[Investments] Scuderi group - this is bad, right?

[stessier]

So my unlce heard about this group - Scuderi Group - many moons ago and invested with them. They have patents on a split cylinder engine that is supposed to have much better fuel efficiency than a conventional engine. My uncle convinced my father to invest and I heard today that my brother also has some of the stock. This is not a public company and it looks like they've been trying to get this engine developed since about 2002.

My father called today asking if I wanted to get in on a round of investing. I could get 100 shares for $526 with warrants for 400 more shares for an additional $526. He said they've recently signed something with a car company and were close to finalizing a deal with a consortium of car companies that would finally be bringing in some money. In addition, the engine appears to be better suited for electricity generation and they were making deals with generator companies that should be finalized in the next few weeks as well.

He told me about this company back around 2008 and when I did digging then, I didn't think they would ever get a car company to bite. After his call today, I started to do some new digging and found the SEC just hit them with a fine. The fine is relatively small, but this is a really big deal, right?

And this is the first time I've seen how much they've raised - $80 million! From everything I've found, they don't have a working engine - only computer simulations. Today I also found an older article that says these simulations and the improvements they are quoting are using a 2004 Corolla as the baseline. And it looks like the agreement they signed was a confidential Memorandum of Understanding with someone that just lets the company look at Scuderi's data - that seems like pretty much nothing to me (although it is being hailed as a huge step forward in their press releases).

Finally, I found a bunch of message board posts that suggest they may be using some of the rounds of financing to pay back disgruntled investors who want their money back.

I'm not an investment guru and I know the same is true of my family that is involved. I'm pretty sure my uncle has bet his retirement on this while my father is in for enough to be painful if lost, but not life ruinous. I'm pretty sure my brother only invested money he could afford to lose. When my father and uncle talk to me about this, all I can think of is the "forum effect" in real life. They keep bringing up how close the company is to making agreements and how soon afterwards, the company will go public and a $100 share price is a real possibility because everyone is going to want this engine.

Am I just being overly sensitive and this is normal growing pains for a new company or are there huge warning lights all over this thing? I won't be investing but I'm trying to figure out if I should push hard to get my family out of this.

[JSHAW]

Just reading the summary from the legal document of their shenanigan's on what they spent $80 million dollars on in loans to
family members, insurance policies, etc, if you were asking ME if I'd invest my hard earned dollars in them, I'd say HELL NO.

Feels like an elaborate attempt at a ponzi scam, but that's just my take on them.

If it seems too good to be true, it is.

[Matrix]

I have been doing a lot of work with start up, and got to meet a lot of smart people and learned a good bit about it myself. Anyone who been trying to develop anything for 11 years is a BS. 11 years i NOT a new company. This days is you cant show some significant progress in a year, you get shut down. They have zero momentum and if you dont have a working engine after 11 years and 80 million in investments, you are scaming somebody. It is 100% scam. This is not start up, this is not investment it is cash cow for the owners of the idea, they push this awesome new engine to small investors and collect the bank.

[Kasey Chang]

Patents have long lost the meaning of what they're supposed to do. You don't even have to have a working sample any more, merely "computer simulations" or "models" will often suffice.

Frankly, this, to me, is one of those pipe dreams... Either it'll revolutionize internal combustion FOREVER (which I seriously doubt it would), or it's a total joke and a Ponzi scheme.

And if they're paying off disgruntled investors with a new round of investment, then it *is* a Ponzi scheme.

Furthermore, reading the SEC "cease and desist" makes it clear this is a COMPLETE SCAM.

1) They NEVER registered the stock with the SEC, despite hiring a "broker-dealer" to pretend they are. When questioned, they claimed they are exempt, even though they blew past the exempt limit long time ago. (see next item)

2) They also "cheated" by playing a numbers game. SEC rules require 55 or less "nonaccredited investors" (which means less than 1 million net worth, as they assume you know what you're doing if you have more than that) when they have many more than that. On the years they do comply, they did so by telling the investors to form "investment clubs" and have the clubs invest in the company, thus shrinking the number of actual investors. As these clubs were recommended by the company, they are conspiring to cheat the rules.

