MARSHALL GANDY
Attorney for Plaintiff
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Texas Bar No. 07616500
Burnett Plaza, Suite 1900
801 Cherry Street, Unit #18
Fort Worth, Texas 76102-6882
Telephone: (817) 978-6464
Fax: (817) 978-4927

UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF CALIFORNIA
SACRAMENTO DIVISION

The United States Securities and Exchange Commission ("Commission") files this Complaint for Violation of the Federal Securities Laws ("Complaint") against Moller International, Inc., and Paul S. Moller (collectively "Defendants") and would respectfully show the Court as follows:

PRELIMINARY STATEMENT

1. This matter involves a fraudulent, unregistered offering and the filing of a fraudulent Form 10-SB by Moller International, Inc. ("MI" or "the company"), a California company engaged in the development of a personal aircraft known as "the Skycar."
    
2. From at least 1997 until October 2001, Paul S. Moller ("Moller"), a university professor and inventor, sold unregistered shares of MI stock directly to the public, raising approximately $5.1 million from more than 500 investors.
    
3. MI fueled investor interest through materially false and misleading statements about the company's imminent listing on the New York Stock Exchange ("NYSE") and the Nasdaq Stock Market, the projected value of MI shares after such listing and the prospect for product sales and revenue.
    
4. Later, in September 2001, MI filed with the Commission a Form 10-SB registration statement, which contained misleading claims about patents held by the company relating to Skycar technology.
    
5. By reason of these activities, Defendants have violated and, unless enjoined, will continue to violate Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act"), [15 U.S.C. §§ 77e(a), 77e(c), and 77q(a)]; and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), [15 U.S.C. § 78j(b)], and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. The Commission, in the interest of protecting the public from any further fraudulent activity, brings this action seeking permanent injunctive relief against each of the Defendants and a civil money penalty against Moller.

JURISDICTION

6. The Commission brings this action pursuant to the authority conferred upon it by Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)] to enjoin the Defendants from future violations of the federal securities laws. The Commission also seeks from Moller a civil penalty pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)].
    
7. This Court has jurisdiction over this action pursuant to § 22(a) of the Securities Act [15 U.S.C. § 77v(a)] and § 27 of the Exchange Act [15 U.S.C. § 78(aa)] and Title 28 U.S.C. § 1331. Defendants, directly and indirectly, made use of the mails and of the means and instrumentalities of interstate commerce in connection with the acts, practices and courses of business described in this Complaint.
    
8. Venue is proper because many of the transactions, acts, practices, and courses of business described below occurred within the jurisdiction of the Eastern District of California.

DEFENDANTS

9. Paul S. Moller is a resident of Dixon, California, and is MI's founder, chief executive officer, president, and a member of the board of directors.
    
10. Moller International, Inc., a California corporation located in Davis, California, is engaged in the development and manufacture of a personal aircraft as well as related aeronautical technology. The company has nominal revenue. In August 2002, MI's Form 10-SB, filed under Section 12(g) of the Exchange Act, became effective. Market makers quote the company's shares on the Pink Sheets under the symbol MLER.

STATEMENT OF FACTS

A. Background

11. Since the early 1960's, a predecessor entity to MI, Moller Corporation, engaged in the development of various mechanical products, including a small experimental hover craft called the XM-2.
     
12. Starting in approximately 1987, the focus of Moller Corporation, now operating as an MI subsidiary, shifted to development of a second-generation experimental personal aircraft, dubbed the Skycar, and a lightweight rotary engine to power the vehicle.
     
13. As of late 2002, MI's approximately 40 years' of development has resulted in a prototype Skycar capable of hovering about fifteen feet above the ground.

B. The Offering of MI Stock

14. In approximately mid-1997, Moller started to raise funds on behalf of MI by selling MI stock in an attempted "private placement." Initially, Moller set the price at $2.00 per share, and later he unilaterally increased the price to $5.50 per share.
     
15. MI raised approximately $5.1 million from more than 500 investors nationwide and in at least two foreign countries.
     
16. The public stock offering was not registered with the Commission.
     
17. MI took no steps to determine the income level or prior investment experience of investors, and many of the investors were unaccredited and unsophisticated regarding investments.

C. False and Misleading Statements and Omissions

18. Moller used promotional press releases, direct mail, E-mail, and an internet website to solicit investor interest and sell MI stock. In addition, in at least two instances Moller paid "finders' fees" to existing shareholders to recruit new investors.
     
19. The promotional material used in this solicitation campaign contained materially false and misleading information.
     
20. For example, the Skycar, according to Moller, would allow any person to travel at speeds over 400 miles-per-hour in the uncluttered airspace above the roadways for about the same price as a luxury automobile. In MI investor newsletters, Moller projected that 10,000 Skycars would be sold by the end of 2002.
     
21. In reality, the Skycar was and still is a very early developmental-stage prototype that has no meaningful flight testing, proof of aeronautical feasibility, or proven commercial viability.
     
22. A featured claim of the MI solicitation campaign was that the company's shares would soon be listed on the NYSE or the Nasdaq Stock Market. In several communications with investors in 1999 and 2000, Moller either expressly stated or implied that such a listing was imminent.
     
23. In reality, MI had virtually no revenue, had never sold a single Skycar, and never came close to meeting the stringent initial listing requirements for either the Nasdaq or the NYSE.
     
