Truthiness

Shades of the class action against Greg Mortenson in news of a class action in California over memoirs by Lance Armstrong.

The class-action complaint was filed in federal court in Sacramento against Armstrong and publishers Penguin and Random House for fraud and false advertising for selling Armstrong's It's Not About the Bike and Every Second Counts as works of non-fiction. The plaintiffs claim that they purchased the books as non-fiction and accordingly felt "duped", "betrayed" and "cheated" after Armstrong revealed that his performance as a cyclist had been illicitly 'enhanced' through use of chemicals. So much for years of vehement denial by the sports star (or for gullibility on the part of fans regarding Armstrong's record seven Tour de France titles in a sport with a long tradition of doping).

I've written elsewhere that latitude for exaggeration, deliberate elision or imperfect recall has meant that there is little case law regarding claims by readers for damages from authors (or publishers) over fictions that were marketed as "searingly truthful". Authors presenting manuscripts to agents and publishers or film-makers may be guilty of fraud but are not on oath and thus do not breach expectations regarding perjury.

Most litigation has accordingly involved -

• efforts by publishers or third parties such as film producers to claw back payments made to authors on the basis that the author was providing an accurate account of their own life rather than an overheated fantasy
• defamation action by relatives or associates of the memoirist.

In responding to a class action in 2006 James Frey and Random House unusually agreed to provide refunds to individuals who purchased A Million Little Pieces, the supposedly truthful memoir unkindly described by one critic as A Million Little Lies. Neither the publisher nor author admitted liability. The refund was not offered outside the US.

Random indicated that it was concerned about fraud on the part of buyers (authorial creativity is apparently another matter). The refund was thus conditional on consumers providing both proof of purchase (eg extracting a page from the book) and a sworn statement declaring "that they would not have purchased the work had they known that Frey had not been entirely straightforward in his account".

It has been reported that the plaintiffs' lawyers received US$783,000 (compared to Frey's earnings, at the time of settlement, of US$4.4 million). Some 1,730 people were members of the action, substantially less than the 3.5 million people who purchased the book. The refund per person is reported as US$15.81. Do the maths.

Points of entry to the legal literature are Jessica Lewis, 'Truthiness: Law, Literature & the Problem with Memoirs' (2007) 31 Rutgers Law Record 1-17; Samantha Katze 'A Million Little Maybes: The James Frey Scandal and Statements on a Book Cover or Jacket as Commercial Speech' (2006) 17 Fordham Intellectual Property, Media & Entertainment Law Journal 206-23; Jason Kessler, 'First Amendment Protection for False Commercial Speech by a Publisher Regarding the Truthfulness of Its Publication: A Response to Litigation Arising over James Frey's A Million Little Pieces' (2006) 24(3) Cardozo Arts & Entertainment Law Journal 1219-1238.

Miscellanea

William Cowper on one of his rabbits

Puss grew presently familiar, would leap into my lap, raise himself upon his hinder feet, and bite the hair from my temples. He would suffer me to take him up and to carry him about in my arms, and has more than once fallen asleep upon my knee. He was ill three days, during which time I nursed him, kept him apart from his fellows that they might not molest him (for, like many, other wild animals, they persecute one of their own species that is sick), and by constant care and trying him with a variety of herbs, restored him to perfect health. No creature could be more grateful than my patient after his recovery; a sentiment which he most significantly expressed, by licking my hand, first the back of it, then the palm, then every finger separately, then between all the fingers, as if anxious to leave no part of it unsaluted; a cermony which he never performed but once again upon a similar occasion. Finding him extremely tractable, I made it my custom to carry him always after breakfast into the garden, where he hid himself generally under the leaves of a cucumber vine, sleeping or chewing the cud til evening; in the leaves also of that vine he found a favorite repast. I had not long habituated him to the taste of liberty, before he began to be impatient for the return of the time when he might enjoy it. He would invite me to the garden by drumming upon my knee, and by a look of expresion as it was not possible to misinterpret. If this rhetoric did not immediately succeed, he would take the skirt of my coat between his teeth, and pull at it with all his force. Thus Puss might be said to be perfectly tamed, the shyness of his nature was done away, and one the whole of it visible, by many symptoms which I have not room to enumerate, that he was happier in human society than when shut up with his natural companions ... 