3) They also did some bogus accounting... many investors filed papers saying they are nonaccredited (less than 1 mil net worth), but Scuderi counted them as accredited (again, the cheat the limit)

4) Did not issue required detailed statements to investors as required to gain "non-filing" exemption

5) Did not issue required filing with the SEC

6) Using the funds (which could have ONLY came from investors as company has no other income) as family piggy bank. SEC listed:

”In fact, the company was making significant payments to Scuderi family members for non-corporate purposes, including, large, ad hoc bonus payments to Scuderi family employees to cover personal expenses; payments to family members who provided no services to Scuderi; loans to Scuderi family members that were undocumented, with no written interest and repayment terms; large loans to fund $20 million personal insurance policies for six of the Scuderi siblings for which the company has not been, and will not be, repaid; and personal estate planning services for the Scuderi family

100K in fines and catching up with paperwork is slap on the wrist, but the charges are SERIOUS. If this Scuderi thing doesn't clean up its act IMMEDIATELY SEC will shut them down as a Ponzi scheme.

Personally, I wouldn't touch this with a 10 ft pole.

[Scuzz]

No, the amount asked for you to invest is low enough to make it seem like nothing but large enough to raise money on a big enough scale.

If it sounds too good to be true, it probably is. Start ups don't take this long to get going.

AVOID THIS.

[Isgrimnur]

Just reading the summary from the legal document of their shenanigan's on what they spent $80 million dollars on in loans to family members, insurance policies, etc, if you were asking ME if I'd invest my hard earned dollars in them, I'd say HELL NO.

This.

[Drazzil]

Damn, stessier, someone sold your family the black panther watch of investments.

[LawBeefaroni]

The only difference between this and a hundred pinksheet scams I've seen is that these guys aren't even registered.

It has all the earmarks of a scam. I'll just point out three.

1. If they have such a sure thing, why are they going after friends-of-friends for financing? Surely they could find one VC source to fund a private placement. Thing is, any VC source with enough capital to finance them knows better than to deal with their ilk. They can't get registered to trade publicly (would probably open them up to all kinds of legal issues) but they can't abide by the private rules either because they need a lot of little fish to fall for their scam. The big fish don't fall for it. I'm sure they can't wait to go public, but not because they'll be trading at $100/share.

2. The MOU is a classic part of the scam. It's like a giant alarm bell going off. Again, I've seen this in countless pinksheet scams I've had to dissuade friends/family from buying into. The MOU is meaningless. Even in the press release (which is quoted verbatim by any "news story" on the MOU) has to beat around the bush because it's an empty MOU. In the pinkie world, a MOU would be used to pump and dump. It sounds like it's being used for a pump here and they don't have to worry about dumping since they are free to just take the cash.

3. Nearly all their efforts are in selling shares. About the only development they've done is on their website. 2004. 2006. 2013. You'll note as you go (check out more here) that they hit on whatever is hot at the moment. In 2004 it's all about improving efficiency of the combustion engine ("the Scuderi Split Cycle Engine"). In 2006 it's all about hybrid power ("Scuderi Air Hybrid Engine...empowering a Hybrid Revolution"). In 2013 it's about reducing CO2 emissions ("A compelling alternative to the conventional internal combustion engine"). They have taken $80M and have no product or revenues to show for it. Just another private offering. They tell a great story and sell shares. And apparently take the proceeds for personal use.



Don't touch it.

Warrants? Geez, do they have balls. I'll give them that.

Ask your father and uncle this. How many shares are there? Who holds them? How many warrants? Even if you wanted to invest (which you shouldn't), you would have absolutely no way of valuing the company. Not even ballparking it. They are offering you shares at $2 each. It's no different than someone walking up to you asking if you'd like to buy 100 wondermabobs for $10.

[pr0ner]

Patents have long lost the meaning of what they're supposed to do. You don't even have to have a working sample any more, merely "computer simulations" or "models" will often suffice.

That's news to me!

[Matrix]

On that topic, how much those wonderbombs go this days.

There is no way they will ever get VC funding. ever. Since VC dont pay for scams.

[Anonymous Bosch]

I won't be investing but I'm trying to figure out if I should push hard to get my family out of this.

Absolutely.

As others have pointed out, in reading the SEC's cease and desist order, it would seem that Salvatore Scuderi used millions of dollars that he raised from investors to fund the personal expenditures of family members who provided no services whatsoever to the company. And while those payments have been characterized as 'loans', there was no documentation stating the terms of the loans, the interest rates, or any collateral to secure the loans. Scuderi is now subject to a $100,000 fine (which actually seems like a very mild wrist-slap considering how much how much they've raised), and the SEC is requiring the Scuderi Group to define the terms of the loans and to disclose the non-company related use of said funds over the last twelve months to new investors. Which does not bode well for the chances of their wonder-engine ever becoming a reality.

