Ex-CEO of Bixby Energy indicted on fraud charges [Star Tribune, Minneapolis]

Dec. 22--A federal grand jury has leveled securities fraud charges against serial entrepreneur Bob Walker, who made his name as founder of the Select Comfort bed company but ran into trouble while running Bixby Energy Systems, a struggling alternative energy company based in Ramsey.

Jurors in Minneapolis handed up the indictment Tuesday, and federal agents arrested Walker, 69, at his home Wednesday morning. Then, as he was brought to St. Paul for his initial court appearance, the U.S. Securities and Exchange Commission filed a civil suit accusing him and former Bixby fundraiser Dennis Desender of selling unregistered securities.

Bixby Energy -- which is marketing experimental coal-gasification technology in China -- itself was charged last week with conspiracy in what federal officials have characterized as a multimillion-dollar securities fraud scheme. The company agreed to cooperate in the investigation of Walker and others suspected of misrepresenting the company to investors, in exchange for a deferred-prosecution agreement and possible dismissal of the charge.

Desender, 64, of Minneapolis, has already pleaded guilty to securities fraud and tax charges and awaits sentencing.

The SEC also filed a lawsuit Wednesday against half a dozen other Minnesota men who acted as "brokers" or "finders" related to the sale of Bixby securities. Among them were Gary Collyard, 62, a Delano man facing state tax evasion charges in Hennepin County, and Ronald Musich, 62, of Hamel, a former executive with Petters International, a division of the company run by convicted Ponzi schemer Tom Petters.

Peter Wold, a Minneapolis attorney who's been representing Walker in connection with the SEC's investigation, said the indictment came as no surprise. But the arrival of six federal agents at Walker's house "was not the Christmas he was hoping for," Wold quipped.

Walker faces up to five years in prison if convicted.

Wold said Walker is eager to defend himself. He said Walker believed in the coal-gas technology and put everything he had into developing it.

"This is what he thought was a real energy-saving invention," Wold said. "He was dedicated to the belief that this would save this country and the world."

Walker appeared stunned as he stood before a federal magistrate judge and pleaded not guilty. His wife, Joann, and adult daughter Melanie looked on as he asked for a public defender to represent him.

Walker said his only income is from unemployment insurance and Social Security. He said he has about $9,000 in cash and no stocks or bonds beyond his interest in Bixby, which has questionable value. He said he owns an 11-year-old Mercedes, a 6-year-old Honda, and a $750,000 home mortgaged beyond its value.

Switching industries

Walker is best-known as the founder of Select Comfort and the inventor of its Sleep Number beds. After leaving the company in the mid-1990s, he went on to Bixby, which sold high-efficiency stoves that burn corn pellets. The firm is named for Bixby, Minn., a town where Walker, a North Dakota native, traveled while developing the stove in northern Minnesota.

Under Walker's leadership, Bixby switched in 2008 to marketing an invention that converts coal into clean-burning natural gas. He and several associates raised funds in an effort to produce commercial units for sale in China, but the company has struggled to get them to work. Bixby has reported substantial losses.

The indictment and SEC complaint essentially mirror one another. They say Walker raised more than $43 million between 2001 and last May in a scheme that defrauded about 1,800 Bixby investors. Some of the investors were not "accredited" to invest in a private company like Bixby.

Walker or those working with him allegedly provided written materials to investors falsely stating that company officers and directors would not be paid for their sale of Bixby securities when, in fact, Walker directed $3.6 million in cash and warrants to Desender, who has served as its chief financial officer and chief operating officer, among other things, the government says.

Walker is alleged to have received more than $600,000 in kickbacks from those payments in a commission-sharing agreement that was concealed from investors.

Walker and others also repeatedly misrepresented the operational capability of Bixby's coal-gas technology, saying it was proven and ready for market, when it was not, the indictment says. It says he and his cohorts also assured investors that a public offering was near when he knew that wasn't true because, among other things, Bixby could not obtain audited financial statements.

Finally, the indictment says Walker concealed the fact that money from incoming investors was being used to pay existing investors, that some of the money was used for undisclosed projects, and that some of the money went to fund "Walker's lavish lifetyle."

The investigation was conducted by the Federal Bureau of Investigation, the U.S. Postal Inspection Service and the criminal division of the Internal Revenue Service.

The SEC says Walker and Desender each asserted their Fifth Amendment right against self-incrimination and refused to testify in response to an investigative subpoena.

The SEC wants them to "disgorge" the money they made from the alleged scheme and pay unspecified civil penalties. It also wants them permanently barred from acting as an officer or director of any company that must file registered securities reports.

More defendants

In a separate, parallel complaint, the SEC alleged that a group of individuals and their firms acted as unregistered brokers in the sale of Bixby stock. The defendants include Collyard and his firm, Collyard Group, and Musich, part-owner of Rocket Capital Management, an adviser to hedge fund Rocket Capital Partners, which has invested in Bixby.

The SEC says Collyard failed to appear for testimony in response to two investigative subpoenas. Collyard, who allegedly has misrepresented himself as an attorney, real estate broker and securities broker, has a hearing Friday in Hennepin County District Court related to five felony counts of tax evasion.

Also charged in the SEC's complaint are Paul D. Crawford, 75, of Spring Lake Park, and his Minneapolis company, Crawford Capital Corp., an unregistered broker-dealer; Joshua J. Singer, 30, of Lino Lakes; Michael B. Spadino, 47, of St. Paul, and his firm, Marketing Concepts Inc.; and Christopher Weides, 57, of Elk River.

The SEC seeks an order enjoining the "finders" from violating securities laws. It also wants them to cough up their earnings and to pay unspecified civil penalties.

Dan Browning --612-673-4493

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