Photo by Craig Carlson

Impervium was six times stronger than wood.

In September of 1979, Michael duPont met two extraordinary men named Walter and Alex Gutierrez. DuPont, whose great-great-grandfather was the founder of the E.I. duPont chemical company in Wilmington, Delaware, felt destiny breathing down his neck as he listened to Walter Gutierrez describe a remarkable discovery he’d made.

Peggy and Michael duPont. Michael duPont’s name appeared in a January, 1985 article in the Tribune entitled “Some tips on avoiding fast-buck artists.”

Photo by Craig Carlson

Gutierrez, a soft-spoken, congenial man who called himself a chemist, possessed a “secret formula” to produce a wood substitute known as Impervium. DuPont, who was president of a local firm called duPont Energy Control Corporation, saw samples of the materials and was flabbergasted; he saw picture frames, shake shingles, shovel handles, golf club heads, plant pots, and other items that looked like wood, felt like wood, smelled like wood, had all the qualities of wood.. .but weren't wood.

Walter Gutierrez, Dupont Energy

Walter Gutierrez, chemist

Walter Gutierrez, inventor

And they cost less money. Imagine the markets for such a product! It wasn’t a question of whether or not Impervium would sell and make someone a billion dollars. This was unmistakably the greatest discovery in materials research since the invention of plastics, and it would revolutionize every industry that currently uses wood. The only question was, who is going to make history by bringing it to the public? DuPont, inspired by the spirit of his great-great-grandfather, Eleuthere Irenee duPont, decided it would be he.

Alex Gutierrez. Their operation, Alex told duPont, was set up like the Manhattan Project.

Six years later, no revolution has occurred. The place of plastics in the hierarchy of twentieth-century inventions is secure. And Michael duPont is in big trouble, because duPont Energy Control Corporation (duPECC) failed miserably in its attempt to market Impervium. DuPont and his wife Peggy both pleaded guilty last August to two felony charges that arose out of their association with the Gutierrezes.

On Houston's Channel 11, Walter tested Impervium with a blowtorch.

One count was for tax evasion, the other for a securities violation, and the duPonts each face the possibility of a ten-year jail term. They will be sentenced sometime this spring. The duPonts do, however, cling to one hope — that the federal government has figured out the truth about Walter and Alex Gutierrez, who the Point Loma couple feel are the true villains in this unhappy saga that has left 250 duPECC stocldiolders wondering if they’ll ever see their share of $1.2 million in investments.

Bill Graul, Dick Thompson, Carl Crumley with injection mold

Why are the Gutierrezes responsible? Because, the duPonts insist, the “secret formula,” as the brothers Gutierrez presented it, never existed. It was a hoax all along, the duPonts contend, and they are merely two among dozens of people who, over the past ten years, claim to have lost at least $5.3 million dollars to Walter and Alex Gutierrez. The duPbnts in November of 1984 filed a $13.2 million lawsuit against the brothers alleging fraud and breach of contract.

Evidence supporting the duPonts’ allegations is found on what they call “The List,” which contains the names of thirty-six individuals and companies who believe they have been defrauded by the Gutierrezes. Several have obtained judgments against the brothers, one of which was for $400,000. This article is the result of a six-week investigation that included review of numerous lawsuits against the Gutierrezes and discussions with about fifteen people on the duPonts’ list.

Nothing makes sense to the outsider who stumbles into this story. Two short, stocky Mexican-Americans with no education to speak of, no proven track record whatsoever, and no money, have discovered a secret that the most advanced industrial research and development firms in the nation know nothing about.

Conservative, astute business people become so intoxicated by a handful of samples that they fail to ask the only question that really matters: “Can it be done cost-effectively?” They break every rule experience has taught them, and they spill anywhere from $10,000 to $2.6 million into a venture that could have made them all a billion dollars. Except for one small detail — it couldn’t possibly have worked, “Isn’t it amazing?” asks Michael duPont. “And you know what? 'Not one of those astute businessmen can tell you why he did it.”

The first installment of this two-part story details the relationship between duPont Energy Control Corporation and the Gutierrezes’ two companies, Imperial Dynamics and W&A (Walter and Alex) Research Associates. The second part examines the relationship between the Gutierrezes and numerous other individuals and companies, many from San Diego, that claim to have been defrauded. The sheer volume of alleged victims, most of whom have spoken to the FBI, the IRS, and the U.S. Attorney’s office as part of a year-long grand jury investigation into the Gutierrezes, is testimony to the sophistication of the two brothers’ scheme. “They’re not just good, they’re great,” says one attorney who conducted a six-month investigation and prepared a lawsuit against the Gutierrezes. “They’re the best in the West.”

Michael duPont heard about the Gutierrezes back in 1979 through a friend of a friend who worked for Bell Laboratories. When duPont met with them at the Mira Mesa office of Imperial Dynamics, the Gutierrezes’ company, he was told that their partner, a firm called Vanont, had pulled out on them and they needed money. DuPont didn’t care why Vanont had pulled out. After seeing the extraordinary samples, he figured there could only be one reason — Vanont’s administrators were bad businessmen and they lacked vision. DuPont was told by the Gutierrezes that by varying the weight of the formula material, you could make perfect substitutes for oak, teak, rosewood, redwood, walnut — you name it. And as the Gutierrezes demonstrated, you could nail Impervium, file it, plane it, sand it, saw it — do everything you could do with wood.

