Former Bixby CEO ordered to stay in jail

Former businessman Bob Walker, awaiting trial in a $40 million fraud over failed clean-coal technology, will stay in jail indefinitely after a federal judge on Friday found that he tampered with a witness and violated probation terms.

Federal authorities recently arrested Walker, the former CEO of Bixby Energy Systems, who had been free pending a trial set for January. The ruling by U.S. Magistrate Judge Tony Leung in St. Paul means Walker remains in jail, though his lawyers will have an opportunity to argue for his release in about a month.

Walker, 70, is credited with founding Select Comfort and inventing its signature Sleep Number bed before leaving the company in the early 1990s. Later he became head of Bixby, once based in Ramsey, Minn., and convinced 1,800 investors that the company had developed a way to turn coal into fuel similar to natural gas.

In his ruling to detain Walker, Leung sided with prosecutors' argument that he represented an "economic danger" to society. Leung also found "probable cause" to believe Walker tampered with a witness and engaged in recent investor recruitment, which was barred by the terms of his release.

Walker, who left Bixby in 2011 amid allegations of wrongdoing in civil lawsuits, still has loyalists among Bixby investors who don't hold him responsible for their losses.

It was from among this group that Walker allegedly resumed his illegal activity in the past year, prosecutors alleged.

FBI agent Jared Kary testified at a 3½-hour hearing that e-mails among Walker and his investor allies show he took part in discussions about a mysterious outside investor who pledged to put up $100 million to salvage the company. The money never materialized.

In June, according to court papers and testimony, the board member, Sandy Newvine, wrote an e-mail to an executive of a Beijing-based company that invested $10 million to license Bixby's technology in China. The executive, Jeff Wiseman, is now a government witness and says Bixby defrauded the company.

But the board member's e-mail to Wiseman blamed the Bixby fraud on outside engineers, alleging that they knew the coal-gasification didn't work. Kary said the text was cut-and-pasted from a Walker e-mail to Newvine.

"He knew he wasn't supposed to be doing any of this, but he does it anyway," said federal prosecutor David MacLaughlin.

Walker didn't speak during the hearing, and at times seemed to be nodding off. He wore jeans, tennis shoes and a tan-and-orange Hawaiian-style shirt. His attorney, Peter Wold, said Walker suffers from arthritis and hadn't been given pain medication for days.

Wold argued that Walker neither tampered with a witness, nor violated the terms of his release. Wold said the allegation that Walker had again been soliciting certain investors for money was untrue, and he submitted sworn statements from supporters.

Bixby's technology once promised to transform coal into methane gas, and a pilot gasification unit supposedly worked. But efforts to commercialize the technology in China failed, and Bixby ran out of money.

The testimony on Friday offered a partial preview of Walker's defense. His attorneys contend, and prosecutors don't dispute, that outside engineers working on the gasification unit knew the technology was flawed. The flame on the unit was "sweetened" with natural gas from a hidden line to suggest the coal-to-methane process worked, Wold argued.

Wold contends that Walker was taken in by this deception. The government contends he knew about it.

David Shaffer • 612-673-7090

Twitter: @ShafferStrib