It doesn't get much worse than this. The Freeport News reports that a former employee of Pegasus Wireless is claiming that the entire company is a sham. This is only the latest and greatest in the saga of the company that made news by acquiring Asian manufacturers and American system sellers, touting "insider buying," fighting "naked shorts," crashing and burning, torching cash, voluntarily delisting from the Nasdaq, and then abruptly moving to the high-tech hub (ha!) of Grand Bahama.

This has, according to Pegasus CEO Jasper Knabb, all been a part of his grand plan to produce and market a cutting-edge wireless-networking product, an ugly little box claimed to be better than anything Apple (NASDAQ:AAPL), Cisco (NASDAQ:CSCO), Netgear (NASDAQ:NTGR) or Microsoft (NASDAQ:MSFT) can offer up.

The latest list of charges is both long and amusing. Seriously, read this, and then come back. If you must have the condensed version: This Pegasus whistleblower says Knabb has been a political opportunist, promising loads of jobs but, in fact, providing little training. He says only a few of Pegasus' latest products were ever assembled and that Knabb told employees further parts had disappeared on a sunken boat. Once in the Bahamas, Knabb, playing politics, tried to impress the locals by pledging cash but seems to have ended up on the losing side.

Even crazier, the welder-turned-whistleblower says Pegasus' Bahamas operations are just a front for Knabb's real operation: treasure hunting. According to previous reports in the Freeport News, Knabb purchased a boat with a long and sordid political history and has been using it to blow "holes 30-feet deep into the seabed and [mess] up the corals and vegetation." The former Pegasus welder making the allegations says he's been out on the boat and is the guy who fabricated the hole-blowing equipment for Knabb.

(Strange as it sounds, it seems to fit Knabb's M.O. In the past, he's talked about his prowess as a diver, and this treasure-hunting rumor was reported to me months ago by a former employee of a Pegasus-related company. I noted it in my CAPS blog.)

As amusing as this is, there's a dark side. A lot of people lost a lot of money betting on Knabb. And not just the folks in Freeport who may be out of jobs. Shares once traded at a split-adjusted $85 each. They're worth $0.33 today.

When it was still floating on Knabb's continuous PR blitz, it was a half-billion-dollar company. Then reality struck, and unfortunately, Knabb's lame excuses were validated by the naive reporting of one Forbes writer who bought Knabb's entire naked-shorts story, along with his claims that a company spending next to nothing on research and development could come up with a product to top Jobs, Gates, and the rest of Silicon Valley.

Amazingly, this happened even though Knabb's past history as a stock operator was well-known from the pump-and-dump special Beach Access/BioFiltration Systems, a crummy little operation that was panned at the time by Stock Patrol and even appears to have been the original source for the chat-board myth of the "paid basher."

It would be nice if those responsible for aiding Knabb would step forward and come clean about what they've done. But don't hold your breath.

As for Knabb, the final paragraph of the recent article tells you all you need to know about his trustworthiness. The Freeport News reports that he told the paper Pegasus "is worth over $100 million a year and has over $700 million sitting in the bank."

That would be a pretty incredible deal for interested stockholders, since the company's market cap is actually $7 million. But it appears to be a complete fiction. Pegasus' latest annual report shows $1.9 million on the balance sheet, or 1/350th of the sum Knabb claimed.

The truth hurts. Here's hoping it hurts the right people for once.

Comments? Bring them here.

At the time of publication, Seth Jayson had shares of Microsoft but no positions in any other company mentioned here. See his latest blog commentary here. View his stock holdings and Fool profile here. Microsoft is a Motley Fool Inside Value recommendation. Fool rules are here.