CEO of 'clean coal' company goes on trial in $57 million fraud

One day in June 2010, businessman Bob Walker e-mailed the man he'd hired to construct a machine to turn coal into flammable gas — because it didn't work.

"I am so upset that I am ready to spit acid," wrote Walker, then CEO of Bixby Energy Systems of Ramsey, according to an e-mail filed in his pending criminal case.

Earlier the same day, Walker had issued a news release saying the company's "revolutionary process that efficiently converts coal into clean-burning energy has been developed and is commercially available."

The e-mail and contradictory news release epitomize the opposing pictures of Walker as he goes on trial Monday in U.S. District Court on charges of fraud, conspiracy, tax evasion and witness tampering.

Prosecutors contend that Walker is a liar who knew Bixby's technology didn't work and who stole $57 million from 2,000 investors in a decadelong con job.

From the defense, jurors will get another portrait: Walker as a visionary entrepreneur who touted Bixby's clean-coal technology, only to be let down by those he'd paid to develop it.

Walker, 71, formerly of Ramsey, is one of three people charged in the massive Bixby fraud case, and the only one to reject a plea bargain. The others have been sent to prison. One of them, Bixby's former chief financial officer, Dennis Desender, is expected to testify against Walker.

Bixby's business collapsed in 2012 amid the criminal in­vestigation and after the first commercial installations of its coal gasification machines — in China — were unsuccessful. Prosecutors say investors were left with nothing.

"This is not a complicated fraud case," prosecutors wrote in a pretrial summary of evidence collected by FBI and IRS agents and U.S. postal inspectors. "There are lots of facts, but they are reduced to this: Walker lied and cheated to steal money from investors through Bixby to enrich himself, his family and his accomplices."

Walker's defense attorney, Peter Wold, declined to comment. But hints of his defense have been revealed during pretrial legal sparring. Bixby's downfall is expected to be pinned at least partly on a North Carolina fabrication shop whose work on an early, unsuccessful coal-to-gas unit was the subject of the bitter June 28, 2010 e-mail from Walker.

A former employee of the fabricator, in a sworn statement filed in the case, says the shop owner fed natural gas into a coal-gasification machine to "sweeten the flame" and make it appear the unit worked.

Jury selection is set to begin Monday before U.S. District Judge Susan Richard Nelson in St. Paul. The trial is expected to take at least five weeks as prosecutors present hundreds of e-mails and many witnesses, including former business associates who are expected to reveal details of Walker's past.

Walker is best known as founder and former CEO of Select Comfort, the Plymouth-based manufacturer of the Sleep Number Bed. He left as CEO in 1993, but has said he remained a consultant until 1998. As late as 2001, Walker was quoted in a Select Comfort news release, but his connection to the company at that time was left unclear.

He is listed as an inventor on several U.S. patents, initially for bed innovations. He eventually shifted his attention to energy. In 2001, Walker became CEO of newly formed Bixby Energy Systems. He patented heating-related inventions for Bixby, which originally manufactured corn-burning stoves.

By 2006, the U.S. House Agriculture Committee invited Walker to testify on energy policy. According to the transcript, he told congressmen that Bixby in two years would offer the "Omni System" to power peoples' homes with agricultural biomass. But that idea went nowhere.

Instead, Bixby in 2007 began promoting technology to transform coal into gas, along with liquid fuel and activated carbon. Coal gasification is not a new process, but was largely abandoned in the mid-20th century for cheaper natural gas. Walker became an evangelist of the "Bixby Process" and traveled widely, including to England and China, promising that the technology would clean up coal.

His company attracted droves of investors. Though its shares weren't publicly traded, many investors hoped a public offering would make them rich. And that's part of the problem, prosecutors allege. Under U.S. securities law, only wealthy and presumably sophisticated investors are supposed to be pitched investments in risky private ventures.

The prosecution team of assistant U.S. attorneys David MacLaughlin, Benjamin Langner and Manda Sertich also plans to hammer on the image of Walker as a successful businessman. According to their pretrial brief, two former Select Comfort executives will testify that Walker by 1991 had "bankrupted the company" and was "an incompetent businessman" who had nothing to do with transforming Select Comfort into a publicly traded company. Select Comfort went public in December 1998.

Many investors who purchased Bixby stock got a sales pitch from Desender, who was Bixby's main fundraiser. Desender has 1997 convictions for swindling and bank fraud, and prosecutors allege that Walker knew of his felony record. Desender, who pleaded guilty to securities fraud and tax evasion in the Bixby case, is now a government witness against Walker.

Prosecutors allege that Walker repeatedly buried signs that Bixby was a fraud, including a 2006 forensic audit ordered by the board of directors' audit committee. Auditors discovered illegal payments to Walker's family, securities law violations and other wrong­doing, according to the government brief. But Walker allegedly responded by ousting the audit committee and firing the auditors.

In 2011, Walker was ousted from Bixby after being sued by two of its board members alleging the company was insolvent. One of the board members who challenged Walker was former congressman Gil Gutknecht. An investor in the company, Gutknecht worked for months after Walker's ouster trying to keep Bixby afloat. That included unsuccessful efforts to install Bixby gasification units in China for a company co-founded by one of the congressman's former Washington staffers.

Gutknecht, who is on the government's witness list, declined in an interview to say how much he lost. "It was a very expensive education for me," he said.

Walker has been behind bars since August when investigators alleged he tried to contact a government witness through an intermediary. A judge revoked Walker's conditional release.

A grand jury later added a witness tampering charge to Walker's 13 counts of mail and wire fraud, a single count of conspiracy to commit fraud and three counts of tax evasion for the years 2004-2006.

If convicted, Walker could face a lengthy prison term, perhaps for the rest of his life. The most serious charges, mail and wire fraud, each carry maximum prison terms of 20 years.

David Shaffer • 612-673-7090