EXCLUSIVE: Future of Brain Computer Interface Endangered by a Ponzi Scheme Investor
4/12/2011 by: Theo Valich
OCZ Technology has always been known as a company on the rise with a portfolio of various innovative products. One of the more exciting and ground-breaking products was the Neural Impulse Actuator or NIA for short. NIA was the first Brain Computer Interface manufactured and available at an affordable price. We tried the technology on numerous occasions and each time were thrilled at the way how the technology performed. In fact, the author of these analysis still owns an NIA device. In many ways the NIA was pioneering a whole new technology field, with a few side effects as a natural consequence of being first to market. For instance, one of major complaints for the first generation product were issues with Electro Magnetic Interference, meaning it simply would not work next to an open computer.
OCZ Neural Impulse Actuator as the 1st Generation Retail Product, 2008.
However, as OCZ Technology entered the stock market the new investors wanted the company to cut down the diversification and make the decision to solely focus on the fast growing SSD market. Subsequently, OCZ made the decision to exit the GPU business, enthusiast DDR memory and game controllers, including spinning-out the NIA product to a separate company in the summer of 2009. Today, OCZ is solely a SSD company, while the Neural Impulse Actuator was spun off to a company called BCInet, Inc. (Brain Computer Interface Network).
In the summer of 2009, BCInet acquired the technology and started developing second generation of this frankly speaking, fascinating product. As the development work started, NIA disappeared from the eyes of media and consumers, but occasional contacts with people in both OCZ and BCInet were assuring us that technology is far from being done and dusted - rather that the 2nd generation product will be appealing to the mainstream market.
At the beginning of 2011, we heard that the 2nd Generation NIA (now 1st Gen BCI) is getting ready for release. Given that my trusty NIA started to get a bit long in the tooth, I was personally enthusiastic about it. However, CES came and went, so did CeBIT and there was no word of BCI/NIA. We started to ask questions and came to a shocking revelation.
Bad News: SEC, Hedge Funds and a Ponzi Scheme
A month ago, SEC (U.S. Securities and Exchange Commission) added charges against Francisco Illarramendi and his company Michael Kenwood Group (MKG), freezing their assets for a suspected 53 million U.S. Dollar misappropriation of assets, and a Ponzi Scheme. We obtained the official documents and after analyzing them, we discovered that BCInet was one of companies damaged by this Hedge Fund and Investment Advisor Gone Rogue.
According to SEC, the scheme went like this - former director of Credit Suisse First Boston, Mr. Francisco Illarramendi had certain amount of money invested by companies such as PDVSA into MKG. MKG in turn invested that money in companies such as NuScale, Proterra and BCInet. What happened is that in the middle of development cycle, or very close to product release (in case of BCInet and Proterra), the SEC secured a restraining order against MKG, restricting them from further investments in any of these companies, and in some cases seeking recovery of funds previously invested. The fact that this played out so quickly and with no warning left NuScale, Proterra and BCInet scrambling to keep from collapsing.
Coming back to MKG and PDVSA's pension fund, the situation gets quite complicated. In case you follow world politics or Formula One World Championship, you'll probably know that PDVSA is an oil giant owned by government of Venezuela. In any case, MKG managed a $540 million fund financed primarily by the PDVSA Pension fund. The agreement with PDVSA was to invest in short term liquid assets, but Illarramendi used this cash to invest in longer term equity investments, perhaps to try to recover from losses incurred from prior investments gone bad. While this may be true, the byproduct of putting this money into new American technology companies could have resulted in thousands of new high-tech jobs here in the U.S. However, by creating a scenario that would allow these startup companies to first become reliant on the funding, and then pulling it back without warning, the sequence of events could now cause these U.S. companies to close down, taking new U.S. technology off the market, and putting U.S. workers out on the streets.
As of 2011, PDVSA is a major backer of AT&T WilliamsF1 Racing Team
Unfortunately for PDVSA's Pension Fund, Mr. Illarramendi had previous investors who were paid off using PDVSA's half billion U.S. Dollars. In the past couple of weeks of our investigation, we received off-the-record comments from people close to PDVSA and they expressed their anger at the situation, since the parent company had to step in and cover a significant portion of the half billion U.S. Dollars which MKG squandered in the afore mentioned Ponzi Scheme.
Naturally, spending another half billion USD meant that neither PDVSA nor PDVSA's Pension Fund or just about any of the other investors in MKG were interested in further backing of the companies in which Mr. Illarramendi invested. Illarramendi created the worst possible scenario for everyone, with the investors losing the majority of their assets, while putting a number of exciting new high-tech American companies in jeopardy.
The Situation as of April 11, 2011
For all the obvious reasons, BCInet did not return our calls for comment. We managed to get in touch with sources close to the companies involved and gained insight into the situation with the company and the state of technology.
According to our sources, BCInet is negotiating with a number of new potential investors to launch the new products, since BCInet completed the work on its Software Development Kit (SDK), and had very good results with initial prototypes. From the looks of it, engineers took on and solved the problems with the original NIA (sensitivity to EMI, uncomfortable headband). The User Interface was redesigned to fit with the Windows 7 design guidelines, set of completely new tutorials and sample apps that would "teach" the device to interact with your brain waves in a faster way, reducing the time of adjustment.
The testing was well under way and the device actually expanded from being a gaming device to consumer and professional device. Consumers would enjoy computer games, disabled consumers would get a new way to interact with computer while multiple industries showed a lot of interest. Incredible how it may sound, but we learned that audio studios were "very interested" in moving some of the controls to Brain Computer interface. Also, BCInet got customers in the business of robot controllers for Military/Industrial use.
Investors Needed? NuScale, Proterra and BCInet think so
Following the collapse of MKG and the Venezuelan money well running dry, the three companies which we learned off are in search for investors to fund the product launches. Proterra is working hard on sealing a $25 million deal that will help to subsidize the sucked out cash (Mr. Illarramendi's Fund invested $20 million)
Not helped by horrible sequence of events taking place in Japan, NuScale is in dire straits and was forced to reduce its workforce to bare minimum, as the company is looking for new investors.
When compared to these two, BCInet is arguably in best position of them all. They have only a handful of employees, have nearly completed products ready to launch, and have much lower capital needs to get to profitability. In a way, they are looking for product launch backing, just like Proterra albeit probably in a much smaller scale.
Being approached by major funding sources such as Hedge Funds and Venture Capital can be considered flattering, but the story can end in tears if your company is actually being backed by a less than forthright investor, like this one who turned out to be running a Ponzi Scheme, and even the size of the fund ($540M in this case) is not a guarantee that your ship will sale smoothly from idea to an actual product. Just like LinkedIn is now completely spammed by alleged investors that are promising all the wealth in the world, reality tends to be akin of an alarm clock ringing at the dawn.
Be that as it may, we hope that all of these new and innovative companies can find a way to bring new, innovative products to the market. We will work hard on getting down to the bottom of this issue and see what is going on with the companies and persons involved.
OCZ, OCZ Technology, BCInet, BCI, Brain Computer Interface, NIA, OCZ NIA, Neural Impulse Actuator, SDK, Beta, Software Development Kit, Francisco Illarramendi, Connecticut, Ponzi Scheme, Bernard Madoff, conspiracy, Venture Capital, VC, Capital Investment, Juan Carlos Guillen Zerpa, Juan Carlos Horna Napolitano, SEC, Securities and Exchange Commission, Robert Targ, Michael Kenwood, Michael Kenwood Group LLC, SEC vs. Illarramendi, PVDSA, Stamford
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