But how do you make such a substance? Walter Gutierrez explained his historic scientific breakthrough. He’d figured out a way, through a relatively simple and inexpensive process, to cause fibers to interact chemically and create an exceptionally strong bond. Not a physical bond, such as that obtained when fibers are held together by resins or other gluelike substances, but a chemical bond in which fibers and resins fuse chemically and create an entirely new substance. His process, which he’d dubbed “high-fusion science,” mirrored the chemical transformations that take place in nature, such as those that occur when a plant grows a leaf or when a rubber tree creates sap. Walter Gutierrez used to say that he’d observed what mother nature was doing, and he’d done her one better.

Impervium was six times stronger than wood. It was waterproof and thus impervious to bacterial rot, as well as termites. And it could be made to be fireproof. When Walter Gutierrez put a 2600-degree torch to an artificial shake shingle, it didn’t catch fire. Think of all the houses that bum in brush fires when shake shingles ignite. The man who came up with a fire-resistant shake shingle could make a fortune overnight. Impervium would turn the building industry on its head.

This was exciting stuff. Existing plastic wood substitutes are made from rather costly petroleum-based polyurethane or polyester. But the filler material in the Gutierrezes’ samples was organic. The Gutierrezes could use dirt-cheap “molecular linear fibers” from celery stalks, bamboo, jute, hemp, or sugar cane. Better still, from chirca weed, a worthless plant that grows rampant in South America. Chirca, which is called “the national plague” of Uruguay, is extremely difficult to kill and grows several inches a day. And here were the Gutierrezes telling Michael duPont that they can use this nasty, worthless weed to make furniture, telephone poles, railroad ties, shake shingles, low-cost housing, and a plethora of other products. “The formula wasn’t just a better ball bearing,” says Michael duPont. “This was going to improve mankind. It was going to provide shelter for the homeless throughout the world.”

DuPont also heard explanations of two other Gutierrez inventions, Impervicon and Ceramicon, concrete and ceramics substitutes made from formulas based on the same principles as Impervium. Walter explained that he’d spent fifteen years developing the formula. He and his brother had slaved away in garages, sometimes as much as thirty-six hours straight. The pursuit of the dream had left them penniless; their dedication had destroyed two of Walter’s marriages, forced Alex to lose his house, caused endless hardship for the two struggling brothers. “Isn’t that what America is all about?” says duPont. “Two little Mexican-Americans going up against the system, discovering something the big boys don’t know about. I was so impressed I gave the Gutierrezes $30,000 right then and there on a handshake. I thought, these poor guys, they’ve got this great idea but no money. I gave them one check for twenty grand and another for ten and told them to wait forty-eight hours because I didn’t have the money in the bank just yet.” The Gutierrezes cashed the checks the very same day, and though there weren't sufficient funds in the account, duPont’s banker covered for him. “My association with the Gutierrezes should have ended right there,” says duPont.

But it didn’t. In May of 1980 duPont was in Brazil trying to market another duPECC product, a fuel additive. In a discussion with the vice president of Brazil, he learned that one of Brazil’s most pressing needs was cement. Six percent of all that country’s fuel went into cement production (it has to be heated in kilns), and it was a terrible expense. Impervicon, duPont thought. Impervicon, the Gutierrezes’ artificial concrete, had numerous advantages over standard concrete. It was much cheaper, and it didn't require a gasoline-fired kiln. Since it was impervious to water, it could be poured in subzero temperatures. Instead of curing in a matter of weeks, it cured in a matter of hours. And it was six times stronger than concrete. From Brazil, DuPont made arrangements for a demonstration to take place in San Diego. A representative from the Brazilian consulate came down to the Gutierrezes’ offices, where he witnessed the molding of some Impervicon bricks. The samples were then driven immediately to Los Angeles, where they were put on an airplane and flown to Brazil. According to duPont, the tests conducted a few days later in a Brazilian government laboratory “blew everyone’s minds.” The tester had expected the samples to cave in at about 3000 pounds per square inch, as standard concrete does, but they held firm and finally exploded at about 11,000 pounds per square inch. “Everyone hit the telephones after the explosion,’’ says duPont. “This was a major breakthrough."

Everything duPont learned about Impervium and Impervicon over the next two years only reinforced his belief that Walter Gutierrez was going to make him and his stockholders rich by serving the world. He had results from the best testing labs in California proving that the products were viable. They’d passed tests for strength, brittleness, water resistance, flexibility, discoloration, and fire retardancy. The Army Corps of Engineers said Impervicon could only compare with one thing, polymer concrete, a concrete substitute made with plastic, that is extremely strong but as much as twenty times as expensive as standard concrete. The Gutierrezes had letters from Department of Defense officials who had seen a demonstration of Impervicon and were interested in using it to build and repair runways. An engineer from Lewis Berger International, an international consulting firm, came to San Diego to examine Impervicon. He was very excited about it, especially after seeing test results from reputable laboratories he knew well — Testing Engineers, RADCO, American Standard Testing Company, Maxwell Laboratories, and Wamock Hersey International.

