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Monday, February 4, 2013

Clearsign: Lies, Omissions, and a Permanent Bar from the Securities Industry

I've just realized that Microsoft no longer honors the links back to onedrive/skydrive. Many recent readers may have come across broken links when trying to view the source material.

Microsoft's response to my inquiry: "Due to recent attention around the possibility that someone may be able to discover shortened URLs that were not intended to be public, we have disabled existing shortened URLs of shared files in OneDrive. We apologize for any inconvenience that you may have experienced." 

I've just replaced the "shortened URLs" with the "long URLs" (6/3/2016) 
~ Matt Berry



Clearsign Combustion Corporation (CLIR) "appears to be one of the first, if not the first, in the nation to make use of the new JOBS Act." (The Seattle Times) Perhaps this is only an ironic coincidence, but it's a shame that this new program had to start off this way: Clearsign has no credible inventors to account for its "revolutionary" technology, and that's why I believe that the Clearsign story constitutes a technology scam.
·         Without a doubt someone in Clearsign has lied about the business and science experience of the Chief Science Officer ‒ the so-called “original inventor” of its technology. Without the inventor, what claim does Clearsign have for a “revolutionary” technology?
·         Material information has been withheld from Clearsign Investors: the co-inventor on Clearsign’s “pending patent” was mixed up with a transparent technology scam. A recent attempt at a rebuttal to this exposure has misrepresented the facts.
·         Clearsign inked an agreement with John McFarland for Investor Relations work.  McFarland was permanently barred from the securities industry. 
·         CEO Rutkowski and McFarland are both co-members of a separate investor relations company which was formed this last June, just after McFarland got more than $50,000 worth of Clearsign shares and which was above and beyond the original agreement.  I have found no disclosures of this in Clearsign’s filings.
·         MDB Capital Group underwrote Clearsign’s IPO, whose S-1 contains false and misleading statements. 
·         MDB Capital Group professes expertise with patents and claims to have done due diligence on Clearsign … yet Clearsign’s original inventor faked patents. How could MDB not know this?
·         MDB Capital Group claims to have helped Clearsign with investor relations during the same time period that Clearsign’s banned investor relations agent was active.  FINRA members such as MDB Capital Group are prohibited from having any association with barred members such as John McFarland.
Just what is a technology scam anyway?
A functional technology scam is rarely a complete fiction. The scam is usually built upon a real technology. It is just old, not well known, and tells a good story of both changing the world and making investors rich.  The actual scam is in leading investors to believe (1) that the technology is unique to the particular business, when it is not, and (2) that the technology is on the verge of commercialization, when it is not.