24. Moller also routinely promised investors that the company's share price would increase sharply following the purported listing on the NYSE or Nasdaq, at one point predicting success similar to that of Microsoft.
     
25. In reality, Moller had no reasonable basis to predict such share-price appreciation, and therefore, it was grossly misleading.
     
26. Despite the lack of sales or revenues on the Skycar or the lack of an exchange listing, MI repeatedly lulled investors and encouraged additional investment by suggesting that the private-placement shares were appreciating in value due to media interest and enthusiasm surrounding the Skycar.
     
27. In reality, there was no market for MI's private-placement shares, and throughout MI's offering the price at which Moller sold shares was declining.
     
28. Moller also misled investors with statements suggesting that MI owned valuable intellectual property and patents related to the purportedly cutting-edge Skycar technology. In solicitation materials and communications with investors, Moller routinely misrepresented MI's patent holdings, claiming that the company "held" 11 domestic patents. He also falsely claimed that these patents were valuable, and justified an expectation of an increased share price for MI's stock.
     
29. As late as May 2002, in MI's initial Form 10-SB filing, the company again falsely claimed that it owned 11 domestic patents.
     
30. In fact, eight of those eleven patents were expired patents in which MI had no ownership interest. For the remaining three patents, MI has ultimately acknowledged they have no value.

CLAIMS

First Claim
Violations of Section 10(b) of the Exchange Act and
Exchange Act Rule 10b-5 Thereunder

31. Plaintiff Commission repeats and incorporates paragraphs 1 through 30 of this Complaint by reference as if set forth verbatim.
     
32. Defendants, directly or indirectly, singly or in concert with others, in connection with the purchase and sale of securities, by use of the means and instrumentalities of interstate commerce and by use of the mails (a) have employed devices, schemes, and artifices to defraud, (b) have made untrue statements of material facts and have omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, and (c) have engaged in acts, practices, and courses of business which operate as a fraud and deceit upon purchasers, prospective purchasers, and other persons.
     
33. As a part of and in furtherance of their scheme to defraud, Defendants, directly and indirectly, in connection with purchases and sales of securities, misrepresented material facts and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, including, but not limited to, those set forth in paragraphs 1 through 30 above.
     
34. Defendants knowingly or recklessly engaged in the conduct described in this Complaint.
     
35. By reason of the foregoing, Defendants have violated and, unless enjoined, will continue to violate the provisions of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder.

Second Claim
Violations of Section 17(a) of the Securities Act

36. Plaintiff Commission repeats and incorporates paragraphs 1 through 30 of this Complaint by reference as if set forth verbatim.
     
37. The Defendants directly or indirectly, singly or in concert with others, in the offer and sale of securities, by use of the means and instruments of transportation and communication in interstate commerce and by use of the mails, have (a) employed devices, schemes or artifices to defraud; (b) obtained money or property by means of untrue statements of material fact or omissions to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (c) engaged in transactions, practices or courses of business which operate or would operate as a fraud or deceit.
     
38. As part of and in furtherance of this scheme, the Defendants, directly and indirectly, prepared, disseminated, or used promotional press releases, direct mail, E-mail, an internet website, and oral presentations which contained untrue statements of material fact and which omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, including, but not limited to, those statements and omissions set forth in paragraphs 1 through 30 above.
     
39. The Defendants made the above-referenced misrepresentations and omissions knowingly or with reckless disregard for the truth. Defendants, in addition, were negligent in connection with their offer and sale of the securities alleged in this Complaint.
     
40. By reason of the foregoing, the Defendants violated, and unless enjoined, will continue to violate Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].

Third Claim
Violations of Sections 5(a) and 5(c) of the Securities Act

41. Plaintiff Commission repeats and incorporates paragraphs 1 through 30 of this Complaint by reference as if set forth verbatim.
     
42. The Defendants directly or indirectly, singly or in concert with others, have been offering to sell, selling and delivering after sale, certain securities and have been, directly and indirectly, (a) making use of the means and instruments of transportation and communication in interstate commerce and of the mails to sell securities, through the use of written contracts, offering documents, and otherwise, (b) carrying and causing to be carried through the mails and in interstate commerce by the means and instruments of transportation such securities for the purpose of sale and for delivery after sale, and (c) making use of the means or instruments of transportation and communication in interstate commerce and of the mails to offer to sell such securities.
     
43. No registration statement has been filed with the Commission or is otherwise in effect with respect to the offer and sale of any securities described herein.
     
44. By reason of the foregoing, the Defendants have violated and, unless enjoined, will continue to violate Section 5(a) and (c) of the Securities Act [15 U.S.C. §77e(a) and (c)].

PRAYER FOR RELIEF

WHEREFORE,, the Commission respectfully requests that this Court enter a judgment:

Dated: February 11, 2003.

Of Counsel:
SPENCER C. BARASCH
District of Columbia Bar No. 388886
STEPHEN WEBSTER
Texas Bar No. 21053700
TIMOTHY S. MCCOLE
Mississippi Bar No. 10628
TIMOTHY P. DAVIS
Texas Bar No. 00798134

UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Fort Worth District Office
Burnett Plaza, Suite 1900
801 Cherry Street, Unit #18
Fort Worth, TX 76102-6882