The key to the Gutierrezes’ sales strategy was the conference room in their Mira Mesa facility, which was a museum of curios made from their materials. Potential investors and partners left the room thinking Walter Gutierrez was a twentieth-century alchemist who was years ahead of his counterparts in mainstream industry. On the wall were fifteen-foot-long shelves loaded with samples of Impervium, Impervicon, and Ceramicon products. “Come on, this has got to be wood,” someone would say, grabbing an Impervium golf club head. Or one of ten shake shingles of progressively darker shades that looked like cedar shingles during various stages of their aging process. Or a shovel handle, a piece of parquet flooring, a statuette. Equally impressive were imitation clay tiles made of Ceramicon, and tiny figurines of Jesus and the Madonna made of imitation pewter and brass, and an insulator for high-tension power lines also made of Ceramicon. According to the duPonts, a purchasing agent from Southern California Edison “went crazy over it (the insulator]. He carried it around with him at our house and wouldn’t let go of it.” Walter Gutierrez would often tell a story about how someone once asked him if there was anything he couldn’t make with his remarkable secret formula. “Yes,” he’d tell them. “I can’t make toothpaste.”

DuPont, like so many others, never took the time to verify whether the Gutiemezes had ever produced anything besides impressive handmade samples. “You have to understand my thinking at the time,” he says. “If the Gutierrezes had already been in production, they wouldn’t need my help. We thought we were in on the ground level of something big We didn’t want to talk about it with other people. We wanted to keep it to ourselves.” In early 1982 duPont was already devoting all of his time and his company’s capital to promoting the Gutierrezes’ products. He agreed that duPont Energy Control Corporation would acquire a San Francisco Bay Area company called Madera Wood Formed Products, in which the Gutierrezes had a controlling interest as partners. Madera possessed eleven licenses to manufacture and produce eleven different products, including smoking pipes, gun stocks, gun racks, coffins, specialty gift items, shake shingles, and shoe heels. The acquisition agreement required that duPont pay the Gutierrezes $380,000 in exchange for exclusive licenses to manufacture and sell these products in South America.

By December of 1982, duPECC had paid the entire sum. And DuPont had also given the Gutierrezes one million shares of stock in duPECC. In return the Gutierrezes were to buy out their partners and deliver to duPECC all ownership of Madera Wood Formed Products. With the Gutierrezes working alongside him in the same Arjons Drive building in Mira Mesa, duPbnt intended immediately to set up a manufacturing plant, install the Gutierrezes’ existing injection mold machine, and make necessary molds to begin mass production of Impervium fire doors and shake shingles. DuPont had conducted cost analyses based on the Gutierrezes’ figures — sixty-five cents a pound for ordinary Impervium and seventy-two cents for fireproof. At that price, duPont determined that he could not produce Impervium competitively with wood products such as two-by-fours that required simple cuts. “However, in any piece of wood that involved labor, for carving, mitering, gluing, and clamping — that’s where you really saved,” says duPont. “We simply had to inject the stuff into a mold.” In a year or two he fully expected to be rich beyond his wildest dreams, as would his stockholders. “There was no doubt in my mind I was dealing with geniuses,” says duPont. “Alex used to say that the government of Mexico had agreed to nominate Walter for the Nobel Prize in chemistry.”

The Gutierrezes’ Orange County attorney at the time (late 1982), Morris Sorenson, drew up papers stating that duPECC could do business under the eleven licenses previously held by Madera Wtood Formed Products. The papers were to be signed by the Gutierrezes and the Madera partners, then sent on to duPont. At a May 28, 1983 meeting of duPECC stockholders, Walter Gutierrez told one hundred people that the Madera licenses were in duPont’s possession, that duPont and Imperial Dynamics were “joined at the hip,” and that production was imminent. Months had gone by and duPont had never seen the signed papers. But he brushed it off; he wanted to get into production, start taking sales orders to get the fire doors or shake shingles on the market.

In June of 1983, six months after the acquisition requirements had been met, duPont was ready to begin production. He requested a small quantity of secret formula material, two barrels’ worth, to make production prototypes. The pastelike secret formula was to be manufactured in various plants down in Mexico, the Gutierrezes said. The organic fibers, which were the base of the Impervium formula, were grown in Central and South America. “Alex used to say the vines grew eight to ten inches a day,” recalls duPont. “He’d say, ‘You take a two-mile-wide stretch of land between the sea and the mountains and you start harvesting at the sea. By the time you get to the mountains, you can go back to the sea and start over again. That’s how fast these vines grow. ’ ”

DuPont asked the Gutierrezes where in Mexico were the facilities where the goop was manufactured. The brothers wouldn’t say. Their operation, Alex Gutierrez told duPont, was set up like the Manhattan Project, which created the first atomic bomb. In order to make sure that no one could figure out the formula for the “secret sauce,” as it was called, each stage of the operation was kept separate so that no one knew what anyone else was doing. If he were to reveal the location of the Mexican plants, Alex said, someone could determine what ingredients were shipped to the plants and in what proportions, and that person could then crack the mystery of the formula. DuPont didn’t ask to see the plants anyway, “because I didn’t care as long as the goop worked. You have to realize that inventors tend to be a bit eccentric. They’re suspicious of people with money. They think everyone is trying to rip them off. I felt I had to win the Gutierrezes’ confidence.” DuPont adds another possible reason: “Maybe I was afraid if I pushed them too hard, I’d lose them.”

