ROBERT ALLEN WALKER, - Star Tribunestmedia.startribune.com/documents/Gov+Trial+Brief.pdf · The nub of the case is that defendant Robert Allen Walker used Bixby Energy Systems, Inc

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

Criminal No. 11-381 (SRN/JJG)

UNITED STATES OF AMERICA, ) ) ) ) ) ) ) ) )

TRIAL BRIEF OF THE UNITED STATES

Plaintiff,

v.

ROBERT ALLEN WALKER,

Defendant.

Comes now the United States of America by its attorneys, Assistant United States

Attorneys David J. MacLaughlin and Benjamin F. Langner, respectfully submitting the

Trial Brief of the United States in the above-captioned matter.

INTRODUCTION

This is an enormous fraud case. The volume of discovery materials in this case

fills scores of boxes and a myriad of hard drives and electronic peripherals. After an

aggressive triage of all of those records, the government has tentatively identified 75

witnesses on its Witness List, and has tentatively listed 2,210 exhibits on its Exhibit List.1

With the exception of some agent-prepared financial summonaries, the government’s

exhibits have been turned over as part of the Rule 16 discovery in this case. In addition,

the government turned all of its Jencks materials over to the defense team in October, and

1 The government will, as soon as practicable, burn all of its exhibits onto a disk, except those which are unduly voluminous, and provide them to the defense and to the Court. However, the government notes that both its witness list and its exhibit list are works-in-progress. The government may make significant changes to both lists prior to trial. The government has not yet completed the process of preparing all of its witnesses for trial.

CASE 0:11-cr-00381-SRN-JJG Document 107 Filed 12/06/13 Page 1 of 57

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has continued to do so on a rolling basis as witnesses have been interviewed. The

government estimates that its case-in-chief could require approximately 25 trial days to

present.2 It could require considerably longer if the defense team requires the

government to provide individualized foundation for each of its exhibits. The parties are

working toward stipulating to foundational issues in order to streamline the trial.

Despite its enormity, this case is far from complex and is, in fact, quite easy to

understand. The nub of the case is that defendant Robert Allen Walker used Bixby

Energy Systems, Inc. (“Bixby”) to steal approximately $57 million from approximately

2,000 individual investors. He accomplished this by lying to them about Bixby’s

business prospects. The fundamental bedrock fact upon which this entire case is built is

that Walker capitalized Bixby with other people’s money. It appears that very little of the

$57 million raised came from Walker or from any member of Walker’s family.3 Walker

apparently knew better than to put his own money into Bixby.

In general, Walker’s fraud had two parts. In part one, Walker lied to prospective

shareholders about his business acumen, and about the affairs and prospects of Bixby, to

get people to invest their money. He also lied to shareholders about such matters after

they invested, often in the “Bixby Blaze,” a “newsletter” Walker sent to shareholders

about Bixby’s affairs. In part two, Walker did as he liked with the money that came in.

2 The United States recognizes that it is to everybody’s advantage to try as streamlined and pithy a case as possible. In some circumstances, less is more. The government will make every effort to prove its case without over-proving its case. 3 From time to time, Walker may have loaned Bixby small amounts of money. It appears Bixby repaid all such loans with Walker. On October 14, 2008, Walker purchased 35,000 shares of Bixby stock for $1 per share the same day Walker sold $100,000 in Bixby warrants to shareholder Rick Whitney.


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Walker and his primary accomplice, Dennis Desender, lived lavish lifestyles. Walker

owned a 12,000 square foot home in Ramsey, a home he has now lost as a result of the

collapse of the fraud scheme. Walker’s daughter, Melanie Bonine, also received (along

with her husband) approximately $2,900,000 from the scheme. She, like her father, also

had a home in Ramsey beyond the reach of her legitimate earning power and, like her

father, lost the house when the fraud scheme collapsed.

The evidence in this case, taken as a whole, will show that, in Walker’s mind,

Bixby had but one purpose -- to raise money to pay himself, his accomplices, and

members of his family remuneration they could not by virtue of their ability or training

otherwise earn. Even in its darkest hours, when Bixby was unable to pay the engineers

and fabricators attempting to get Bixby’s technology to function as Walker had already

promised it did function, Walker’s salary always got paid. The greater Walker family

received approximately $7 million of investor funds from Bixby. Desender received over

$3.5 million for keeping Bixby sufficiently flush to sustain the fraud scheme.

This is not a complicated fraud case. There are lots of facts, but they reduce to

this: Walker lied and cheated to steal money from investors through Bixby to enrich

himself, his family and his accomplices.

THE PROOF TO BE ADDUCED AT TRIAL

Some Basic Background

At trial, the government will prove that Walker was the President, Chief Executive

Officer and a member of the Board of Directors of a company (Bixby) that was shot-


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through with fraud, the primary architect and beneficiary of which was Walker himself.

The various species of fraud to be proved at trial are discussed below.

Two Relevant Time Periods

In general, this case has two major periods. From 2001 through 2006, Bixby

manufactured corn-burning, hearth-type stoves designed for home heating. Most of the

stoves were known by some variation of the appellation “Maxfire Stove.” The

government does not allege that the manufacture, distribution or sale of the Maxfire

Stove was fraudulent. It is undisputed that, by late 2006, the confluence of high corn

prices, low natural gas prices, and warm winter weather significantly deteriorated the

market for corn stoves.

Thus, in 2007, Bixby exited the corn-stove market and purported to begin the

development of a technology which turned coal into natural gas and liquid fuels. The

essential idea was to heat coal in a rarified environment to drive off the trapped volatiles

present in all coal (a process Walker called “coal gasification” or “coal pyrolization”).

This process also generated a carbon byproduct. Bixby also claimed to be developing (or

to have already developed) a technology which converted the carbon byproduct into

liquid fuels, such as “sweet light crude oil” (a process Walker called “liquefaction”).

Walker repeatedly misrepresented to the victims that this two-pronged process,

which he called the “Bixby Process,” was “revolutionary.” However, Walker knew that

neither “gasification” nor “liquefaction” was a new technology. Indeed, scientists have

known for decades that heating coal in a rarified environment generates gas, and that the

production of liquid fuels from carbon can be achieved by mixing hydrogen with certain


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types of carbon under certain pressure and temperature conditions. But more to the point,

and as Walker well knew, Bixby never succeeded in developing a commercially viable

coal gasification system, and failed to produce even a prototype liquefaction machine.

But these realities did not stop Walker from raising millions of dollars from “angel

investors” (an important term in this case, as explained below) by telling them that Bixby

had commercially-ready gasification and liquefaction technology poised “right now” to

forever change the way mankind produces energy.

Fundamental Principles of Corporate Governance

As noted above, Walker contributed, at most, $35,000 of his own money to the

capital of Bixby. Thus, Bixby was owned, not by Walker, but by the approximately

2,000 people who bought Bixby’s stock. That Bixby was not “Walker’s company,” but

rather the shareholders’ company, created fundamental realities of corporate governance

that Walker found inconvenient and vexing. The government plans to call an expert

witness in the early stages of its case to testify about the structure and duties created

where shareholders own a privately-held business.

That structure is not complicated, and was well-known to Walker. Specifically,

the shareholders owned Bixby, and Walker served them. The Board of Directors of

Bixby (with which Walker tampered copiously) represented the shareholders and served

at the pleasure of the shareholders. The officers of the company (such as Walker and his

daughter) served at the pleasure of the Board of Directors. Bixby’s officers and board

members owed a fiduciary duty to Bixby’s shareholders to be honest; to have integrity;

and to maximize shareholder value. These principles are neither complicated nor arcane.


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But they flew in the face of Walker’s use of Bixby to enrich himself, and to enhance his

false and narcissistic self-image as a visionary inventor and world-saver, at the expense

of the shareholders. That is why, on three occasions (late 2006, April 2011 and May

2013), Walker fraudulently manipulated, or fraudulently attempted to manipulate, the

composition of Bixby’s Board of Directors, all as explained below.

Walker’s Accomplices

Walker surrounded himself with convicted criminals and other people who had

highly questionable ethics and very little fealty to the truth. As Walker knew, Dennis

Desender, Bixby’s putative CFO and chief money-raiser, as well as Walker’s right-hand

man, was a convicted felon. The head salesperson at Bixby, Frank Controneo, also a

felon, had done prison time with Desender. Gary Collyard was one of Bixby’s principal

fundraisers. At least two other Bixby employees had criminal histories. One of the

principals of a firm called Greyline Capital, which Walker hired to raise money for Bixby

in the public markets, had been convicted of a multi-million dollar racketeering scheme.

The principal attorney to Bixby, hand-picked by Walker, committed many questionable

acts in return for the $1.5 million in fees he collected from Bixby. Many of Walker’s

accomplices who did not have criminal histories did have checkered financial

backgrounds with bankruptcies and civil judgments. Bixby’s main engineer, Marvin

Ronnie Baker, conformed, in some cases, to the culture of dishonesty inculcated by

Walker at Bixby. The government anticipates that Mr. Baker will admit on the stand that

he was less than honest with certain third parties with whom he dealt as Bixby’s engineer,

all with Walker’s approval.


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Walker took no heed to repeated warnings about the perils of associating with

crooks. Walker rejoined that “you have to walk through some bad neighborhoods to get

to the good ones.” Indeed, Walker saw considerably more peril in working with people

who had integrity.

Generally speaking, people with integrity did not get along with Walker. For

example (and this is but one), three men – Michael Brodeur, Arnold Angeloni and

Wendell King – tried to stop Walker’s misuse of Bixby’s shareholders during the last half

of 2006. Walker got rid of all three of them. To last at Bixby, one had to tolerate

Walker’s misconduct and conform to a culture of dishonesty. Perforce, Walker

surrounded himself with questionable people willing to look the other way for a

paycheck.

The Private Placement Memoranda

Walker caused Bixby to sell its stock primarily through “private placements,” the

terms of which were described in “Private Placement Memoranda” prepared by Bixby’s

attorneys.

In general, the Securities Act of 1933, and the regulations promulgated thereunder,

requires an issuer of stock to register the issuance with the Securities and Exchange

Commission, unless the issuance fits into an exemption. One such exemption, and the

one utilized by Bixby, permits the private offering of shares through the safe harbors

provided by Regulation D and Rule 506. In general, private offerings of stock under

Rule 506 are permissible, but only if the issuer does not engage in what is known as a

“general solicitation.” A “general solicitation” occurs when the issuer or its agent pitches


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its stock to a class of persons who are not already known to the issuer. For example,

where, as in this case, Walker gave speeches promoting Bixby stock to groups of people

gathered together by pamphlets and word of mouth, Walker engaged in general

solicitations of the public to buy Bixby’s stock and effectively converted a private

offering of Bixby stock into an unregistered public offering of stock forbidden by the

securities laws. In addition, Rule 506 private offerings must be confined to 35 or fewer

“accredited investors.” An accredited investor is a person with a net worth exceeding

$1,000,000, or who had income exceeding $200,000 in each of the two years prior to

investing in the stock in question ($300,000 in the case of a married couple).

