CIA Money Trail

New York Post
By Chris Byron
March 13, 2006

Nearly a year after this column exposed the Central Intelligence Agency's murky and surprising involvement in the penny-stock market, the Securities and Exchange Commission has confirmed that it is pursuing an investigation involving one of the CIA-linked penny stocks in The Post series.

Documents obtained under a Freedom of Information Act request filed by a Minnesota newsletter called SEC Insight show the probe has been under way since at least last September, and that it was still active and ongoing as recently as two weeks ago.

Exactly what the SEC wants to learn regarding the company - a Tucson, Ariz.-based weapons maker called Ionatron Inc. - is not yet clear, and the SEC has declined to comment on the matter.

On the limited information now available, it is possible Ionatron itself is not the focus of the SEC's interest, but simply a company from which the commission wants information for a separate investigation that it is still pursuing in secret, as one SEC official suggested last week.

To that end, the SEC would be interested in learning more about the fascination that at least one large and publicity-shy hedge fund - Connecticut-based SAC Capital Advisers - has lately developed in Ionatron's stock.

Over the past year, the SEC has been pursuing a wide-ranging and somewhat unfocused investigation of the hedge-fund industry and its growing impact on stock volatility.

Last month the commission issued subpoenas to three financial journalists as part of its probe into research outfit Gradient Analytics of Arizona. Days later, Gradient was named as a co-defendant, along with SAC Capital, in a New Jersey state civil suit filed by Biovail Inc., a Canadian company, that accuses SAC and Gradient of colluding to drive down Biovail's stock price.

On the evidence, SAC has certainly been in a position to have a major impact on Ionatron's stock price, which has soared from 48 cents in 2004 to more than $13. This now gives Ionatron a nearly $1 billion market value that hardly seems warranted by the company's fundamentals.

Since going public two years ago, Ionatron has racked up $7 million of cumulative losses on $23.5 million of reported revenues that consist almost entirely of Pentagon funding to develop a laser-based device for detecting and exploding roadside bombs in Iraq. Many in the Pentagon say it is far too early to know whether the devices will ever be deployed.

STILL, hedge funds and other institutional investors piled into the stock anyway, and SAC has led the way. Last year it increased its own stake by 2 million shares to 2.3 million shares. That amounted to a startling 40 percent of the net buying by all 75 of Ionatron's other institutional investors.

All this feverish and speculative buying has been taking place in the shares of a company with a murky and troubled past.

As The Post series showed, the CIA's money trail to Ionatron began with an agency-controlled investment firm called In-Q-Tel Inc. and ultimately ended deep inside the highly classified world of laser-guided weapons research at Raytheon Corp., the seventh-largest weapons contractor to the Pentagon.

The series showed, step by step, how a well-known stock market offender named Robert Howard - a one-time business partner of Max Hugel, who had served briefly as a top CIA official in the early Reagan years - created Ionatron out of the penny-stock remnants of a failed lawn-care company called U.S. Home & Garden Inc.

In the wake of the 9/11 attacks, and with backing from the CIA as his calling card, Howard was able to worm his way into discussions with a group of officials at Raytheon's highly classified laser-weapons research program.

By dangling millions of dollars worth of unregistered Ionatron stock before them, Howard succeeded in convincing two of the program's top officials to quit their jobs at Raytheon and go to work for him instead, pursuing the same type of laser-based weapons effort they'd been working on at Raytheon.

Through Howard, Ionatron was also able to enlist the high-powered lobbying clout in Washington of the politically greased Blank & Rome law firm, to promote the company to key committee members of Congress as a leader in laser-based weapons technology for use in Iraq.

This has helped the company land a contract to build 12 of its devices for testing by the Pentagon. Yet although a Marine Corps unit in Afghanistan is said by Pentagon officials to have begun some testing on its own, formal testing for actual deployment in combat has not yet begun.

One reason: No one has yet developed tactics for how these Jeep-sized devices, operated by remote control, might be used to patrol the thousands of miles of roadways traveled by U.S. military vehicles every day. In recent Senate testimony, Secretary of the Army Francis Harvey said formal field testing would not begin until these issues are ironed out.

Faced with such objections, Ionatron's supporters have begun spinning the Pentagon's apparent wariness into a tale of petty inter-service rivalries between the Army and the Marine Corps, suggesting that the lives of U.S. troops are being lost in the process.

To that end, two high-profile Senate Democrats have lately picked up the message, adding their own voices to those of House and Senate Republicans in calls for quick deployment of the Ionatron devices before even more lives are lost.

What role, if any, the lobbyists at Blank & Rome may have played in getting the Ionatron story on the radar screens of the two Senate Democrats isn't known, but a role of some sort may easily enough be surmised, considering who the two senators in fact are: New York's own Hillary Rodham Clinton and Barbara Boxer of California.

Both senators have longstanding ties to a Blank & Rome lobbyist named Heather Podesta, who has hooks of her own into the federal Democratic power loop.

PODESTA is the wife of a Democratic Party operative named Anthony Podesta, who managed Sen. John Kerry's failed presidential run in 2004. And Anthony Podesta's brother, John Podesta, was White House chief of staff for ex-President Clinton.

The two senators have hardly been bashful about their support for Ionatron. After a pro-Ionatron story landed on the front page of the Los Angeles Times last month, Boxer drafted a letter to Harvey, and stuck it in the Congressional Record. The letter accused the Army of "inexcusable" foot-dragging in the deployment of the devices and demanded answers.

On the same day that Boxer put her letter in, Clinton, a member of the Senate Armed Services Committee, was aggressively grilling Harvey on precisely the same subject when he appeared before her committee for questioning on war-related matters.

Referring to the same Times article that had inspired Boxer's letter, Clinton struck a more conciliatory tone and simply asked why the Marines and the Army couldn't work together to get the devices deployed.

Harvey explained that 12 of the devices had been built for field testing in Iraq but that commanders had nixed the plan, explaining no one had yet come up with a way to use them under combat conditions.

How much the SEC cares about any of this isn't known. But they certainly care about something, and from the available public records, there's plenty for them to be looking into. So stay tuned.


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