SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF ERIE
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THE PEOPLE OF THE STATE OF NEW YORK
By LETITIA JAMES,
Attorney General of the State of New York,
Plaintiff,
-against-
KEAN WIND TURBINES, INC. and KEAN W.
STIMM
Defendants
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Index No.:
VERIFIED COMPLAINT
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LETITIA JAMES
Attorney General of the State of New York
28 Liberty Street
New York, NY 10005
Of Counsel:
PETER POPE
Chief of the Investor Protection Bureau
TANYA TRAKHT
Assistant Attorney General
CHRISTOPHER L. BOYD
Assistant Attorney General
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TABLE OF CONTENTS
NATURE OF THE ACTION ..........................................................................................................1
PARTIES .........................................................................................................................................3
JURISDICTION ..............................................................................................................................4
FACTUAL ALLEGATIONS ..........................................................................................................5
I. AFTER TEN YEARS IN DEVELOPMENT, A WORKING NEWTONIAN WIND
TURBINE HAS NOT BEEN PRODUCED .....................................................................5
II. DEFENDANTS VIOLATED NEW YORK STATE REGISTRATION LAWS
AND OFFERED AND SOLD UNREGISTERED SECURITIES TO INVESTORS ......6
III. STIMM MADE NUMEROUS MATERIAL MISSTATEMENTS AND
OMISSIONS TO KEAN WIND’S SHAREHOLDERS ...................................................9
A. Stimm made material misstatements about the efficiency of the Newtonian
Wind Turbine as compared to the existing three-blade turbines ..............................10
B. Stimm made material misstatements about the timing of the production of the
Newtonian Wind Turbine .........................................................................................11
C. Stimm misrepresented the level of risk of investing in Kean Wind .........................12
D. Stimm made material misrepresentations about the successful testing and sale of
the three-meter prototype ..........................................................................................13
E. Stimm misled shareholders about the reasons for NYSERDA’s rejection of
Stimm’s grant application .........................................................................................15
F. Stimm made material misstatements about Kean Wind’s net worth and grossly
inflated the value of its patent ...................................................................................15
IV. STIMM TREATED KEAN WIND AS HIS PERSONAL PIGGY BANK ...................17
CAUSES OF ACTION ..................................................................................................................19
I. FIRST CAUSE OF ACTION .........................................................................................19
II. SECOND CAUSE OF ACTION ....................................................................................20
III. THIRD CAUSE OF ACTION ........................................................................................21
IV. FOURTH CAUSE OF ACTION ....................................................................................21
V. FIFTH CAUSE OF ACTION .........................................................................................21
PRAYER FOR RELIEF ................................................................................................................22
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NATURE OF THE ACTION
1. Defendants Kean W. Stimm (“Stimm”) and Kean Wind Turbines, Inc. (“Kean
Wind” or “KWT”), a company controlled by Stimm, defrauded over 400 residents of Western
New York into investing a total of over $3.5 million for the development and production of the
so-called the “Newtonian Wind Turbine” from 2013 to today.
2. Stimm sold Western New Yorkers millions of dollars of securities even though
Kean Wind was never registered as a dealer of securities, never registered its securities with the
Department of Law, never filed a balance sheet nor profit and loss statement with the State, and
never filed its offering prospectus with the State – all in violation of the Martin Act, New York
General Business Law (“GBL”) §§ 352 et seq. and Executive Law § 63 (12). Indeed, Stimm
continued to sell securities even after being informed through counsel that he was in plain
violation of New York registration laws.
3. Stimm sold these securities through years of false and misleading statements to
investors. Among others, he repeatedly misrepresented: the efficiency of already existing and
deployed wind turbines manufactured by reputable companies, the time frame in which he would
begin production, the risk of the investment (“[v]irtually zero risk with an incredible potential
yearly return for 17 years”), and that he was a “volunteer” who took neither a salary nor “other
compensation” for his work (in fact, he used the shareholder money for a penthouse apartment, a
cruise, a piano, and a personal assistant, among other things).
4. To this day, a working Newtonian Wind Turbine has not been assembled, tested,
certified, or manufactured, despite repeated promises by Stimm each year since 2013 that
production was planned for “later this year.”
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5. Indeed, notwithstanding the disaster emergency that Governor Cuomo declared on
March 7, 2020, as a result of the spread of the coronavirus disease 2019 (“COVID-19”),
Defendants have continued to offer and sell securities in violation of the Martin Act. In fact, this
month Stimm asked investors for more money that would allow him to “continue marketing
promotions to persons and politicians in the energy business,” during the emergency shut-down.
6. On March 31, 2020, Stimm sent a letter to his shareholders stating that “we will
use this shut down period to continue marketing promotions.” Stimm urged current shareholders
to help identify new prospective shareholders. When those new prospects are found, said Stimm,
“I will give them a personal presentation at the office with a six foot separation with just one
other person present.” Stimm also invoked patriotism during this time of crisis: “Our nation
cannot recover without abundant low cost energy . . . . Energy from wind . . . is free.”
7. In the same letter, Stimm also outlined a “plan for bringing in the needed cash.”
This plan consisted of finding “potential new shareholders who would buy the shares of current
shareholders. We have seven shareholders who have asked us to bail them out and most appear
to be genuine hardship cases.” New investors would buy out old investors and will have to buy
an additional $4,000 of “royalty certificates,” which Stimm describes as “preferred shares.”
