The top executives of Consumers Solar Electric Power Corp., a California company that claimed it could use sunlight to make cheap fuel from water, were convicted of mail fraud by a federal jury in Los Angeles.
Consumers Solar founder Gerald Schaflander and his associate, Stephen Wright, were found guilty of 10 counts of mail fraud each after a seven-week trial that ended late Thursday.
Nobel Laureate Linus Pauling and the business manager for actor Jack Nicholson testified for the prosecution in the case, which could result in jail terms of up to five years on each of the 10 counts.
Schaflander has been trying for years to get federal subsidies for his "secret process" for extracting hydrogen from water. The U.S. Synthetic Fuels Corp. turned down his bid for a $25.5 million loan just as the fraud trial was starting.
The combative Schaflander contended the mail fraud indictments were part of a plot by the Post Office to get even after he sued the postal agency for refusing to test his fuel in mail trucks.
The jury, however, convicted Schaflander and Wright on every count of the indictments, which charged Consumers Solar Power lied to investors and faked claims for its process.
Consumers Solar Power contended it had made a series of scientific breakthroughs that enabled it to produce a liquid hydrogen fuel for a fraction of the cost of gasoline.
The value of the fuel was proven on two coast-to-coast car trips, Schaflander claimed, but "in fact the car was towed most of the distance across the country," the prosecutors charged.
The jury found Schaflander and Wright guilty on that charge and also found the company falsely claimed to have developed "a semi-automated process" to turn out cheap solar electric cells. The solar cells, which make electricity from sunlight, were then supposed to produce the power needed to split salty water into hydrogen and oxygen by electrolysis.
Even though the company was under investigation by the Securities and Exchange Commission and state authorities, the Postal Service signed a demonstration contract to test the process by converting postal vehicles to run on the fuel. But Consumers Solar Power failed to modify the vehicles on time or to supply the fuel it promised, and the test was canceled.
Last May, SEC accused Schaflander and Wright of defrauding investors by selling 11 million shares of unregistered stock in Consumers Solar Power. Without admitting or denying their guilt, the two men and the company agreed to abide by a federal court injunction prohibiting them from further violations of SEC regulations. The SEC case is continuing.