Puss is still living, and has just completed his tenth year, discovering no signs of decay, nor even of age, except that he is grown more discreet and less frolicksome than he was.

Nussbaum on Stoicism and Foucault

What sets philosophy apart from popular religion, dream-interpretation and astrology is its commitment to rational argument. What sets stoicism apart from other forms of philosophical therapy is its very particular commitment to the pupil’s own active exercise of argument. For all these habits and routines are useless if not rational. And the basic motivation behind the whole business is to show respect for what is most worthy in one-self, for what is most truly one-self. One does not do this by anything except good argument. At the end we have not the images of habituation and constraint so prominent in Foucault’s writings, but an image of incredible freedom and lightness, the freedom that comes of understanding that one’s own capabilities and not social status or fortune or rumor or accident are in charge of what is important. The procedures of Stoic argument model a kingdom of free beings – the ancestors (in terms of both content and causal influence) of Kant’s kingdom of ends, a kingdom of beings who are bound to each other not by external links of hierarchy and convention, but by the most profound respect and self-respect, and by their sense of the fundamental commonness in their ends. It is doubtful whether the view of the world contained in Foucault’s work as a whole could admit the possibility of such a kingdom, or its freedom. For Foucault, reason is itself just one among the many masks assumed by political power.

And Midelfort on Foucault

As a mental tone poem Foucault’s work has inspired outpourings from enthusiastic readers and baffled groans from empirically minded skeptics. The most charitable and perhaps most illuminating reading of Foucault’s history sees it as a great idealist portrait of the age of reason as an age of confinement, a time when the self-proclaimedly moral and reasonable saw fit to lock up those who seemed less hardworking, less moral, and less reasonable. Foucault worked at such a level of symbolic abstraction, however, that empirical criticism never much bothered him or has bothered his disciples. If one finds, for example, that Foucault's image of universal confinement is overdrawn for England, Germany, or even for France, why then one has misunderstood what Foucault was using the image to accomplish. If one finds that Foucault betrayed Romantic tendencies and a complacent acceptance of conventional periodization, one is told that one has naively bought into the project of the Enlightenment, with its belief in progress, or that one has overlooked the radical nihilism of the master. Basic to the Foucaultian perspective is a corrosive suspicion that all historical liberations have actually deployed a subtle exercise of power (often state, economic, or sexual power), and that knowledge itself is a function of power (not that knowledge gives one power, but that power constitutes or constructs "knowledge"). ... [F]or historians committed to recapturing the texture of the past, the complexity, variety, and competition of various discursive practices in the past, Foucault's work is a radical and dramatic simplification, a reduction of whole generations, countries, and disciplines to symbolic markers in a moral game whose object is the destabilizing of the present.

Elvis is my pilot

What I want to know is whether Elvis was piloting the saucer.

Under the headline 'Spacecraft caused car crash, say pair', Kieran Banks in the Brisbane Times reports that "two men who walked away from a car crash near Brisbane's Wivenhoe Dam claimed to be chasing an alien spacecraft when found by police".

It's a less convincing excuse than that provided by some law students, including the 'dog ate my homework' excuse, said dog having eaten the USB stick.

The report indicates that

Police and the driver's insurance company received several sketchy phone calls from the men, who appeared to be convinced paranormal activity caused the crash.

Police received the first call from the men at 2.25am on Friday, saying they had been in an accident at Split Yard Creek and asked for the RAAF to attend.

It later became apparent the car had gone off the road and down an embankment near the Split Yard Creek bridge.

The phone call dropped out, and after 30 minutes of trying to contact the men, police received a call from RACQ Insurance.

Nice to see that the RAAF hadn't been sent to the rescue!

Police said the conversations with the men were vague and at times barely understandable.

The men began to "freak out", telling the insurance company they were about to disappear and referred to the area as the Bermuda Triangle, police said.

Police called the men back, with the second male answering the phone, telling police there were "some really weird things going on" and they had abandoned the car.

Police received another call from the men at 4am, claiming that "something paranormal" had occurred and ''big bright lights'' caused the car accident.

Police found the men at 4.10am at the intersection of Wivenhoe-Somerset and Hyne roads. They were armed with knives and appeared to be protecting themselves.