David Goodson

Many false claims have been made about the commercialization of David Goodson’s past technologies. This matters, because Goodson is the so-called “original inventor” of ClearSign’s Technology.
  He is also the Chief Science Officer.
  He is listed on ClearSign’s first patent applications as an “inventor” of the technology.
  He is a co-founder of the company.
  He is the largest shareholder and a director.
The Critical Issue: Because someone in ClearSign has obviously lied at the outset about the Chief Science Officer’s scientific and business experience, investors are at risk of having put their money on a technology scam.  Having no marketable products and given that its technology has not been tested by a third party, ClearSign’s two largest assets are intangible: the actual talent and the trustworthiness of its original inventor and Chief Science Officer. How can one value these in light of the following false statements?
In the Prospectus and S-1 Registration Statement, Clearsign claims that Goodson commercialized “a diverse array of technologies” ‒ and then Clearsign gives us a list of three of them, without giving us the specific names of the companies and technologies ‒ Why not? (Emphasis here and throughout is mine.)
“During his career, Mr. Goodson has led the development and commercialization of a diverse array of technologies including electro-optic polymer materials, advanced combustion systems and fermentation technologies.” ~ Prospectus
I did uncover three such ventures.  However, far from finding them commercialized, I’ve found a trail of evidence showing failed technologies, burned investors, and abandoned businesses. [For a larger and more detailed presentation of the evidence please see the slide show: ClearSign'sFalse and Misleading statements about David Goodson (pdf).  There are links to specific slides throughout this essay.]
First Technology: Goodson was indeed president of an electro-optic polymer company.  It was called Connexus Corp. Did he commercialize a technology here?  
          Some of the following is painful reading.  The point however was not to show someone down on his luck, nor (unfortunately) was it to direct sympathy toward the victims of his broken promises.  To prove the misrepresentations, it was necessary to show how companies and technologies which were declared successes were in fact extreme failures. For this, I relied heavily on court documents.
When soliciting investors it doesn’t hurt to get a scientist with a Ph.D. to join your team.  Here is the history made available to us through a suitfiled by a recently married PhD graduate.  While Goodson was being sued by creditors and obviouslyknew he had no funds, he sent a letter which assured the graduate of employment. The graduate passed up an offer from AT&T Bell Laboratories to come to Washington for Goodson and Connexus.  He was promised a salary but was not paid. He was promised that his rent would be paid, but it was not.  Goodson had promised that university tuition for his wife would be paid by the company. A check was even written out to Seattle University, signed by Goodson; it bounced, and the young couple was next faced with collections. Time passed without a paycheck, the couple was evicted, a complaint was filed and an angry resignation was submitted as an exhibit.  Thanks to the court archives, we have the background history of the state of affairs at Goodson’s Connexus ‒ a company which was eventually dissolved by thestate of Washington due to failure to file.  It is safe to say that there were no commercialized products here.
Second Technology: Clearsign claims that Goodson founded an advanced combustion systems company.  He did.  Next in Goodson’s history appears a company called “Thermal Energy Systems.” It has a very small footprint however.  The company was awarded a patent in 1997, and two years later the company is dissolvedby the state of Washington due to a failure to file.  The patent itself expires early in under five years by similar fate: a failure to keep up with the fees at the united states patent office.  (Clickhere to see both company dissolution date and patent expiration notices.)
 It is very doubtful that this technology was successfully commercialized.
Third Technology: Corporate records show that Goodson next put together a company involved with fermentation: Mycoferm Technologies.  Court documents, a letter written by Goodson, and Archive.org’s preservation of Mycoferm’s website reveal a stark contrast between the company’s “forward looking” statements and the history that has been left to us.  Note the contradiction between the promotional material for the public and the defensive material submitted to the legal system.



In a public context
In the legal system
Mycoferm in 2002 archives, at the investor solicitation stage, making revenue projections for 2004/2005
2004 rolls around and Goodson fends off Mycoferm’s landlord
“The company projects revenues of over $150,000,000/Yr. within the first three years of operation.” ~ “Ethanol Production,” Mycoferm Technologies, archived in 2002
“MycoFerm, which only recently began selling its EGT product, projects net sales of $9 million this year. Goodson and Melville believe those sales could grow to as much as $250 million by 2004.” ~ Startup's future is fermenting - Enhanced Growth Technology could trigger firm's own growth, Feb 22, 2001 Archive.org
“The only asset that I presently have is a TV, a desk and a 1995 Toyotta [sic] T100 truck.  I am on food stamps and have been in the care of the state of Washington Department of Social and Health Services for a good part of this last year.” ~ Goodson’s 2004 letter to plaintiff’s attorney. (Exhibit 8, in  Case 04-2-04625 SEA, Superior Court of the State of Washington, County of King)
And what about the technology itself?
  Before, to investors, there is a message that the technology has been tested and it’s going to succeed.
  After, to creditors, there is a message that the company couldn’t succeed because it couldn’t demonstrate the technology.

In a public context, the technology was tested
In the legal system
Mycoferm during promotional stage
Goodson fends off Mycoferm’s landlord
In Lab trials at MycoFerm, yeast that produces ethanol grows three times faster using EGT when compared to the same yeast growth in a control group using existing conventional methods.
EGT is showing exciting promise by improving the biomass yield for ethanol in our lab tests.”
~ “Ethanol Production,” Mycoferm Technologies (Archive.org)
“Our company had several major investors that were interested in investing privately, but due to our need to demonstrate our technology, they kept continuing to stall and force us into finding other ways of keeping the company alive.” ~ Goodson’s 2004 letter to plaintiff’s attorney.  (Exhibit 8 in Case 04-2-04625 SEA, Superior Court of the State of Washington, County of King)
This is particularly disturbing because Goodson’s technology at Clearsign also has not been demonstrated to independent third party scientists … while Clearsign appears to be suggesting that demonstrations have taken place.  Which is it?  This red flag is as obvious with Clearsign as it was for Mycoferm.