In other words, an email 'from the desk of a barrister' originating in Nigeria, requesting your assistance with the distribution of tens of millions of dollars from the wife of a deposed African leader, would be about as legitimate as this particular 'investment opportunity'. If your uncle has bet his retirement on this scam, he may need to seek the assistance of an attorney if he hopes to have anything left to retire on.

[stessier]

Thanks for the confirmation guys. I was pretty sure I was right, but it's nice to have some other view points.

Ask your father and uncle this. How many shares are there? Who holds them? How many warrants? Even if you wanted to invest (which you shouldn't), you would have absolutely no way of valuing the company. Not even ballparking it. They are offering you shares at $2 each.

Yeah, when I was trying to sleep last night I thought of that as well. I also wondered if they have ever seen an audited balance sheet and how much of the company is represented by the outstanding stock (did the owners keep 51%, say, and just keep diluting shares when they offer more?). Is there anything a private company would have to file with the SEC when offering stock? One of the articles I found said this was a Series E offering. Would that mean this is the 5th round?

It's no different than someone walking up to you asking if you'd like to buy 100 wondermabobs for $10.

Well, a bit different...people may want a wondermabob. In the last 11 years, no one has wanted what Scuderi is theoretically selling.

As others have pointed out, in reading the SEC's cease and desist order, it would seem that Salvatore Scuderi used millions of dollars that he raised from investors to fund the personal expenditures of family members who provided no services whatsoever to the company. And while those payments have been characterized as 'loans', there was no documentation stating the terms of the loans, the interest rates, or any collateral to secure the loans. Scuderi is now subject to a $100,000 fine (which actually seems like a very mild wrist-slap considering how much how much they've raised), and the SEC is requiring the Scuderi Group to define the terms of the loans and to disclose the non-company related use of said funds over the last twelve months to new investors. Which does not bode well for the chances of their wonder-engine ever becoming a reality.

In other words, an email 'from the desk of a barrister' originating in Nigeria, requesting your assistance with the distribution of tens of millions of dollars from the wife of a deposed African leader, would be about as legitimate as this particular 'investment opportunity'.

I have a good relationship with my immediate family and figure I could ask my brother about it easier than my father. When I mentioned the SEC thing, he seemed to think it was no big deal because a lot of companies get fined by the SEC and people still invest with them and he cited Apple specifically. He pointed out it was a small fine and what mattered was the usefulness of the underlying technology and that the simulations were run by a reputable company and there were a bunch of stories about international people asking to buy the licensing right for entire countries. I tried to explain this was no backdating options that they are being accused of and the report of international licenses only came from the horses's mouth but I'm not sure he's going to buy it. He did confirm that he only played with money he expected to lose, so I guess I've done what I can there. I also contacted my other brother and warned him off which may have been lucky because it sounded like he was seriously considering it with no further investigation because the amount asked for was so small.

If your uncle has bet his retirement on this scam, he may need to seek the assistance of an attorney if he hopes to have anything left to retire on.

Yeah, he has true believer-itis. After further talks with my brother, he's been in for at least 7 years and may be well over 6 figures. He's also gotten his sister into it. I'm not sure anything short of the company disappearing would convince him there is a problem.

[Kasey Chang]

When I mentioned the SEC thing, he seemed to think it was no big deal because a lot of companies get fined by the SEC and people still invest with them and he cited Apple specifically. He pointed out it was a small fine and what mattered was the usefulness of the underlying technology and that the simulations were run by a reputable company and there were a bunch of stories about international people asking to buy the licensing right for entire countries.

The problem here is SEC never fined Apple (through 60 seconds of Google search). SEC fine one former Apple exec, a Mr.Andersen, Apple's former CFO, for trying to circumvent the SEC rules by backdating Apple stock options he got as a part of his comp package and thus manipulate the market. SEC also accused another and that guy chose to fight it out in court. This is back in 2007. So those two cases are PERSONAL misconduct.

http://www.macnn.com/articles/07/04/23/ ... .with.sec/" target="_blank

And this Scuderi business is CORPORATE LEVEL misconduct. Completely different league. It'd be like comparing embezzling with Ponzi scheme. One guy embezzle a million, vs. Bernie Madoff's billion dollar Ponzi.