In addition, Section 15(b) of the Securities Exchange Act of 1934 provides that

only registered broker/dealers may lawfully promote, among other things, privately-

offered stock. Only a true “finder” is exempt from this requirement. A finder does what

the name suggests – finds investors. Generally, true finders simply give the name of

people who might have money to invest to an issuer, and then allows the issuer to contact

the people. Anybody who contacts a prospective investor and provides reasons why a

certain investment may be suitable to that investor is acting as a broker/dealer, and is

required to register with the Securities and Exchange Commission. A person pitching an

issuer’s stock without registering as a broker dealer violates the Securities Exchange Act

of 1934.

Bixby’s private placement memoranda contained assurances that Bixby’s officers

and directors would not receive commissions for selling Bixby stock. Walker violated

these assurances in spirit and in fact. Walker personally collected $600,000 in


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commissions that were hidden from investors as backdoor kickback payments from

Desender. Bixby paid millions of dollars in commissions to Dennis Desender, Bixby’s

sometimes de jure and always de facto Chief Financial Officer. Melanie Bonine,

Walker’s daughter, MaryAnn Scherrer, Walker’s sister, and James Bonine, Walker’s son-

in-law, also collected hundreds of thousands of dollars in sales commissions, and Melanie

Bonine received more than $785,000 by selling Bixby warrants which had been given to

her by her father.

The private placement memoranda also misrepresented the background of Bixby’s

officers. For example, some of the private placement memoranda described Melanie

Bonine as an experienced, high-powered executive when, in fact, she was no such thing.

Bonine has a high school education and a smattering of vocational training. Her business

acumen is extremely limited. The private placement memoranda also sometimes

described Desender in glowing terms, false luminescence designed, successfully, to

conceal the many blemishes arising from Desender’s sordid past.

Finally, Walker caused Bixby to violate not only the private placement

memoranda, but the law that confers the privilege of offering securities privately.

Despite warnings from his counsel (more than one), Walker engaged in general

solicitations; knowingly attracted to Bixby hundreds of non-accredited investors; paid

millions of dollars to unregistered broker dealers; and, in the final analysis, presided over

a remarkably large unregistered public offering of stock identified to Walker as

problematically unlawful by both his securities attorney and by some of the institutional


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sources of money Walker briefly courted in 2008 through 2010. Walker heeded no

counsel to desist, as this type of fundraising was the lifeblood of Bixby.

“Angel Investors”

Walker and his accomplices, including the now-convicted Dennis Desender and

Gary Collyard, succeeded in raising $57 million exclusively from “angel investors.” An

“angel investor” is a term of art describing an ordinary individual unsophisticated in

finance and investments, who lacks the resources and knowledge to conduct a meaningful

due diligence review of the companies in which he or she decides to invest. Although

Walker attempted to raise some institutional money, he succeeded in raising money only

from angel investors. He told the angel investors, among other things, that Bixby had

hired an “independent” third party to “validate” Bixby’s gasification and liquefaction

technologies. Walker called the written product that supposedly validated Bixby’s

technology a “White Paper.” A gentleman by the name of Mike Maskarinec and his

company, MPX, Inc., authored this so-called White Paper. However, the government has

interviewed Maskarinec, who called his work to the government a “Position Paper.” He

specifically disclaimed that it was a “third-party validation” of Bixby’s technology, and

acknowledged that the data on which it was based was provided by Bixby itself.

Indeed, Bixby’s so-called White Paper failed to persuade any non-angel investor

that Bixby’s technology was sound. During the period of the scheme after the issuance of

the “White Paper” on February 1, 2009, Walker attempted to induce several sophisticated

persons and institutions to loan money to or invest in Bixby. These non-angel prospects

included Bostonia Partners; Laidlow Financial; Starwood Financial; Insight Enterprises,


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owned by Tim Crown; Deutsche Bank and Montgomery Street Financial Services, LLC

of San Francisco. Walker was unable to trick any of these non-angel investors into

believing his representations about Bixby. In fact, Bostonia roundly called Walker out on

the “White Paper.” The sophisticated investor readily discerned that Walker’s

“independent White Paper” was not independent at all inasmuch as it began with a

disclaimer that its inputs had been provided by Bixby and that its outputs were only as

good as its inputs. Bostonia urged Walker to hire a truly independent company affiliated

with the United States Department of Energy to genuinely validate Bixby’s technology.

However, Walker refused to do so. Instead, he scuttled sophisticated investors, and

continued flying around the country telling angel investors that they should invest their

money because Bixby’s “White Paper” validated its technology.

In part, Walker failed to raise any money from many of these companies either

because they had the technical skill and financial resources independently to evaluate

Bixby’s technology, or because they simply could not get logical, validating information

from Bixby itself. Bostonia, for example, considered financing the build-out of a Bixby

facility located in Chelyan, West Virginia, which Walker represented would be the

physical focal point of Bixby’s gasification technology. However, Bostonia was unable

to confirm the extravagant claims Walker made about the efficacy of the “Bixby

Process.” Further, sophisticated financers pointed out to Walker that Bixby’s historical

securities laws violations made investing in Bixby problematic.

The United States considers it probative of Walker’s fraudulent state of mind that

he knew he could not succeed in pitching Bixby to any investor with the resources and


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sophistication to evaluate Bixby’s true technology and prospects. The United States

considers it probative of Walker’s state of mind that sophisticated investors told Walker

that Bixby’s “White Paper” did not independently validate Bixby’s technology, and that

he should have a real firm do a genuinely independent study of the “Bixby Process,” but

that Walker refused. Instead, Walker simply continued to target angel investors by

telling them that Bixby’s “White Paper” had confirmed that Bixby’s technology had been

validated. As one of the government witnesses (Michael Membrado) observes in an

email to Walker, angel investors are “sold on hyperbole, not substance,” and Walker was

always long on the former and short on the latter.

Walker’s Fraud during the Corn Stove Period (2001 through 2006)

From 2001 through 2006, Walker defrauded Bixby’s shareholders in simple but

powerful ways.

First, Walker falsely passed himself off as a wealthy, successful business man.

Walker lured his victims by leading them to believe that he was responsible for the

financial success of Select Comfort Corporation, which most people recognize as a

national mattress company with a significant presence at large shopping malls. Walker

went so far as to tell some of his investors that he had “taken Select Comfort public,”

meaning that he had caused its shares to be traded on the NASDAQ stock exchange. He

even occasionally made this claim in writing. Many of the investors will testify that

Walker’s apparent track record of business success was a cornerstone of their decision to

invest in Bixby.


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However, the government will call two executives, formerly with Select Comfort

Corporation, who will conclusively debunk Walker’s assertion that he is in any way

responsible for Select Comfort’s financial success. The trial evidence will show that

Walker founded the company that became Select Comfort Corporation in the 1980’s. It

was owned by the Walker family and another investor named Poole. By approximately

1991, Walker had bankrupted the company. He thus sought and obtained an infusion of

venture capital from the St. Paul Companies. The venture capitalists were not content to

allow Walker to continue running the company, in part because Walker treated the

company’s money as through it were his own (which the venture capitalists warned

Walker not to do) and because Walker was an incompetent businessman and an

impediment to the company’s success. They thus ousted Walker, his wife Joann and their

children from the company. It was many years later that Select Comfort became

financially successful. Walker had little or nothing to do with Select Comfort’s financial

success or with its entry into the NASDAQ market. But he gained the confidence of

Bixby’s investors by falsely touting his “track record” at Select Comfort as a reason to

trust him to make Bixby the same kind of success he had assertedly made of Select

Comfort Corporation.

Second, Walker constantly told prospective shareholders that Bixby was on the

cusp of “going public,” an event that would make Bixby’s shareholders rich. Going

public was always just around the corner. Many people who invested between 2001 and

2006 will testify that the prospect of Bixby “going public” was an important

consideration in their investment decision. But the trial evidence will show that Bixby


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had absolutely no reasonable prospect of going public between 2001 and 2006 or, for that

matter, at any point during its existence. The discussion, below, of the Greene Espel

audit, and Walker’s concealment of it, will put a finer point on why Walker knew his

representations to prospective shareholders about Bixby’s imminent debut on public

markets was completely false.

Third, Walker concealed the fact that Bixby’s Chief Financial Officer had felony-

level fraud convictions. Disclosing Dennis Desender’s criminality would obviously have

made it difficult or impossible for Walker to raise money (or to go public, for that

matter).

The trial evidence will show that Walker learned about Desender’s fraud

convictions as early as 2001. Walker nonetheless employed Desender as Bixby’s

functional Chief Financial Officer because Desender had great skill at raising money

from angel investors. In fact, Desender brought more money into Bixby than any other

single person, except perhaps Walker.

During certain time periods, Walker engaged in the subterfuge of calling Desender

a “contractor” because calling Desender what he was – Bixby’s Chief Financial Officer –

would have rendered it openly unlawful, under the terms of Bixby’s private placement

memoranda, to pay Desender commissions for raising money. Walker needed Desender

to raise money for Bixby. Acknowledging that Desender functioned, in reality, as

Bixby’s Chief Financial Officer would have deprived Desender of millions of dollars in

commissions (Desender received more than $2 million in commissions between 2001 and

2006 for selling Bixby stock) and thus his motivation to sell Bixby stock. Walker had


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payments to make on his 12,000-square-foot mansion. He could not risk dis-

incentivizing his primary fund raiser, Desender, especially since, for a significant period

of time, Walker was forcing Desender to split his commissions with Walker (see

discussion below of the Greene Espel audit). Walker thus needed to call Desender a

“contractor” or risk losing the money Desender brought into Bixby.

Finally, from 2001 through 2006, Walker and his daughter, Melanie Bonine,

embezzled money from Bixby in a variety of ways. It appears that they both received

funds which were disguised in Bixby’s general ledger as legitimate business expenses.

At a minimum, they both received substantial funds from Bixby, booked in the general

ledger as such things as “Research and Development,” for which there is no backup.

