“Washington, D.C., Dec. 21, 2011 — The Securities and Exchange Commission today charged the former CEO and CFO at a Minnesota-based clean coal technology company for making false and misleading statements to investors, and separately charged a network of brokers who sold the company’s securities without being registered with the SEC to do so.
According to the SEC’s complaints filed in U.S. District Court for the District of Minnesota, Bixby Energy Systems raised at least $43 million from more than 1,800 investors during a nine-year period through a series of purported private placement offerings of stocks, warrants, and promissory notes. The company used this capital raising activity to help fund operations, pay salaries, and pay commissions to brokers that sold Bixby securities.
The SEC alleges that Bixby’s former CEO Robert Walker and former CFO Dennis DeSender made repeated misstatements both verbally and in writing to investors about the company’s core product – a machine that supposedly produced synthetic natural gas through a proprietary clean coal technology. They told investors that Bixby’s coal gasification machine was proven and operating when in fact it had substantial technological defects, did not function properly, and was at risk of self-destruction. Walker and DeSender never disclosed these problems to investors.
“Investors were falsely informed that Bixby’s coal gasification technology was proven, fully functional, and ready for market,” said Merri Jo Gillette, Director of the SEC’s Chicago Regional Office. “Investors who purchased Bixby shares through the unregistered brokers were deprived of the protections afforded under the federal securities laws requiring the registration of broker-dealers and securities offerings like these.”
According to the SEC’s complaint, among the other false and misleading statements or omissions to investors in offering materials or solicitations:
Investors were told that company officers would not be compensated for their sale of Bixby securities. However, Bixby actually paid DeSender at least $3.6 million in cash and warrants related to his sale of Bixby securities. DeSender kicked back more than $600,000 to Walker in an undisclosed and fraudulent commission-sharing scheme.
DeSender was convicted for bank fraud in 1998. However, this was never disclosed to investors in offering materials, which instead touted DeSender’s “25 years of financial consulting and operations management experience” and “extensive background in management and operations.”
Walker and DeSender induced investors to purchase Bixby securities by telling them that Bixby was going to conduct an initial public offering of its shares in the near term, even though they knew that Bixby could not do so.
The SEC further alleges that DeSender and his corporation DLD Financial Ltd. acted as unregistered brokers and that Walker aided and abetted the violations. Walker and DeSender are charged with violations of the securities offering provisions of the Securities Act of 1933.
According to the SEC’s separate complaint against the unregistered brokers, they and DeSender sold more than $21.7 million in Bixby securities to at least 560 investors. As compensation for their sale of Bixby securities, the unregistered brokers and DeSender were paid a total of at least $4.9 million in transaction-based cash commissions. They also received warrants to purchase more than 900,000 shares of Bixby common stock. The SEC alleges that these brokers induced the purchase or sale of securities when they were not registered with the SEC as a broker or dealer or associated with an entity registered with the SEC as a broker or dealer.
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The unregistered brokers are charged with violations of Section 15(a) of the Securities Exchange Act of 1934.”
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