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Manure Plan Fuels Only Lawsuits

Investors allege fraud by a businessman who sold them on an energy plant that was mostly vapor.

September 12, 2006|Lance Pugmire and William Heisel | Times Staff Writers

As he sold investors on an improbable plan for turning Inland Empire cow manure into electricity, W. Patrick Moriarty had an answer for everything.

With a folksy delivery, the Orange County businessman promised cutting-edge technology, a respected engineering firm and tax-exempt financing to extract methane gas from mountains of manure and use it to generate enough power to light a small city.

"He told me categorically that we would get our money back with interest and that the project was as good as gold," said Shmuel Erde, a Beverly Hills lender.

What Moriarty and his business partner, Wayne Stephens, didn't tell Erde and numerous others who altogether invested more than $10 million was that their company, Chino Organic Power Inc., had no licensed technology, no equipment, no permits -- not even a guaranteed supply of manure.

Although manure-to-electricity plants have been used on a small scale to turn water-polluting cow waste into power, they are not particularly cost-effective and have never produced close to the amount of electricity Moriarty envisioned, documents and interviews show.

Another thing Moriarty didn't tell Erde and the others was that he had gone to prison in the 1980s in what then-U.S. Atty. Robert C. Bonner called "the most significant corruption case in recent California history."

Not surprisingly, the lofty energy plan has come crashing down, followed by a bankruptcy and accusations from angry investors, a number of whom have filed lawsuits alleging fraud by Moriarty and Stephens, a San Bernardino County businessman.

In interviews with 20 investors, many said they now believe the entire operation was a ruse to enrich the two.

A Times review of permit applications, court records and corporate documents shows that the Chino Organic Power plant never progressed much further than the sales pitch.

Both Moriarty and Stephens have acknowledged in recent interviews that their plan never got off the drawing board. But they said they didn't defraud anyone, and they insisted that the electric plant would have worked if it hadn't been hampered by an uncertain energy market and litigious investors.

"I am absolutely very sorry if anyone, including me and Wayne, lost money -- especially me," said Moriarty, 75.

Moriarty grew up in Washington state and moved to Orange County in the 1950s to expand a fireworks business he had started as a teenager. By the 1980s, Moriarty and his associates contributed nearly $600,000 to California politicians, about half of it illegally laundered to mask the source of the funds.

He used money, free vacation housing, special investment deals and patronage jobs to buy support from politicians for legislation to benefit his fireworks firm, Anaheim-based Pyrotronics Inc., and to gain support for the Commerce Casino, which he helped found.

In a scandal that ultimately produced 10 convictions, Moriarty pleaded guilty to seven mail fraud counts in 1985.

He was sentenced to seven years in prison but served 29 months after the U.S. Supreme Court limited prosecutors' use of mail fraud charges as a means of fighting corruption.

That led to a deal in 1988 in which five of the original counts against Moriarty were dropped; the two remaining counts related to kickbacks Moriarty paid to a bank official.

The roots of Chino Organic go back to 1989, when Stephens and a group of friends founded Chino Resource Recovery Inc. and set out to build a power plant fueled by cow manure. They, too, soon ran into legal troubles.

Moriarty entered the picture in 1996, introduced to Stephens by a mutual acquaintance. Soon, Moriarty became Stephens' partner in a new firm, Chino Organic Power, with a far more ambitious business plan that called for more than $150 million in tax-exempt financing and a strategy for taking the company public, according to records and interviews.

An experimental, alternative energy source was now touted as an electric utility projected to generate 85 megawatts, enough for all the homes in Chino and Chino Hills, with power to spare.

Industry and academic experts cannot cite any manure-to-electricity plant in the country that is producing more than 2 megawatts. "It's a huge, almost unbelievable plan," said Norm Scott, an agricultural engineering professor at Cornell University who has worked on such projects.

Moriarty and Stephens told investors they needed short-term loans for engineering and other development work that would be repaid once government agencies issued the bonds, the investors said in interviews.

They allege that Moriarty was a master at creating the appearance of a can't-miss project, gathering documents, letters and newspaper articles touting relationships he had with engineers, agencies and two officials who would go on to help sell the project.

The first was Bob Feenstra, head of the area's dairy industry lobbying group, the Milk Producers Council. He was Moriarty's link to the raw material: wet cow manure.

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