Walker’s family received over $500,000 in “reimbursements” which, at best, lack

sufficient backup. Although Bixby’s records are as incomplete as they are a mess, it is

clear that Walker charged Bixby’s shareholders for personal items. For example, the

Thomas Kincade painting that hung above Walker’s fireplace in Ramsey for years was

paid for by Bixby’s shareholders in 2003.4

The 2006 Audit

The trial evidence surrounding the 2006 audit of Bixby, and the events in the first

few months of 2007, will shed a powerful, bright light on Walker’s real view of Bixby –

that Bixby was his company, and its purpose was to fund his lavish life-style, to slake his

4 As noted below, Bonine also capitalized on Bixby’s fraudulently-bolstered status by selling Bixby warrants to third parties for hundreds of thousands of dollars. She willfully failed to report the sales proceeds as income, leading to her recent plea to filing false tax returns.


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intense appetite to be seen as a world-saving visionary, and to provide support for his

daughter, Melanie Bonine.

By the middle of 2006, Walker had told so many Bixby shareholders that Bixby

was soon to go public that he needed to try to make his oft-repeated representations come

true. A company going public is required to have three years of audited financial

statements. Bixby had none. The trial evidence will show that, in 2004, Bixby briefly

engaged KPMG to conduct an audit, but KPMG withdrew when Bixby failed to pay its

fees. In March 2006, Bixby re-engaged KPMG to prepare the audited financial

statements required to go public.

KPMG, a reputable public accounting firm, quickly discovered troubling financial

and ethical issues at Bixby. It discovered, for example, that Bixby significantly (and the

trial evidence will show, deliberately) overbooked sales of corn stoves to inflate its

revenues, a fact well known to Walker (see discussion of Walker’s December 4, 2006

email to Arnold Angeloni below). It discovered some of the inappropriate payments

discussed above. But most significantly, it discovered Desender’s theretofore

undisclosed criminal history and the criminal histories of multiple, other employees and

associates. It reported these findings to the Audit Committee of Bixby’s Board of

Directors, headed at the time by a reputable executive formerly associated with Cray

Research, Inc. named John Carlson. Carlson and KPMG decided that a forensic audit of

Bixby was required to get to the bottom of the issues KPMG had uncovered. The Audit

Committee thus hired Deloitte Financial Advisory Services, LLP (“Deloitte”), to conduct


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a forensic audit, and Greene Espel, P.L.L.P. to act as counsel to the forensic auditing

process.

In the meantime, Walker feigned shock at KPMG’s revelation that Desender had a

criminal history. In July 2006, Walker reported to David Dean, a Rider Bennett attorney

serving at the time as Bixby’s corporate counsel and secretary of its Board of Directors,

that he had just learned about Desender’s criminal history. Now caught entrusting with

Bixby’s finances a person convicted of felony-level financial crimes, Walker, cornered,

asked for and received Desender’s “resignation” from Bixby on July 24, 2006. However,

the trial evidence will show that Walker never let Desender venture far from the Bixby

fold.

To replace Desender, Walker hired a financial executive with integrity named

Michael Brodeur. Brodeur worked with the Audit Committee to coordinate the forensic

audit. In November 2006, John Carlson passed away. The former Chief Executive

Officer of AmericInn International, LLC, Arnold Angeloni, became chairman of the

Audit Committee. Another former executive, Wendell King, also served in the Audit

Committee and supported the forensic audit.

In the last quarter of 2006, Greene Espel and Deloitte did exactly what forensic

auditors are supposed to do. They dug into the interstitial details of Bixby’s affairs.

They interviewed numerous Bixby employees. They examined bank records. They

examined Bixby’s books and records, including its Quickbooks compilation and its

general ledger. And they imaged computers, including the one that had been used by

Dennis Desender. This investigation revealed significant, inappropriate commissions


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being paid to officers of Bixby (which the private placement memoranda expressly

forbade); significant commissions being paid to persons who were not registered broker-

dealers (which the securities laws of the United States forbade); and significant,

inappropriate payments being made to Walker’s family, including to Walker himself, to

his daughter, Melanie Bonine, and to her husband.

Perhaps most significantly, the investigation revealed that Dennis Desender was

splitting his commissions for selling Bixby stock with Walker and Melanie Bonine. In a

written, draft report dated December 11, 2006, Greene Espel summarized numerous,

apparent violations of the private placement memoranda (primarily that hundreds of

thousands of dollars were being paid to officers and directors of the company, or to their

relatives); various violations of the securities laws of the United States (including the

payment of millions of dollars in commissions to unregistered and unlicensed persons,

including, Melanie Bonine, Desender and Gary Collyard); and Desender’s commission-

splitting payments to Walker. In addition, the draft Greene Espel report revealed that

several of Bixby’s key employees, in addition to Desender, had significant criminal

histories, including its vice president of sales; its sales manager; and Gary Collyard (who

received over $400,000 in commissions for selling Bixby stock prior to the audit). Put

bluntly, the draft Greene Espel report revealed an orgiastic concatenation of incestuous

payments, crooked characters, securities law violations, and blatant and repeated misuse

of shareholder funds to enrich Walker and his accomplices. In addition, David Dean of

Rider Bennett had concluded that Bixby’s stock offerings violated the Blue Sky laws of


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several states, and recommended that Bixby offer a rescission to some or all of Bixby’s

shareholders.

Any Chief Executive Officer genuinely concerned about the welfare of his or her

shareholders would seek to shine a light on issues like those uncovered by the forensic

audit and Rider Bennett. A well-intentioned manager would quickly seek to correct the

venality and unlawfulness permeating Bixby, and seek to put his or her company on track

to comply with state and federal law.

But not Robert Walker. Upon learning that he was in its cross-hairs, Walker

insisted that the audit be terminated because “Bixby could not afford it.” However,

Bixby’s Audit Committee, in the persons of Arnold Angeloni and Wendell King, and

Bixby’s Chief Financial Officer, Michael Brodeur, directed Greene Espel to continue its

audit work. Walker responded aggressively. On November 27, 2006, Walker fired

Brodeur. Three months of a Chief Financial Officer with integrity was enough for

Walker. Then, on December 4, 2006, Walker sent Angeloni an emailed ultimatum.

Angeloni was to terminate the audit or resign. Walker’s email to Angeloni could scarcely

be more incriminating. The email is appended to this Trial Brief as Exhibit 1. However,

in summary, Walker wrote:

• Bixby was out of money; it could not pay its vendors and had enough to pay only one week of payroll

• Up to $400,000 in Bixby’s corn-stove sales were (Walker had just learned)

fictitious, making the auditing fees all the more unaffordable


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• There was no need for audited financial statements because Bixby was not in a position to go public: “Even thinking about an IPO at this point in time is completely out of the question”

• The auditors would not finish the audit unless Bixby offered a rescission to its

shareholders: “At this point in time, that would be absolute corporate suicide because we could not afford to pay back even one person who would want to rescind their investment”

• The audit process would have to be disclosed to prospective shareholders,

inhibiting fund raising: “However, if Bixby terminates the auditors from doing an audit at this point in time, there is no longer anything relating to any audit to disclose going forward. This is the only thing we can do to keep our fund raising within the scope of what is appropriate.”

• “I appointed you temporary Chairman of the Audit Committee. In that role, I am

now directing you to inform the auditors that we are ending all the audits today and terminating our relationships with them . . . You indicate that this would put you into a situation that would give you exposure that you do not want and would have no choice but to resign from the board. If that is your decision then I certainly understand and respect that. If you are resigning, I need to know immediately so that I can inform the auditors of my decision today. I have investors coming in tomorrow and want to obtain their investment without any issues.”

The next day, Walker wrote directly to Jeanette Bazis at Greene Espel. Walker wrote:

“One of the realities that I have come to is that, with everything going on here, this company is in no shape to be considering going public in the foreseeable future . . . Therefore I, regrettably, must terminate our relationship with Greene Espel effective immediately. Please accept this email as our formal notice to you.”

The same day, Walker terminated Bixby’s relationship with Rider Bennett.


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Despite Walker’s attempts to stop the audit, the Bixby’s Audit Committee

(Angeloni and King) instructed Greene Espel and Deloitte to continue their work.

Walker therefore concocted a scheme to oust them.

Desender will testify that he had lunch with Walker at the Monte Carlo in

December 2006 during which Walker stated that the Board of Directors and the auditors

were “closing in on them.” In order to oust the outside directors, Walker, Desender, and

his accomplices (including his wife, Joann and his daughter, Melanie) began calling

Bixby’s shareholders, urging them to vote their shares in favor of ridding the board of

Angeloni and King. The Walker cabal’s story was simple. Angeloni and King wanted to

shut down Bixby. If Angeloni and King remained on the board, all of the shareholders’

money would be lost. Walker told nobody about the real reason he wanted to oust

Angeloni and King – that they were promoting a forensic audit that had already disclosed

Walker’s misuse of Bixby’s shareholder funds.

Walker’s gambit worked. Walker garnered enough votes from the misinformed

shareholders to oust Angeloni and King. With Bixby’s Audit Committee fraudulently

dismantled, Walker terminated the forensic audit and immediately brought Desender

back into Bixby to continue raising money.

But of most significance, Walker completely concealed Greene Espel’s audit

findings. Specifically, Walker replaced Angeloni and King with two new and unwitting

board members, businessman James Bergeron and Gil Gutknecht, a former member of

the United States House of Representatives from Minnesota’s First Congressional

District, without telling either of them anything about Greene Espels’s audit findings. It


22

is one thing to terminate an audit because it is too expensive but to nonetheless take its

findings seriously. But Walker terminated the audit, buried its findings, and then

continued to run Bixby in the same objectionable manner identified by Greene Espel and

Deloitte, with one exception.

Walker did not dare to continue to take commission-splitting kickbacks payments

from Desender after Deloitte discovered them. But Walker had house payments to make.

Thus, Walker sought from Bixby’s new Board of Directors a salary increase from

approximately $130,000 per year to $325,000 per year.5 He justified this increase on a

projection that Bixby would have $25 million in sales revenues in 2007. But Walker

knew that Bixby did not and would not have such revenues. The corn-stove sales were,

as he reported to Angeloni and Bazis, overstated, and the company was out of money.

Further, the corn-stove market had suddenly imploded in late 2006, and Walker intended

to exit that market. But the new board did not know these facts, were new to Bixby,

trusted Walker, and therefore approved Walker’s salary increase, with the caveat that

Walker not take the increase until the projected revenue figure was actually reached.

