How St. Cloud’s tech darling failed, leaving dozens of local investors empty-handed

A pioneering St. Cloud tech company once valued at $100 million has crashed financially, leaving little money to repay dozens of Minnesota investors.

Felicity-John Pederson developed a promising technology for wireless communications using light. NASA was even intrigued by it.

His company, LVX System, raised over $20 million from stock and notes sold to investors, many from Minnesota.

But LVX is now liquidating in Chapter 7 bankruptcy with assets of only $1,652. It owes $5.82 million, a recent court filing shows.

Stockholders aren’t likely to recover any money.

LVX’s collapse is “a tragedy in my opinion because so many do lose,” Pederson said in an interview last week. “I spent every last dime I had on the place.”

Pederson expects to soon file personal bankruptcy.

A subsidiary of LVX holds 68 U.S. patents with a book value of $866,000, a bankruptcy filing says. But with their market value unknown, the patents are not listed as assets. Pederson said he understands the patents will be sold.

The proceeds could at least help pay off creditors.

A St. Cloud native, Pederson invented a system that uses LED light to transmit data. With Li-Fi, a wireless network is created by photons from light waves instead of radio waves, the foundation of Wi-Fi.

Pederson made news last year for bringing a full-scale, 25-ton space shuttle replica from Florida to St. Cloud. He and his wife have owned the shuttle mock-up for years.

Pederson said the project was his own. LVX did not pay to haul the shuttle to Minnesota, he said.

Pederson founded LVX System, short for Light Visually Transceiving System Corp., in 2007 after devising a method to transmit data through ceiling lights at very high speeds using Li-Fi technology.

Pederson is LVX’s current CEO. But he said he has been “the clean-up crew,” trying to resurrect the company since LVX’s last CEO left abruptly in 2023. Pederson, who was executive chairman, said he is LVX’s ideas man.

“I dreamed this stuff up. There were people who [served] as CEOs that were supposed to make this thing go, and they didn’t do it,” he said. “I told my stockholders, I build the race car cars, I don’t drive the race cars.”

LVX tested its ceiling light system in 2009 at St. Cloud’s Apollo High School, Pederson’s alma mater. In 2010, the city of St. Cloud became one of LVX’s earliest commercial customers. LVX saw municipalities as a key market.

By 2015, the company had moved its headquarters to the Kennedy Space Center in Florida and inked a research and development agreement with NASA.

LVX and NASA collaborated on what the space agency in 2015 called “a potentially ground-breaking technology in electronic communications.” NASA thought LVX’s technology could be used in spacecraft, including on missions to Mars.

Li-Fi does not have the range of Wi-Fi, one of its shortcomings. But Li-Fi uses less energy. And the visible light portion of the electromagnetic spectrum has far more transmission capacity than the radio wave segment.

LVX considered NASA a “future customer,” according to a 2019 affidavit by Pederson in a federal court case. But that prospect seems to have fizzled.

In fact, NASA didn’t even fund LVX’s research, though the agency did prove its technology worked, Pederson said. NASA did not respond to a request for comment.

The commercial market for LVX System didn’t materialize either. In its last two full years of business — 2024 and 2023 — the company tallied revenue of only $23,270 and $58,500 respectively, bankruptcy records show.

LVX’s bankruptcy filing lists about 75 stockholders in Minnesota, many of them from the St. Cloud area. The value of their equity is recorded as zero.

LVX had nearly $20 million in equity in mid-2019, according to a federal court affidavit by David Sexton, the company’s then-CEO. An investor interested in LVX had valued the company and its assets at more than $100 million, Sexton said in another 2019 affidavit.

The affidavits were aimed at fending off a 2019 attempt by three LVX investors — including a founding stockholder — to force the company into bankruptcy.

LVX argued that it was solvent, and that the involuntary bankruptcy petition was made in bad faith. The court dismissed the petition.

But the taint of the involuntary petition “shut down LVX System’s fundraising efforts,” Sexton said in a 2019 affidavit. Sexton did not respond to requests for comment.

In the 2010s, LVX raised millions of dollars through several private placements of stock and 10-year unsecured notes that were convertible to stock.

In 2018, many of LVX’s noteholders chose to convert to equity, cutting the company’s debt burden from about $27 million to around $9 million, according to a 2019 court filing.

But in a suit filed in Stearns County state court in May, about 20 LVX investors — mostly from Minnesota — claimed Pederson and LVX employees “pressured” them to convert their notes into stock by inflating the company’s prospects.

The suit — filed against Pederson and his wife, former LVX Chief Financial Officer Irene Pederson — claims fraudulent misrepresentation to the tune of $3.3 million.

Pederson denies pressuring investors or defrauding anyone, and has asked the court to dismiss the case.

According to the suit, Pederson and LVX employees told noteholders that private equity firms and investment banks were imminently looking at investing big money into LVX, and that a sale of the company was also imminent.

Noteholders would share in the bounty much more if they converted to stock.

Pederson, in a state court filing, said Bank of America and Merrill Lynch were interested in investing in LVX. But he denied he told investors — or told LVX employees to tell investors — that any investment or sale was imminent.

The investors also alleged that LVX and Pederson told them the company was valued at $100 million in 2018. But LVX “has never been worth $100 million,” nor has it been a “successful or growing” company, the investors allege.

Pederson in court filings denied he represented that the company was worth $100 million.

He acknowledged he “may have represented” to investors that the value of LVX’s patents had value of at least $100 million — and that he had a valuation from an independent intellectual property firm to prove it.

While many LVX noteholders converted to stock, some did not. Noteholders' repayment rights are senior to stockholders in a corporate liquidation, though LVX at this point does not have much capacity to repay much.

LVX’s largest creditor is the Linda M. Linn Living Trust in Deerwood, which holds multiple notes worth $3.6 million, a bankruptcy filing says.

Linn is the mother of Corey Linn, LVX’s CEO from June 2020 to August 2023. Corey Linn did not return calls for comment and Linda Linn could not be reached for comment.

In October, Linda Linn sued LVX in Stearns County state court for allegedly defaulting on two notes held by her trust. LVX has not yet responded to the suit in court.

LVX’s technology, Li-Fi, has yet to go mainstream, despite its promise.

Pederson said it still has great potential, particularly for the “internet of things” — networks of devices such as kitchen appliances that can wirelessly communicate with each other.

“It is something that will become more necessary as the internet of things grows,” Pederson said. “It’s still a very relevant technology.”