Bixby Energy Systems used a slick video to attract people to invest in 2008 even though the company's attorney warned that claims about its clean-coal technology weren't true.
Prosecutors at the federal fraud trial of former Bixby CEO Robert Walker in St. Paul showed parts of the video to the jury Wednesday as the company's former chief financial officer testified. He said Walker ignored the legal advice and routinely played the video at meetings with potential investors.
"When you showed the video, people got into a fever pitch," said Dennis Desender, who agreed with the company's general counsel that the video contained statements that were untrue.
It was the second day of testimony for Desender, 66, a former Minneapolis resident now serving eight years in prison for tax and securities crimes related to the Bixby fraud. He is testifying for the government in the hope of getting out of prison early.
Walker, 71, best known as the founder of bedmaker Select Comfort, is on trial accused of defrauding Bixby investors from 2001 to 2011. Prosecutors allege he cheated investors out of $57 million to enrich himself, his family and others.
In 2008, when the video was produced, Bixby had begun promoting a technology that promised to convert coal into natural gas and liquid fuels. Most of the work was happening at a contract workshop in North Carolina, where a prototype and eventually a full-scale model were built.
Desender, who raised money from investors, said the gasification technology never worked. It produced some gas, but it was "always subpar" and a test of the liquefaction technology at another site exploded in his presence. "The machine blew up, basically," he said.
Yet around that time, Walker authorized a video costing at least $80,000 that featured the CEO stating that the technology was ready to go "right now." The video also pledged: "It's not just a theoretical solution."
Prosecutors say 1,800 investors lost money in Bixby. Desender said many of them were not high-net-worth investors who are typically the focus of private stock placements.
The company's former general counsel, Peder Davisson, warned Walker that the video overstated Bixby's prospects. "This isn't true if the systems aren't commercially ready," he wrote in a comment on the video script that was introduced as evidence.
Desender said the "Bixby Process" never amounted to more than a research project. "The whole thing was trial and error," he said of the workshop experiments. Some units eventually were shipped to China, but they failed and Bixby collapsed in 2012.
Desender is a pivotal witness both for the prosecution and the defense. Walker's attorneys are expected to attack Desender, and blame him for Bixby's downfall. They contend Walker was an entrepreneur and dreamer who naively surrounded himself with criminals and engineers who let him down.
Desender has a record of felony bank fraud and embezzlement from the late 1990s at other companies. On Tuesday, he testified that Walker knew about his criminal past all along and that Walker took kickbacks on Desender's commissions from private stock sales.
Desender testified Wednesday that Walker needed the kickbacks, and later a big salary increase, to pay a $10,000-per-month mortgage on his vast home, with indoor swimming pool, in Ramsey.
David Shaffer • 612-673-7090 Twitter: @ShafferStrib