Bringing in new investors to cash out old investors is the hallmark of a Ponzi scheme. Stimm
claims that successfully cashing out these current investors will “carry us until the virus has
hopefully abated.”
8. Stimm further claimed to have conducted an online Zoom presentation to a “very
large potential investor,” who could potentially purchase up to $250,000 of “royalty certificates.”
He further claimed that he has “others coming up.”
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9. And just last week, on April 22, 2020, Stimm sent a letter to investors telling them
that “we need your enthusiasm and your continued investment in Certificates for Future
Royalties.” Stimm extended his offer to sell certificates in a “Two for One” special, telling
investors to “[s]end us a check, we will do the paper work and return the documents to you.
What you invest now has the potential to become a very remarkable investment.”
10. Stimm’s persistent and ongoing violation of New York’s securities laws warrants
an immediate injunction.
PARTIES
11. Plaintiff Letitia James is the Attorney General of the State of New York. The
State of New York has an interest in upholding the laws of the State, and the New York State
Office of the Attorney General (the “OAG”) is charged with enforcing those laws. The Martin
Act protects New Yorkers from fraudulent investment-related conduct. The Martin Act
empowers the OAG to commence a civil action seeking legal and equitable relief for the use of
fraudulent practices in the issuance, exchange, purchase, sale, promotion, negotiation,
advertisement, investment advice, or distribution of securities in or from New York State. New
York Executive Law § 63(12) empowers the Attorney General to seek restitution, damages,
injunctive relief and costs when any person or business entity has engaged in repeated fraudulent
or illegal acts or has otherwise demonstrated persistent fraud or illegality in the carrying on,
conducting or transacting business. The OAG brings this action on behalf of the People of the
State of New York pursuant to, among other authorities, the Martin Act and Executive Law §
63(12).
12. Defendant Kean Wind is a “C” Corporation, incorporated in New York State in
March 2011. Kean Wind is located in Williamsville, New York.
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13. Defendant Stimm is the founder of Kean Wind, and from its inception through
January 31, 2020, was its Chief Executive Officer and its sole director. Upon information and
belief, Kean Wind has never had a formal board of directors but at one time had an “Advisory
Board,” which advised Stimm, but could not overrule him.
14. Stimm has full and exclusive control over Kean Wind and maintains voting
control of the company. Stimm operated and managed Kean Wind out of his apartment and his
office, both of which are also located in Williamsville, New York.
JURISDICTION
15. The Court has jurisdiction over the subject matter of this action, personal
jurisdiction over the Defendants, and authority to grant the relief requested pursuant to the
Martin Act and Executive Law § 63(12).
16. The Attorney General is authorized to bring this action and to assert the causes of
action set forth below pursuant to the Martin Act and Executive Law § 63(12).
17. Substantially all of Stimm’s misconduct and misrepresentations took place within
or from the State of New York.
18. All of Stimm’s solicitations, offers, and sales of Kean Wind’s shares, certificates
of future royalties, and promissory notes, took place within or from New York State.
19. Pursuant to C.P.L.R. § 503 venue is proper in Erie County because Defendants
reside in this county.
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FACTUAL ALLEGATIONS
I. AFTER TEN YEARS IN DEVELOPMENT, A WORKING NEWTONIAN WIND
TURBINE HAS NOT BEEN PRODUCED
20. In or around 2009, Stimm invented the Newtonian Wind Turbine. Stimm claims
that his “revolutionary” invention will supplant traditional three-blade wind turbines. Kean
Wind’s website purports to describe the invention’s advantages:
The Newtonian Wind Turbine is an engineering breakthrough that will
dramatically increase the amount of energy we extract from the wind. These
turbines convert over 40% of the energy in the wind to useful electrical power,
as compared to 1/2 of 1% from typical windmills. Further, they utilize double
the energy available in the wind speed spectrum. Effectively, the Newtonian
Wind Turbine converts over 100 times more of the available wind energy than
conventional windmills.
1
21. On November 29, 2010, Stimm conducted a test of the engineering prototype for
“proof of principle” of a one-meter turbine at Calspan Corporation’s small wind tunnel.
22. Stimm patented his invention, and in or around 2013 began work on the three-
meter turbine, which he intended to market to retail consumers, small businesses, and farmers.
In 2016, after years of drafting and redesigning, a three-meter turbine prototype was finally built.
23. However, by the time the three-meter turbine was built, Stimm decided that it was
already “obsolete” because it provided an inadequate return on investment. As a result, the
three-meter prototype was tested only minimally at a shareholder’s property. Despite Stimm’s
claim to investors that this prototype “worked as expected,” upon information and belief, this
prototype exhibited serious flaws.
1
https://www.keanwindturbines.com/about (last accessed on 4/26/2020).
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24. The flaws were never remediated because Stimm abandoned the three-meter
turbine in favor of the four-meter turbine, which he intended to sell directly to utility companies.
2
To date, over ten years since its invention, a working Newtonian Wind Turbine has not been
assembled, tested, certified, or manufactured.
II. DEFENDANTS VIOLATED NEW YORK STATE REGISTRATION LAWS AND
OFFERED AND SOLD UNREGISTERED SECURITIES TO INVESTORS
25. Stimm and Kean Wind have sold unregistered securities to the public in violation
of New York registration requirements since at least 2013. By 2020, Kean Wind had
approximately 435 investors, all from Western New York, from whom Stimm raised over $3.5
million.
