Neil Woodford feels the heat over cold fusion fiasco involving eccentric Italian inventor Andrea Rossi

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One of fallen fund star Neil Woodford’s biggest early-stage technology bets is accused of being based on bogus science which will never make money.

Numerous scientists have poured scorn on a firm known as Industrial Heat, which claims a process known as cold fusion holds the secret of creating energy by making low-level nuclear reactions.

It has emerged the business was founded on the back of much-derided claims by an eccentric Italian inventor.

Andrea Rossi claimed to have invented a machine that was turning water into huge volumes of steam because of the so-called cold fusion process. But when it was independently tested, it was shown not to work.

US science editor Steven Krivit of New Energy Times was the first to film the machine in action in Italy in 2011. Rossi is seen in a rented garage plugging his machine into the mains. Krivit said: “It created exactly what you’d expect from a 700-watt tea kettle — and 700 watts was exactly the amount of power he measured going in [from the plug socket].”

After putting the video online, Krivit says, “dozens” of scientists contacted him to debunk Rossi’s claims. Krivit told the Evening Standard that Rossi’s supposed technology would make “zero dollars — plus or minus zero dollars” for any investor.

However, in 2012, Rossi convinced a US private equity investor, Cherokee Investment Partners, to back him. Woodford later joined in, putting £32 million into the vehicle Cherokee created for the Rossi device called Industrial Heat in May 2015. Soon after, tests showed the technology did not work but Woodford’s investment in Industrial Heat, done through his troubled Woodford Equity Income Fund and Woodford Patient Capital Trust, remains.  The stake makes up nearly 1% of the Equity Income Fund and 6% of Patient Capital. It was one of the illiquid assets Woodford listed on the Guernsey stock exchange this year. 

Woodford is far from being the only investor in Industrial Heat. Companies House filings show the late Apple founder Steve Jobs’s widow Laurene Powell Jobs is an investor along with some other US investment managers.

Neither Rossi nor Cherokee would comment. 

But it is known that the two had a spectacular falling out. Cherokee is run by an energy investor called Tom Darden. He originally offered Rossi $100 million (£79 million) to license the technology, providing it passed tests.

Darden appears to have allowed the first test to be carried out by Rossi, who said it succeeded, triggering the first $11 million instalment of the licensing payment. That was when Woodford was persuaded to invest.

However, a second independent test in Florida spectacularly failed, leading Darden’s Industrial Heat to pull the contract. 

Rossi sued, Darden countersued, and the two sides settled out of court in June 2017. Court papers show that Rossi alleged Industrial Heat had tried to steal his intellectual property by deceptively attempting to patent it and copy his technology. 

Darden denied the charges against him, maintaining that the technology did not work and Rossi failed to produce any commercially viable product.

Since then, it’s unclear what Industrial Heat has been doing, though Darden has appeared at a number of conferences telling industry figures he is still looking at fusion energy companies. 

Last September, Patient Capital Trust said “technologies at Industrial Heat” had boosted its value by 357% but the update also warned: “Although, this is positive progress for Industrial Heat and the Trust, it remains early days in the development and commercialisation of these technologies.”

Analysts said the investment raises serious questions over Woodford’s due diligence processes and his research. 

One person who was close to Woodford’s fund said: “It’s a controversial pick. It shows they simply do not have the research available that a big fund house has at its disposal.”

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June 12, 2019 |
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