Lismore investors deceived
CYCCLONE Magnetic Engines (CME) and its chairman Micheal Peter Nugent deceptively mislead investors over its plan to build a perpetual motion machine, the Queensland Court of Appeal ruled this week.
The court dismissed an appeal by the company and Mr Nugent to overturn an earlier Queensland Supreme Court ruling against the company in the case brought by the Australian Securities and Investments Commission.
The US-based company operated in Lismore and the Gold Coast between March 2005 and July 2006.
ASIC brought the action after the company raised more than $1.1 million from more than 120 investors, mainly around Lismore, claiming it had developed a perpetual motion machine.
The Supreme Court ruled in August 2008 that CME had engaged in misleading and deceptive conduct when it claimed on its website that its machine powered by magnets worked, when in fact it could not work.
It also found the company falsely represented to investors that the machine was ‘proven technology’ and that the expenditure claimed in the company’s business plan was deceptive.
In its business plan used to solicit investors CME claimed it would spend $50,000 on manufacturing equipment, when only $7600 was spent.
It also claimed that $300,000 of investors’ funds would be spent on research and development, but no money was spent in this area.
The plan also said staff wages would only total $100,000 – it actually spent more than $400,000.
The court also said the company raised funds without lodging a product disclosure statement with ASIC.
In its appeal CME argued that the cost of wages, promotions should be categorised as ‘research and development’.
However, the three appeal court judges rejected the argument and concluded the company “never had an intention to spend $300,000 or anything like it on research and development”.
CME and Sovereign Island-based Mr Nugent were ordered to pay ASIC’s cost of the appeal.