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More of Earth Biofuels' Investors Want Their Money Back -- Like, Now

Dennis G. McLaughlin III, chairman and CEO of Earth Biofuels, is under siege from investors who want their dough-re-mi back.
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We were going to stop writing for a little while about Earth Biofuels, the Knox Street-based alterna-energy company that, on the surface, appears to have been running out of gas since day one. But over the past few days, we've heard from a number of local investors who're furious with the company and, especially, chairman and CEO Dennis G. McLaughlin, who's been involved with a number of federal bankruptcy cases during his career in the oil and gas business. Writes one Friend of Unfair Park who possesses a relatively large amount of stock: "I've been holding it still hoping for something, but it seems like all hope is about to be lost." As of this moment, our Friend's 50,000 shares of stock are worth about $4,000.

A note to our Friend: You could always do what Marc Weill, Tom Groos and Josh Cohen did -- file a federal lawsuit against Earth Biofuels. Unfair Park has discovered that on July 5, the three investors in the company -- collectively, they claim, they're in for a total of $1.55 million -- filed a suit in U.S. District Court in New York, in which they claim they weren't allowed to convert their investment into shares of Earth Biofuels common stock, as per an earlier agreement with the company. And since the company wouldn't turn their dough into stock, they couldn't sell that stock and recoup their investment. It's the same allegation a Friend of Unfair Park made in an e-mail we received last week.

In the suit, to which Earth Biofuels has yet to file a response, the three investors claim that Earth Biofuel's "breach, which has never been remedied, has caused Plaintiffs substantial economic injury as the company's stock price has plummeted in the months that have passes since the Plaintiffs' initial demand." As of this morning, Earth Biofuels stock is worth 8 cents a share -- or $3.72 cents less than it was during its 52-week high.

The suit was filed around the same time a group of investors, who have some $33 million sunk into the company, filed an involuntary Chapter 7 bankruptcy petition against the company in a Delaware federal court. They insist the company hasn't been paying its debts on time -- which makes sense, as its most recent financial report filed with the Securities and Exchange Commission says Earth Biofuels lost some $60 million in 2006. In that same annual report, filed two months ago, the company admits: "We have had net losses from operations each year since inception, and there can be no assurance that we will be profitable in the future."

On Wednesday, Earth Biofuels filed with the SEC a response to the Chapter 7 petition: "The Company intends to vigorously contest the involuntary bankruptcy filing and expects to prevail upon conclusion of a trial on the merits."

A trial. One wonders whether board members and shareholders such as Morgan Freeman and Willie Nelson will be called to testify. I call dibs on the documentary. --Robert Wilonsky

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