In a public context, recent press release
In a regulatory context, earlier prospectus
 [Clearsign] “… has successfully demonstrated its proprietary Electrodynamic Combustion Control™ (ECC™) technology operating in a system with a thermal output of 1,000,000 Btus per hour.” ~ Press Release
“Our technology has not been tested or verified by any independent third party.” ~ In ClearSign’s SEC filed prospectus

In any event, the evidence provided by court documents and internet archives tells us clearly that Mycoferm was not a commercialized technology.
Then there is another claim in the prospectus.  According to Clearsign, Goodson’s company, Air Pollution Systems, was sold to the Linde division of Union Carbide (UCC) in 1978.  This was difficult to accept.  Even the briefest history shows that in precisely 1978 Union Carbide was in the cash crisis of its existence: it was a year of divesture ‒ not acquisition.  It is always dangerous to declare that there is no needle in a haystack and so I try to avoid that type of investigative risk, but I scratch my head with the absence of information here.
After a phone conversation with the staff from Research Services at the Washington State Archives and after our inability to find proof of a sale to UCC, I ordered copies of the corporate file.  In the annual renewal documents, no change in personnel or management was recorded in 1977, 1978 and 1979.  The officers are the same, year by year.
Additionally, there is a blank to be filled in on the annual corporate registration for the address of out-of-state businesses.  Nothing was filled in before or after the supposed purchase by Linde. There was an extra fee to be paid by out–of-state corporations, but there was no addition of fees on the renewal forms … the fees were exactly the same in 1977, 1978, and 1979.
In the year when Linde/UCC was supposed to have purchased Air Pollution Systems, there was no name change in the company or a reassignment of the patents.  Even four years later when Air Pollution Systems changes its name to “Controlled Energy Systems Company,” there is no mention of Linde or Union Carbide.  The name of the assignee to the patents also changes … not to Linde or UCC but predictably, to Air Pollution Systems’ new name: “Controlled Energy Systems Company.”
There is even a merger in 1982, with no mention of Linde or UCC, and Controlled Energy Systems Company is the surviving entity.
Finally, as it goes with other Goodson founded companies, this one too is dissolved by the state due to failure to file.  In summary, it is very doubtful that this company was sold to the Linde division of Union Carbide in 1978.
In a previous report we have already dealt with the false claim that Goodson once collaborated with Nobel Prize winners. During the relevant time period, Crick and Watson had not yet won the Nobel Prize and were still obscure.  Additionally, given the extreme age differences and the fact that Crick and Watson were living at opposite ends of the Earth at the time, such collaboration is extremely unlikely.
The claim that his “numerous” patents “include” the four mentioned in the prospectus was false. The statement suggested that Goodson had many more than four patents when in fact he had less, and two of the four were false claims.  A third patent expires early due to nonpayment of maintenance fees.
And how many of Goodson’s “technologies” involve electric fields?  Is Goodson adept at solving so many different scientific problems? … or was it luck that electric fields just so happen to be the solution … every time?  Or is it that electric fields just tell a good story?

Company
Electric Field application
Fate
Citation
Connexus Corp
To polymers
Failed
"The polymer modulators require only the presence of an electric field to effect function.”  ~ Connexus Brochure
Thermal Energy Systems
To combustion, similar to ClearSign’s ECC Technology
Vanished/ dissolved by state. Patent expires early due to failure to pay fees
“… flames of the combustion process are subjected to a high electrical field, thereby resulting in a reduction in the quantity of particulates carried from the combustion process…” ~ Patent 5,702,244, US Patent Office
MyCoFerm Technologies
To fermentation for biofuel, health, human consumption, and more
Failed
The invention relates to cultivating a biological source cell in a liquid-medium bioreactor and applying a waveform regulated electric field potential to the source cell, wherein the liquid medium comprises one or more ionizable components.” ~Patent Application 20020130050, US Patent Office
Human Energetic System’s Corp.
Detect human electric fields to identify diseases
Recent and On going
Does the human bioelectrical field exist? Can we work with it? The conclusive answer: Yes.” ~ Human Energetic Systems Corporation web site, Chief Technology Officer
ClearSign Combustion Corp
To combustion, similar to Thermal Energy’s patented technology
Recent and ongoing
ClearSign’s Electrodynamic Combustion Control technology introduces computer-controlled high-voltage (but very low power) electric fields to manipulate the movement of electrically charged molecules (ions) that are a natural product of the combustion process.” ~  ClearSign web site