26. The Martin Act, GBL § 359-e et seq., specifies the registration requirements for
selling securities and acting as a dealer of securities in New York. GBL § 359-e, titled
Definition. Registration requirements, requires that Kean Wind register as a “dealer” and file a
“state notice” and “further state notice” with the department of state before engaging in sales of
securities within New York State. Kean Wind failed to satisfy any of the requirements of § 359-
e during the seven years it was engaged in sales of securities to New Yorkers.
27. Furthermore, Kean Wind’s securities were subject to the securities registration
requirements of GBL § 359-ff, titled Registration of Intra-State Offerings, because they were
offered and sold exclusively to New York State residents. According to Kean Wind’s website,
all shareholders of Kean Wind “are required to have had residence within the eight Western
counties of New York at the time they acquired stock.” Kean Wind also required that “[s]tock
2
Stimm’s current business plan to sell the four-meter utility grade turbines directly to utilities is untenable
in New York, because utilities in New York State are not permitted by law to own small wind turbines.
Stimm is aware that utility companies in New York would be unable to purchase his turbines without
special permission from the state or amendments to the existing law.
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cannot be sold without the approval of the corporation to limit investors from outside Western
New York.” Similarly, according to the Private Placement Memorandum, “[t]he offering is
restricted to residents of the State of New York and, specifically, within the 8 counties of
Western NY…Transfer of stock is restricted and may not be transferred to any person or entity
not a resident of the State of New York.”
28. Having offered and sold securities in Kean Wind exclusively within the State of
New York, Defendants must comply with the securities registration requirements of GBL § 359-
ff, which makes it “unlawful for any person, directly or indirectly, to offer or sell any security
which is part of an issue offered and sold only to persons resident within this state unless an
offering prospectus which makes full and final disclosure of all material facts if first filed by the
issuer of such security with the department of law.”
29. Another requirement of GBL § 359-ff (1) is the filing with the OAG of the
balance sheet and profit and loss statement of the company “prepared in accordance with
generally accepted accounting principles.” Stimm failed to file either document with the OAG
and failed to provide Kean Wind’s investors with an updated offering prospectus or financial
statements prepared in accordance with generally accepted accounting principles.
30. Kean Wind and Stimm violated the Martin Act by failing to register Kean Wind
and its securities offerings in accordance with GBL §§ 359- e and 359-ff.
31. In the summer of 2019, the OAG communicated to Stimm via his counsel that
Stimm was in violation of New York securities registration laws. Stimm continued to sell
unregistered securities, this time in the form of certificates of future royalties.
32. Kean Wind offered and sold “certificates of future royalties” for $1,000 each via a
Royalty Assignment Agreement. This agreement explains that certificates “pay a fixed
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percentage of royalties as received by the Corporation less any applicable taxes, payable
monthly.” The payment structure is explained in the following way:
The fixed percentage of future royalties is .01 of 1% which is .0001 of the
royalties received for each Certificate. For example, if the royalties from one
typical Licensee producing 4 turbines a day, 1,000 per year, were $10,000,000,
the shareholder would receive $1,000 times the number of his certificates… The
shareholder also receives similar royalties from all other licensees as a total
accumulated royalty payment.
33. In the fall of 2019, Stimm devised yet another way of getting new shareholders to
invest in Kean Wind without registering with the OAG:
A prospective future shareholder can loan me money personally. I give them a
promissory note for the amount and a personal promise that they will get the
certificates when it is legally possible in exchange for cancelling the note. We
used this same technique when we first started six years ago.
34. Stimm has admitted that ten individuals purchased Kean Wind certificates in this
way by loaning Stimm $68,000, which he “endorsed over to Kean Wind Turbines, Inc. as a
temporary loan.”
35. Certificates of future royalties, as well as promissory notes, constitute securities
under the Martin Act.
36. In a letter to shareholders dated February 25, 2020, Stimm admitted that Kean
Wind was never registered as a “dealer,” nor were Kean Wind’s securities registered with the
State of New York in violation of GBL §§ 359-e and 359-ff. Stimm also admitted failing to file
Kean Wind’s offering prospectus and “P&L statements” with the OAG.
37. Yet, in the same letter, Defendants declared their intention of continuing to violate
the law:
we have a new idea ... It is to sell the stock of any shareholder who needs cash.
To make this work, an outsider would buy the current shareholders investment
and then pay an equal amount to the corporation for certificates. We have four
prospects and it should help.
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38. Stimm reiterated this intent in his letter to shareholders on March 31, 2020,
stating that “potential new shareholders … would buy the shares of current shareholders. We
have seven shareholders who have asked us to bail them out and most appear to be genuine
hardship cases.” New investors would buy out old investors and be forced to buy an additional
$4,000 of “royalty certificates,” which Stimm describes as “preferred shares.” Stimm urged
current shareholders to help identify new prospective shareholders. When those new prospects
are found, said Stimm, “I will give them a personal presentation at the office with a six foot
separation with just one other person present.”
39. In his April 22, 2020 letter to investors, Stimm stated that “If we sell the stock for
you, we can make some revenue, but of course, you can always sell your own stock to a local
investor.”
40. Kean Wind’s and Stimm’s offer and sales of unregistered securities in New York
violate the Martin Act. Such repeated sales also constitute persistent fraud and illegality under
Executive Law § 63(12). Stimm and Kean Wind must be enjoined from continuing to violate
New York registration laws by selling unregistered securities.
