Former Bixby Leader Indicted on Fraud Charges
About a week after Bixby Energy Systems, Inc., admitted to defrauding investors, the former leader of the Ramsey-based alternative-energy start-up was arrested and indicted on federal securities fraud charges.
Bob Walker, 69, was charged Wednesday with one count of conspiracy to commit securities fraud. He made his initial court appearance in St. Paul on the same day and faces up to five years in prison.
Walker-who is perhaps best known as the founder of Minneapolis-based Select Comfort and invented its Sleep Number beds-was Bixby's chairman, president, and CEO from 2001 to 2011. In those roles, he raised more than $43 million from about 1,800 investors by offering company securities based on false or misleading information, the indictment says.
He allegedly told investors that Bixby officers and directors wouldn't receive compensation for the securities sales but then directed at least $3 million to a company officer-of which $600,000 in kickbacks went to Walker. The indictment also accuses Walker of concealing the fact that new investor money was being used to pay existing investors and to fund Walker's lavish lifestyle.
This “commission sharing” arrangement was unbeknownst to both investors and the company's board of directors, according to the indictment.
In addition to lying to investors about commissions, Walker made repeated misstatements regarding the capability of Bixby's coal gasification and liquefaction technology and machine, the indictment alleges. He characterized them as “proven” and “ready for market” even though the technology never worked and the machine had substantial defects.
Additionally, Walker allegedly told investors that the company was going to conduct an initial public offering in the near future while knowing that Bixby couldn't obtain the necessary audited financial statements in order to make that happen.
As Walker was brought to St. Paul for his initial court appearance, the U.S. Securities and Exchange Commission (SEC) filed a civil suit accusing him and former Bixby fundraiser Dennis Desender of selling unregistered securities, according to the Star Tribune.
Desender, 64, was a consultant and the former acting chief financial officer for Bixby. He pleaded guilty in September to one count of securities fraud for his role in the Bixby fraud scheme. He's awaiting sentencing and faces a maximum 20-year prison term.
In May, two outside directors took control of Bixby's board, and Walker resigned his post amid federal criminal and civil investigations and lawsuits alleging gross mismanagement. At that point, the company agreed to cooperate with the government's investigation and voluntarily conducted a preliminary internal investigation after which it reported all findings to the government.
Last week, Bixby admitted to defrauding investors of between $2.5 million and $7 million and is cooperating with a government investigation into its former officers and employees. Bixby was charged with one count of securities fraud, and in exchange for that cooperation and for accepting responsibility for the actions of its former workers involved in the fraud, it will not be prosecuted.
In addition to filing a civil suit against Walker and Desender, the SEC also filed a lawsuit Wednesday against six other Minnesota men who acted as “brokers” or “finders” related to the sale of Bixby securities, according to the Star Tribune. That group reportedly includes Ronald Musich, a former executive with Petters International, a division of the company run by Tom Petters, who orchestrated a $3.65 billion fraud scheme and is now serving a 50-year prison sentence.