 


 
You can’t have a technology without an inventor.  Goodson was said to be the original inventor of Clearsign’s technology ‒ ECC.  Clearsign has lied about Goodson’s past business and science experience. What basis do we have to trust what is said now?  Without the inventor what technology do investors have? … whether that was Mycoferm’s EGT then or Clearsign’s ECC now?

“Revolutionary” EGT: Electric Fields to Fungus
“Revolutionary” ECC: Electric Fields to Fire
“MycoFerm Technologies is evolving its Enhanced Growth Technology (EGT) to offer unprecedented value to the ongoing need for a more fuel stable America. EGT is a revolutionary process that enhances yeast growth and enables cells to grow much faster than previous technologies allowed.” ~ “Ethanol Pzroduction,” Mycoferm Technologies
“We are developing a revolutionary new technology that promises to improve key performance characteristics of industrial combustion systems including energy efficiency, emissions control, fuel flexibility and overall cost effectiveness. ECC™ can be used anywhere there is a flame, regardless of fuel type, in the world’s commercial, industrial and utility combustion systems.” ~ Clearsign website
Are the misrepresentations about Goodson’s history material?  As Clearsign puts it in the prospectus,
“In light of Mr. Goodson’s extensive science background and his experience in developing and successfully commercializing new technologies, we believe that his membership on our board of directors is of high value to the Company.” ~ Prospectus
What background?  What experience?

Omission of material fact: Thomas Hartwick’s involvement with John Rivera’s technology scam

As mentioned earlier, a successful scam usually employs an aspect of a genuine technology, but falsely suggests that it is on the verge of commercialization.  For example, John Rivera was convicted in the summer of 2011 for fraud. But he was not sued by the SEC for producing bio-oil through pyrolysis.   Pyrolysis was not on trial. In fact this technology has been around for over a thousand years ‒ (it’s how we can produce charcoal and bio-oils for example).  Rivera fraudulently claimed that “his” technology was commercially viable. It was not.
Clearsign’s co-inventor and Technical Advisor, Dr. Thomas Hartwick, was also recently an advisor for John Rivera’s technology at Sustainable Power Corp (SSTP).  Dr. Hartwick arrived to summarize a scientific study of Rivera’s technology for investors and to advise the company on how to commercialize its technology.  His name was frequently used in SSTP press releases to promote Rivera’s technology and its commercial viability. Clearsign’s omission of this material fact leaves investors at risk.
(For source material and a more detailed treatment, please see the  slide show ClearSign's Omission of Material Factregarding Thomas Hartwick.)




 


 

Hartwick in SSTP Press Release
John Rivera, in Federal Court
"'When I was approached to review the SSTP process and the utilization of the proprietary catalyst, I spent nearly five weeks reviewing the technical data before I agreed to accept the position as scientific and technical advisor. Only after I became convinced that the technology was based on sound scientific principles would I accept this position,' stated Dr. Thomas Hartwick." ~ Sustainable Power Corp. Appoints Dr. Thomas S. Hartwick as Scientific and Technical Advisor to the Company Dec 14, 2009
"The central fraud alleged involves claims by Rivera that USSE could produce viable commercial biofuel and fertilizer products." (Page 2.) (USSE = US Sustainable Energy Corp.)
"Rivera was also the principal shareholder of SSTP. According to the Commission, Rivera used SSTP for misconduct similar to that alleged in this case." (Page 3, Note 2)(SSTP = Sustainable Power Corp)
"The defendants also argue that two purported contracts filed with their response demonstrate that USSE (or, later, SSTP) was commercially viable." (Page 20)
~ Summary Judgment against John Rivera in July 2011, (Case 5:08-cv-00245-DCB-JMR) An exhibit in the case included the same Texas A&M study that Dr. Hartwick was tasked with. That report was submitted as an exhibit




 

 

The SEC suit was already underway before Hartwick’s arrival. How could he not know?