Bixby jettisoned its stove business shortly thereafter and Bixby never had revenues again

(except small, residual revenues from left-over stoves, sold at steep discounts, largely on

Ebay). Walker took the salary increase anyway. For four and a half years, Walker was to

5 Walker had granted two mortgages on his Ramsey home. The monthly payment on the first mortgage, by itself, was approximately $7,800 per month. Thus, the payment of Walker’s first mortgage, alone, required an annual outlay of over $93,000. It is not hard to understand why Walker had to boost his salary from $130,000 to $325,000 after his kickback arrangement with Desender had been discovered.


23

preside over a company with almost no revenues while he collected, on the backs of the

shareholders to whom he lied every day, more than $1.4 million in salary alone.

Walker’s cover-up of Greene Espel’s findings lasted far beyond early 2007. In

2011, two members of Bixby’s Board of Directors (James Bergeron and Gil Gutknecht,

discussed below), requested copies of the draft Greene Espel report. Walker fought

tenaciously to withhold it from them. When other persons, such as Alex Boylan, a Bixby

employee and shareholder, exposed Greene Espel’s audit findings in an email to Bixby’s

shareholders (which he sent under a pseudonym), Walker sued him for slander, even

though Boylan’s information was accurate.

The story of the forensic audit of Bixby, and Walker’s cover-up of its fruits, is

exceptionally powerful evidence that Walker attacked and crushed any person threatening

to separate Walker and his family from Bixby, the Walker family trough, which was

perennially replenished with the hard-earned money of its shareholders.6

Walker’s Fraud during the Coal Gasification Period (2007 through May 2011)

In the last half of 2006, when market forces destroyed Bixby’s corn stove

business, a gentleman named James Lamoureaux introduced Walker and Desender to a 6 Another trial theme will be that Walker accomplished his fraud by distributing propaganda falsely claiming that everything at Bixby was progressing as planned and expected. As noted, when somebody like Alex Boylan or, on another occasion, William Paatalo, debunked Walker’s propagana, Walker sued them for slander. However, eventually the Bixby shareholder community which doubted Walker’s bona fides attained to a critical mass Walker could not sue, and began expressing collective doubts about Walker on two blogs, principally “Bixby Talk” and “Bloggingthegreen.” The trial evidence will show that Walker and his daughter, Melanie Bonine, sometimes aided by a shareholder named Sandra Newvine, deleted negative posts; shut down blogging websites; and counter-posted false, positive information about Bixby’s business prospects. Walker dovetailed the propagation of false positive information about Bixby with suppressing true, negative information about Bixby to maintain his fraudulent hold on the company.


24

company in Locust, North Carolina called Bio-Mass Energy, which was developing a

machine designed to “gasify” coal. In approximately late 2006, Walker and Desender

traveled to Locust to view the machine, affectionately known as Mabel. There Walker

and Desender met Richard Tucker, the owner of Bio-Mass Energy; Ron Baker, who was

assisting Tucker in attempting to develop the machine; and Sherman Aaron, who had

been hired by Tucker to fabricate the heating elements for the machine.

According to Walker, the goal of coal gasification is to produce high-quality,

“pipeline ready” “syngas” by heating coal in a vacuum. To be considered “pipeline

ready,” the gas must contain 90 percent methane, and contain more than 1,000 BTU’s of

energy per cubic foot. Essentially, a coal feedstock enters the machine; the coal is

transported to an oxygen free chamber where it is heated to approximately 1,600 degrees;

and syngas is then extracted from the system. The process creates a carbon byproduct,

which exits the machine after gasification is complete.

Despite Walker’s constant bluster to the contrary, Bixby was never able to develop

a commercially-viable coal gasification unit that worked. Even as of this writing, there is

no such thing as a Bixby coal gasification machine that works as advertised by Walker

anywhere in the world. A brief history of Bixby’s attempts to develop the machine will

assist the Court in following the trial evidence.

Almost immediately after Walker’s trip to Locust, North Carolina, Walker began

telling Bixby’s shareholders, through the shareholder newsletter (Bixby Blaze), that

Bixby had developed a “revolutionary” technology that could turn coal into natural gas or

syngas. Walker’s representations were false. The Locust machine, called “Mabel,” never


25

worked properly. Even as Walker trumpeted that Bixby had entered into one of the most

important agreements in its history with Bio-Mass Energy to produce the machines,

Walker’s contemporaneous emails with Baker reflected Walker’s intent to abrogate that

agreement by attempting to develop a similar but different machine at a facility in North

Wilkesboro, North Carolina owned by Sherman Aaron and his company, Industrial

Process Solutions, under Baker’s supervision.

In approximately the middle of 2007, Bixby abandoned Mabel, and began

attempting to develop a quarter-scale coal gasification machine later called “Coal Junior.”

Of course, Walker did not inform his shareholders that reality forced Bixby to abandon as

junk the machine he told the shareholders would revolutionize the energy industry.

Baker became an employee of Bixby, and assisted Aaron in beginning to develop

the new quarter-scale unit in North Wilkesboro. It is critically important to understand

that Bixby had provided neither Aaron nor Baker with any specifications for a working

gasification machine, despite the fact that Walker was traveling through the United States

telling people that Bixby had developed a new technology in which they should invest

their money. Rather, Aaron, who is a fabricator (essentially a welder), and Baker, who

has a bachelor’s degree in engineering who spent years working for Michelin Tires,

essentially felt their way along a dark tunnel with numerous false passageways that led to

nowhere. The only direction Walker or Bixby gave to these gentlemen was: make a coal

gasification machine that works. In a 2011 deposition, Baker aptly likened Walker’s

charge to him and Aaron to the Air Force telling a defense contractor, without more:

“make us a war plane that goes Mach 2.”


26

Here’s the point: At no time was Bixby’s venture into the world of coal-

gasification anything other than a research and development project undertaken by two

marginally qualified individuals working with inadequate capital in a small warehouse

located in North Wilkesboro, North Carolina. At best, the entire venture amounted to a

lottery ticket which Walker fraudulently induced his victims to purchase by the millions

by telling them, over and over again, that it had already won.

Predictably, Aaron and Baker struggled and failed in their efforts to create a

commercially-viable coal gasification machine, and Walker was well aware of their

inability to keep the extravagant promises he made to his victims.

Between roughly the middle of 2007 through the end of 2008, Aaron and Baker

tried to cobble together a quarter-scale machine that worked. They tweaked the machine

repeatedly, creating different iterations of it to try to get it to work. First, as previously

noted, there was Mabel, which was quickly abandoned. Then Aaron and Baker began

working on a “fluidized bed” machine that relied on hot gas to transport the coal through

the machine. The initial “fluidized bed” machine failed, primarily because it clogged and

had to be shut down. In approximately the middle of 2008, they began working on a

machine that utilized a “loop system,” a different design altogether. During this time, to

study the flow of the coal through the machine, Aaron and Baker constructed plexiglass

tubes, and blew cold coal through them to see where the coal was likely to clog.

The trial evidence will show that Walker was aware of all of this. Baker kept

Walker informed through phone calls and emails of the numerous tweaks and design

changes the machine underwent in 2007 and 2008. Walker was aware, for example, that


27

the fluidized-bed machine clogged, and knew that Aaron and Baker were conducting

cold-flow testing using the plexiglass tubes. Walker knew that Aaron and Baker were

never able to produce a quarter-scale unit that could be run for more than a few hours

without clogging. Yet during this entire period from 2007 through the end of 2008,

Walker described Bixby’s coal gasification technology as a fait accompli, ready “right

now” to begin making “pipeline quality” gas in a commercially viable manner. Walker

never told his shareholders that two undercapitalized guys in North Carolina7, one a

welder, the other a factory-floor engineer, neither of whom had plans or specifications,

without engineering or scientific support, and short on funds, were attempting to

accomplish what Walker represented as having already been accomplished.8

In fact, Walker’s conduct was the antithesis of acknowledging the lottery-ticket

nature of an investment in Bixby. In July 2008, Walker hired a production team to create

a promotional video featuring Bixby’s coal gasification process. This high-quality, high-

production video featured Walker telling his audience that Bixby’s coal-gasification

technology was ready for market, “not in the future, but right now.” It showed video of

Bixby’s fluidized-bed machine – which did not work – with a voiceover representing that

7 Baker and Aaron frequently ran out of money. 8 There is a good analogy known to fans of the old Star Trek to Aaron and Baker’s long-shot attempt to develop gasification in North Wilkesboro. In the episode, “City on the Edge of Forever,” Kirk and Spock are transported to the time of the great depression. With no materials and no plans, Spock tried to create a technology to see into the future. He was not sanguine about his chances. He famously stated, to Joan Crawford’s character, when she asked Spock what he was doing: “I am endeavoring, ma’am, to construct a mnemotic memory circuit using stone knives and bear skins.” Spock knew that he was working on, at best, a long shot. If Walker had only leveled with his shareholders that their investment was a longshot, that Aaron and Baker were effectively working with stone knives and bearskins to make gasification a viable technology, perhaps a portion of this prosecution would have been unnecessary.


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it was a “Bixby machine in operation.” Walker was actually present during the shoot,

and knew that a gas line fed into the back of the machine made it appear operational

when it was not. The government intends to show this video during its opening statement

because it features Walker making some of the most florid misrepresentations in the

entire case. After seeing it, the jury will understand why so many people purchased the

lottery ticket that Walker passed off as a sure thing.

By December 2008, Aaron and Baker had taken “Coal Junior” as far as they could

take it. It was a version of the “loop” gasification system, worked only for short periods

of time (during which Walker exhibited it to potential investors), but it could not sustain

extended runs without clogging.

No further development work was done on the machine during 2009 because

Bixby was short on money (although Walker collected his salary uninterruptedly).

Walker instructed Aaron and Baker to “keep their powder dry,” and in a written

agreement, formally released Aaron to work on a machine that gasified municipal solid

waste for a company called “D4.”

Yet during 2009, Walker kept trying to raise funds by telling prospective

investors, often with the help of the July 2008 video, that Bixby’s technology was fully

developed. To fully understand how badly Walker misled his victims in 2009, it is

critical to understand that the syngas produced by coal gasification is only one element

driving its economic viability.

The Carbon. The trial evidence will show that the economics of coal gasification

turn on finding lucrative uses for the carbon byproduct. Even if gasification worked,


29

selling the gas alone would be unprofitable. In several different emails, Walker

acknowledges that there can be no profit from gasification unless the carbon byproduct

can be made into a profit center. Several witnesses in the case used the expression, “[I]t’s

the carbon, stupid,” to make the point that you can make no money merely by turning

coal into pipeline-quality natural gas. You also have to put the carbon to a lucrative use.

