09-134AD Supreme Court issues final orders on Cycclone Magnetic Engines
Tuesday 4 August 2009
The Supreme Court of Queensland has made final orders in relation to unlawful conduct by Cycclone Magnetic Engines Inc (CME) and its chairman Micheal (sic) Peter Nugent, 46, of the Gold Coast.
US-based CME operated in the Gold Coast and Lismore and claimed it had developed an engine that produced power through the use of magnets and required no fuel. CME displayed a video on its website which showed the engine appearing to operate. The Court found that the engine could not work.
Between March 2005 and July 2006, CME raised more than $1.3 million, from over 120 investors mainly from the Lismore area.
The Court declared that:
- CME had engaged in misleading or deceptive conduct, or conduct that was likely to mislead or deceive, by representing on the CME website that the engine worked when such an engine could not work.
- CME had falsely represented that acquiring shares in CME was an investment in proven technology.
- Mr Nugent and CME had engaged in misleading or deceptive conduct, or conduct that was likely to mislead or deceive, by representing in a business plan, without reasonable grounds to do so, that CME would spend $50,000 on tooling, plant and equipment ($7,655 was spent), $300,000 on research and development (no money was spent on research and development) and $100,000 on salaries and wages ($401,715 was spent).
The Court made orders permanently restraining:
- CME from engaging in misleading or deceptive conduct, or conduct that is likely to mislead or deceive, by representing on a website that the engine works.
- CME from falsely representing that acquiring shares in CME is an investment in proven technology.
- CME and Mr Nugent from offering securities that require disclosure without lodging a disclosure document with ASIC.
- CME and Mr Nugent from representing when there are no reasonable grounds to do so, that CME will use monies available to it in a specified way.
The Court ordered CME and Mr Nugent to pay ASIC’s costs.
Background
In March 2007, ASIC commenced Court proceedings against CME and its three directors Mr Nugent, Robert McClelland, 56 and Steven Foster, 48, both from the Lismore area.
A Supreme Court civil trial took place in August 2008, and the Court delivered a judgement in March 2009. The Court made its final orders on 31 July 2009.
During the trial Dr Geoffrey Walker, an engineering expert gave evidence on behalf of ASIC. Another engineering expert, Mr William Potts gave evidence on behalf of CME and MrNugent. Both Dr Walker and Mr Potts agreed that:
- The proposed permanent magnet motor would comprise a perpetual motion machine.
- The aim of using permanent magnets to produce power to propel motor vehicles or conventional industrial machines cannot be achieved.
Mr Potts stated that ‘[t]he hope of making an engine that will operate purely on magnets is forlorn’. Dr Walker said that the development of an engine of this type was not scientifically feasible.
The Court did not grant all of the orders sought by ASIC but found that ‘ASIC was substantially successful against CME and Mr Nugent’.
While the Court found that Messrs McClelland and Foster had breached provisions of both the Corporations Act and the ASIC Act, it made no order concerning them ‘because of the short period of time for which they had been directors and their low level involvement in CME's activities’.
The Court rejected an application by Messrs McClelland and Foster that ASIC pay their costs, stating that:
- ‘The conduct of these gentlemen prior to trial in requiring strict proof of matters which should not have, in modern litigation, been pursued was a sign of the manner in which they conducted their response to the claims by ASIC.’
- ‘...an appropriate order, which recognises the fact that these respondents were found to have breached legislation but for other reasons no orders were made, can be accommodated by making no order as to costs.’
ASIC Website: Printed 02/10/2010