Where is Clearsign’s disclosure of Hartwick’s role as Scientific and Technical Advisor for Rivera’s technology at Sustainable Power Corp? (SSTP) 

“Dr. Hartwick's function at Sustainable Power Corp. is to provide advice and counsel on the commercialization of SSTP's Green Energy Vertroleum® process utilizing the Company's proprietary catalyst to produce biofuels, biogases, and biochar.” ~ Sustainable Power Corp. Appoints Dr. Thomas S. Hartwick as Scientific and Technical Advisor to the Company

Although David Goodson is said to be the original inventor of Clearsign’s technology, Hartwick is the first named inventor on ClearSign’s first patent application. He is also the top listed Technical Advisor in Clearsign’s prospectus and S-1 Registration Statement.  This is a problem because this patent application was the first expression of Clearsign’s technology. One can’t have a real technology without an inventor. This has been a critical failure in Clearsign’s technology story. There are no credible inventors for its “revolutionary technology.”

In response to my earlier report, Benjamin Padnos cites Hartwick:

"In Dr. Harwick's own words:

'Regarding SSTP, Berry's assertions are totally incorrect. Rivera, the former CEO, was thrown out by the good guy directors who wished to rehabilitate the company. First, they had to find out if the technology was worth saving. So they got a contract with Texas A&M to measure and characterize the conversion process and got me as referee/advisor to critique the A&M results and comment on the business viability. Surprise! The basic technology was even better than the Rivera claims, but the company was too far gone with the lawsuits to recover. I never received my full compensation. I was on the team opposing Rivera, not supporting him. He was thrown off the board in Spring of 2009 before I even signed up to scrutinize the manufacturing process in October. Any contention that I was in league with Rivera is hardly credible...never even met the man. All of this is fully documented and available for scrutiny.'" ~ Padnos: “The Future Is CLIR: Why The Shorts Are Wrong About ClearSign Combustion” ~ Seeking Alpha

Either Padnos’ citation is correct and Hartwick has misrepresented the past … … or Padnos’ has misrepresented Hartwick.

Summary of claims made about Hartwick and of evidence to the contrary






 

 

