Thoughts on Scuderi Group SEC violations

When John emailed me the Green Car Congress article about the SEC issuing a cease and desist order to the developer of the Scuderi Split Cycle Engine, I was shocked.  There really are two major kinds of violations here.  When a private company raises money by issuing un-registered securities (in other words, the company has not done an IPO and follows requirements to issue all sorts of information to inform and protect investors) they must ensure that their investors are what the SEC calls “accredited investors”.  This is to protect the public from scams or other malfeasance of companies soliciting investments.  Turns out they raised $80 million dollars, a number that floored me given the limited progress Scuderi has made, and much of that from non-accredited investors way beyond any exceptions that a company can claim.  Not only that, but they actively tried to hide these violations from the SEC, which means it is not just a case of not knowing the law but a premeditated effort to get away with breaking the law.

The second violation is even worse. Salvatore Scuderi used millions of dollars that he raised from investors to fund personal expenditures of family members who provide no services to the company.  These payments have been characterized as loans, however there is no documentation stating the term of the loan, the interest rate, or any collateral to secure the loans.  Mr. Scuderi is subject to a $100K fine, and the SEC is requiring the Scuderi Group to define the terms of the loans and to disclose these non-company related use of funds over the last 12 months (but apparently not earlier violations) to new investors.

This seems to me like an absurdly light slap on the wrist for these kinds of activities.  I am saddened by these revelations for a number of reasons.  The history of novel alternative architecture engine developers has several instances of inventors promoting performance that violates the laws of thermodynamics.  Any legitimate engine developer often has to overcome this history in building credibility with potential partners and collaborators.  Now we must deal with one of the most highly promoted and well-known alternative engine developers actively scamming their investors.  I hope the fallout with this is limited mostly to Scuderi and not other companies and individuals working hard and ethically to solve huge complicated problems.