It's been a tough few months for stock in what one Motley Fool CAPS player has dubbed the "Planet Hollywood" of alternative energy stocks, Earth Biofuels (OTCBB: EBOF). For those in need of a refresher, this outfit uses the likes of Rusty Wallace, Julia Roberts, Morgan Freeman, and Willie Nelson to try to sell the story that it's destined to be a big player in the biofuels field.

Never mind, of course, that this is already an overcrowded stomping ground, filled with newcomers of vastly different capabilities and reputations, from Pacific Ethanol (NASDAQ:PEIX) to Xethanol. Furthermore, please ignore that the ethanol biz is already dominated by integrated, scale-ready giants like Archer Daniels Midland (NYSE:ADM). And you can bet if there's real money to be made, you'll be seeing initiatives from Exxon Mobil (NYSE:XOM), BP (NYSE:BP), and other major, integrated fuel producers.

New news
You might think the big Earth news is today's announcement of the acquisition of yet another far-flung biofuel production facility -- in this case, an ethanol plant in Moses Lake, Wash. That news appears to have sent the stock plummeting a good 15%.

But to my mind, the more important news this week from Earth Biofuels is its recent employment of a stock-shilling service called RedChip Visibility. RedChip is one of those places you go when you want to hand over money in order to get "analyst" coverage of your stock. The fine print at the bottom of this release is a bit unclear, but it appears that Earth shelled out some $36,000 to RedChip and its parent -- plus, it seems, a monthly toll of $7,500 and 11,000 shares of stock.

To my mind, this is one of the worst things management of any company can do. It's the stock-market equivalent of tying a dead squirrel around your kid's neck in order to get the dog to play with him. If you need to pay people to pay attention to your company (and the result is, surprise, a glowing recommendation) what does that say about your belief in the company's own merits?

Admitting the truth
It seems to me that management might agree with me on this one: Earth's chances aren't so great. I've already noted that the firm has atrocious financials, and that it's majority-owned by another money-burning company headed by the same CEO, Dennis McLaughlin.

A recent article in Forbes documents a big financial deadline that Earth recently missed, and the way that McLaughlin -- a guy who, as I've reported, has been involved with some amazing penny-stock flops in the past -- obfuscated his role in a major bankruptcy at a energy firm he formerly headed, Aurora Natural Gas. (For the record, Earth BioFuels has also refused to talk to me about this flop, or answer any other queries I've sent to its investor-relations head. It has instead posted a long-winded rebuttal to my reporting on its website, disputing none of the facts, but taking issue with my opinion.)

That kind of PR maneuvering, in conjunction with the terrible operating results, is the prime reason I've never been too convinced that Earth's goal is really to compete in this field. First of all, there's the penny-stock history of its CEO. Next, there's its habit of selling its product for less than the cost of making it, meaning that its meager gross profits (entirely wiped out by other expenses) depend on government handouts. And just in case you think Earth plans to grow its way out of these operational inefficiencies, think again. An interesting article in the hometown newspaper of Durant, Okla., reveals that Earth's plan for a plant there was designed to harvest maximum government handouts, rather than automate for maximum profits.

Foolish bottom line
Unfortunately, and obviously, government handouts don't scale like real, profitable operations. But given McLaughlin's past with those pennies and that bankruptcy, I'm not so sure he's really after scale and profits. Looks to me like empire-building is the order of the day, along with hopes for a sale down the road. Otherwise, why would a debt-ridden, loss-making biofuel producer pay stock promoters while simultaneously entering yet another geographically isolated plant acquisition?

And that, dear Fools, is why I implore you to stay far away from this company. Despite its stock's enormous recent fall, it's still nothing like a value -- no matter what McLaughlin, or his celebrity board, or his paid stock promoters, might like you to believe.

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At the time of publication, Seth Jayson had no positions in any company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.