DuPont’s plan was to obtain just enough material to perform a demonstration prototype run in the presence of a potential partner, who would put up the capital (about $200,000) to buy enormous quantities of material and finance mass production of a given product. But the Gutierrezes didn’t seem able to supply duPont with any Impervium. Strange that they would drag their feet, he thought, because they had a million shares of stock in the company. “I must have asked them a thousand times for some material,” says duPont, “but they kept saying they had minor lawsuits and other problems. Nothing big, they said. Also, it was very difficult to find Walter and Alex Gutierrez together. Whenever it was necessary to make a decision, Walter would say, ’Well, I have to talk to Alex about it, but he’s not here.’ Then when Alex got back I’d ask him to make a decision and he’d say, ’Well, let me talk to Walter first, but he’s not around now.’ ”

In the meantime, duPont was paying large amounts of duPECC money to the Gutierrezes. In addition to the $380,000 duPECC had spent for the licenses, the company was paying, with its stockholders’ money, thousands in monthly salaries, office overhead, and equipment development. DuPont was even putting out $1200 a month for rent on Alex Gutierrez’s Laguna Hills home (“What good was he to me if he was evicted from his house?” duPont says with a frown). DuPont even paid college tuition for one of Alex’s children. As weeks of delays turned into months, tens of thousands of dollars turned into hundreds of thousands of dollars in money sunk into a company with absolutely no cash flow. It was imperative that duPECC begin production as soon as possible. “All we needed was the goop,” duPont says.

Details about the lives of the Gutierrez brothers are scarce. Walter and Alex were born in the early 1930s in Chicago and raised there by Mexican parents. Their father was an automobile mechanic. Both brothers have children: Walter five and Alex three. Walter, a year older than Alex, went to school in Sacramento, but it is not known what he studied or whether he graduated. In the early Fifties both brothers traveled throughout the country selling magazine subscriptions. Walter lived in Los Angeles for some time working as a painter before coming to San Diego in the mid-1970s.

Whether Walter Gutierrez really had extensive scientific knowledge is an open question. He certainly did enough reading to be convincing to many people, though. Eugene Cox, an investor in duPECC ($14,000) who showed up at the plant periodically for two years and was to assist in organizing production, was amazed at Walter’s ability to converse with technical people from reputable companies. “Walter’s a fascinating guy,” says Cox, who worked for twenty years with the Los Angeles County Probation Department. “He has a beautiful sales pitch. I’ve been in the same room with him when he talks to representatives of large corporations such as Mitsubishi, and he handles himself very well. He just fascinates them. When he’s cornered on some technical issue, he has an extraordinary capacity to escape it.”

It is everyone’s opinion that whatever Walter did know about science, he used very effectively. Several people recall the way Walter used a report he’d read in a congressional journal about the critical shortage of wood. “He’d carry the article around with him,” says duPont. “He’d point to a passage that said, ‘By the time you’ve finished reading this article, five square miles of the greenbelt will have been cut down, never to be regrown again.’ He’d say the wood crisis would make the oil crisis look like nothing.” Everyone, it seems, believed him. Dick Thompson, an engineer with General Atomic who worked daily with the Gutierrezes for five months, says that Walter provided the “technical imagery” for the company. “He always wore a lab coat,” Thompson recalls. “He was the eccentric inventor, the mad scientist.”

If Walter was the mysterious intellectual, brother Alex was the businessman. Walter, with his buzz words and his absent-minded charm, could sell his products to anybody. Alex could seal the deal. Several people commented on Alex’s extraordinary glibness. “He’ll talk to you for half an hour and he won’t say anything of substance,’’ says Thompson. Like his brother, Alex is short and stocky, “sort of a Mexican Mickey Rooney,” as one person characterized him. Whereas Walter kept a low profile, Alex pursued the image of a playboy. He wore pricey clothes and always had impeccably groomed hair. “People used to say he had Impervicon hair,” Michael duPont recalls. “He’d spend an hour in the bathroom combing it.”