Aliens are presumably able to fly half-way across the universe but remain scared of knives.

Alas, one of the dynamic duo was charged with assaulting a police officer (perhaps he thought that the men in blue were men in black, or just bug-eyed monster in disguise) and the driver when breathalysed was over the limit and accordingly will appear in court. No indication of whether he'll be wearing an alfoil beanie.

Kallakis & Co

As a follow-up to comment earlier this week regarding the Kallakis trial I note the assessment by Goymer J -

AIB and BoS have undoubtedly acted carelessly and imprudently by failing to make full inquiries before advancing the money. Indeed the latter bank was given clear and precise warnings by its lawyers about the risks of accepting assurances in a letter from an alleged co-conspirator, a Swiss lawyer. It almost beggars belief senior management chose to disregard that warning and rushed to complete the deal at all costs. It is apparent from the evidence both the defendants took full advantage of the prevailing banking culture in which corners are cut, and checks on them superficial and cursory ...

While I do not equate the position of the banks with that of car owner or householder who forgets to secure his house or car and becomes the victim of theft, the banks do bear some degree of responsibility for what happened.

I'm reminded  that it is 120 years since the 'Liberator' corporate collapse in the UK, another high profile incident involving large amounts of money, credulous people, real estate and claims of forgery.

A contemporary newspaper account of the aftermath reported that

A cable message published last week stated that Jabez Balfour had been released. The circumstance revives the memory of the Liberator frauds. The failure of the Liberator Permanent Building Society and its allied companies was one of the most calamitous events of the year 1893, involving, it was estimated, a total loss to the investing public of about seven millions sterling. The society was systematically brought under the notice of thrifty middle and working class people who had small sums to provide against a rainy day, and the collapse of the society brought ruin to a large number of homes, the income of many thousands of people of advanced age entirely disappearing. The title "Liberator" seems to have been chosen with a view to captivate Nonconformists; many ministers not only invested in it themselves, but also advised members of their flocks to place their savings in an institution which had regularly paid a dividend of 5 per cent. How this was done was explained at the public examination of the directors and officers, when it was explained that in 1887, when £101,000 was paid in the shape or dividends, there was a nominal balance at the bank of only £22,500, the society actually owing the bank £58,000. At this time a million and three-quarters of the members' money was advanced to the Lands Allotment Company, the Real Estates Company, and other concerns promoted by Balfour, the greater part of the money which went as dividends consisting of deposits from new members. In this way the society was kept going for a long time, and the public confidence remained unshaken. Mr Jabez Balfour, M.P. for Burnley, was chairman of the society, and the other directors stated that they had implicit confidence in him, and accepted his statements as to the position of the society without troubling to verify them. On the collapse of the companies and the disclosures at the public enquiry Balfour fled to the Argentine, but three prosecutions for forgery and fraud in connection 'with the society were brought, and the offenders were found guilty and sentenced to long terms of imprisonment. On Balfour's retreat being found in the course of 1894 the courts of the Argentine Republic were moved for his extradition, which was secured after many months' delay, and on October 28th, 1895, he was placed on trial with three other directors, convicted, and sentenced to fourteen years' penal servitude.

Balfour is profiled in David McKie's Jabez: The Rise and Fall of a Victorian Rogue (Atlantic, 2004).

The Serious Fraud Office media release regarding Kallakis and Williams states that -

The defendants, who operated out of a Mayfair office as the Pacific Group of Companies, conspired over a five-year period (2003-2008) to defraud Allied Irish Banks ("AIB") by using forged or false documents or claims in order to obtain substantial loans to finance the purchase of what was mostly a commercial property portfolio. The loans to enable Kallakis acquire the 16-property portfolio amounted to £740 million.

The transactions were structured in a way that the bank loans exceeded the purchase price of the properties. This was achieved by providing the bank with a guarantee from a Hong Kong company, Sun Hung Kai Properties Limited ("SHKP"), of long term payment of rents at top market rates, , to the landlord of the commercial properties. SHKP are a large, well established Hong Kong property company with a high credit rating and the guarantees therefore had the effect of increasing the value of the properties substantially. The rationale provided to the banks for SHKP's involvement was that a subsidiary company of SHKP would receive large cash payments called a reverse premium, which was factored into the value of the loans, and a share of the profits on the sale of the properties. However, the reality was that SHKP had not entered into any guarantees and had no knowledge of the transactions or the purported subsidiary companies that had entered into them. The SHKP documents provided by Kallakis and Williams to AIB were forgeries and the reverse premiums were channelled into the pockets of the fraudsters.

