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Why You Should Leave It A-Lone Star Gold (LSTG)

August 14, 2011: Criminally negligent promoter, The Stock Psycho at has started pumping a recent reverse takeover scam, Lone Star Gold (LSTG).  Before we take a look at this obvious Pump & Dump scheme, we'll remind you that The Psycho has even less credibility with us than the rest of
the soulless stock pimps out there (how much less can you have than zero?).  This is a result of his self-serving promotion of Capital South Bancorp (CAPB), where he feigned confusion between Capitol Bancorp (CBCR) and CAPB.  He convinced his subscribers to buy millions of shares of the defunct bank's former stock (now an empty shell) and caused a temporary 20 fold increase in the share price.  A lot of money was lost because of his so-called confusion.  If you haven't already, be sure to read our advisory on this scam by clicking here.  We've reported him to the SEC, but in the meantime, we are giving extra scrutiny to any of his "picks" that he his well paid to pump.  The fact that LSTG chose him to pump their garbage was reason enough for us to take a look.

Now as for LSTG, the biggest red flag here is that the Pump & Dump is starting before the imminently due 10-Q has been released.  That is usually a sure sign that the SEC filing is going to have bad news, such as a significant increase in the number of shares outstanding.  We suggest that you read our primer on pump and dumps and pay particular attention to the section, "15 Ways to Recognize a Pump & Dump".  This red flag is only one of many found in LSTG and listed as signs of a Pump & Dump.

Fundamentally, LSTG's announcement does cut the mustard:
"...pleased to announce it has signed a definitive agreement in a J.V. option to purchase a 70% Working Interest..."
A definitive agreement in an (Joint Venture) option to purchase?   What the heck does that mean?  As far as we can tell it means that they might buy it if they get the money (they won't).  This is a caveat to the press release and a caveat is a sure sign of a Pump & Dump.  Again, we suggest you read the article we referred above, but the bottom line is that they don't own anything yet!

Let's look at more:
"The Company has agreed to a $240,000USD cash payment; 250,000 Company shares; and a work commitment of $450,000 over the first three years. The agreement also includes an NSR of 2%, of which 1% can be purchased for $1,000,000 at any time."
Huh?  $240,000 payment and $450,000 of a work commitment with what money?  According to the last 10-Q that company had just over $12K in the bank and owed $83K.  And what the heck is an "NSR"?  See?  Lots of caveats and ambiguity!

Now let's look at  Company President, Daniel Ferris.  From the company's own 8-K filing: 
"Mr. Ferris’ career began in public relations. Mr. Ferris was a senior publicist at Freud Communications. After leaving Freud Communications, he began his own public relations and corporate strategy firm, Magnum Communications. Magnum Communications assisted clients in Europe with public relations, financing arrangements, and recruitment. Mr. Ferris’ association with Magnum Communications ended in January 2010. Recently, Mr. Ferris has assisted fund managers with raising funds for a diamond project in the Democratic Republic of Congo. He also serves as a consultant for LCI, which is affiliated with Caesar’s Palace Group. Mr. Ferris’ new position at Keyser represents his primary business activity. Mr. Ferris, age 29, currently resides in London."
A career in public relations and financing?  This kid (he's 29) has been training for Pump and Dump schemes!  And where, anywhere, does he have a background to run a public mining company with projects that purportedly have $22 billion in valuation?  And if his office is in Bakersfield, CA, what's he doing living in London?  He is the only officer and director for goodness sakes!  Is a $22 billion project not worthy of having its only officer and director local?  And what is a $22 billion project doing having only one officer and director?

What we really find fishy is the tangled web spun by former LSTG President Allvaro Vollmers and  LSTG's biggest shareholder, John Rhoden.  Both are involved with American Liberty Petroleum (OREO) which, until recently, had owed LSTG $600,000 by way of a complex merger agreement gone awry and combined cash lending arrangement that we for the life of us cannot figure out, at least not based on the SEC filings.  If someone could explain it to us, we'd appreciate it.

Vollmers purportedly divested himself of his holdings in LSTG when he sold his 12% ownership to Daniel Ferris.  But we are not so sure.  The new promotion has been reportedly financed by the ever present "third party" and we think that Mr. Vollmers might be using this as an opportunity to raise cash, maybe to stick into OREO.  It is the only reasoning we can give to his divestiture of a previously dormant shell.  In this way, he appears to be at arms length from the Pump & Dump, and although he may not own any shares in his name, we'd be surprised if there wasn't a little of the old cloak and dagger going on here.

But the bottom line is that mining companies with a purported $22 billion in valued assets are not found in underfunded, Bulletin Board listed companies that went public under the purchase of a public shell and have only one officer and director who lives half way around the world.  If this were a real deal, you would find this project in the files of major gold producers like Barrick Gold Corporation (ABX) or Kinross Gold Corp. (KGC).

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