“Alex was very charming, had a good sense of humor, and knew every bar girl in town,” continues Thompson, who often accompanied Alex to his favorite after-work drinking haunts: Maxwell’s on Kearny Mesa Road, the Old Ox in Mission Valley, Kelly’s Steak House, the Butcher Shop, the Stardust Hotel, and Victor’s in Tijuana. “He always bought the meals and drinks when you went out with him,” Thompson says. “He always treated me like a prince.” In early spring of 1984, Michael duPont was in a state of desperation. DuPECC stockholders were increasingly agitated by the lack of return on their investment. Unbeknownst to duPont, several had already complained to federal authorities that duPont might have defrauded them. In February of that year duPont demonstrated how far he was willing to go to appease his stockholders. DuPECC received an order from the Grenadia Royal Hotel in Arcadia for 3000 feet of railing and balustrades made with Impervicon. DuPont knew he couldn’t make them by machine, but he accepted the order, fully intending to manufacture the product by hand. “At that point, I just wanted to produce anything,” he says. “I wanted to get something out the door.” The order was eventually reduced to 150 feet of balustrades, for which the Grenadia Royal was willing to pay $1500. It took duPECC a month to make the Impervicon balustrades and it cost the company $15,000. “I should have turned it down, but I figured it was worth it,” says duPont. “I thought it would be good PR for the stockholders.” These balustrades proved to be the only product ever produced by duPont Energy Control Corporation.

In March of 1984 Walter Gutierrez appeared on The 700 Club, a Christian Broadcasting Network talk show hosted by Pat Robertson (now a possible presidential candidate). The show began with footage of starving African babies with bloated bellies and a commentary on the hopelessness of those victims of famine, resource depletion, and land devastation around the world. “Enter Walter Gutierrez,” said the announcer, “the man whom God has given an answer which just might help to eliminate this worldwide suffering.” An explanation of Gutierrez products followed. After the film segment, Gutierrez appeared in the studio with Robertson, whom he told about high-fusion science, chemical crosslinking of organic materials, molecular linear fibers, and so on. He pointed out that Impervium is cheaper than wood, and it can be made from plants in South America that grow as much as ten inches per day. Robertson was anything but grudging in his displays of enthusiasm: “Incrrrrrredible! Amaaaaazing. Did God give you this concept?” asked Robertson.

“Well, to be very honest, you have an ongoing conversation [with God] driving to work, you’re in the laboratory, you’re constantly looking for answers,” Gutierrez said. “We examined nature, and in examining nature we found some of his secrets. He divulged them. He revealed them to us, whether you want to call them intuition, but in actual deliberate prayer, we received the answers. Your creator does answer you if you genuinely, truly ask.”

As far as the duPonts knew, Walter Gutierrez was not and had never been a religious man. “At the time, I thought what he was saying was a little strange, but I figured he was just doing PR,” says duPont. Angry duPECC stockholders might find that response a bit glib. Michael duPont contends that throughout the Gutierrez episode, he was blinded by his own “tenacity” to make his business work. Or perhaps even “stupidity,” duPont will admit with the benefit of hindsight, adding that he is consoled by the fact that his name appears in very good company on “The List” of Gutierrez victims. Several duPECC stockholders nonetheless feel that both Peggy and Michael duPont are guilty of criminal fraud. They say duPont’s “tenacity” defense and his “I’m a bad businessman” excuse are self-serving and do not adequately explain his behavior vis-a-vis the Gutierrezes. One couple who invested $25,000 in duPECC goes so far as to say that the duPonts’ plea bargain — which included a “nonmoral turpitude” securities violation, but not fraud — constitutes a “cop-out” by the government, which they believe should have prosecuted the duPonts for fraud and required that they pay restitution to all their stockholders.

Yet duPont’s story is believable precisely because in so many ways he really was the perfect catch for a con man. He had a famous name that inspired confidence and trust and that gave legitimacy to whatever it was attached to. At the same time, duPont was a poor businessman, known in his legendary family as a “dreamer” driven by entrepreneurial visions but allergic to the impositions of the bottom line. “I put my money where my mouth is,” duPont says.

DuPont’s history of unfortunate business ventures dates back to about 1965, when he abandoned his ambitions to become an actor. Since that time, he has lost one million dollars in trust money he received on his twenty-first birthday, as well as most of the approximately $70,000 he has received annually for the past twenty-seven years from two trust funds. DuPont’s tax-evasion charge resulted from his repeated failure to file income tax returns. The reason he didn’t, he says, was that due to business losses, he didn’t owe any tax. In the mid-1960s he produced four black-and-white horror films in the Philippines that never made any money. A few years later he invested $120,000 in a film that was never produced at all. He owned a San Francisco nightclub that “broke even” but eventually shut down because, as duPont puts it, “I cared too much about my performers and not enough about my audience.” He owned a Palo Alto club that closed. He worked for a consulting firm called Arisco that offered a “pre-shooting testing system" that would help film producers determine, before films were ever made, whether audiences would respond favorably to them. The industry’s response to Arisco was tepid. In the late Seventies, duPont purchased a Nevada company called Silver Empire, which became the duPont Energy Control Corporation, owner of seven potentially valuable patents. Largely because of the Gutierrez fiasco, duPont says none of these patents has been successfully developed. “I’ve been very unlucky,” duPont adds. “And I’ve contributed to my bad luck in many ways.”