III. STIMM MADE NUMEROUS MATERIAL MISSTATEMENTS AND OMISSIONS
TO KEAN WIND’S SHAREHOLDERS
41. Since 2013, Stimm repeatedly misrepresented to investors the timing and progress
of the turbine development, the value of the patent, and the use of proceeds, among other
misstatements. Stimm’s misrepresentations were made during his private meetings with
potential investors, in a periodic letter to shareholders called “The Newtonian,” in other
shareholder letters and publications, and in the press. Defendants also made material
misrepresentations in the Confidential Private Placement Memorandum dated November 2015
which was distributed to all new shareholders through 2019. All shareholders executing the
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Stock Purchase Agreement were required to acknowledge receipt and review of the Private
Placement Memorandum.
A. Stimm made material misstatements about the efficiency of the Newtonian Wind
Turbine as compared to the existing three-blade turbines
42. Stimm repeatedly and falsely stated that his Newtonian Wind Turbine is the most
efficient wind turbine in existence and is fifty to one hundred times more efficient than the
currently operating three-blade turbines, such as those manufactured by General Electric,
Siemens, Vestas Wind Systems, and other large manufacturers. Stimm repeatedly
misrepresented the efficiency of existing wind turbines, contending that they had a far lower
efficiency rating than they actually have. He similarly misrepresented the efficiency of his own
invention, for which the actual data does not even exist.
43. Specifically, throughout the years, Stimm has falsely claimed that the efficiency
of the conventional three-blade turbine is 1% while the efficiency of his Newtonian Wind
Turbine is 50%. For example, in his brochure titled The Revolutionary Kean Newtonian Wind
Turbine, he calls his invention “A Major Engineering Breakthrough 50x More Efficient Than A
Three-Blade Windmill.”
44. In a publication to shareholders dated February 21, 2018, titled How Does the
Newtonian Wind Turbine convert over 100 times more of the wind’s energy to useful power?
Stimm claimed: “Thus 1% vs. 50% means the Newtonian is 50 times more efficient. The ability
to double usage of the wind energy wind speed spectrum equates to 100 times greater overall
efficiency.”
45. As to the efficiency of conventional, existing, three-blade turbines, the New York
State Energy and Research Development Authority (“NYSERDA”) and the U.S. Department of
Energy rate their efficiency at 40% or greater -- not 1% as Stimm falsely tells investors -- but
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Stimm chose not to disclose that to the shareholders when he was advertising that his yet unbuilt
turbine was fifty to one hundred times more efficient. That means that theoretical efficiency of
Stimm’s four-meter turbine (not yet completed, let alone tested), derived from a test of a small 1-
meter model, is comparable to the existing three-blade turbines, not 50 or 100 times greater, as
Stimm claims.
46. Stimm’s misstatements about the comparative efficiency of his Newtonian Wind
Turbine were material to Kean Wind shareholders, many of whom lack engineering
sophistication to do independent research on this issue.
B. Stimm made material misstatements about the timing of the production of the
Newtonian Wind Turbine
47. Stimm made material misstatements about the timing of production for the
Newtonian Wind Turbine on Kean Wind’s website over six years. From 2013 through August of
2018, the website stated “[p]roduction planned for later this year.” Production has still not taken
place. Given the necessary time to begin a sophisticated manufacturing process, Stimm knew
that production was not mere months away at any time of the many times that he represented that
it was. Indeed, Stimm has recently stated that “production drawings … can take years.” This
renders his prior statements that production was to take place “later this year” false and
misleading. Additional fraudulent representations about timing are contained in Appendix I.
48. The Private Placement Memorandum from 2015 also contains material
misstatements and omissions about the timing of the turbine development. It states that Kean
Wind is in “the final Developmental Stage,” however, this “final Development Stage” has lasted
for over four years.
49. Similarly, the Private Placement Memorandum states that “the final assembly and
testing are being worked on simultaneously with an end date of about six months” and “[f]inal
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testing outdoors is being arranged for the winter of 2015-2016.” These statements are also
materially misleading as nothing has been produced or tested to date.
50. Misstatements about the timeline of the turbine’s production were material
because they indicated that shareholders would be able to reap their profits in short order.
C. Stimm misrepresented the level of risk of investing in Kean Wind
51. Stimm falsely claimed in a letter to shareholders dated 2017, titled An
Extraordinary Investment Consideration, that investment in Kean Wind carried “[v]irtually zero
risk with incredible potential yearly return for 17 years” despite failing to manufacture or sell a
single working turbine.
52. Similarly, in an October 2019 letter to shareholders soliciting funds, Stimm
stated: “We doubt that you can find any other investment that even comes close for low risk and
high return.”
53. In his April 22, 2020 letter, Stimm wrote that “For us, in contrast with the stock
market, there is no gambling casino betting on stock price, since ours is always constant and
cannot be manipulated.”
54. When questioned about his claim that an investment with Kean Wind was
“virtually zero risk” during his Martin Act testimony, Stimm refused to answer the question,
purportedly on the grounds of attorney client privilege, even though that privilege was
inapplicable. An unprivileged refusal to provide answers is an independent violation of the
Martin Act. See GBL § 352(4).
55. Four days after refusing to answer the OAG’s question, Stimm nevertheless
repeated his fraudulent claim that an investment in Kean Wind is “virtually zero risk.” In a letter
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to shareholders dated December 16, 2019, Stimm declared that certificates of future royalties are
“truly a major investment opportunity with little risk due to the significant patent value.”
56. Not only is the statement that shareholders face “virtual zero risk” false and
misleading, but it also flatly contradicts provisions of the Private Placement Memorandum which
state in the very first paragraph that “[t]he shares (securities) offered hereby involve a high
degree of risk (see risk factors).”
