Ethanol maker Xethanol served with class action lawsuit

A previously embattled downtown New York-based biofuels company has become the subject of a number of new class-action lawsuits on behalf of shareholders.

Xethanol Corporation (AMEX: XNL), which claims to be pursuing the conversion of biomass currently being abandoned or land-filled into ethanol, says the lawsuits are without merit.

Three separate law firms are variously accusing Xethanol of:

• Misrepresenting management's experience and standard of ethics
• Not refurbishing a plant in Hopkinton, Iowa, but leaving the plant vacant and uninhabited with its doors locked
• Omitting disclosing a series of related-party transactions and association with investors who had records of stock fraud and related shareholder abuses
• Materially overstating the company's profitability by under-reporting the true costs associated with completing a biomass-to-ethanol production facility, and by failing to make proper adjustments to the company's financial reports
• Engaging in a high number of related party transactions and using a reverse merger into a shell corporation to avoid disclosing these facts
• Causing plaintiffs and other class members to purchase Xethanol common stock at artificially inflated prices
• Lacking any reasonable basis to assert that the company was operating according to plan or could achieve the near-term commercialization of biomass ethanol production, or achieve the guidance sponsored and/or endorsed by the company
• Lacking necessary personnel and controls to issue accurate financial reports and projections and violating Generally Accepted Accounting Principles (GAAP)

The company received unwanted attention, and a tumble in its stock price, for similar issues in August raised by a financial newsletter, whose owner later admitted to having shorted the shares of Xethanol in advance of the publication of its negative article. Xethanol president and interim CEO Louis Bernstein said the newsletter's accusations were either "without foundation or irrelevant."

In a letter to shareholders regarding the new class action suits, Bernstein said these lawsuits, "as well as any future copycat lawsuits, are meritless" and thanks shareholders for their messages and telephone calls of support.

In a printed statement, the company claims to be continuing to produce ethanol at its plant in Blairstown, Iowa and pursuing a collaborative research programs in cellulosic ethanol "with leading academic and government scientists in the field." It plans to move forward expansion plans in Iowa and other potential locations and is searching for a permanent CEO, it says.

Xethanol says it is developing proprietary biotechnologies to extract and ferment sugars trapped in biomass waste concentrations. It claims its key business would be in producing ethanol and co-products cost effectively with ethanol plants located closer to biomass sources.

Xethanol, through its PR firm, chose not to be interviewed for this article.

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