After investing $250,000 in Twin Cities Power Holdings, a Minnesota executive got nervous when the little-known trading company disclosed in 2015 that it would be changing its name and moving most of its moneymaking assets into a private company owned by Timothy Krieger, the firm’s majority owner.
The investor sent an e-mail to Wiley Sharp III, chief financial officer of the Minneapolis-based company, expressing his concern about the firm’s move away from energy trading and into retail electricity. The retail business, the investor noted, had never generated a profit for Twin Cities Power. He asked about the prospects for retail sales, and for information about what would happen if the restructuring didn’t work out.
Sharp expressed optimism in an e-mailed response reviewed by the Star Tribune, telling the investor he expected the retail business to become profitable “this year.” Sharp said the company was protected from any defaults, and he predicted that Twin Cities Power would be going public in “a couple of years,” making it possible to repay hundreds of small investors like him.
None of Sharp’s predictions turned out to be accurate. The restructuring left the company, now known as Aspirity Energy, unable to survive. It was liquidated through bankruptcy proceedings last year, leaving 700 investors facing losses of about $30 million.
Now, claiming they were misled about the company’s prospects, investors are fighting back. In March, a group of about 80 of them filed an involuntary bankruptcy petition against a Krieger affiliate known as Aspirity Holdings in a long-shot attempt at recovering their money.
Their frustration has been fueled by a Star Tribune investigation that revealed Krieger paid himself more than $18 million since 2011, mostly in the form of distributions from the trading company’s dwindling cash reserves. Sharp, who earned $390,000 a year as Aspirity’s CFO, gave up his right to severance for a $100,000 bonus in December 2014, Aspirity records show.
“I think this whole thing was a conspiracy to rip us off,” said Mike Lawyer, a New York retiree who stands to lose $132,356. “They are trying to make it appear that they did nothing wrong, but I think Timothy Krieger is a scam artist.”
Neither Krieger nor Sharp responded to requests for comment. But Krieger, a former college wrestling star who won two national titles at Iowa State, has denied wrongdoing in legal filings.
“I did not siphon funds from Twin Cities Power, improperly pay dividends or otherwise treat Twin Cities Power as my alter ego,” Krieger said in a court affidavit filed earlier this month.
In a 2017 interview, Sharp said he made sure investors knew the risks they were taking.
“I’m sorry it turned out the way it did,” Sharp said. “Businesses fail. Businesses have trouble. It doesn’t mean that there’s nefarious activity.”
Claims of fraud
The new bankruptcy case is just one of the legal challenges confronting Krieger and his former colleagues. Two weeks ago, a court-appointed trustee investigating claims of fraud at Aspirity filed a motion seeking permission to question Krieger and Wiley under oath about their business dealings. In court filings, the trustee said his investigation was prompted by the Star Tribune investigation, saying it raised questions of whether Krieger or others hid assets or engaged in “improper conduct.”
Former employees also have sued. In New Jersey, former trader Neil Mehta accused Krieger of engaging in a series of “fraudulent” deals by repeatedly shutting down Aspirity’s trading affiliates and reopening them under a different name at the same address in East Windsor, N.J.
In his lawsuit, filed in February, Mehta accused Krieger of engaging in a corporate shell game to “escape debts or achieve other illicit objectives,” including $388,000 Mehta said he is owed for bonuses and other unpaid compensation. Krieger has denied the claims.
Earlier this month, a Scott County judge ordered Krieger to pay $66,000 to three traders who worked for an Aspirity subsidiary in Canada. The three traders had sued to collect the unpaid portion of a $2 million settlement of their claims against the company for wrongful termination.
Krieger, who claimed in divorce records that he was broke and selling assets to pay his bills last year, apparently has regrouped. In a recent court affidavit, Krieger said he became part owner of a new energy trading business called Pegasus Energy Futures in October 2017.
Investors are now wondering what Krieger did with the $18 million he took out of Aspirity.
“Tim Krieger told us, ‘If anything starts to go bad, I’ll forewarn you,’ ” said Lynnette Siegfried, a Texas investor whose family put more than $600,000 into Aspirity. “Clearly, that was a lie.”
Some investors said they had no idea there were problems at Aspirity until the company filed for bankruptcy last summer. They said they are kicking themselves for not taking a harder look at the company’s public filings with the U.S. Securities and Exchange Commission, which would have revealed a series of dubious transactions and self-dealing.
“I am a university professor, and I knew it was risky,” said Robert Pinder, 90, a wealthy retiree in Texas who invested $150,000 in Aspirity. “But I didn’t keep up with their business or what they were doing. If I had known those facts, I would have pulled out a long time ago.”
Like other investors, Pinder was attracted by the high interest rates the company was offering on $50 million worth of unsecured subordinated notes, a small-scale form of junk bonds. Some investors said they first heard about the investment opportunity from Redwater LLC, a Minnesota company that acted as a servicing agent for Aspirity and also handles similar note programs for other companies.
Redwater is supposed to act as a neutral third party, providing information to investors but not advice. But Steven Vitale, a retired homicide detective from Brooklyn, N.Y., said Redwater owner Ed Elverud reassured him about his $110,000 investment in 2015.
Vitale said he called Redwater because he was concerned about the financial impact of the 2015 restructuring, which left Aspirity dependent on Krieger’s ability to repay a $22 million loan. Krieger stopped paying the loan in 2017, triggering the company’s collapse.
“I was really concerned. I said, ‘Is my money safe?’ ” Vitale recalled of his conversation with Elverud. “He said, ‘There is no problem. It is a solid company. You’ll make more money.’ ”
‘No high pressure’
Elverud said he doesn’t recall the conversation with Vitale. But he said he would not have made such statements.
“There was no high pressure,” Elverud said. “There was no trying to talk people into it. … If we had a serious question from an investor, we were told to forward them onto Wiley — and that’s what we did. We never recommended anything — it was not our place to do that.”
Sharp said he signed off on hiring Elverud’s company, even though Elverud was barred from the securities business in 2010 for misleading thousands of investors in an “excessively positive” newsletter. Elverud did not admit or deny the violation in licensing proceedings.
“Who was harmed by that?” Sharp said of Elverud’s hiring last year. “He had nothing to do with the investors.”
Other investors said Sharp kept quiet about the company’s problems, even when it became clear Aspirity was failing. Lawyer said Sharp wouldn’t let him cash out in April 2017, even though his notes had just matured and he was legally entitled to his money.
“He said I’d have to wait until mid-May, which I thought was a little strange, but I didn’t question it,” Lawyer said. “When mid-May came around and I still didn’t have my money, I found out that all hell had broken loose.”
Sharp resigned in June 2017, 11 days before the company filed for bankruptcy.