57. Stimm, however, quickly dismissed the language of the Private Placement
Memorandum, admitting that all new shareholders were told that “the PPM was not up to date,”
and that the Private Placement Memorandum was “for new shareholders written by our attorneys
and has no connection or relationship to Newsletters.” In his February 25, 2020 letter to
shareholders, he again reiterated that “[f]or existing shareholders, it is true that it has provided,
unassailably, virtual zero risk.”
58. Stimm’s false statements about lack of risk in the investment were material to
investors.
D. Stimm made material misrepresentations about the successful testing and sale of
the three-meter prototype
59. Stimm made false statements to investors about the first sale of a turbine in 2016.
Specifically, in March of 2016, Kean Wind tested a pre-production prototype turbine in Ashford,
New York, at a site provided by one of its shareholders. This shareholder paid $500 for the
turbine, which remained on his property but was taken down a few months after the test. In a
letter to shareholders dated March 30, 2016, Stimm falsely described this event as “the sale and
installation of our first turbine in Ashford, NY.” Similarly, in a letter to shareholders on March
28, 2016, Stimm again falsely labeled the test as the first “sale” of his turbine: “The actual sale of
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our first turbine was completed last week and is now installed by a customer in the Springville,
NY area.”
60. Stimm has since admitted that describing this transaction as a “sale” was
misleading. On February 25, 2020, he wrote: “This criticism is essentially justified. A
shareholder offered to buy it as a gesture of helping by putting it in storage and we accepted it.”
61. Stimm similarly made false statements about the success of the tests and the
imminence of production. For example, in March 2016, he falsely stated to investors that “[w]e
expect to start limited production in late June 2016.” In a The Newtonian letter to shareholders
dated September 1, 2016, he stated that the turbine “met all of the tests just as anticipated.” On
another occasion, on November 19, 2019, Stimm stated to shareholders that “Our 3 meter turbine
was completed and tested outdoors and passed all of the tests.”
62. In truth, upon information and belief, the turbine was tested for a very short time
period, did not begin to produce power until the wind reached higher speeds than projected,
failed to automatically turn into the wind as it was expected to do, and had to be physically
turned into the wind with ropes.
63. In addition, the start date for a limited production in June 2016, just three months
after the test, was false. At the time of the test, Stimm had already determined that this model
prototype was “obsolete.” The year before, Stimm had decided that the prototype tested was not
economically viable and moved on to designing a new version. Since the new model was only in
the design stage at the time of testing, Stimm knew or should have known that “limited
production in June 2016,” just three months later, was impossible.
64. Stimm’s misstatements about the successful tests and the first sale of the three-
meter turbine were material to the shareholders who, after years of waiting for return on their
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investment, were eager to see a working product and a prospect of the turbine’s commercial
viability.
E. Stimm misled shareholders about the reasons for NYSERDA’s rejection of
Stimm’s grant application
65. In 2017 Stimm applied for a grant from NYSERDA, was rejected, and lied to
shareholders about the reasons for the rejection.
66. Shareholders, faced with constant solicitations for more funds, repeatedly
encouraged Stimm to apply for grants to finance the development of the turbine. In 2017, he
applied for such grant from NYSERDA. NYSERDA rejected Stimm’s application, writing that:
The technology underlying the “Newtonian Wind Turbine” is not described,
however its claimed efficiency of 50% does not significantly exceed measured
efficiencies of existing turbines … The utility mentioned in the proposal has not
signed on as a project team member, and there is no indication offered that it
would support the project or its objectives. The project plan is not described, and
the six-month schedule seems unrealistic.
67. Stimm made false statements to shareholders about NYSERDA’s reasons, stating
at an October 17, 2018 shareholder meeting that NYSERDA “said, effectively, no consideration
until after certification.” Stimm’s claims that NYSERDA denied him a grant because the turbine
was not certified were false. In fact, “certification” does not even appear in NYSERDA’s
rejection email. Stimm’s misrepresentation and omissions of the reasons for NYSERDA’s
rejection of his grant application are material because NYSERDA’s rationale directly
contradicted false representations Stimm had been making to investors for years.
F. Stimm made material misstatements about Kean Wind’s net worth and grossly
inflated the value of its patent
68. Stimm made material misstatements about the value and the assets of Kean Wind.
In The Newtonian, dated September 1, 2016, Stimm stated: “After five years, the corporate net
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16
worth, which includes the very valuable engineering drawings, plus a half interest in the patent
upon Kean’s demise, is greater than the total investment of all shareholders.”
69. In his May 15, 2019 Newtonian, Stimm stated that “[o]ur net worth (on paper) has
gone up every year and is now over one million dollars. We use Double Entry G.A.A.P. rules
exclusively.” In truth, Stimm manipulated the format of Kean Wind’s financial statements to
inflate its net worth on paper. For example, in financial statements presented to shareholders in
2015, “Technology investment,” classified as an asset, is calculated including half of
administrative salaries, rents, insurance, utilities and 100% of engineer salaries and “Total Net
Worth” at March 31, 2015 was $831,933 (the same as total assets). According to Stimm, “[a]
financial statement required for the IRS is totally useless for us while developing our product.
The very special statement we use to study our costs was developed by Kean, 30 years ago.”
70. Stimm also made numerous material misstatements about the value of the patents
for the Newtonian Wind Turbine.