Kallakis and Williams were able to maintain the deception over five years through skilful forgeries and manipulation of the bank. When in 2007 the bank requested a meeting with a representative of SHKP, Kallakis and Williams set up a meeting at their Mayfair offices with an individual who presented himself as being from the SHKP Treasury Department. SHKP have no knowledge of this meeting or the individual who purported to represent them.

A similar false arrangement to mislead the bank were guarantees provided by Oregon Finance Corporation, represented by Kallakis to be a billion dollar ship-owning company belonging to the Kallakis family trust. This claim was based upon forged and/or false letters regarding the company's assets, bogus financial statements of the company and evidence of its shipping assets taken from the internet. Oregon Finance was later found in reality to have no assets but liabilities of millions of pounds.

The loans advanced by AIB represented £60 million in excess of the cost of the properties and was designed to feed into the bogus reverse premiums. However by August 2008, alarm bells rang at AIB when they learnt that Kallakis had a previous fraud conviction in the name of Stefanos Michalis Kollakis and had subsequently changed his name, and they contacted SHKP to discover that they knew nothing about the guarantees. ....

During 2007 and 2008, in another fraud following similar lines to the property loans fraud the Bank of Scotland agreed a loan of €29 million which was wanted, claimed Kallakis, for the conversion of a former passenger ferry into a super-yacht for his personal use. He provided the bank with a worthless guarantee from Oregon Finance Corporation, using accounting documents that were false and bearing forged attribution certificates. Kallakis and Williams also provided a number of forged documents to the bank as it sought to carry out checks on the family trust, including a death certificate of Kallakis's mother in which her surname had been altered to hide Kallakis's name change. The ferry upon which the loan had been secured turned out not only to have no value but instead was a significant net liability as a result of work that had been carried out which had now ceased leaving the vessel contaminated with asbestos and no longer water tight.

Fictions and Forgery

Recent identity incidents in court and VCAT.

In the UK the Guardian reports that "Britain's most successful serial confidence trickster" Achilleas Kallakis has been found guilty of tricking bankers into believing he was "a super-rich Mayfair property baron" as the basis for loans of £750m for property deals.

Kallakis (formerly Stephan Kollakis) and associate Alex Williams (formerly Martin Lewis) had moved on from business selling dodgy manorial titles to gullible people in Australians and the US (deals for which they pleaded guilty 18 years ago).

In 2009 the Guardian commented that Kallakis/Kollakis addmitted

selling "lordships" to Americans, Australians and Arabs for £85,000. Kollakis, who at the time worked for a travel company in Croydon, bought the titles from the Manorial Society of Great Britain, sub-divided them into districts and then offered them for sale via newspaper adverts. The scam claimed to be taking advantage an ancient process known as subinfeudation - splitting and increasing the number of titles. But the practice had in fact been banned in 1290.

A jury had heard how Kollakis and a co-conspirator used false names and passports as well as bogus companies, including a fake firm of solicitors, to set up the Institution of Heraldic Affairs. One of the phoney companies used a Latin motto which translates as "virtue is the way".

Various sources report that forgery in the 'lord of the manor' scam included forgery of Lord Denning's signature and that Kollakis was investigated over allegations he was selling fake Hong Kong passports for $50,000 each.

Having reinvented themselves, with the help of some forgery, they acquired prominent bank-finance real estate and rewarded themselves with the usual private yacht - apparently the vessel featured in Top Layers Interior Ltd v Azure Maritime Holdings SA [2007] EWHC 2844 (QB) - helicopter, jet and overseas holidays.

With loan financing often higher than the value of properties he targeted, Kallakis snapped up some of the most sought-after houses in Mayfair and Knightsbridge as well as landmark commercial properties such as Home Office buildings in Croydon and the Telegraph Media Group's headquarters in Victoria, acquired from the Barclay brothers.