Padnos’ citation of Hartwick
My refutation
“I was on the team opposing Rivera, not supporting him.”
I found no evidence to support this claim. But in any event, it is meaningless.  SSTP was a technology scam:  SSTP/USSE investors were led to believe that Rivera’s technology was commercially viable. It was not. Hartwick was here to summarize the report on Rivera’s technology and advise the company on its commercialization.
"... got me as referee/advisor to critique the A&M results and comment on the business viability. Surprise! The basic technology was even better than Rivera claims.”
The SEC commissioned Tunstall Adams, Inc. to examine John Rivera’s technology.  Tunstall Adams concluded that Rivera’s technology was not commercially viable. The report was submitted in federal court as an exhibit.  The SEC won the case in a summary judgment.  Both Hartwick’s team and Tunstall Adams evaluated the same technology and both took the same Texas A&M report into account.
“He was thrown off the board in Spring of 2009 before I even signed up to scrutinize the manufacturing process in October.”
Rivera and Hartwick were contemporaries. Rivera officially steps down as Chairman; however, he is still the largest shareholder and is still very active after Hartwick arrives. Here is some of the evidence of Rivera’s involvement with SSTP during and after Hartwick’s arrival:
  In an email, the CEO consults with Rivera on a press release which highlights Hartwick’s report on Rivera’s technology. This shows not only a contemporary and a common purpose, but also Rivera in a de facto leadership role during Hartwick’s involvement.
  Rivera revokes a voting proxy from an officer; the officer complains that he was never really in power, but had only inherited liabilities, and then includes Rivera in his resignation notice.
  At the very time Hartwick is tasked with summarizing Rivera’s technology, an SSTP press release quotes John Rivera, demonstrating that Rivera is not only active and influential but working on the same project at the same time as Hartwick.  Rivera is said to be “focusing his efforts on innovations that will further the success of SSTP.” SSTP’s technology is Rivera’s technology and is precisely what Hartwick is also focusing on at this time. 
  John Rivera authors an SSTP presentation promoting his technology.
  In his deposition with SEC attorney Alex Rue, Rivera talks like one who is in control, explaining that he could just take his technology to Europe and become a billionaire if he wanted to, but he has chosen to keep everything in the US for the sake of his investors. (Video)
Padnos also said he “spoke with [Hartwick] at length to verify the timeline.”  Then the citation claims that Hartwick and Rivera were not contemporaries.  As is plain in the slide show of evidence, this is clearly not true.  That was only what Padnos said that Hartwick said.  What does the evidence say?  Just what brought Hartwick to Sustainable Power Corp anyway?  The actual timeline shows a ridiculous race between two science teams.
  The SEC was prosecuting Rivera for making fraudulent claims about the commercial viability of his technology.
  In March 2009, the SEC requested an onsite examination of Rivera’s technology, to be performed by Tunstall Adams, Inc.
  Shortly thereafter, in April 2009, Sustainable Power Corp arranges for a study of its own, forming an agreement with researchers from Texas A&M University.  
  SSTP’s Texas A&M report is finished in Oct. 2009. However, it is not made available to investors. 
  Hartwick is brought in to interpret the report for investors and to advise the company on the commercialization of Rivera’s technology. 
  SSTP declares its product and technology to be validated. They say that they are now preparing to begin commercial production. 
  The summary of Texas A&M’s report is published by the Scientific Advisory Board, headed by Hartwick.  “Confidentialinformation” has been removed from the original. (Who would actually fall for this?)
  The SEC commissioned study, by Tunstall Adams, is completed in March 2010 and concludes that Rivera’s technology is not commercially viable.  It is submitted in court as an exhibit.
  John Rivera is eventually convicted of fraud in federal court.

SSTP press release
SSTP press release
Tunstall Adams, for the SEC
Sustainable Power Corp. (PINKSHEETS: SSTP) is pleased to report that testing conducted at the world-renowned Texas A&M University confirms the validity of its proprietary Green Energy Technology.” ~ Sustainable Power Corp. Reports That Texas A&M University Confirms Validity of Its Green Energy Technology, December 21, 2009
“Sustainable Power Corp.'s President and CEO, M. Richard Cutler, Esq., said, ‘It has been an arduous process of getting validation of the SSTP technology because the reporting of such high yields of oil and gas really seemed unbelievable. We are excited that one of the finest, most prestigious research universities in the country, Texas A&M, has been able to validate the efficacy of the process and the yields.’” ~ Sustainable Power Corp. Reports That Texas A&M University Confirms Validity of Its Green Energy Technology, December 21, 2009
“In conclusion, USSE/SSTP does not produce an approved or certified liquid or gaseous fuel that is suitable for commercial sale and use in reciprocating and combustion turbine equipment. “ ~ SEC commissioned report submitted as an exhibit in the Federal case against Rivera, March 3, 2010
John Rivera’s technology was never commercialized and SSTP’s stock now trades at a fraction of a penny.

Next Padnos claims that Hartwick has advised over 700 companies ‒ and when you look at it that way, it sounds impressive. But just 3 years ago, in an SSTP press release, Hartwick was said to have advised 500 companies over the previous 50 years.
When you step back and calculate the amount of time available to each company, it appears that somebody is not being straight with somebody else.
What would be the ratio of money received to scientific contribution delivered? Let’s do the math.  According to SSTP and Padnos, Hartwick advised 500 companies until three years ago and 700 companies to date.  That comes to 200 new companies over the last 3 years, or 66.6 companies per year. If this is all true, then Hartwick can dedicate, on average, a total of 5.5 days to each company.  (This presumes that Hartwick never takes a day off, gets sick, or travels.) How much scientific effort is actually involved with cutting edge science?  … “world changing” science, like solving the world’s energy problems by applying a secret catalystto a thousand-year-old technology or re-inventing fire by applying an electric field like WilliamBrande did 200 years ago? Given the time constraints, is it possible for Hartwick to make a meaningful contribution to the majority of these companies, is he only lending his name for a fee, or is someone lying?