Walter Gutierrez’s 700 Club appearance was effective. In the months that followed, dozens of potential investors called or wrote to duPECC to inquire about the secret formula. One, a retired North County engineer, introduced his friend Bill Graul of La Jolla to the Gutierrezes. Graul, a chemical engineer who recently retired after ten years with General Atomic, spent thirty-one years with Gulf Oil, where he worked with plastics and other raw chemical materials. When he met the Gutierrezes in the spring of 1984, he was enthusiastic about their products and was willing to donate his time to help the brothers manage their business. Graul, who insists it never occurred to him that the Gutierrezes weren’t perfectly legitimate, thought the samples were brilliant, and the formula, though he never was allowed access to it, seemed plausible. Evidence abounded that the Gutierrezes were authentic inventors. Graul saw the licensing agreements between the Gutierrezes and duPECC. He saw one hundred blue barrels of secret formula behind the Gutierrezes’ Arjons Drive facility. He heard about Walter Gutierrez’s appearance on The 700 Club, as well as their government-sponsored trip to Tunisia with the former governor of Colorado, Stephen McNichols. “I mean. Uncle Sam does some stupid things, but to me that trip gave the Gutierrezes credibility,” says Graul. "What really sold me was that they were talking to people from companies like Johns Manville and Mitsui. I went to meetings with engineers and businessmen from these companies and they seemed to believe what the Gutierrezes were saying.”

Graul, who invested $10,000 in duPECC, saw that he could best help the Gutierrezes by offering his considerable experience in management and licensing. So he dug into their files, which he says were “absolutely chaotic,” and began working on the tremendous backlog of unanswered correspondence. “I provided credibility for them,” says Graul. “I had a licensing background and I could write a decent letter. Their writing was bad. Their education was sadly lacking.” Between May and July of 1984, Graul showed up every day from nine to five at duPECC’s plant, which earlier that year had moved from Arjons Drive to Carroll Road in Mira Mesa. He observed the same behavior others have attributed to the Gutierrezes. The brothers were rarely seen together, making it difficult to get a firm answer to questions. They worked in their separate offices with their doors always closed. They seemed disorganized, but their apparent lack of sophistication was disarming rather than disturbing. Like so many before him, Graul saw two poor guys who had a great thing going but no business sense, and he was happy to provide his own. “You feel sorry for them,” Graul says. “When I saw that rinky-dink equipment they had. I said, ‘Gee, what could we do if we had some real equipment? Some real expertise?”’ The Gutierrezes were constantly in need of money, and Graul made a mental note that it was strange that two such fellows were driving Lincoln Continentals. But he kept the thought to himself. The brothers spoke often of security problems at the plant. “They said people were trying to break in and steal the formula," recalls Graul.

"They’d say to me, ‘See that door. It's been jimmied.’ They had lots of locks."

Graul heard constant promises that the material to begin production would arrive from Mexico imminently. When it failed to appear, he suggested that he might visit the plants to help get things going. The Gutierrezes said all information regarding the plants was secret.

“But I've signed a secrecy agreement; I'm a stockholder!" Graul argued. The Gutierrezes refused.

In May of 1984, eighteen months after the terms of the Madera Wood Formed Products acquisition had been met, duPont had not seen a single barrel of goop and duPECC had still not mass produced a single Item under the eleven licenses. DuPont estimates he spoke to at least thirty potential partners and buyers of licenses over this period. “But we'd never get beyond the ’Let’s explore this thing' stage, because we didn’t have any material,” he says.

By this time duPECC stockholders had invested more than one million dollars. The Mira Mesa plant was in place, the injection mold machine was ready to go, the conveyor belts were set, spray booths for painting and lacquering were installed, the machine shop was making molds, and Weatherby Arms, a Los Angeles gun manufacturer, was eager to see a production prototype gun stock.

On May 15, 1984, duPont had had enough, so he confronted the Gutierrierezes and demanded one barrel of lmpervium to do a production run of gun-stocks. No hedging this time. DuPont wanted the goop. But the Gutierrezes repeated what they’d said many times before — that supplying Impervium in such small quantities wasn’t practical, and it would be too expensive to supply just one barrel. “How much?” demanded duPont. “Five thousand dollars,” they replied. “I’ll pay it,” said duPont without hesitation. And he did. He complied with Alex Gutierrez’s request for $1300 to go to San Francisco where he would “wine and dine” the Madera Wood Formed Products partners and complete the acquisition. DuPont wasn’t deterred by Alex Gutierrez’s request for so much travel money. He says, “I was thinking, I’m not going to give him $1295, because he'll say that last five dollars was what kept him from completing the acquisition.” As far as duPont knows, the meeting between Alex Gutierrez and the Madera partners never took place. “In any case, I never saw evidence that the acquisition was completed.”

A week later duPont received word from the U.S. Attorney’s office that duPECC was under investigation for possible fraud. Investors had contacted the government, complaining that duPECC had failed to come through on promises of extraordinary returns on investment. DuPont hired attorney James Lorenz of Finley Kumble & Wagner to represent him. Lorenz, the former U.S. Attorney, was no stranger to fraud, nor was his colleague Jack Fitzmaurice, who had worked on the U.S Financial securities litigation in 1974. In reviewing duPECC’s files, Lorenz and Fitzmaurice found paperwork stating that duPECC could operate under the eleven licenses previously held by Madera Wood Formed Products, but they found no signed agreement that the licenses had been transferred. “At that point, I felt there was something seriously wrong," says Lorenz, who soon met with the Gutierrezes and their attorneys to arrange delivery of the signed documents.