Claiming "other countries want to buy out stuff" is also bogus. It's very easy to make up **** like that, and the frenzy feeds into itself, even of it's not a corporate level. Here's a theoretical scenario:

CORP: We have this wonder technology!
STOCKHOLDER: Let me tell this friend who's in so-and-so!
that guy tells so and so, and soon it reached some small government somewhere
MINOR OFFICIAL: Boss, I heard this technology somewhere. Can we look into it?
BIG OFFICIAL: If it's cheap, why not, get some information
sends a MOU to CORP
CORP: OMG! That (no name country) wants to license our stuff!

There's a lot of bull**** and cr** flying around this company. The problem where is you're dealing with a bunch of "true believers" now, who CONVINCED THEMSELVES that this thing WILL pan out for them. Showing them the truth may instead cause the backfire effect:

http://youarenotsosmart.com/2011/06/10/ ... re-effect/" target="_blank

Your brother needs to get his perspectives straight, but confronting him won't work. Instead, approach him carefully, calmly, and explain that "I think you got some details wrong, thus the logic that you have supporting your position is not as strong as it should be, will you look over this for me?" then show him a little bit of the evidence. Only a little. Enough to prove that ONE piece of they story is bogus. Repeat ad infinitum until his mind is changed.

The idea is to establish a seed of doubt. Just a little one, and let it "germinate" in their mind. A couple days later, "have you thought about what I said?" then show him another piece. You have to go slow on this one. Those guys built themselves a castle into the sky and you can't just shatter the foundation and make it all collapse in a heap. You have to make them UNBUILD it themselves.

[LawBeefaroni]

The size of the fine doesn't matter (although in this case it's $100K fine for an individual, Sal Scuderi). The claims in the complaint do. This is a two-bit operation, it's not even a proper ponzi scheme. But if they do comply with the SEC order, information will be available soon enough. What's the rush, then?

[JSHAW]

One of the financial news network's CNBC runs a series called American Greed-Scams, Scoundrels and Scams.

I've watched many of these episodes, many of them on ponzi schemes. The Bernie Madoff being the biggest, and others that were
multi-million dollars scams. Scuderi...wouldn't be suprised to see them on the show one day.

[LordMortis]

My question would be what does 80 Million have them other than a small office in a small medical building?

https://maps.google.com/maps?q=1111+Elm ... CAgQ_AUoAg" target="_blank

From the looks of it, it actually doesn't look like a scam. They have people working on this engine at the Southwest Research Institute which appear to be real and are taking a hands off interest in making a family career from a dead guy's dream.

However, scam or not they do appear to be living off of the Duke Nuke'em Forever method of design and implementation. If 80 Million and 11 years (coming after the actual designer's death) doesn't have you anything more than a few unnoticed SAE writeup from four years ago, then you've probably got problems.

http://www.sae.org/servlets/dlymags/dai ... agCode=AEI" target="_blank

http://www.sae.org/mags/aei/power/7650" target="_blank

The good news is that they are partnered with Bosch. Unless Bosch is simply selling them parts (valves as is suggested) then there are plenty of industry engineers who haven't dismissed the technology as having potential

OTOH, I've seen lots of engineers thrown at technology they can't make work.

So I'd say "no" to scam and "yes" to investing in something that is likely to be pissing their money away on people who likely don't know what they're designing or how to run the business of designing it.


By comparison, look at what Tesla Motors has done in ten years and what they have done with that money:

http://en.wikipedia.org/wiki/Tesla_Motors" target="_blank

[LawBeefaroni]

It's a scam because they aren't raising capital in a transparent or responsible way. Connection to reputable institutions or companies aren't evidence of validity of their claims either.

[Mechanics_r_us]

Already a class action lawsuit from investors demanding return of investment plus 6%.

This thing will unravel pretty quickly.

Google scuderi lawsuit

[nemesis]

Tonight there was a Scuderi Group investor meeting in Islandia, NY. I'll be interested to find out how many attendees showed up. The last meeting in Springfield, MA had 200 attendees. Seems that allowing unaccredited investors to attend the meetings, combined with offering to give 4 warrants for every 1 share purchased, has proven to be adequate chum to spur a feeding frenzy.