Suit alleges biomass firm diverted funds

A Colorado investor who helped bankroll a tiny Hopkins start-up called Novus Energy filed a federal lawsuit Tuesday in Minneapolis alleging fraud.

William Sabarese said he invested $1 million to help launch a biomass plant at the Minn-Dak Farmers Cooperative sugar beet processing facility in Wahpeton, N.D., and $250,000 for another project in Buffalo, Minn. But he said the money was used for other purposes without his consent, and that Novus has not responded to his request for a forensic audit.

No executives with the defendant firms -- Novus Energy, Novus-North Dakota and Novus-Buffalo -- could be reached Tuesday for comment.

According to the lawsuit, Novus Energy designs, develops and operates facilities that convert organic waste products into such alternative energy as gas and alcohol. In 2006 and 2007, the firm pursued numerous potential projects internationally and in Wyoming, North Dakota, Minnesota, Colorado and New York.

Sabarese invested in Novus, helped find additional investors and briefly served on Novus Energy's board of governors in 2011, the suit says. In 2007, Sabarese put up $1 million of the $2.3 million in private capital that Novus-North Dakota said it needed to obtain loans to build the Minn-Dak Farmers project, and he helped secure a $500,000 commitment from another investor, the suit says.

At some point, Charles Tuchfarber, a co-founder and/or agent of Novus Energy, told Sabarese that Novus Energy had a "pressing need" for money to continue operations, the suit says. Court records show that Tuchfarber was convicted of bank fraud in 1995 in St. Paul. He was sentenced to five years of probation and ordered to pay $38,000 in restitution to Republic Bank of Duluth.

Sabarese said that after he refused a request to let his investment in Novus-North Dakota be used to pay for Novus Energy operations, most of the money Novus-North Dakota raised was diverted without his knowledge. As a result, the suit says, Novus-North Dakota lacked the capital it needed to secure funding for the Minn-Dak Farmers biomass facilities.

"The President/CEO of Novus Energy, LLC during 2006, 2007 and 2008 had full fiduciary responsibility to all investors and personally signed checks or authorized payments. All strategic matters should have been reported to the board of governors of Novus," the statement said. "Given the above, although it is not his decision, Mr. Tuchfarber supports a complete audit of the company's operations during 2006, 2007 and 2008."

The suit says that Sabarese also loaned $250,000 to Novus-Buffalo. When that note came due in 2008, it says, Novus Energy co-founder and president John Offerman, 65, of Orono, offered a repayment plan. Sabarese received a payment of $25,000 in December 2008 but nothing since, the suit says. It alleges that the money was diverted to Novus Energy. Novus Buffalo raised no additional money and became insolvent, the suit says.

Sabarese asked for a forensic audit to determine where his money went, the suit says, but apparently none was ever conducted. Sabarese is seeking unspecified monetary damages and legal fees.

Offerman could not be reached for comment when the suit was filed. On Monday, July 9, he said that although he was president from 2004 until March 2011, he only oversaw technical development while Tuchfarber handled company finances.

"I've actually been calling for a complete audit of the company's books, just like Mr. Sabarese has, for well over a year," Offerman said. "I didn't take money out of the company. They owe me some back salary."

"Now I'm coming after the company for back salary but I really would like to have an audit," Offerman said. "An audit will show that not a penny has gone in my pocket, other than some salary."