Other details surfaced that further raised the attorneys’ suspicions. They found that duPont had paid the outrageous sum of $5000 for a single barrel of material, and that weeks later it still hadn’t been delivered. Among the documents they examined were several of the option agreements the Gutierrezes had made with prospective license holders. In a typical agreement, one would pay $30,000 for the “option to negotiate a license.” The license itself would cost $300,000 to one million dollars. In these options, Fitzmaurice and Lorenz found a troubling clause. Here is how one such option read: “The failure of the parties to successfully conclude negotiations and execution of the contemplated license agreement and requirements contract, for any reason whatsoever, shall not be deemed a breach or default by either W&A [Walter and Alex Research Associates] or [licensee] under this agreement” (emphasis added). What this meant was that even if the Gutierrezes failed to meet their end of the bargain, they could keep the $30,000. “I don’t know why anyone would enter into such an option,” says Lorenz. “I guess they’re just so excited about the product, they’ll sign anything.”

Lorenz investigated the background of Madera Wood Formed Products and discovered that Gutierrezes’ partners in that company told a story strikingly similar to duPont’s. They had invested $198,000 but had never produced or sold a single item. Lorenz also found out that the Madera partners, who were supposed to have been bought out by the Gutierrezes with duPECC money, had received promissory notes but no cash from the Gutierrezes. Which led many to believe that the brothers had kept the $380,000 duPont had given them to acquire the licenses.

After about a month on the case, Lorenz says that “red lights really started coming on,” and he and Fitzmaurice set out to convince duPont that the circumstances suggested a possible fraud. Fitzmaurice recalls the tremendous difficulty he had convincing Michael duPont that something was wrong. Fitzmaurice says, “I’d tell him, ’I can’t find any economic feasibility. There’s a lot of talk about the products and about their marketability, but there are no numbers'. There’s no indication that this thing is cost effective.’ ” Fitzmaurice asked duPont about Madera Wood Formed Products. “Why haven’t they produced anything?” he asked. “Where’s evidence of it? What have they got to show for the $198,000 invested?” Michael duPont was understandably resistant to Fitzmaurice’s skepticism, and he had several heated arguments with the attorney. He’d invested two full years of his life in the Gutierrezes’ products and spent more than $600,000 of duPECC’s money. And now he faced a possible fraud indictment. The goop had to be legitimate.

By August of 1984 the duPonts still held on to the hope that their company could be salvaged, their stockholders appeased, and a fraud indictment avoided. Lorenz wrote a letter to Imperial Dynamic’s attorney, Donald Tremblay of La Jolla, demanding delivery of the barrel of Impervium for which duPont had paid $5000 back in May. Lorenz pointed out that on four different dates in the past three weeks, the Gutierrezes had broken their promise to come up with sufficient material so that duPont could make a production prototype gunstock for Weatherby Arms. Four days later Tremblay responded to Lorenz’s letter, saying that his clients had informed him that they were concerned that duPont’s firm “currently lacks the necessary expertise to ensure strict quality control in the production of this prototype.” The Gutierrezes, Tremblay wrote, would appreciate it if duPont would allow them to manufacture the production prototype for duPECC and deliver it to the client themselves.

The letter seemed to duPont and Lorenz to be another stalling tactic. What’s more, it sounded as if the Gutierrezes fully intended to make the prototype for mass production by hand, which is clearly unethical and, arguably, outright fraud. Finally, in early September, the Gutierrezes delivered a five-gallon bucket of Impcrvium to duPont Energy Control Corporation. The gunstock molds in place, duPECC machinist Carl Crumley turned on the injection-mold machine and poured in the goop. It clogged immediately.

Crumley called Michael duPont, who was in Cape Cod with his wife at the time, and told him the bad news. DuPont had waited nearly two years to get his hands on the Gutierrezes’ magic goop, and now, finally with a single bucket of it in his possession, he was driven to the inescapable conclusion that whatever it was, the goop was impossible to use in mass production. DuPont says he called Walter Gutierrez and told him what had happened. “He said, ‘Okay, bring me the mold and we’ll hand lay it and send the prototype to Weatherby,’” recalls duPont. “That’s when I knew everything in the past two years had been fraudulent.”