Walker concocted numerous, evolving explanations to prospective investors about

how Bixby would make profits from the carbon byproduct. He told many prospective

investors that the carbon byproduct generated by Bixby’s gasification machines was

“fully activated.” “Fully activated” carbon denotes a carbon of substantial porosity that

makes it useful for certain kinds of filtration. Walker told many investors that Bixby’s

gasification process created the best, fully-activated carbon in the world, and could thus

be sold at a substantial profit. However, Walker knew better. In fact, on March 7, 2009,

a carbon expert from the University of Florida named David Mazyck examined carbon

represented to him to have come from a Bixby gasification machine, and found merely

that, with further processing (and presumably expense), it could be made into fully

activated carbon.

Alternatively (or perhaps cumulatively), Walker represented that the “Bixby

Process” included not just gasification (syngas from coal), but liquefaction (liquid fuels

from the carbon byproduct of the coal gasification process). Liquefaction, represented

Walker, would create an unending market for Bixby’s carbon byproduct. And Bixby,

represented Walker, had developed liquefaction and proven its viability.


30

A speech Walker gave in China in August of 2009 provides an excellent example

of the tapestry of canards Walker concocted about the “Bixby Process” to raise money for

Bixby. Gil Gutknecht, one of Bixby’s board members, knew Jeff Wiseman, a staffer for

Gutknecht when Gutknecht served in the House of Representatives. By 2009, Wiseman

had become a principal in a company called Global Partners United, LLC (“GPU”),

which had relationships with certain Chinese parties interested in energy alternatives for

China. Wiseman and his partners, Jason Moore and Susan Xiu, invited Walker to pitch

Bixby’s technology to a large group of well-positioned Chinese nationals. In August

2009, Walker traveled to China without other Bixby personnel to deliver the speech.

Predictably, Walker’s speech was rife with misrepresentations and hyperbole. He

represented to the Chinese that Bixby had completely solved gasification and

liquefaction. He told the Chinese that they could have fully-scaled up gasification

machines being installed in China within a time frame of just months. Similarly, he

represented to the Chinese that, very shortly thereafter, they could have Bixby’s

liquefaction machines – for free, at that – which would obviate China’s dependence on

foreign sources of oil (China has a lot of coal, but very little fossil fuel). Walker’s speech

set off a firestorm of interest in China.

The Chinese subsequently ordered 5 “test machines” for $4.5 million. Each test

machine was the subject of an “Initial Test Agreement” which provided that GPU would

provide Bixby with a “temporary rental fee” of $900,000. In return, Bixby agreed to

“build, test, package and ship the unit to a Chinese port designated by GPU” within 90

days of receipt of the fee. Once installed in China, if GPU was satisfied with the


31

machine’s performance, GPU had the option of paying Bixby a “technology usage fee” of

approximately $2,000,000. However, “[i]f GPU elects not to use the system any further,

it will return the unit to Bixby in good condition, freight prepaid, without further

obligation.” The test agreements were thus not final orders for machines. GPU entered

into the agreements so that its Chinese customers could determine whether or not the

Bixby gasification machines worked.

However, the emails Walker sent from China and shortly after his return from

China reflect his knowledge that Bixby could not perform its obligations under the test

agreements. Walker’s prescient words were: “Now we have to do the impossible.”

Walker’s prescient anticipation of failure was built on substantial fact. Bixby’s

gasification machine was the same quarter-scale, barely-functioning prototype that had

been on the ground in North Wilkesboro since December 2008. And Bixby had no

liquefaction, as Walker’s emails to Mike Catto of TekGar and Sam Weaver of Proton

Power clearly reflected.

Thus, when the first Chinese money came into Bixby in the amount of

approximately $900,000 in December 2009, events were unleashed that led inexorably to

lawsuits which would eventually be brought against Walker and Bixby by GPU.

Between December 7, 2009 and July 1, 2010, Bixby received $4.5 million from GPU.

Walker sent $2.1 million of this money to Sherman Aaron to “scale up” the quarter-scale

Coal Junior, itself plagued with problems to commercial specification. Again, neither

Walker, Baker, Aaron, nor anybody else at Bixby, knew how to scale up the machine. As

Walker knew, there were no plans; no drawings; no specifications; and no calculations.


32

Similarly, there were no thermal engineers, metallurgists, or any other experts to assist in

the project. Essentially, Walker said to Baker and Aaron: “Here’s some money. Take

the quarter-scale unit that does not presently function, and scale it up to full size.

Hopefully you can get it to work so we can send it to China.” And the long-shot bet

Walker made on the gasification machine (with other people’s money) was safe money

compared to any money Walker’s victims thought they had invested in liquefaction,

which did not and never did exist.9

And doing the impossible turned out, in fact, to be impossible. Bixby had no

ability to keep Walker’s initial promise of delivery within 90 days. Baker and Walker

communicated often about the developments in North Wilkesboro. By late June 2010,

Baker had made Walker aware that he and Aaron had failed to complete even one

working, commercial-sized gasification machine. Although a large, metal machine had

appeared outside of the North Wilkesboro warehouse of Industrial Process Solutions, the

machine did not work. In fact, it experienced structural failures, which Walker later

described, in his deposition taken in connection with a lawsuit he subsequently filed

against Sherman Aaron, as the machine “crushing itself.” On June 28, 2010, Walker

wrote an excoriating letter to Aaron about the failure of Baker and Aaron to make the

lottery ticket a winner. The letter is appended hereto as Exhibit 2. 9 The government acknowledges that Walker wanted the machine to work. Walker certainly did not want Bixby to fail. Everybody who buys a lottery ticket hopes that the ticket turns out to be a winner. Walker would have loved to have actually become the visionary world-saver he represented that he was. But there was never a reasonable chance that the future of energy production was going to be revolutionized from a small warehouse in North Carolina without the support of serious scientists and engineers with substantial capital and resources. Walker needed to be rescued, as he was with Select Comfort, but refused any attempt to weaken his grasp on Bixby.


33

That same day, Walker caused Bixby to send out a press release representing to

the public that Bixby had perfected gasification and that it was ready for market. The

lottery ticket, said Walker out of one side of his mouth, was a winner, even as the other

side of his mouth uttered angry epithets about Aaron’s inability to “get the unit to work

properly.” The press release is appended hereto as Exhibit 3.

Aaron reacted angrily to Walker’s excoriating email, and locked Baker and other

Bixby personnel out of Industrial Process Solutions. Walker then sued Aaron, and

succeeded in getting a Hennepin County Judge to order Aaron to release the defunct

machine to Bixby. It was then transported to a new fabricator by the name of Vigo

Machines, located in Terre Haute, Indiana.

There, it was scrapped. Walker testified in his deposition that the machine was

junk, and that Aaron had created no value in the more than 3 years of work he had

invested in the various iterations of Coal Junior, and in the commercial unit scrapped at

Vigo. But Walker concealed and misled investors regarding these failures. Instead, he

continued, without so much as a stutter-step, telling the world that Bixby had found the

solution to the world’s energy problems.

Vigo Machines. Walker’s misrepresentations certainly had no support in anything

that occurred at Vigo Machines. After scrapping Aaron’s commercial-sized unit, Vigo

succeeded in manufacturing a unit from scratch (again, with no real plans, specifications

or drawings supplied by Walker or Bixby), which was shipped to China in September

2010. Other units followed. In total, Vigo shipped three units to China between

September 2010 and approximately the middle of 2011.


34

However, Walker had no basis to know, one way or the other, whether any of

these machines worked. In fact, he testified at his deposition that nobody knew if they

worked. They were to be tested in China. They were not tested or operated in the United

States and, in some cases, they were sent to China well before they were even equipped

with the electronic components required to operate at all.

Further, and perhaps more fundamentally, Bixby never produced, much less

shipped to China, a single liquefaction unit. Walker’s representations to the Chinese in

August 2009 that Bixby would quickly ship “free” liquefaction units to China within

months of giving his speech, specious when made, never came true.

Going Public. Despite Bixby’s failure to produce even one scaled-up, working

gasification machine, and its failure to produce any liquefaction technology, Walker

persisted in telling prospective shareholders that Bixby was very close to “going public.”

In some cases, Walker played the “going public” card to impart to a prospective investor

a false sense of urgency by intimating that, if the investor did not invest quickly, it would

no longer be possible to “get in” on the “ground floor.” He often undergirded this claim

by reminding prospective investors that he took Select Comfort public and that he was

going to do the same for Bixby. No matter what was going on at Bixby, Walker always

sold its stock by telling shareholders that their shares would soon be publically traded.

Walker never had a reasonable basis to tell anybody that Bixby would soon be a

public company.

Some background may assist the Court and, ultimately, the fact-finder to

understand why Walker’s repeated statements that Bixby was soon to go public was


35

merely fraudulent bluster. At no time in its history did Bixby ever make a profit. As

noted above, from 2001 through 2006, Bixby had some revenues from its residual sales

of corn stoves. However, the market for corn stoves suddenly vanished in late 2006, a

fact that will not be disputed at trial. Thus, from 2007 through 2011, Bixby not only did

not have profits, it also had almost no revenue. Indeed, it did not have a viable product,

or any basis for believing that it would have a viable product. Walker acknowledges in

several emails that he knew that it was impossible or improvident for Bixby, a company

with no revenues, to attempt to “go public.”

But Walker made so many representations that Bixby was going to become

publically traded – representations he made in speeches at gatherings of prospective

shareholders and representations he made to existing shareholders in the “Bixby Blaze,” a

propaganda piece which Walker distributed to existing shareholders roughly every two

months between 2003 and 2010 – that the idea of going public gathered to itself a

momentum which Walker felt obliged to clothe in the garb of reality.

Thus, Walker caused Bixby to hire a New York securities attorney named Michael

Membrado, who tilted at trying to make Bixby a United States public company through a

reverse merger. However, the process was fraught with insuperable difficulties, not least

of which was the obvious need for Walker to commit the same fraud on the investing

public as he committed on his angel investors.

This point is driven home by the Form S-4 Membrado submitted to the Securities

and Exchange Commission on Bixby’s behalf on April 10, 2009, one of the steps

required to “go public” in the United States. The S-4, itself, was fraudulent.


36

First, Walker represented in the S-4 (mediately through Membrado) that “Bixby’s

carbon conversion technology is believed to be uniquely efficient in its ability to produce

synthetic natural gas, semi-coke, activated carbon, coal tar, coal oil, and, eventually,

crude oil and other synfuels.” As pointed out elsewhere in this brief, Walker had no

reasonable basis to make these representations. The S-4 makes no mention of Desender

or his checkered past. And the S-4 purports to be supported by “audited financial

statements” prepared by Sherb & Company, LLP, a public auditing firm out of New York

recently debarred by the Securities and Exchange Commission for professional

misconduct resulting in materially misleading audited financial statements.