 

 “Dr. Hartwick will be elaborating on and consolidating some of the vast scientific test data that has been compiled. He will assist the Company and potential investors in interpreting the data and advise the company on how to present the technical information to finance sources and commercialize the technology.”
"... got me as referee/advisor to critique the A&M results and comment on the business viability. Surprise! The basic technology was even better than Rivera claims.” ~ Hartwick, as cited by Padnos: “The Future Is CLIR: Why The Shorts Are Wrong About ClearSign Combustion” ~ Seeking Alpha
“USSE, SSTP has not developed processes for refining the crude organic liquids and gases produced by the pyrolysis processes. No such equipment is known to exist. Results from independent analyses of the products originating from the company’s pyrolysis process indicate that the products do not meet any known standard for use in reciprocating engines or power turbines and were different from product test results reported in the USSE press releases.” ~ SEC commissioned study which was submitted as an exhibit in the case against John Rivera: Case 5:08-cv-00245-DCB-JMR.


Richard Rutkowski


Clearsign's CEO -- Richard Rutkowski -- signed an agreement with John McFarland for "investor relations" work -- stock promotion. But John McFarland had been permanentlybarred from the securities industry in 2009. In securities law it's referred to as a "statutory disqualification."

Here are some official documents on the case:

·         http://disciplinaryactions.finra.org/search.aspx insert “document text” number 2007007138002   

·         http://brokercheck.finra.org/Search/Search.aspx check “individual” then insert “JOHN CHRISTOPHER MCFARLAND” or CRD# “2313648”

·         http://www.sec.gov/about/offices/ocie/aml/finra-awc-turnerbaumanmeyer.pdf McFarland’s supervisors are caught up in the mess and their disciplinary documents provide additional material as well.

·         http://www.finra.org/Newsroom/NewsReleases/2009/P118831 FINRA article with brief mention

According to the FINRA Letter of Acceptance, Waiver, and Consent, McFarland’s customers had multiple accounts under a single name and there were indications of possible stock manipulation and possible unregistered stock sales.

Notably, …

“Numerous transactions where large blocks of penny stocks and other low-priced securities of issuers with questionable operating and financial histories were transferred into accounts, and then sold and the proceeds wired from the accounts.”

… and …

“Customers with significant securities-related regulatory histories delivering and liquidating penny stocks, including one individual who had been barred by the SEC from participating in the trading of any penny stocks."

....

"During 2005 - 2006, on numerous occasions, with respect to at least 13 customer accounts, McFarland cause violations of Regulation S-P by J.P. Turner by disclosing nonpublic personal information to non-affiliated third parties ...”

It was serious enough for McFarland to receive a “statutory disqualification” ‒ which means that he was barred from the securities industry..




 

 

It is very difficult to make the excuse that Rutkowski might not have known about McFarland’s past.  Just this last June, Rutkowski and McFarland joined up and formed a separate Investor Relations company called, Ormont LLC.   This might cause some problems. First, I have not found a disclosure of Rutkowski’s other relationship with McFarland.

Second, there is a sudden increase in McFarland's compensation in April, above and beyond what was outlined in Clearsign's agreement. McFarland was to receive 4,500 shares for March (and each quarter thereafter), but a later filing declares that he received 18,000 shares for March and April. That's 13,500 shares on top of the agreement. At $4 a share, that would be more than a $50,000 bonus. Then in June, McFarland and Rutkowski suddenly show up on the original formation record for a new investor relations company. Given that starting a business takes some planning, how many months before the June formation of Ormont did Rutkowski and McFarland agree to become partners in an investor relations company? How close together was this agreement and McFarland's increase in compensation?  There have been two 10-Q filings since the formation of Ormont LLC. ‒ June 2012 10Q and Sept 2012 10Q.

