BUSINESS:

Entrepreneur faces fraud charges in 'clean coal' scheme

The entrepreneur who created the Sleep Number bed and garnered wealth and influence as the onetime CEO of Twin Cities-based Select Comfort Corp. is gaining new notoriety this week as a criminal defendant facing charges of defrauding as many as 1,800 investors of an estimated $57 million that he poured into a failed "clean coal" technology.

Robert Allen Walker, 71, of Ramsey, Minn., faces multiple federal charges -- including mail and wire fraud, conspiracy, tax evasion and witness tampering -- over activities stemming from his last entrepreneurial venture, Bixby Energy Systems, which became the target of a federal criminal investigation in 2011 after Bixby's signature "clean coal" technology failed to work as promised.

Walker's trial before U.S. District Judge Susan Richard Nelson in St. Paul, Minn., began yesterday with jury selection and is expected to last more than a month as multiple witnesses for both the prosecution and Walker are called to testify, according to attorneys involved in the case.

If found guilty of the most serious charges, Walker could face 20 years behind bars under federal sentencing guidelines.

According to a 33-page indictment, Walker is charged with lying to both investors and a group of Chinese-based customers about the viability and commercial readiness of a coal gasification system called the "Bixby Process" that the company promised could convert raw coal into a burnable gas, liquids and activated carbon.

The Chinese clients, who were reported to have paid about $4.5 million to Bixby, purchased the clean coal units from Global Partners United LLC, a limited liability corporation that contracted with Bixby to license, sell and distribute the technology in China, according to court documents.

Former colleagues jailed

Prosecutors charge that between 2001 and 2013, Walker and his Bixby associates defrauded investors and clients by "making repeated, material misrepresentations of facts and by omitting and concealing material facts" about the technology's viability and readiness.

Walker also "greatly exaggerated his business acumen and expertise, and gained the confidence of the victim-investors, by asserting that he founded Select Comfort and invented its signature product, the Sleep Number Bed," states the grand jury indictment filed in federal court. He also enriched himself and several family members through a kickback scheme involving investor finders' fees that he did not disclose to Bixby's board of directors, according to the accusations.

Several of Walker's former top associates, including Dennis Desender, the company's onetime chief financial officer, and another investment recruiter, have already been sentenced to multiyear jail sentences for securities fraud, tax evasion and conspiracy to commit bank fraud. Desender, who was sentenced to an eight-year prison term in 2012 for his role in the Bixby fraud, is expected to testify for the prosecution.

According to court documents, Bixby's coal gasification system purportedly consisted of two technological processes. The first process, called devolitization, involved heating -- but not burning -- coal in order to produce natural gas. The second step, called liquefaction, involved using hydrogen to convert the carbon byproduct of devolitization into a liquid petroleum product similar to a "sweet, light crude or jet fuel."

Yet Bixby, while having created a scaled-down unit called "Coal Jr.," did not have the means or know-how to bring the clean coal technology to a commercial scale. Such facts did not dissuade Walker from making repeated assurances to investors and customers that the devolitization technology had been fully vetted and that Bixby was capable, with sufficient funding, "of creating a commercially viable, commercial-scale machine which would revolutionize the alternative-energy market."

'Very expensive education'

Walker also repeatedly told clients and shareholders "that Bixby had developed a proven liquefaction process which could dramatically transform oil-importing countries into oil-exporting companies when, in fact, Bixby had no proven liquefaction process and never produced anything more than a 'bench unit' liquefaction machine which produced, at most, small amounts of oil," prosecutors said.

Lastly, according to the accusations, Walker told investors the company was going to conduct an initial public offering of its stock when, in truth, he knew it could not be done because, among other things, the company could not obtain audited financial statements.

An independent audit launched by Bixby's board of directors in 2006 revealed significant damaging evidence against Walker. But the CEO continued to maintain his innocence and used his clout with shareholders to remove two board members who had initially sought the forensic investigation of his business practices.

The same board later fired Walker as federal investigators prepared to send their findings to a federal grand jury. In December 2011, Bixby Energy Systems admitted defrauding investors of between $2.5 million and $7 million and took responsibility for the acts of its former officers and agents.

Among the board members that called for Walker's ouster was former Rep. Gil Gutknecht, who served 12 years in Congress as a Republican from southern Minnesota before being defeated by Democrat Tim Walz in 2006.

Gutknecht, a onetime Bixby investor, later resigned from his board post, saying the company was too damaged to remain viable. In recent comments to the Minneapolis Star Tribune, the former congressman declined to specify how much money he had lost in the Baxby scheme. "It was a very expensive education for me," he told the newspaper.

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