Whether Sherb was witting or unwitting, as to which the government ventures no

guess, the Bixby “audited financial statements” prepared by Sherb for the years 2007

through 2010 were all fraudulent. They make no mention of anything relating to the

fraud findings of KPMG, Deloitte and Greene Espel. That’s because Walker lied to

Sherb – outrageously – in response to Sherb’s “Fraud Risk” questionnaires, a few of

which are appended hereto as Exhibit 4. Walker represented to Sherb in each

questionnaire that Bixby was entirely free even from allegations of fraud. In response to

the question, “How do you make it clear to employees that fraudulent or unethical

behavior will not be tolerated,” Walker wrote, in his own hand: “Absolutely.

Termination would be the penalty.” Walker’s representations to Sherb were plainly

ludicrous.

Given the difficulties with “going public” in the United States, in 2010, Walker

caused Bixby to attempt to become publically traded on an English stock exchange called


37

the Alternative Investment Market. Walker hired a London firm called Lothbury

Financial to act as Bixby’s advisor in Europe. However, Walker again used the

fraudulent Sherb “audited financial statements” in the application process in Great

Britain. Further, Lothbury eventually advised Walker that Bixby would have to become

a revenue generating company in order to successfully go public on the London

exchange.

Since Bixby had no revenues, Walker ginned some up. In April 2010, Walker

gave a speech in London to a conference sponsored by SMI (an event planner for, among

others, the energy industry) in which he represented to his audience that Bixby had

received $12 billion in orders from China and over $1 billion in orders from Canada. He

later denied making these claims, but a newspaper reporter wrote a story based upon

Walker’s speech, and a powerpoint which the government obtained from Bixby of the

speech reflects these outlandish numbers.

Walker’s fraudulent London speech underscores the fundamental reason Bixby

could never go public and Walker knew it. Bixby had no revenue. It had no reasonable

prospect of getting revenues.10 To “go public” would have required Walker to lie about

these matters to the investing public, as he did during the London speech. But despite all

of these insuperable barriers to going public – Bixby’s failures to produce the “Bixby

Process;” Bixby’s lack of revenues; Bixby’s inability to produce three years of non-

10 The trial evidence will show conclusively that Bixby struggled constantly and profoundly to pay its vendors. During October 2010, for example, Baker implored Walker to pay the bills owing to Vigo, which had shut down production of the gasification machines for nonpayment. Walker defaulted on every obligation Bixby had, except for payroll. Bixby never failed to pay Walker’s salary, not once.


38

fraudulent audited financial statements; and Bixby’s perennial problems in paying its

creditors, Walker kept right on telling angel investors that they should invest because

Bixby would soon be a public company. To angel investors, Walker could sell the sizzle

even though he did not have the steak.

However, Walker did not have the same luck with the principals of GPU, or with

the members Bixby’s Board of Directors, who grew intolerant of Walker’s growing string

of lies and broken promises.

Events Culminating in the Dual-Lawsuits Brought by GPU and Board Members Bergeron and Gutknecht against Walker.

The events of 2010 and the first two quarters of 2011, including Walker’s

continuing dissemination of false information about Bixby’s prospects, coupled with

Bixby’s fundamental failure to deliver technology to GPU’s Chinese clients, caused GPU

and board members Bergeron and Gutknecht to turn against Walker. For example,

Walker’s London speech caused particular consternation at GPU and within Bixby itself,

prompting a call by even Walker’s accomplices for a formal retraction. Further, Walker

continued to disseminate false information to Bixby’s shareholders in direct emails and

so-called “shareholder letters” he wrote himself.

In February 2011, for example, Walker wrote a letter to Bixby’s shareholders

which Bixby’s attorneys, Bill Mauzy, Piper Kenney and Peder Davisson, all advised

Walker not to send. Walker’s February 2011 letter is appended hereto as Exhibit 5. They

presciently advised Walker that “an Assistant United States Attorney” would view the

letter as a violation of the wire fraud statute because the letter was intended to “lull”


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Bixby’s shareholders. The attorneys’ emails are appended hereto as Exhibit 6. And it

was lulling. In it, Walker made promises about shipping gasification machines to China

which he knew he could not keep, and blamed certain Chinese officials and outside

circumstances for Bixby’s failure to deliver and install working gasification machines in

China. The letter embarrassed and infuriated GPU.

Walker was not faring much better with Bergeron and Gutknecht. Bergeron, a

business executive with integrity, pointed out in numerous emails to Walker, which he

shared with his fellow board members (Gutknecht, Walker, Kenneth Casavant,11

Walker’s brother-in-law, and Phillip Wood, an Englishman affiliated with Lothbury

Financial to whom Walker sent several hundred thousand dollars in consulting fees to

buy his loyalty), that Bixby had raised tens of millions of dollars from angel investors

with nothing to show for it. It was time, in Bergeron’s view, for Walker and Desender to

defer receiving half of their salaries (Bergeron specifically requested Walker to work for

$162,000 a year until Bixby became a revenue-generating company) and for Bixby to

stop paying money to Walker’s children.

Walker would have none of it. In a remarkable email to Baker and outside

director Phillip Wood, Walker’s allies, (appended hereto as Exhibit 7) which the

government will introduce during the trial, Walker wrote that Bergeron’s request was

tantamount to destroying Bixby. Perhaps no other email in the case lays so bare Walker’s

11 Kenneth Casavant has been a respected Professor of Transportation Economics at Washington State University for many years and does not appear to share Walker’s penchant for lying. He happens to be married to Walker’s wife’s sister, and agreed to serve on Bixby’s Board of Directors at Walker’s request.


40

view that Bixby’s purpose was to raise funds for himself and his family members. There

is simply no other explanation for Walker’s characterization of Bergeron’s reasonable

request in such apocalyptic terms.

As a result of Walker’s continuing misrepresentations about Bixby; Walker’s

failure to deliver working machines to China on schedule; Walker’s refusal to defer the

receipt of half of his salary and his refusal to stop funneling Bixby shareholder funds to

his children, Bergeron and Gutknecht began a coordinated effort, with the principals of

GPU (primarily Jason Moore), to oust Walker and Desender and install a new

management team to pull Bixby out of the Walker-induced tailspin it had been

experiencing for years.

Thus, on March 18, 2011, GPU brought a lawsuit against Bixby and Walker in

Hennepin County District Court alleging breach of Bixby’s contracts with GPU and

seeking, among other relief, the appointment of a receiver to take over the day-to-day

business of Bixby.

On April 18, 2011, Bergeron and Gutknecht brought a derivative lawsuit on behalf

of Bixby and against Walker, Desender and Bixby’s counsel, Peder Davisson, seeking,

among other relief, the appointment of a receiver to take over the day-to-day business of

Bixby. Both lawsuits asserted, correctly, that Walker had wasted so much of the $57

million he raised on behalf of Bixby that Bixby was insolvent.


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On May 9, 2011, pursuant to a global settlement agreement of both lawsuits,

Walker “resigned from any and all roles he had with Bixby as an officer, director,

committee member, Chairman of the Board, employee or otherwise.” 12

However, Walker did not leave before putting up a fight, rooted in fraud, to oust

Bergeron and Gutknecht and to terminate at least one of the lawsuits calling for his

ouster.

Specifically, working closely with Peder Davisson, Walker recruited an individual

who lives in Chicago named Bharat Khatari to create the appearance that a Filipino entity

called Manna Assets Management, LTD (“Manna”) had subscribed to the purchase of

$100 million worth of Bixby “Class C preferred stock,” which purported to confer

substantial voting rights. Notably, the stock purchase was supported only by three

promissory notes. Despite requests, no verification of funds was ever received from

Manna. And Manna’s insubstantiality was palpable. It had no internet footprint, and the

primary email between Manna and Walker cries out, on its face, for disbelief. A copy of

the email is appended to this trial brief as Exhibit 8.

The government has separately interviewed Peder Davisson and Bharat Khatari.

Davisson acknowledged that Manna investment had only one real purpose – to enable

Walker to get rid of Gutknecht and Bergeron. Davisson acknowledged that nobody,

12 Walker was remarkably tenacious in his fraudulent fund raising efforts until the very end of his tenure at Bixby. On April 19, 2011, less than 3 weeks before his resignation from Bixby, Walker met with a local resident named Kevin Klemisch at a suburban restaurant and persuaded Klemisch to pay Walker $30,000 to purchase Bixby stock directly from Walker. Walker told Klemisch that Bixby was only about two months away from “going public” even as late as April 2011. Walker’s “going public” mantra was at the heart of this fraud scheme during its entire duration.


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including Walker, thought Bixby had any real chance of receiving $100 million from

Manna.

During his interview, Khatari acknowledged signing a letter falsely representing

that he was personally present in the Philippines at a meeting of Manna’s Board of

Directors at which the $100 million investment in Bixby was approved. The email

evidence conclusively shows that the fraudulent letter was written by Walker and sent to

Khatari. Walker instructed Khatari, in Walker’s email to Khatari, to put the false letter

on Kahatari’s letterhead and sign it. Khatari complied. Both emails are appended to this

pleading as Exhibits 9 and 10, respectively. Khatari stated unequivocally that he had not

attended any such Manna Board of Director’s meeting and that he had not, in fact, even

traveled to the Philippines. He reported quite matter-of-factly to the government that he

signed the false letter as “an accommodation to Walker.”

Walker’s scheme to oust Bergeron and Gutknecht quickly failed. Bergeron and

Gutknecht sent a letter to Bixby’s shareholders calling Walker out on his Filipino-money

deception. Walker resigned a short time later, in no small part because he knew that the

Filipino money was a chimera. It is absolutely inconceivable that Walker would have

abdicated his Bixby perch, and all of its perquisites, had he genuinely believed that a

tsunami of new funds was sweeping toward Bixby’s coffers.

Bixby in the Post-Walker Era. With Walker and Desender purged from Bixby,

both GPU and Gutknecht and Bergeron were content to dismiss their lawsuits. Gutknecht

and Bergeron assumed primary responsibility for managing Bixby. Under their direction,

Bixby entered into a Deferred Prosecution Agreement with the United States in which


43

Bixby acknowledged the wrongdoing described above and the United States agreed to

defer prosecution because of the remedial actions taken by Bixby to oust Walker from

Bixby and to try to recover from his wrongful treatment of it.

