In all, investors lost $2.5 million, much of which Kelly spent on cars and other luxuries. Yesterday a Superior Court judge ordered company Kelly to repay $400,000 during a hearing where he was sentenced to five years in prison.

Kelly, 51, of Kuna, Idaho, had pleaded guilty in July to embez zling investors' funds, said Deputy Attorney General Patrick Flor.

Kelly was described as an "ex cellent salesman who fooled a lot of people." About 500 of those who in vested in his company were from Mercer and Burlington counties, though his company apparently was never registered, even though Kelly claimed it was a Delaware corporation. Investigators found Kelly used the money for other purposes such as spending $200,000 on eight cars for himself and $80,000 for a fountain for his home.

"The Germans recently developed a hydrogen fuel cell subma rine which cost billions," said Flor. "But some guy in Kuna, Idaho, was not going to be able to do that."

Kelly told Judge Thomas Kelly (no relation) that he takes responsibility for his actions.

"I'm heartbroken this happened," Kelly said. "I really be lieved in this project. We worked very hard on this project for seven years. The choices I made were with the expectation the project would go well."

The judge noted that Kelly had a limited criminal record but it did include a 1995 conviction for conspiracy and making false statements to a government agency in Rochester, Minn.

Kelly explained that he had worked for a defense contractor and "took responsibility" for a misstep that company made.

Also yesterday, the judge dismissed charges against codefen dant John Yoka, 35, of Livermore, Calif., at the request of Yoka's defense lawyer, Eric Marcy. Marcy had given Flor a "six-inch tall file" of evidence showing that Yoka was merely Kelly's employee and not involved in the swindle.

Yoka, who holds five patents, was to be paid in company stock, Flor said.

"No one would agree to accept stock unless he believed it was a legitimate company," Flor said. Also, Kelly had exonerated Yoka during his guilty plea hearing.

It is unusual for white-collar criminals to face such stiff jail sen tences, Flor said when questioned.

"If they can make restitution they usually do (get probation)," he said. "The unfortunate thing about prosecuting white-collar crime is getting courts to take it se riously. I had one judge in an urban area who asked me, 'Who died?'"

"This defendant is going to prison because he stole from investors," said Attorney General Stuart Rabner. "We are committed to vigorously prosecuting these cases to protect New Jersey residents who are trying to invest and save for their retirement or their children's education."

Mercer County Assistant Prosecutor Doris Galuchie, who heads the economic crime unit, agreed that jail terms are not as common for those who steal.

"Usually what we have to balance is the defendants' ability to pay (restitution) against the time in prison and the goals (prison) serves: deterrence and punishment. Usually, they get a lighter sentence to speed restitution. We try to put the victim's need for immediate restitution first above jail time."

Judges also weigh overcrowded prisons and the need to sentence violent criminals to jail time when handing down lighter sentences for non-violent crimes, she said.

The highest level for theft charges in New Jersey is second- degree for thefts of $75,000 or more, with a maximum penalty of 10 years in prison. Galuchie believes the Legislature should change the law to allow first-degree theft charges when someone steals a very large amount, such as $1 million or more.

"The bottom line is unless you have taken a lot of money from a lot of victims the white-collar criminal will usually not go to jail unless there is no possibility of restitution or he has a long prior record," Ga luchie said.

Meanwhile, Kelly, who has already spent 14 months in the Mercer County Correction Center, could be paroled in a few months. Flor agreed that Kelly could serve his parole in Idaho.