for ATC's Hong Kong wing. According to the FR article of September 2004, the stolen $7 million that was paid directly to ATC/CGI simply disappeared without a trace.

The other shoe drops, slowly and quietly
As far as I can see, Globetel didn't bother to inform investors about this particularly strange and serious sequence of concerning its new Australian partner, even though it would have been well aware. Remember, GlobeTel got into the ATC venture in September of 2003. Anthony, the embezzler, went to the Australian cops to confess back in September of 2002.

But GlobeTel did, in its own, quiet way, slowly make the real value of ATC/CGI known. Only six months after that promising press release, in GlobeTel's 2003 10-K, a bit more truth about ATC/CGI came out. It was subtle, but it wasn't pretty. Shareholders who bothered to read it would have been informed that ATC "had operations in England and Hong Kong and hadpointsof presence in over 15 countries. [Note the use of the past tense. Emphasis is mine.] The agreement was subsequently modified to where our investment of $1.2 million would be for purchase of the ATC's [sic] telecommunication equipment and network operations in Hong Kong and England."

Had operations? Restructuring the deal to become a purchase of equipment? Sounds to me like those promising ATC/CGI operations had already ground to a halt.

By Dec. 31, 2003, only a few months after the press releases, GlobeTel had paid ATC/GCI $302,000 in cash and sent the remainder via shares valued at $897,000.

By June of 2004, another $50,000 in cash had arrived, and ATC/CGI agreed to value the 16.5 million shares (figures quoted before the more recent 15-to-1 reverse split) of GlobeTel stock at $1.37 million, although the shares during the acquisition period were very volatile and traded for as little as $0.02 a stub.

By August 2004, a bit more truth came out in GlobeTel's Q2 statement. At this point, GlobeTel finally admitted that ATC/CGI had no operating activities -- quite a change from the 500% grower of the press release only 11 months prior. GlobeTel also effectively admitted that ATC/CGI's assets weren't so amazing, certainly nothing like the $30 million network touted in the original press release. ATC/GCI's main asset was, according to that 2004 Q2 filing, nothing more than those shares of GlobeTel stock.

Who's on first?
You think it's strange that one of GlobeTel's big strategic investments would turn out to be in a non-operating, once-manipulated, formerly gold-mining, suspended, phone-flop stock? Find it odd that this strategic partner's once-flaunted assets actually amounted to little more than a pile of its parent company's shares? Just wait; it comes full circle.

More recent filings have made clear that, through July of fiscal year 2005, this non-operating subsidiary -- the one that had nothing to do with that stock manipulation back in Australia -- hasn't been completely stagnant. It has, in fact, been trading in the stock of its parent company, GlobeTel.

It's a pure coincidence -- I suppose we should assume -- that this trading came precisely during the period that saw the huge ramp-up in GlobeTel press releases touting its WiMax blimps and the coinciding rise in GlobeTel's share price. By selling 7.3 million of its own (pre-split) shares via the ATC/CGI subsidiary during this period, GlobeTel netted proceeds of $1.6 million, $1.46 million of which came back to GlobeTel by a nifty method.

GlobeTel engineered a $1.46 million prepayment from ATC/CGI to GlobeTel's own wholly owned subsidiary, Sanswire, ostensibly toward rights to the WiMax blimp business down under. Let's restate that, just for clarity: GlobeTel had one majority-owned subsidiary arrange to prepay its other, wholly owned, subsidiary for a license for technology that's still months, if not years, from being proved feasible, using money it obtained by trading in the parent company's stock, which was inflated following heavy PR regarding that same blimp technology. And now, GlobeTel is waving goodbye to that subsidiary and keeping the cash.

If this sounds to you like a pretty complex way to create funny money by selling your own shares and shuffling money from one pocket to the other, join the club. Maybe I'm missing something, but it sounds that way to me, too.

Foolish bottom line
I'm not surprised that the press release detailing the wrap-up of ATC/CGI didn't bother to tell the entire ATC/GCI tale. GlobeTel's PR machine is very good at, shall we say, accentuating the positive. As for the negative, well, that takes a bit of looking in the nooks and crannies. And who has time for that when there's all of those happy press releases to read?

The real problem is that this particular deal is only one of many strange and spooky delights in GlobeTel's convoluted partnership and financing schemes. There are so many foreign joint ventures, convertible offerings, private placements, semi-anonymous "government-connected" financiers, stock payments for services rendered, and asset writeoffs that it is difficult to imagine that anyone who's high on this stock -- and there are plenty; just ask my email inbox -- has looked past the technological hype at the financial machinery beneath. Companies this small don't need to be this complex. When they are, smart investors wonder why.

And this, in a nutshell, is why I have grave doubts about the reality of this big Russian announcement. The devil is always in the details, and they will be lot tougher to come by with a Russo-Luxembourgian joint venture. Absent hard facts, like the target cities, competitive price plans, costs of purchasing this network equipment, realistic subscriber goals, or, more generally, the identity and motive of these anonymous Russian investors, there's no way of guessing whether this latest venture will become a success, another ATC, or something even worse.

At the time of publication, Seth Jayson had no positions in any company mentioned here. View his stock holdings and Fool profile here . France Telecom is a Motley Fool Income Investor recommendation. Fool rules are here .

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.