But to keep up the sham, Kallakis and his inner circle had to work tirelessly, deploying actors, secretive offshore trusts, fictional backing from an overseas shipping empire and string of bogus references, to stay one step ahead of suspicion. 

Cursory checks would have guided the curious to entries in Debrett's or Marquis Who's Who, where readers can still see Kallakis listed as an "ambassador for the Republic of San Marino", author of The Wonders of Italy (1996) and a member of the development board of the National Portrait Gallery – all bogus claims. 

Kallakis and his helpers were able to conceal the truth for more than five years, wining and dining gullible bankers. The biggest victim of Kallakis had been AIB, which had advanced in excess of £700m and ultimately reported a £56m loss on the deals. A second count was tied to a loan from Bank of Scotland, now part of Lloyds Banking Group.

Other lenders who were taken in included Barclays, Bristol & West and GE Capital. HMRC was also duped. Tax officials conducted an inquiry into Kallakis's affairs in 2005, but was eventually satisfied that all the paperwork relating to his complex offshore empire appeared to be in order.

The Guardian reports that

At the heart of the Kallakis confidence trick were purported financial guarantees from a large Hong Kong investor. The only catch, banks were told, was that the guarantees would fall apart if the investor – Sun Hung Kai Properties (SHKP) – was contacted directly. 

This explanation was accepted by the bankers who were desperate to lend to Mayfair tycoons such as Kallakis. Years later, however, they were to learn the SHKP paperwork had been forged by Williams. Those who had sought to question the rationale for SHKP's guarantees were subjected to angry tirades of abuse.

It is unclear from the Guardian report why the 'don't contact us' paperwork was convincing. However, as they say in movies about preposterous scams, it just keeps getting better.

[T]here were some within AIB who had their doubts and it was not until the bankers started making arrangements to fly to Hong Kong and seek a meeting directly with SHKP that Kallakis agreed he would broker some contact. 

Jonathan Lee cut an impressive figure to the two men from AIB's property team in March 2007. A director in the treasury department from an Asian property giant – SHKP – he had agreed to stop off, on his way to Hong Kong from New York, for the brief meeting at Kallakis's Mayfair offices.

Lee impressed the two bankers although, in retrospect, they found it strange that he had no business cards. The SHKP man appeared to have a good knowledge of Kallakis's loans and asked informed questions. It was the comfort they craved. Any doubts about the financial guarantee's underpinning Kallakis's property empire had been well and truly put to bed.

As they later discovered, however, SHKP never employed a "Jonathan Lee". It did not even have a treasury department. It had never been involved in rental guarantees. And SHKP bosses AIB believed had signed the paperwork had never heard of Achilleas Kallakis. ….

AIB felt they had little reason to doubt Kallakis. They had been overwhelmed with bogus references from sources ranging from Credit Suisse to the economist Lord Harris of High Cross, all purporting to confirm the credentials of Kallakis. But in evidence Harris's widow said she knew nothing of the family friendship Kallakis claimed. 

In his defence, Kallakis expressed incredulity at evidence of forgery and clung desperately to claims that his connections to establishment figures were genuine. ... The undoing of Kallakis's scam came in 2008 when AIB had sought to sell on some of its loans to other banks to spread the risk. One of those it approached, the German bank Helaba, conducted some checks into the property tycoon's background and hired a private investigator who quickly began to peel back the fraudulent facade. They took their findings to horrified counterparts at AIB just as they were invited by Kallakis to his lavish 40th birthday party in Mykonos.

Less dramatically, the Canberra Times reports that Matthew Rixon has pleaded guilty in the ACT Magistrates Court to representing himself as a police officer and to public mischief. He had reportedly pretended to be an officer in an attempt to have his ex-girlfriend evicted from her home.

 According to a statement of facts tendered in court, the charges relate to a string of phone calls Rixon made to his ex-girlfriend’s rental property manager and police after their six-month relationship turned sour in June last year. 

The 28-year-old, pretending to be a NSW detective even though he had never been a sworn officer, rang the real estate agent and told him the residents of the southside property were under surveillance for cooking drugs. 

Rixon told the agent that a raid was imminent. 