Bergeron and Gutknecht frequently communicated in writing with Bixby’s

shareholders. Unlike Walker, Gutknecht and Bergeron provided both good and bad

information to Bixby’s shareholders about the progress of Bixby’s technology in China.

For a period of approximately one year, Gutknecht and Bergeron continued to try to

guide Bixby toward the establishment of a successful placement of Bixby’s gasification

machines in China. Ron Baker spent considerable time in China trying to make Bixby’s

technology a success there. However, ultimately, the technology failed. A fairly

catastrophic failure occurred at a place in China called “Ordos,” and new Bixby

management candidly acknowledged to Bixby’s shareholders that the failure occurred.

By approximately August 2012, Bixby was out of money; it could no longer carry

directors’ and officers’ liability insurance; and Bergeron and Gutknecht resigned from

Bixby’s Board of Directors, leaving only one remaining member – long-time Bixby

controller Ron Kinner at the helm.

Walker’s Continued Meddling in Bixby’s Affairs and Witness Tampering.

Despite Walker’s resignation from Bixby “as an officer, director, committee member,

Chairman of the Board, employee or otherwise” (Settlement Agreement paragraph 2),

and despite a condition of release imposed by Magistrate Mayeron that prohibited Walker

from raising money from “public or private entities” in any kind of fiduciary capacity,


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Walker continued, behind the scenes, to influence and control Bixby’s affairs and

prospective business opportunities.

Effective May 2013, Walker and two other individuals succeeded in replacing Ron

Kinner with Sandra Newvine as Bixby’s sole Board member. At trial, the government

will introduce numerous emails between Newvine, on the one hand, and Walker and

Melanie Bonine, on the other, during the tumultuous last year of Walker’s tenure as

Bixby’s Chief Executive Officer.

Those emails vividly depict Newvine as an adoring and profoundly naive Walker

devotee. Walker knew he could control Newvine, who had blind loyalty to him, and

almost no business experience. Indeed, Newvine had never flown on an airplane when

Walker tapped her to serve as Bixby’s sole board member.

Through Newvine, Walker exercised determinative, surreptitious control over

Bixby’s affairs, including over an apparent potential deal between Bixby and Quintana

Materials (sometimes called Great Northern Plains Development), the largest private

owner of coal reserves in the United States. Walker also furtively controlled, through

Newvine, which of Bixby’s creditors got paid. He also counseled Newvine to mislead

GPU in its efforts to recover money from Bixby.

Finally, through Newvine, Walker attempted to propagate one of his trial defenses

to Jeff Wiseman, a critical government witness. On May 22, 2013, Wiseman wrote an

email to Newvine (now the sole member of Bixby’s board of directors) inquiring about

whether Bixby had any plans to make reparations to GPU. Newvine had no idea how to


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respond to Wiseman’s email. She thus forwarded Wiseman’s email to Walker, opining

that “some sort of response is necessary.”

Walker responded by sending Newvine an email he wrote in Newvine’s voice,

knowing and intending that she would send the email to Wiseman as the response of

Bixby’s Board and shareholders to Wiseman’s inquiry. Walker wrote, among other

things:

I [Sandra Newvine] have been part of a team of shareholders who over the last two years conducted a comprehensive investigation into the activities of the company, compiling a huge amount of data as to what went wrong. Our investigation disclosed that a huge fraud was being conducted by Sherman Aaron, Ron Baker and Dave Hayward.

Walker’s email to Newvine was wrongful in two respects. First, Walker knew, from his experience and from the discovery materials in this

case, that Wiseman was likely to be a government witness. There is substantial email

traffic between Walker and Wiseman written during the period of the fraud scheme that

was disclosed to Walker’s defense team. Walker knew that the email he wrote in

Newvine’s voice would be sent to a government witness. And the email represented as

having been investigated and confirmed by a third party Walker’s trial defense that Bixby

failed because of the wrongdoing of others, not his own.

Second, the content of the email was not only false, but inculpated Bixby in a

fraud scheme even as it exculpated Walker. The email written by Walker asserts that

Bixby’s employees – Ron Baker and Dave Hayward – conspired with Sherman Aaron in

some kind of unspecified way that caused Bixby to default on its obligations to GPU.


46

The email thus set Bixby up to be sued by GPU, under the doctrine of respondeat

superior, for damages. The email in essence declares: “GPU, Bixby’s employees did

this to you, but not Bob Walker.” The email thus undermined Bixby and, ipso facto, its

shareholders. The only person it was designed to help (even if ham-handedly) was

Walker. Once again, even in May of 2013, Walker undertook an action at the expense of

Bixby’s shareholders designed to help only himself.

Walker’s Anticipated Defenses. The United States believes that, among others,

Walker will assert the following, inconsistent defenses at trial.

First, the United States anticipates that Walker will claim that Ron Baker lied to

him about the progress being made in North Wilkesboro on the gasification machine.

Under this theory, Walker, himself, was misled by Baker about the state of Bixby’s

gasification technology, such that he did not deliberately mislead the shareholders about

Bixby’s technology.

Although Ron Baker has never been charged with a crime, much less a crime of

dishonesty, the United States will not suggest to the jury Ron Baker is incapable of

dishonesty. Baker, like many of the other people Walker utilized at Bixby, conformed to

the culture of venality inculcated at Bixby by the boss. The United States has certain

emails from Baker to third parties in which Baker makes representations about Bixby’s

technology that were misleading. Further, the trial evidence may show that Baker

committed a loan fraud in the state of South Carolina with Walker’s assistance. The

United States will defer to the defense team to decide whether to bring up this double-

edged sword.


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But the trial evidence will show that Baker did inform Walker about the state of

progress on Bixby’s gasification machines, both Coal Junior, and the commercial-sized

unit. As noted above, during the period from 2006 through the end of 2008, the machine

that became Coal Junior underwent many changes, some quite fundamental, and Baker’s

emails to Walker communicated these developmental stages.

On balance, the emails from Baker to Walker will show that Walker knew that the

early version of the quarter-scale unit, “Mabel,” failed. They will show that, during 2007

and 2008, the design of Coal Junior changed fundamentally, from a fluidized-bed system

(which clogged badly) to a “loop” system, which worked only equivocally for short

periods of time. Baker sent Walker numerous emails reflecting design changes;

describing cold-flow-testing undertaken to avoid clogging; requesting funds for

additional, unanticipated parts; and other items, which reflected that, far from being a

finished product, Coal Junior was merely in development. Yet during this period, Walker

consistently told prospective investors that the technology was fully developed, and the

August 2008 video put an exclamation point on this fraudulent message. Walker cannot

plausibly blame Ron Baker for his myriad misstatements about Bixby and its technology.

In this vein, there is an interesting backstory alleging that, without Walker’s

knowledge, Sherman Aaron “sweetened the flame” of Coal Junior. Coal Junior was

supposed to produce syngas, of course, which was “flared off” (that is, ignited) both to

show that the machine was working and, apparently, to comply with environmental

regulations in the state of North Carolina. The allegation of flame “sweetening,”

supported exclusively by one disgruntled, former employee of Sherman Aaron named


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James Ryan, is that Aaron secretly fed natural gas into the back of Coal Junior, causing

Coal Junior to perform better than it otherwise could. According to Ryan, the gas

surreptitiously fed into the machine caused the machine’s flare to look more impressive

than it otherwise would have looked and caused the quality of the syngas it produced to

have measurably better levels of methane and BTU’s than it otherwise would have had.

Walker will undoubtedly bring up the “sweetening of the flame” as a trial defense.

Presumably, the defense will be that the false positives created by the flame sweetening

had so many outward propagations that they, in effect, explain Walker’s repeated

representations that Bixby’s gasification technology worked.

The problem with this defense is that it is nullified overwhelmingly by other

evidence in the case. Even assuming, arguendo, that Aaron did secretly “sweeten” Coal

Junior’s flame, the email traffic between Walker and Baker put Walker on notice that

Coal Junior could not sustain extended runs without clogging. Even if it made good gas,

and had a good looking flame, it could not run for more than a few hours. Notably, when

Walker purportedly “discovered” that the flame had been sweetened in February 2011, he

made no effort to soften his claims about the quality of the gas or the efficacy of the

machine. Had Walker genuinely believed that Coal Junior really worked – that it could

produce pipeline quality syngas on a sustained, commercial basis – he would have been

all too eager to commission a real White Paper that would have validated his claims and

opened the floodgates of investments into Bixby. Walker simply refused to do so.

Finally, the “sweetening” allegation only pertains, by its terms, to Coal Junior.

The “flame sweetening” allegation cannot explain Walker’s misstatements to the world


49

(literally, in a Press Release dated June 28, 2010) that the scaled up unit worked when

Walker knew that it was crushing itself at North Wilkesboro as a result of thermal

expansion issues which Aaron and Baker did not anticipate. See Exhibit 2 (Walker’s

letter to Aaron) and Exhibit 3 (the Bixby press release). Further, the test runs done on the

scaled-up machine (which also could sustain only brief runs) showed that its syngas was

of poor quality, a fact communicated to Walker.

That unit was developed outdoors in North Wilkesboro between January 2010 and

June 2010 and, to put it bluntly, never worked. Baker never makes any representations in

any email to Walker to the contrary. In fact, it was Baker who urged Walker to write the

excoriating, June 28, 2010 email to Sherman Aaron about the failure by Industrial

Process Solutions to get even the first commercial-sized unit out the door.

Further, even were the jury to conclude that Baker did mislead Walker in some

way, it is difficult to see what relevance such a conclusion would have to most of this

case. Walker and his family stole millions of dollars from Bixby before Walker even met

Ron Baker. The Walker/Desender trip to Locust, North Carolina, where Walker met

Baker for the first time, occurred in late 2006 when KPMG, Greene Espel, Deloitte and

Bixby’s first board of directors was discovering the Walker family’s embezzlement from

Bixby. As described above, Walker mowed down those accusers, and buried their

evidence. Walker cannot use Baker as a defense to the crimes Walker committed before

Walker met Baker.

Nor can Walker use Baker as a defense regarding events after Baker’s arrival in

the case. No matter what Baker did or did not say to Walker prior to June of 2010, it is


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clear beyond peradventure that by June 2010, Baker had informed Walker that Bixby’s

first, commercial-scale gasification unit was not working. Walker accused Sherman

Aaron, in his June 28, 2010 email, of having fallen short. Yet Walker persisted in his

mantra to Bixby’s shareholders that Bixby had succeeded in bringing commercial

gasification to the world market. He never stopped making that claim to Bixby’s

shareholders or to Bixby’s prospective shareholders – ever. He simply cannot blame

Baker for continuing to lie about the success of Bixby’s coal gasification machines after

Baker told Walker, declaratively and plainly, that those machines were not, in fact,

successful.