In the April 1, 2018 Newtonian, Stimm stated: “Our patent attorneys
told us a patent filed in 52 countries could be worth $8.6 million. They
added the patent would be worth ten times that amount after
certification.”
According to notes of minutes of shareholder meeting on October 17,
2018, Stimm stated: “We have net worth, patent is worth $8.6 million,
spent 260,000 on patent. Patent is worth $100,000,000…Patent
Attorney says amount what is worth. (sic)”
During the shareholder meeting on November 19, 2019, Stimm stated
that the patent is valued at $7,500,000. This, Stimm alleges is “easily
proved by the patent attorney’s own written statement. The value was
based on the population of each of the 52 countries where we filed our
patent.”
71. Upon information and belief, the statements about the value of the patent are false
and misleading. Stimm failed to produce any evidence of his attorneys’ valuation of the patents.
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17
Meanwhile, on the Balance Sheet Standard for December 31, 2018, Kean Wind valued the patent
at approximately $280,000, which included engineer salaries and patent and other expenses.
72. Stimm’s statements about the inflated value of the company and the patent were
materially misleading because shareholders wanted to know that risk of their investment in Kean
Wind was at least in part mitigated by the value of the company assets.
IV. STIMM TREATED KEAN WIND AS HIS PERSONAL PIGGY BANK
73. In an issue of The Newtonian, dated May 20, 2019, Stimm stated: “When a
shareholder purchases a corporate asset in the form of a “Certificate,” every penny of cash
received goes to complete this project.” (emphasis in the original). Stimm also repeatedly told
the shareholders that he was a “volunteer” and that he did not receive a salary or “other
compensation” from the company. In fact, Stimm used shareholder funds to pay for his personal
expenses – including a penthouse apartment, a cruise, and the purchase of a piano. Stimm now
admits to taking $48,000 annually from the company’s accounts to cover his rent, personal aide,
meals, medical and entertainment expenses.
74. Stimm has repeatedly stated at shareholder meetings and in his communications
with shareholders that he does not receive a salary and that he volunteers his time to work on the
wind turbine. A section in the Private Placement Memorandum titled “Arrangements with
Officers and Directors and Key Personnel” states that “[t]here is no compensation at present until
the Corporation produces a profit.”
75. For example, during the October 17, 2018, meeting shareholders asked whether
Kean Wind paid for Stimm’s rent, doctors’ visits, and personal homecare aid. Stimm falsely
stated that “no personal expenses of Kean are paid by KWT.” On November 14, 2018, two
months after that shareholder meeting, Stimm (presumably in his capacity as the sole director of
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18
Kean Wind) executed a “Replacement Agreement” with himself, which stated that a misplaced
original agreement
postulated that Kean would forego any salary in return for KWT providing an
auxiliary office for Kean that would permit Kean to do critical creative work at
all hours and particularly evenings and weekends... It was further stipulated that
this auxiliary office would be a suitable living facility…It was anticipated that
there would be special meetings at this location involving KWT staff and special
visitors…Since the original agreement, Kean has suffered a serious balance
problem about October 2015 that requires a special assistant. The special
assistant provides all meals, does the basic shopping and runs required
errands…the corporation has agreed to provide the services of a special assistant
but… does not include Kean’s personal expenses for food…
76. According to Stimm, the original agreement was stolen by a former employee in
2012. Stimm was unable to explain why this “Replacement Agreement” was not drafted until
after he was questioned by shareholders in October 2018 about Kean Wind paying for his
personal expenses. Stimm admitted that this agreement was never disclosed to the shareholders.
77. Despite Stimm’s repeated assertions over the years that he takes care of his own
expenses, Kean Wind paid for Stimm’s “personal aide,” who cooked him meals and did his
shopping, since at least November 2015 and has paid for his apartment (which Defendants’ own
documents refer to as “the penthouse”) since at least 2013. The chart below illustrates some of
Stimm’s personal expenses paid for by Kean Wind in 2013- mid - 2019:
Medical Expenses (medical co-pa
y
s, dental expenses, etc.)
3
$10,476
Car Expenses $10,813
Norwe
g
ian Cruise Line $2,134
Piano $1,943
Penthouse rent $126,780
Personal aide $82,754
Miscellaneous personal expenses $7,514
Approximate total $242,414
3
No payments for medical insurance for Stimm or any employees of Kean Wind are included in this
calculation.
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78.
In
a
letter
to shareholders dated
February
25, 2020, Stimm,
during
the
Attorney
General's
investigation
into his
fraud,
finally
admitted that
Kean
Wind paid his
personal
expenses
for
years and that "the
annual
cost averages about $48,000
per year
and is considered a
deductible business expense
for
the
company."
He also admitted that he purchased a piano and
a cruise
with Kean
Wind funds.
79.
In
a
letter
to the
OAG
(through
counsel),
on
January
20, 2020,
Defendants
promised not to use
Kean
Wind's funds
for
Stimm's
personal
expenses.
However,
to this
day,
Stimm
continues to use the
shareholder
funds as his
personal
piggy
bank. Since
February
1,
2020,
Stimm
spent at least $6,515
of Kean
Wind's funds
on
rent,
personal
aide and
medical
expenses.
80. Stimm's repeated false statements that he was a
"volunteer"
and that he did not
receive a
salary
or "other
compensation"
--
when in
fact he
took over
a
quarter of
a
million
dollars
over six
years
--
were material. He made these statements to
gain
the trust
of
prospective
investors,
to demonstrate
that
all
the funds raised
went
to the
development
of
the
turbine,
and to
convince investors to
invest
more
of their
money.