Later that day, the defendant called the property manager a second time and said he wanted the tenants evicted so they would be “flushed” to NSW and arrested. The real estate agent became suspicious and played along with Rixon’s demands in subsequent phone conversations. 

Police investigations found there was no NSW officer by the name given by Rixon. Rixon also admitted to public mischief when he called police to the women’s home by [falsely] reporting a domestic disturbance.

In tying up loose ends territory Psychology Board of Australia v Milosevic (Occupational and Business Regulation) [2013] VCAT 12 - a referral by the Psychology Board of Australia pursuant to section 193(1)(a) of the Health Practitioner Regulation National Law (Vic) Act 2009 - has seen cancellation of Dusan Milosevic's registration as a psychologist.

VCAT notes that Milosevic, whose conviction for criminal offences was noted in 2011 here, had been charged with 2 counts of using a false document (Graduate Diploma and Masters Degree) in order to obtain registration on 15 April 1998 as a psychologist in Victoria.

A criminal trial was conducted in the period of 15 August 2011 to 22 August 2011 in the County Court of Victoria. 

Mr Milosevic was convicted on each count. 

On 24 August 2011, the Board was notified of these convictions (and 29 other convictions arising from the same proceedings for “Obtain Property by Deception” and a further for “Obtain Financial Advantage by Deception”). 

On 29 September 2011 Mr Milosevic was sentenced to a lengthy period of imprisonment and ordered to pay compensation to Worksafe Victoria and to the Transport Accident Commission.

That's Entertainment?

That's entertainment, folks, and not commerce?

The Federal Trade Commission has announced that a enterprise compiling and selling criminal record reports - accessed on mobile devices - has agreed to settle charges that it operated as a consumer reporting agency without taking consumer protection measures required by the Fair Credit Reporting Act (FCRA).

 The FTC’s settlement order, which prohibits the respondents from future FCRA violations, resolves the agency’s first FCRA case involving mobile apps. 

According to an administrative complaint filed by the FTC, Filiquarian Publishing LLC, Choice Level LLC, and their CEO, Joshua Linsk, failed to ensure that the information they sold was accurate and would be used only for legally permissible purposes. The FTC also alleged that they failed to tell users of their criminal record reports about their obligations under the FCRA, including the requirement to notify consumers if an adverse action was taken against them based on a report. 

According to the FTC, Filiquarian claimed consumers could use its mobile apps to access hundreds of thousands of criminal records and conduct searches on potential employees. One app stated, “Are you hiring somebody and wanting to quickly find out if they have a record? Then Texas Criminal Record Search is the perfect application for you.” Consumers who paid 99 cents to download one of its apps from iTunes or the Google Android store (now GooglePlay) could conduct an unlimited number of searches for criminal records within a particular state or county. Choice Level provided the criminal records to Filiquarian that were accessed via Filiquarian’s mobile apps. 

As alleged in the complaint, both companies used disclaimers stating that they were not FCRA compliant; that their products were not to be considered screening products for employment, insurance, and credit screening; and that anyone who used their reports for such purposes assumed sole responsibility for FCRA compliance. According to the FTC’s complaint, these disclaimers are not enough to avoid liability under the FCRA because the company advertised and expected that its reports could be used for employment purposes. 

The settlement order bars the respondents from furnishing a consumer report to anyone they do not have reason to believe has a “permissible purpose” to use the report, failing to take reasonable steps to ensure the maximum possible accuracy of the information conveyed in its reports, and failing to provide users of its reports with information about their obligations under the FCRA.

Perpetual Motion again

Micheal (aka Michael) Peter Nugent and Cycclone Magnetic Engines - his now deregistered company - have reportedly been served with a court order to pay around $300,000 costs to the Australian Securities and Investments Commission (ASIC) over action by the corporate regulator in the Queensland Supreme Court regarding a "fuel-free" magnetic engine.

The court found that Cycclone falsely claimed shares in the company were an investment in proven technology, and that Nugent and Cycclone had presented a misleading business plan. ASIC gained injunctions stopping Cycclone from engaging in misleading or deceptive conduct by claiming the engine worked. Cycclone was also stopped from claiming that its shares would be an investment in proven technology. The Queensland Court of Appeal confirmed in 2010 that Nugent was guilty of misleading and deceptive conduct over the Cycclone Magnetic Engine, holding that the magnetic engine did not and could not work.