Third, McFarland’s regulatory penalty is called a “statutory disqualification” and with that there are certain exemptions that Clearsign and McFarland may not qualify for.  There are also business relationships that FINRA members are not allowed to have.  For example, MDBCapital said that it performed IR and PR services for Clearsign, so how did they do that without teaming up with Clearsign’s investor relations’ man ‒ John McFarland?  

McFarland has been employed by Clearsign since at least September of 2011 and here he is again as Clearsign’s Investor Relations’ contact, almost exactly a year later -- September 2012 -- when Clearsign announced that it would be ringing the NASDAQ bell.  McFarland and MDB’s time at Clearsign overlap.

It would take a legal team and an inside look into McFarland’s role with Clearsign, MDB Capital, investors, and retail brokers to know the extent to which Clearsign and others might be legally vulnerable.




 

 

What are we supposed to think?  There were five inventors on Clearsign’s first patent application. This is the first expression of what is known as Clearsign’s ECC technology.  One inventor was the patent agent, who is prosecuting the application through the USPTO.  

Two of the other inventors are experienced in investor relations and business management, not combustion science. These two are the CEO and CMO of Clearsign – Rutkowski and Osler.  Why are they listed as inventors?

There are questions when a company officer experienced in stock promotion has a financial interest in declaring "patent pending technology."  But there is a flaming red flag when he also lists himself on the patent application as an "inventor."  This was supposed to be a "revolutionary" technology -- the "reinvention of fire."  But where is Rutkowki's and Osler's experience with combustion science? After seeing their names on the patent applications, why should we believe anything else they have to say?


Come to think of it, just as every commercial institution is well advised to perform credit checks on their customers, and just as credit ratings depend upon the history of debtors in order to make assessments of risk, why aren't investors informed of a CEO's credit history? ... with investor owned funds?

After Mr. Rutkowski left Microvision, Inc:


"The Company has sued its former CEO and President Richard Rutkowski and his spouse to collect $1,733,000 in outstanding loans from the Company that were due in January 2007 and remain unpaid." 


"In  January 2006, one officer left the Company and his outstanding loans became due in January 2007. In May 2007, we foreclosed on 50,000 shares of Lumera common stock pledged as collateral for the loans. In October 2009, we entered into a settlement agreement with the former officer. We have received total proceeds of $237,000 to date, and the officer has committed to make additional payments of $30,000 over the next two years."

If officers involved with public companies were required to disclose something equivalent to a credit check, I think investors, being the landlord of the assets, would be well served.

At the minimum, out of the five inventors listed on Clearsign’s pending patent, we are left with Goodson and Hartwick as inventors, neither of whom are credible. Clearsign simply has no credible inventors for its claimed “revolutionary” technology. 

At the maximum, investors face the risk of an organized Intellectual Property scam.

MDB Capital Group

What’s a little more than ironic is that MDB Capital professes expertise with patents, says it has its own patent database and patent experts. MDB Capital Group also claims to have done due diligence on Clearsign and to have advised it on IP strategy.  Yet Clearsign’s original inventor faked patents.  How could MDB both take its due diligence seriously and not know this?  A simple Google patent search was enough to expose the lie.

MDB Capital’s analyst claimed, "No existing technology currently competes directly against ECC." (MDB Capital: ClearSign Combustion Corporation Research Initiation)  Yet many inventors have already patented inventions which apply electric fields to flames. More irony:   Clearsign itself has a duty to supply a list of relevant patents to the USPTO as part of its patent application. This form is called the “Information Disclosure Statement” (IDS).  Click here to see Clearsign’s IDS and how the listed patents conflict with MDB Capital’s report (slide #5).  In short, Clearsign’s technology is not alone and a real patent-pro would know it.

Sometimes I wonder if Clearsign and MDB are just having a lot of fun at everyone else’s expense. Nonethess, at its core, Clearsign is a fairly simple case.  Clearsign has no credible inventors to account for its technology. This critical failure in Clearsign’s story has yet to be addressed.  How is it possible to have a technology without an inventor?  I believe that Clearsign’s founding constitutes a technology scam, and I believe that the evidence I have dug up makes this case prosecutable: Lies have been told in the S-1Registration Statement.


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