CAUSES
OF
ACTION
I.
FIRST CAUSE OF
ACTION
Scheme to Defraud and
other
Fraudulent Practices
(Martin
Act
Securities Fraud
-
General
Business Law
§§
352
et
seq.)
81. The
Attorney
General
repeats and re-alleges the paragraphs above as
if
fully
stated herein.
19
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82. The acts and practices
of
the Defendants alleged
herein
violated Article
23-A of
the
General
Business
Law,
in
that
they
constituted a scheme to defraud and
other
fraudulent
practices as defined
in General
Business Law
§§
352
et seq.
IL
SECOND CAUSE OF
ACTION
Material Misstatements and Omissions
(Martin
Act
Securities Fraud
-
General
Business Law
§§
352
et
seq.)
83. The
Attorney
General
repeats and re-alleges the paragraphs above as
if
fully
stated herein.
84. The acts and practices
of
the Defendants alleged
herein
violated Article
23-A of
the
General
Business
Law,
in
that Defendants
made,
or
caused to be
made,
representations
or
statements
which
were
false,
where
(i)
they
knew the
truth,
or
(ii)
with
reasonable efforts could
have
known
the
truth,
or
(iii)
made no reasonable effort to
ascertain
the
truth,
or
(iv)
did not have
knowledge
concerning
the representations
or
statements made
or
where Defendants made
material
omissions,
where said
representations,
statements
or
omissions were engaged
in
to
induce
or
promote the
issuance, distribution, exchange, sale, negotiation,
or
purchase
within or
from
this state
of
securities.
85. The acts and practices
of
the Defendants alleged
herein
violated Article
23-A of
the
General
Business
Law,
in
that
they
involved the use
or
employment
of
a
fraud, deception,
concealment, suppression,
or
false
pretense,
where said uses
or
employments were engaged
in
to
induce
or
promote the
issuance, distribution, exchange, sale, negotiation,
or
purchase
within or
from
this state
of
securities.
20
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III.
THIRD CAUSE OF
ACTION
(Persistent Fraud and
Illegality
-
Executive Law
§
63(12))
86. The
Attorney
General
repeats and re-alleges the paragraphs above as
if
fully
stated herein.
87. The acts and practices
of
the Defendants alleged
herein
constitute conduct
proscribed
by
§
63(12)
of
the New
York
Executive
Law,
in
that Defendants
(a)
engaged
in
repeated fraudulent acts and otherwise demonstrated persistent fraud and
(b)
engaged
in
repeated
illegality by repeatedly
violated the
Martin
Act
in
the
carrying
on,
conducting
or transaction of
business
within
the
meaning
and intent
of
Executive Law
§
63(12).
IV.
FOURTH CAUSE OF
ACTION
(Martin
Act
New
York Registration
Provisions
-
General
Business Law
§
359-e)
88. The
Attorney
General
repeats and re-alleges the paragraphs above as
if
fully
stated herein.
89. The acts and practices
of
Defendants alleged above violated New
York General
Business Law
§
359-e
insofar
as
Kean
Wind is subject to
GBL
§
359-e and failed to
register
as a
"dealer"
and failed to file a "state
notice"
and
"further
state
notice"
under
that section.
V.
FIFTH CAUSE OF
ACTION
(Martin
Act
New
York Registration
Provisions
-
General
Business Law
§
359-ff)
90. The
Attorney
General
repeats and re-alleges the paragraphs above as
if
fully
stated herein.
91. The acts and practices
of
Defendants alleged above violated New
York General
Business Law
§
359-ff insofar
because
they
failed to
register Kean
Wind's intra-state offerings
21
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of
securities and file
an
offering
prospectus,
balance sheet and profit and loss statement
with
the
OAG.
PRAYER FOR RELIEF
WHEREFORE,
Plaintiff
demands
judgment against
Defendants as follows:
A.
Permanently enjoining
all
Defendants and
their
principals, agents,
and employees
from
violating
the
Martin
Act,
Article
23-A of
the
General
Business
Law,
and Executive Law
§
63(12)
and
from
engaging
in
the
fraudulent,
deceptive and
illegal
acts alleged
herein;
B.
Permanently enjoining
Kean Stimm from
engaging
in
any
business related to the
issuance, distribution, exchange, advertisement, negotiation, purchase,
investment
advice,
or
sale
of
securities
within or from
this
state;
C.
Directing
Defendants to
pay
damages
caused,
directly
or
indirectly,
by
the
fraudulent and deceptive acts and repeated fraudulent acts and persistent
illegality
complained
of
herein
plus applicable pre-judgment
interest;
D.
Directing
Defendants to disgorge
all
amounts obtained
in connection with or
as a
result
of
the violations
of
law alleged
herein,
all
moneys obtained
in connection with or
as a
result
of
the fraud alleged
herein;
E.
Directing
Defendants to make
restitution of all
funds obtained
from
investors
in
connection with
the fraudulent and deceptive acts complained
of
herein;
F.
Directing
rescission of all shareholder Stock
Purchase
Agreements;
G.
Directing
Defendants to
pay
penalties
for each
instance
of offer
and sale
of
securities while unregistered
in
accordance
with
New
York
law;
and
H.
Granting
such other
and
further relief
as
may
be
just
and proper.
22
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24 of 28
Dated:
New
York,
New York LETITIA
JAMES
April
27,
2020
Attorney
General
of
the State of New
York
By:
4wl
Tanya T akht
Christopher
L.