Nugent is apparently unabashed and is reportedly promoting another company with similarly 'innovative' technology. He's had issues with unhappy investors and regulators prior to claims about the engine.

In Australian Securities and Investments Commission v Cycclone Magnetic Engines Inc & Ors [2009] QSC 58 ASIC argued that the defendants in seeking funds had referred to an invention centred on "using permanent magnets in a configuration that supplies mechanical power on demand". The defendants made representations that the invention works. ASIC argued that the representations were misleading or deceptive (or likely to mislead or deceive) because neither the Invention nor the Prototype (a) is scientifically feasible,(b) can move under its own power, or (c) can be a source of power. No great surprises there, either for people with a basic understanding of mechanics or an interest in the history of people promoting perpetual motion devices. ASIC further argued that the representations were likely to mislead a reasonable person into the assumption that, by acquiring shares in Cycclone, the person was investing in a proven technology, that shares in Cycclone were of a particular quality (ie an investment in a proven technology).

The court noted that Cycclone "has no (and has not applied for any) patents relating to the engine", which supposedly

works wholly and solely with the attraction repulsion of permanent magnets. The objective of it is to produce an engine that doesn't require external input, either electrical or fuel. It's so that the engine runs purely on the attraction and repulsion of permanent magnets. In its geometric configuration that does not try to challenge perpetual motion but to use mechanical advantage.

The court endorsed an expert's assessment that creation of an engine based on permanent magnets to supply mechanical power on demand, without the need of external fuel input, "could not be supported scientifically and that the development of an engine of this type was not scientifically feasible".

The Court placed that in context with the comment that

For hundreds of years people have been investing time, money and effort in attempts to create a perpetual motion machine. Even though such a machine would violate either or both of the first and second laws of thermodynamics, there has been a continual stream of these “inventions” since at least the twelfth century. Coincident with that has been the quest by the “inventors” for funding to support their creations. There are many examples of funds being raised to sustain these endeavours. There have also been many who have been willing to point out the impossibility of these attempts, sometimes with scathing condescension. On other occasions the would-be inventor is met with bureaucratic intolerance.

One of the ways in which it has been claimed that a machine can be created, which will require no external fuel input, is through the applied use of very strong magnets. That is the case here. In England the subject was studied during the reign of Queen Elizabeth, with a text on the properties of magnets being published in 1600. Bishop John Wilkins, in his book Mathematical Magick,[5] discusses the ”difficulty” of achieving perpetual motion, and considers in detail a device consisting of two tilted ramps, an iron ball, and a magnetic lodestone fastened at the top. He determined that the device could not work but concluded: “So that none of all these magnetical experiments which have been as yet discovered, are sufficient for the effecting of a perpetual motion, though these kind of qualities seem most conducible unto it; and perhaps, hereafter, it may be contrived from them.” The interaction among magnets, electricity and the generation of power has been investigated by giants of the field: Coulomb, Ampere, Faraday and Tesla.

In this case, the applicant (‘ASIC’) says that the respondents have, in promoting a machine said to run solely on the power of magnets, engaged in misleading and deceptive conduct and have otherwise breached legislative provisions regulating fund raising by corporations. That simple description might lead one to the quick conclusion that the promotion of a “perpetual motion” machine must fall into the ‘misleading and deceptive’ basket, but looks can be deceptive in more than one way and the statutory remedies are not to be employed without careful scrutiny of what a promoter actually says and does.

The provisions of the Corporations Act 2001  which deal with misleading and deceptive conduct are not designed as a complete shield to protect individuals against their own avarice or cupidity. Just as people will continue to play games of chance in casinos (knowing that the odds are in favour of the house) or buy tickets in lotteries (knowing that the chance of winning is one in many millions) so people will continue to chance their money in investments which, to others, appear far too risky. They sometimes adopt the attitude of one of the deponents whose affidavit was relied upon by ASIC – they see the investment as a bit of a gamble.

 The Court of Appeal in Australian Securities and Investments Commission v Cycclone Magnetic Engines Inc & Ors [2010] QCA 71 agreed that there was a difference between risk and misrepresentation, dismissing the appeal by Nugent and Cycclone.