In July of 1984, after two months of working with the Gutierrezes, chemical engineer Bill Graul, admittedly frustrated that no progress was being made toward production, says that he became a “persona non grata” at Imperial Dynamics. “I was a liability because I was asking too many questions,” he says. Graul was particularly upset with the Gutierrezes’ operation on July 17, when W&A Research Associates vice president Jack Harker met with John and Chuck Mesaros of Templar Royce Corporation, an Orange County firm. Harker, a member of the 700 Club, had introduced Walter Gutierrez to the show’s producers, which led to Gutierrez’s appearance on The 700 Club. The Mesaros brothers had seen Walter Gutierrez on television and expressed interest in buying a license to market shake shingles. After the meeting, during which Graul says Harker encouraged the Mesaros brothers to enter into a licensing agreement, Graul had a heated argument with Harker. “I thought the deal was in conflict with the duPont Energy Control licenses [which included one for shake shingles),” says Graul. ‘And they couldn’t even get the duPont thing going, how could they expect to get any other deals off the ground? I told Harker, ‘What is this monkey business?’ There’s nothing wrong per se with what he was doing if you have something to deliver, but as far as I could see, the Gutierrezes didn't.” After the injection mold machine clogged with Impervium in September of 1984, a cup of goop went to attorney James Lorenz, who turned it over to the government. When Bill Graul got his hands on some, it appeared to be plastic. But to make sure, he broke it down to its basic elements using methylene dichloride. At a recent breakfast meeting at Samson’s in La Jolla, he pulled out of his briefcase an envelope containing the results of the process, a fine powdery substance. “To the best of my knowledge, it’s a polyester resin strengthened by the use of fiber glass,” he said. “It contains other fillers, too, such as microballoons [silica balloonlike structures] and/or talc and limestone. Typical fillers. I see no evidence of significant amounts of natural fibers. If there were fibers, it wouldn’t dissolve in methylene dichloride, and the fibers would be easily discernible. They’re thicker than your hair. Graul added that when he put fire to the goop, it burned exactly the way polyester resin burns, and it gave off exactly the same smell.

Graul then pulled out a small gray piece of Impervicon and placed it on the table. It looked just like concrete. “I put a blowtorch to this stuff and burned it,” said Graul. “It lost thirty to forty percent of its weight. What’s left is sand and stones.” He pulled out another envelope, with a granular residue at the bottom. “I was shocked. At 200 degrees, it lost its strength as well. Therefore, for most applications, Impervicon is not practical at all. It couldn’t possibly be used for roads, runways, or buildings. The stuff is basically plastic. It costs ten times more than concrete and it melts down when you burn it.”

Back in 1981 Walter Gutierrez had appeared on a Houston news broadcast in a feature story about fireproof Impervium shake shingles. He told the news reporter that he had lost his family in a fire and implied that his product was his way of serving humanity, of preventing others from suffering his fate. He demonstrated impressively the shingles' resistance to a blowtorch — the reporter stated that Gutierrez had tested Impervium shingles successfully at 6000 degrees — and told the audience that the shingles would be on the market in about four months. They were never produced.

Michael duPont has at his home one of the Gutierrezes' shake shingles. There is a bent nail pounded about a half inch into it. “This fireproof shingle is hard as a rock,” he says. But what about those definitive test results proving that you could nail, saw, file, and sand Impervium? These tests that had so impressed everybody? “I’m only speculating, but I think they were only testing each sample for one or two characteristics,” says Bill Graul. “Rather than sending one sample for one comprehensive set of tests, I suspect they did separate tests on different samples, one for nailability, one for fire retardancy, one for resistance to ultraviolet light, and so on. What you need is one product that meets all these criteria.” Interestingly, every contract the Gutierrezes’ signed with potential licensees contained a clause that forbade anyone from conducting tests or analyses to determine the chemical composition of the goop.

On January 21, 1985, Michael duPont’s name appeared in an article in the San Diego Tribune. The article, entitled “Some tips on avoiding fast-buck artists,” described several local scams perpetrated by such people as J. David Dominelli, Stephen Lochmiller, Bernard Striar, and — Michael duPont. Soon thereafter the duPonts began what has become a veritable crusade to clear their name and prove that the Gutierrezes are frauds. Soon after he became the duPont’s attorney, James Lorenz discovered that no criminal indictment had ever been filed against the Gutierrezes. But Peggy duPont decided to check Southern California courthouses for civil complaints. In Los Angeles she found a suit filed in 1981 by L.D. Lamb, who had obtained a judgment in his favor and was awarded $71,000.

Through Lamb, Mrs. duPont was led to Dr. Pedro Rivera, a Los Angeles physician who had obtained a judgment against the Gutierrezes’ for $238,000. These men and their attorneys put Peggy duPont in contact with several other people who had invested in the Gutierrezes but had not filed suit, and the trail of blood grew longer with each call — Gene Dedlow ($30,000), Eric Johnson ($20,000), Pat Spellman ($23,000), Antonietta Flores Lara ($30,000), Santa Fe Industries ($350,000), Eureka Savings and Loan ($500,000), and more. In the first month of 1985 Peggy duPont says she spent $700 in phone calls while conducting an investigation that turned up several hundred thousand dollars in losses involving the Gutierrezes’ secret formula. In the months to come, the duPonts found several more victims, including Antonio Miguel, a textile manufacturer from one of the richest and most respected families in Mexico. Today the list includes thirty-six individuals and companies that have lost at least $5.3 million. All of this information has gradually been turned over to the U.S. Attorney’s office by James Lorenz. “If a mere housewife like me can find that much money they’ve stolen from people, how much more is there?” asks Mrs. duPont. “What is the government doing? With all their resources, they started their investigation a year ago, yet the Gutierrezes are still walking the streets. Why?”

This is the first of a two-part article. Next week: more victims, more money.