SEC charges Pittsboro startup with defrauding investors of $6M

The CEO of a Triangle energy startup facing federal charges that it defrauded investors in excess of $6 million says federal law enforcement officials have blown up an innocuous “administrative error” by his company into an alleged fraud scheme.

Jeffrey Riggs, a co-founder and chief executive of Causwave, said this week he’s confident the Securities and Exchange Commission will drop the case as he continues assuring that the company’s investors will make out handsomely in the end. Riggs, who has a Ph.D. in systems engineering, said his company’s technology will use compressed air to launch rockets and generate electricity.

Causwave, founded in 2008, dates back to North Carolina’s initial wave of alternative energy euphoria, at a time when the state began attracting attention as an emerging national hub for smart grids, biofuels, solar energy, high-efficiency buildings and other clean tech endeavors. The Pittsboro company attracted investors among North Carolina executives in banking, insurance, energy and other industries, as well as local residents in Chatham County.

Last month, the SEC charged Causwave of duping 298 investors to buy company shares for at least $600 each, based on false promises that outside “funding sources” stood ready to finance the company’s experimental technology. The SEC also said that Riggs and his business partner, Diane Baldwin, diverted more than $1.8 million of the money to themselves.

The SEC is asking the U.S. District Court in Durham to order the Pittsboro energy entrepreneurs to refund their investors and pay civil penalties. The SEC also wants the court to bar Riggs, 68, and Baldwin, 69, from serving as officers or directors of a public company.

Riggs said he’s nonplussed and frustrated by the SEC case, which he called “just disgusting.”

“We’re going to contest this absolutely to the hilt,” Riggs said in a phone interview. “We expect a very favorable outcome, both for the company and for our investors.”

‘$20 billion merger’

According to the SEC, between 2009 and 2015, Causwave raised money from “friends and colleague investors” by selling non-voting shares. The SEC said the company never received funds from institutional investors and describes Causwave’s technology as “a self-described scientific process involving alternative energy conversion.”

Causwave sent updates promising that outside investors were imminent and that Causwave would soon be involved in a $20 billion merger, the SEC alleged. This week, Riggs said he couldn’t elaborate on those details but said the company will soon be involved in an acquisition that will be valued “in the billions” but less than the figure cited by the SEC.

“I would like to share the details but the entity acquiring Causwave wants secrecy for now,” he said.

Riggs acknowledges one of the SEC’s charges – that Causwave shares were not registered – but he said that was an oversight. He also admits he and Baldwin kept the $1.8 million, but said that the money was not an ill-gotten gain but the two executives’ salary over 8 years.

Based on those totals, Riggs’ portion would have averaged more than $125,000 a year, while Baldwin’s would have come out to about $100,000 a year.

Riggs and Baldwin had previously worked together at BioWarn, a Falls Church, Va.-based biotechnology company.

Baldwin could not be reached for comment. Several Causwave investors did not return phone calls and emails.

But one investor, Edward Hoyle Jr., was emphatic that the company had done nothing improper and would be exonerated. Hoyle, an 84-year-old retired banker and insurance executive in Elon, sits on Causwave’s board of advisers and is a co-founder and former director of Carolina Bank Holdings in Greensboro.

“I have great confidence that everything will be resolved,” Hoyle said. “I will not lose any money.”

Hoyle declined to disclose how much he invested.

Big payouts still promised

For his part, Riggs said he invested his life savings into Causwave and is now “far in debt.” He added that the investors will soon see big payouts, noting that “we have letters of intent from at least two, maybe three or four sources.”

In his updates to investors, Riggs stressed the need for secrecy to prevent corporate espionage of Causwave’s technology.

Riggs said the company’s legal troubles go back to March, when the N.C. Secretary of State ordered Causwave to stop selling shares, and the SEC began investigating. Riggs said his lawyer advised the company to take down its website.

Prior to that setback, Causwave had been embraced by the Defense Security & Technology Accelerator in Fayetteville, which described Causwave as “a kinetic energy conversion company” in its 2009 annual report. The accelerator said it introduced Riggs to a business prototype development program at Western Carolina University and to the giant defense contractor, Lockheed Martin.

In 2014, about six months before state and federal authorities took an interest in the company, Riggs and Baldwin registered a number of related subsidiaries with the N.C. Secretary of State: CW Energy, CW Launch Satellites, CW Launch Weapons and CW Dialysis.

Riggs said this week the registered entities represent individual technologies under the Causwave umbrella, and explained that “our plans were to roll those off as subsidiaries.”

This story was originally published January 6, 2016 at 11:54 AM with the headline "SEC charges Pittsboro startup with defrauding investors of $6M."