This is an archived article that was published on sltrib.com in 2008, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
Call it a Space Oddity, 2008 and Beyond.
Amid a flurry of legal wranglings, charges and countercharges, a North Salt Lake company and three former associates are in a tug-of-war over nuclear-powered space tugs, with perhaps billions of dollars at stake.
The Utah firm is known as IOSTAR Corp., which has dibs on $1.5 billion from the federal government to develop satellites that would perform an array of functions in space. But in order to get that funding, it first has to come up with $15 million in private money, and that is where things have gotten sticky.
IOSTAR and its founder and CEO have filed suit against the three former associates, alleging theft of corporate secrets in order to develop competing satellites. In a counterclaim, the three allege that the CEO has misappropriated millions of dollars and violated tax and securities law.
To date, no satellites have been developed, let alone launched. IOSTAR has seen its board of directors implode through dismissals or resignations. And a tangled web of companies and current and former officers is caught in the legal crossfire.
At the center of this space wars intrigue is IOSTAR majority owner Robert D'Ausilio, who also is chairman and CEO. His lawsuit filed in October triggered countercharges against him that allege he appropriated an $8.5 million award from a lawsuit and about $330,000 in funds from a client for his own use.
The Salt Lake City attorney representing IOSTAR and D'Ausilio, who controls 70 percent of the company's stock, said his client intends to "vigorously" contest the allegations.
"We don't think those have merit but that will be decided by the legal process," said Robert Lockhead, through whom D'Ausilio declined comment for this story.
IOSTAR's Web site, http://www.iostarcorp.com, cites D'Ausilio's long experience in the aerospace industry, including a stint at Rockwell International Corp., where he says he worked on the Apollo program. By the 1990s, D'Ausilio was head of a company called Intraspace, which was IOSTAR's predecessor, and began development of a nuclear-powered satellite that could serve as a tug pulling other satellites from a low orbit, where it's cheaper to launch them into their proper orbits. It could also get rid of dead satellites and debris, serve as the power plant for other satellites and possibly provide power and propulsion for the international space station. IOSTAR - the acronym for In-Orbit Space Transportation and Recovery - was merged with Intraspace in 2005.
According to a Sandia National Laboratory newsletter from 2004, the Albuquerque lab developed the nuclear reactor that would power the IOSTAR satellite for what the company projected would be a $7 billion-a-year business.
In 2004, predecessor Intraspace, with the help of U.S. Sen. Pete Domenici, R-N.M., helped push through Congress a bill that would provide $1.5 billion in federal funds for development of nuclear-powered space vehicles, according to the Sandia newsletter and news media accounts. But beginning in 2005, IOSTAR had to raise $15 million in private money in order to prepare an application for the federal funds administered by the Federal Financing Bank, which is part of the Treasury Department.
That loan application apparently is stalled as IOSTAR seeks investors. Attorney Lockhead declined comment on its status.
The disputed money
Before IOSTAR started chasing federal money, James Stuart, one of those sued by the company, served as a consultant in the mid-1990s to Intraspace. Stuart subsequently became president and a member of the board of directors in 2003.
Stuart, who also has long experience in the aerospace industry, brought in George French of Wisconsin, who directs GD French Investment. French was seen as a potential investor to help IOSTAR complete the application for the federal monies, according to court documents.
However, when French hired lawyers and accountants to investigate IOSTAR before handing over the money, he discovered, according to the counterclaims in the lawsuit, that IOSTAR was unable to supply financial information and could not provide audited statements that D'Ausilio had said would be available.
In addition, French's team discovered that missing was most of the $500,000 that had been deposited with IOSTAR by Richard Busch of Florida on behalf of his company, Xigix Technologies LLC. The money was to be used for development of a communications satellite, according to court documents.
French, who along with Busch also is named in the lawsuit, and his investigators further allege that D'Ausilio failed to turn over to the corporation the $8.5 million won in a lawsuit. D'Ausilio also made a questionable sale of IOSTAR stock to an unaccredited investor in 2007, French claims.
"French also learned that IOSTAR may not have complied with applicable state and federal tax laws, securities and corporate governance regulations," according to his counterclaim.
The falling out
Armed with French's findings, on June 11, 2007, three board members - Stuart, retired Gen. Merrill A. McPeak (who recently stirred the presidential campaign with charges of "McCarthyism" against former President Clinton) and Austin I. Cullen - sent a letter to D'Ausilio with a list of demands that they said were necessary for them to continue on the IOSTAR board.
Those included providing accurate balances of company accounts, appointing an independent corporate secretary, changing bank account signatories and conducting an independent audit. They also demanded D'Ausilio repay $328,700 that they allege was "improperly withdrawn from the Xigix [Technologies] account."
Instead of D'Ausilio complying with the demands, Stuart said he was forced to resign as president on July 5, 2007, and was removed from the five-member board July 26. McPeak also was removed and Cullen apparently resigned previous to that.
In its lawsuit, IOSTAR charges that Stuart, French and Busch "have systemically misappropriated IOSTAR's trade secrets."
They did so, the suit alleges, in order to develop a space tug that would compete with one being fashioned by a company called SWANsat, in a project in which IOSTAR is participating.
"We think the claims against Mr. French are groundless," said Sam Straight, French's Salt Lake City attorney.
Stuart and Busch declined comment about their dealings with D'Ausilio, but in their answers to the lawsuit they deny appropriating any trade secrets from their involvement with IOSTAR.
Stuart in one document calls the allegations "absurd."
The lawsuit is pending in U.S. District Court for Utah.
Lockhead, the attorney for D'Ausilio, said because of the patents and development work on the space tug project, IOSTAR believes it is the only company legally able to receive the federal monies for development of the space tug.
"We believe we're the only game in town."
SWANsat, for which Busch formerly worked, proposes to use IOSTAR tugs to power a series of communications satellites.
Because of the available nuclear power plant, these satellites would be much more powerful than those in use today and could, for example, provide broadband, high-speed wireless Internet over most of the globe, according to SWANsat and IOSTAR.
SWANsat - super-wide area network satellites - operates as a foundation out of California, with William P. Welty as its principal official.
Welty and D'Ausilio have been affiliated since at least the 1990s, when Welty was a top officer of Continental Satellite Corp. But in a contract dispute with Loral Aerospace Holding Inc., the latter was in a position to gain control of 51 percent of Continental shares.
Welty, according to Securities and Exchange Commission documents, in order to retain control of Continental, issued additional shares of the company in 1995, including 72,000 that went to Intraspace.
D'Ausilio sold those shares for about $2.3 million to DBS Industries Inc., but a California court subsequently declared the stock issuance improper and voided the action, giving Loral control of Continental.
Welty denied that SWANsat was the direct competitor that court documents allege received a separate $30,000 of Xigix monies allegedly taken by D'Ausilio.
"No, he didn't send it to us," Welty said.
SWANsat and IOSTAR also are connected through Chuck Missler, who was appointed to the IOSTAR board after the resignation and dismissal of the three members last year.
Missler sits on the board of advisers of SWANsat, as does D'Ausilio, and is a prolific Christian author, writing about such topics as the fusion of aliens, UFOs and biblical events, and predictions.
The communication satellite and the space tug remain in development.