Trial Date to Be Set in 1981 Fraud Suit Over Cheap-Energy Device

A Newport Beach home builder’s fascination with a “hydrogen converter,” which he believed would produce an endless supply of cheap power during the energy crisis in the mid-1970s, ended up costing the Presley Cos. $4.4 million and years of embarrassment.

The Irvine-based real estate company bearing Randall Presley’s name is still trying to recover the money paid to settle a class-action suit brought by about 5,000 angry shareholders after the company invested in the controversial device.

To recover the $4.4 million it paid to shareholders in 1981, the Presley Cos. filed a federal court suit alleging fraud against the late Morris Mirkin, the man who introduced Presley to the converter’s inventor 12 years ago.

Suit Claimed Fraud

A trial date for the lawsuit filed in March, 1981, is scheduled to be set today by U. S. District Judge Laughlin Waters in Los Angeles federal court.

Presley Cos. shareholders sued the firm in 1978, claiming that the company defrauded them because widespread publicity surrounding the firm’s investment in the converter caused Presley’s stock price to rise from about $6 a share in August, 1975, to about $20 a share in March, 1976.

The stock price dropped dramatically--to $10 a share in May--after the Securities and Exchange Commission had halted trading in Presley Cos. stock for three months in 1976. The SEC also conducted a lengthy investigation into the device and the claims surrounding it.

Presley, now retired as chief executive of the Presley Cos., was out of town and could not be reached for comment late last week. His attorney, Robert Ericson, said he expects the case to go to trial because there has been “basically no indication of a willingness to settle.”

Mirkin Died in June

The Presley Cos.’ suit claims that Mirkin defrauded the company by not revealing important facts about the converter before the Presley Cos. invested $500,000 in the device.

Mirkin, a longtime Beverly Hills resident who founded Budget Rent-a-Car, died last June. But the lawsuit continues against his wife, Claudia, and son, Jeffrey, who is executor of his estate.

“In my opinion this lawsuit is absolutely outrageous,” Leon Kent, Mirkin’s attorney, said in a recent interview.

In the summer of 1974, Mirkin hosted a dinner party where he introduced Presley to Samuel Leslie Leach, the converter’s inventor, according to court records.

“I found Dr. Leach to have the most clear and brilliant mind of any person with whom I have had the privilege of entering into discussions of this nature,” Presley said in an Aug. 21, 1975, memo filed in court.

Mirkin, who ultimately invested $1.3 million in the device, purchased the rights to use it to power automobiles. At one point, he planned to build a demonstration car with a clear gas tank filled with water and live goldfish, but that plan was scrapped, according to court records.

In July, 1975, the Presley Cos. board of directors attended a demonstration of the hydrogen converter. The following month, the board voted to pay Leach $500,000 for the rights to use the machine in residential construction. The Presley Cos. also signed a contract to pay Leach an additional $2 million a year later.

Held No Doctorates

However, a battery of scientific tests, including some paid for by The Times, found that although the patented device produced hydrogen gas from tap water by relying on chemical reactions, it apparently did not produce more energy than it consumed, as promised.

Leach, who claimed to have several advanced degrees, apparently held no doctorates, according to court records. In a June, 1976, interview, Leach admitted that portions of a bullish news release about his “SLX hydrogen generator” were “perhaps puffed a little.”

Presley’s attorney, Ericson, said Leach, who he believes lives in Carmel, will probably be called as a witness at the trial.

Leach could not be reached for comment.

Kent, Mirkin’s attorney, said Mirkin had a penchant for investing in unsuccessful inventions, including an air-freshening system to remove odors from rental cars.

Bought Leach a Home

“He was taken in like everyone else,” Kent said of Mirkin’s relationship with Leach.

Mirkin also bought Leach a home in Pebble Beach and gave him two Rolls-Royce automobiles, according to court records.

Kent said Mirkin is not responsible for the $4.4 million the Presley Cos. paid to shareholders to settle its lawsuit. Presley Cos. shareholders also sued Mirkin, but a federal court jury found him not liable for the losses in November, 1984.

In November, 1985, Judge Waters dismissed the securities fraud portion of the Presley case against Mirkin, leaving only the general fraud issues to be decided by a trial.

Pacific Lighting Corp., the parent of the Southern California Gas Co., acquired the Presley Cos. in late 1984 for about $115 million in Pacific Lighting common stock.