Boyd
A••ictant
Attorneys
General
Peter
Pope
Chief
of
the Investor Protection Bureau
28
Liberty
Street
New
York,
New York 10005
Tel.:
(212)
416-8457
Counselforthe People
of
the
State
of
New
York
23
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VERIFICATION
STATE
OF
NEW
YORK
)
COUNTY OF
NEW
YORK
)
ss.:
TANYA
TRAKHT,
being
duly
sworn,
deposes and says:
I
am an Assistant
Attorney
General
in
the office
of
Letitia
James,
Attorney
General of the
State of
New
York,
and
am
duly
authorized to
make
this verification.
I have
read the
foregoing
complaint and know
the contents
thereof,
and
the same
is true to
my
own
knowledge,
except
as to
matters
therein
stated to
be
alleged on information
and
belief,
and
as to those matters
I believe them
to be
true.
The
reason
this
verification is
not
made
by
Plaintiff is that
Plaintiff
is a
body
politic. The
Attorney
General is
Plaintiff's
statutory
representative.
TANYA
TRAKHT
Sworn to before me this
27th
day
of
April,
2020
Assistan
Attorney
General
of the
State of
New
York
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APPENDIX I
Sample
of
Misleading
Representations Made
by
Kean Stimm
and
Kean
Wind Turbine Inc.
Regarding
Production
Timeline
of
the
Newtonian
Wind Turbine
Date Source
Statement
5/1/2014
Ellicottville Times
"Assuming testing
of
the prototype is
successful...production can begin
as
early
as this
fall in
the new
assembly
plant
in
Ashford,
Cattaraugus
Country."
10/27/2014
Notes
of Shareholder
meeting
"[T]he huge
engineering
effort is
largely
complete
with
drawings."
"Manufacturing
is expected
next
year
[2015]."
"Our
current
goal
is to
start
production
by
March or April
[2015]."
3/20/2015
Letter
to shareholders
"It
is expected
that
we
will
start
by
June
2015
and
ramp up
slowly
to
one turbine
per
day by early
fall."
Fall
2015
The
Newtonian
"We have started the process
of
ordering
parts and components
for
the
start
of production
beginning
in
about three
months..."
3/17/2016 The
Newtonian
"We expect to do the
final
testing
of
the
four meter
turbine at
Calspan in
a few months and secure
final certification
at that time.... It is
our
intention
to
begin
very
limited
production
this
summer in our
pilot
plant..."
9/1/2016
The
Newtonian
"We completed the
engineering
design work for our Four Meter
Turbine
a
month
ago and
a
team of
us has
been
reviewing
all
200
plus drawings
for
consistency
and to be sure that
all
parts
will work with each other
and
conform
to
our
standards...This intensive review has tuned
up
a
few
necessary
revisions
involving
about 30 drawings. This
work
is now
about
complete."
10/19/2016 Notes
of Shareholder
meeting
"Kean
said
all
the
engineering
is done
[for 4
m].
Kean
said
it
will
be
built
in
spring/early
summer
[2017]."
2/22/2017
Letter
to
shareholder "Our
current
efforts
during
the
past
several
months and
continuing
on
for
perhaps
another month or
two,
is
an
intensive review
of all
production
drawings...the
critical
and basic
engineering
was completed
last
year
and
our pre-production model
was built and
successfully
tested
...
With shareholder
help
we
can
start
production
this
summer
[2017]."
7/27/2017 Notes
of Shareholder
meeting
"We have
been
working
on
new drawings
-
since
beginning
of
2017
(about 200
drawings). Drawings
keep
our
cost
down if
they
are done
correctly. We believe we are
3-4
weeks
away
from
having
the drawings
done.
Our
turbine
will
get
into
production
next
year
[2018]."
1/7/2018
Shareholder newsletter
"We are
well on our
way
to
assembling
the
production model
to be
delivered to
Calspan for
testing. The appropriate
staff
and facilities are
in
place and
most
of
the materials and
component
parts are
either
here
or on their
way... probable
September
test
date is
anticipated."
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Date Source
Statement
4/1/2018
The
Newtonian
"We've started the process
for Calspan certification
...
Our goal
is to
have the
certification
completed
by
the end
of
July
[2018]."
6/8/2018
Letter
to shareholders
"We are
still
placing
purchase orders
for
parts and components needed
to produce the first
production
turbine
for certification
at Calspan.
...We hope to have
everything
in
by
late
July
and
then
about two weeks
to
assemble."
8/1/2018
Solving
Our
Looming Energy
"Final certification
tests are
in
process."
Crisis
Brochure
8/30/2018 Buffalo Business First
article titled
"After an
exhaustive
development
and
testing
phase,
it's
nearly
time to
Kean Wind Turbines
preparing
to start
selling
the
Newtonian
Wind
Turbine."
launch its innovative product into
. .
the market
"Kean
Wind Turbmes
will soon
place a prototype at
Calspan
to receive
third-party
validation of
its
turbine..."
4/14/2019 Lockport
Newspaper "Kean
Wind Turbines is
currently developing
its first
production
unit,
scheduled to be finished
in
June. Once
complete,
the turbine
will
undergo
testing
at
Calspan."
5/15/2019 The
Newtonian
"We are now
'changing
the
guard'
over
to
production
manufacturing
from
product development
because we have completed the
design,
the
engineering
and the
production
drawings."
(emphasis
in
the
original)
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