As if there were any doubt about this point, Walker testified at his deposition,

taken in February 2011, that he knew, based upon what Baker had told him, that the

gasification machine Aaron constructed in North Wilkesboro, was junk. Walker’s own

sworn testimony will undermine any effort at trial to make Baker the bad guy in this case.

Walker’s second apparent trial defense is that other people – who, exactly, these

people were is a constantly moving target, although Baker is always in the group –

conspired to steal Bixby’s technology and give it to the Chinese. In this second defense,

the exact same technology that Baker misrepresented as having value in the first defense,

suddenly really is valuable, which explains why Baker stole it.

In one iteration of this defense, the one penned by Walker in his email to

Newvine, Bixby’s failure is due to a “huge fraud being conducted by Sherman Aaron,

Ron Baker and Dave Hayward.” The inclusion of Sherman Aaron as a participant in this

so-called “huge fraud” makes no sense at all. It is undisputed or, at least indisputable,


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that Walker blamed Sherman Aaron in written, punitive terms for the failure of Bixby’s

gasification machine and then sued him for that failure. Thereafter, Aaron consented to

the transfer of the apparently useless machine he had developed to Vigo in Terre Haute,

and conducted no further business with Bixby.

Other iterations of this defense include Gil Gutknecht, who, says Walker, was in

cahoots with Jeff Wiseman of GPU, Ron Baker, Dave Hayward and Rick Setzer, to

transfer Bixby’s technology to China. These people, he claims, were in a conspiracy

against Bixby and its shareholders to steal Bixby’s technology for the Chinese.13 14

Here, again, Walker lays bare his mindset that Bixby is Walker and Walker is

Bixby. Walker is correct, but only through this narcissistic lens – by no later than April

2011, Gutknecht (and, for that matter, Bergeron), Wiseman, Baker, Hayward and Setzer

had begun working together, not against the company, Bixby, but against Walker and his

accomplices, Desender and Davisson. The trial evidence will show that Baker and

Wiseman communicated directly with Gutknecht and Bergeron, and deliberately did so

outside of the presence of Walker, because they agreed it was time to get Walker out of

Bixby’s management so that Bixby had some colorable chance of succeeding. The 13 Sometimes Walker includes a company called D4, to whom Walker transferred the right to develop a gasification machine that uses municipal solid waste as its feedstock, in the crowd of scoundrels, perhaps because Baker now works for D4. 14 Further to Walker’s modus operandi, Walker promoted the Chinese conspiracy theory by using an unwitting ally named Robert Williams. In April 2011, Walker wrote out a description of the conspiracy among GPU and certain employees of Bixby, which Walker wrote in the voice of Mr. Williams. He then met Mr. Williams at a coffee shop and convinced Mr. Williams to post the statement on a Bixby-related blog as though Mr. Williams had written the post. Mr. Williams did so, a fact he now regrets. Walker appears to have a habit of writing false words down on a piece of paper and then having other people send them out as the truth and in their own voice. The actual draft provided by Walker to Mr. Williams is appended hereto as an exhibit.


52

respective lawsuits of GPU and the outside directors plainly prayed for one main species

of relief – a receiver to replace Walker in order to put Bixby back on track. The idea that

Bergeron, Gutknecht, Baker, Setzer, Hayward, Wiseman or anybody else conspired to

steal Bixby’s technology is nothing more than insipid tripe that will have no support in

the trial evidence. There was but one “conspiracy,” albeit one with a lawful and salutary

purpose – to get rid of Walker.

In another court proceeding, Walker submitted an affidavit by a gentleman named

Gary Petty, the owner of a company called Vaughn Controls, which supports Walker’s

conspiracy theory. Vaughn controls was involved in developing the gasification machine

at Vigo in Terre Haute. According to the affidavit, Ron Baker, David Hayward and Jason

Moore had all talked to Petty about stealing Bixby’s technology and transferring it to

China.

However, Petty recorded the conversations with Baker, Hayward and Moore, and

has provided the government with a copy of the recordings. The recordings belie,

conclusively, the assertions made in Petty’s affidavit. What the recordings do reflect is a

unified desire among Baker, Hayward and Moore to oust Walker from Bixby. In the

recorded conversations, the three “conspirators” expressed the same goal as the lawsuits

filed by GPU and by Bergeron and Gutknecht – to rid Bixby of Walker and his

accomplices, not to steal Bixby’s technology.

As noted above, the “conspiracy” worked. The “conspirators” forced Walker to

resign. Notably, after Walker’s resignation, both of the lawsuits were withdrawn, and

Gutknecht, Bergeron and Baker continued to strive to get Bixby’s machines installed in


53

China. Unfortunately, they did not succeed. Neither did they steal anything from

Bixby’s shareholders, nor wrongfully transfer anything owned by Bixby to the Chinese.15

Further, Walker will undoubtedly interpose his “White Paper” defense at trial.

When Walker sent it out to prospective investors, he appended a letter to it claiming that

it was a third party’s independent validation of Bixby’s technology. However, the

disclaimer included by Maskarinec as the first page of MPX, Inc.’s report states clearly

that the input data for the report came from Bixby. MPX never independently ran the

gasification machine; did not independently extract and measure its syngas output; and

never put its hands on any liquefaction machine produced by Bixby. Walker’s letter and

MPX’s disclaimer are appended as Exhibit 11. Walker is plenty smart enough to

understand the nature of the disclaimer, which probably explains why he sent it out with

his letter as its cover. In any event, if Walker initially failed to understand that MPX’s

work was not independent, it would have been hard for this to have escaped Walker’s

attention when Bostonia told him that the “White Paper” meant nothing and urged

Walker to hire a genuinely independent, Department-of-Energy-affiliated company to

validate Bixby’s technology. Walker refused to do so, knowing that you cannot pass off

a lottery ticket as proven technology to a genuinely independent expert motivated by the

discovery of the truth.

15 On May 20, 2011, after Walker’s departure from Bixby, Ron Kinner signed an agreement as Bixby’s CFO styled “Revised and Restated Exclusive License And Strategic Cooperation Agreement” with GPU. Walker has claimed in certain emails with his allies that this agreement somehow amounts to a consummation of the theft of Bixby’s intellectual property by the shifting group of “conspirators.” This document has been carefully reviewed by the government, and appears to obligate GPU to pay Bixby millions of dollars in royalties if Bixby’s gasification machine could be successfully operated in China.


54

Evidentiary Issues. Walker is an exceptionally prolific writer of emails. The

United States anticipates introducing into evidence hundreds of emails written by Walker

and his coconspirators. As noted above, the United States hopes to arrive at stipulations

regarding the foundation and authenticity of its exhibits, including the voluminous emails

in this case.

In general, the emails come from Bixby itself and were obtained from Bixby in the

spirit of cooperation after Walker resigned from Bixby. More specifically, the

government imaged all of the computers at Bixby in May 2011, with Bixby’s consent.

Best and Flanagan, Bixby’s counsel, later provided another set of computer images from

Bixby which are slightly more up to date than the May 2011 images. The United States

also imaged computers from Bixby provided by a former shareholder and associate of

Bixby named Shirley Zachman.

But the United States has obtained electronic, documentary evidence, as well,

directly from its witnesses. For example, Peder Davisson and Ron Baker both provided

electronic copies of their emails directly to the government. Many other witnesses did as

well.

In all cases, the United States has disclosed to the defense exactly where particular

documents came from and in the exact form they will be offered at trial. The parties

should be able to largely stipulate to foundation prior to trial.

Without exaggerating, the United States submits that it will be offering none of the

emails in this case for a hearsay purpose. To the extent that the emails are written by

Walker, they will be offered as statements of a party opponent.


55

It bears noting that this case involved a lot of coconspirators. These

coconspirators included, at a minimum, Dennis Desender, Bixby’s CFO; Melanie Bonine,

Walker’s daughter; and MaryAnn Scherrer, Walker’s sister. Scherrer, for example

solicited many persons from the west coast of the United States to become Bixby

shareholders. Like her brother, Scherrer constantly represented to her recruits that Bixby

was going to go public in order to garner investments. She used emails copiously to

make these and other misrepresentations about Bixby’s prospects, and the government

plans to introduce some of these emails as out-of-court statements “made by [Walker’s]

coconspirator during and in furtherance of the conspiracy.” Fed.R.Evid. 801(d)(1)(A).

The existence of the conspiracy at the time of the sending of the emails is often quite

apparent on their face, and the rules of evidence allow (but do not require) the Court to

conclude that a conspiracy exists based on both the totality of the evidence before it and

the contents of the email or document itself. Id.

However, the Court may not be required to get so far in its analysis, because

almost every coconspirator email in this case will be offered for its effect on the recipient

and, in most cases, the recipient will be on the stand when the email or other

communication is offered, or else the recipient was the defendant, whose knowledge is a

key element of the charges in this case.

The government will treat this topic further if the defense team makes motions in

limine that raise hearsay concerns regarding government exhibits.

Rule 404(b). The government believes that it does not have any Rule 404(b)

evidence. The government respectfully submits that the facts described in this Trial Brief


56

are squarely within the ambit of the Third Superseding Indictment. However, should the

defense team contend otherwise, the government intends the description of any facts

above determined not to be res gestae, but rather evidence admissible only pursuant to

Fed.R.Evid. 404(b), to be the government’s Rule 404(b) Notice in this case.

Motion in Limine. The government has only one motion in limine. It is a motion

for the Court to encourage both sides of this case, the government included, to refrain

from ad hominem attacks in trying this case.

The relationship between the prosecution team and the defense team has been

somewhat strained since approximately the middle of August, when the government

charged Walker by complaint with witness tampering, and then successfully sought his

detention.

However, neither the prosecution team nor the defense team is on trial in this case.

Only Walker will be tried. The government respectfully submits that the only dispute at

the trial should be about the parties’ evidence regarding Walker. The government

respectfully requests that the Court admonish both sides that ad hominem attacks are not

probative of the merit or lack of merit of this case, and not to engage in such attacks

during the trial.


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The prosecution team and the defense teams are quite properly opponents, but not

enemies. The government seeks the Court’s help in limiting whatever salvos the parties

launch in this case to the evidence and nothing else.

Respectfully Submitted,

Dated: December 6, 2013 JOHN R. MARTI Acting United States Attorney

s/David J. MacLaughlin

BY: DAVID J. MacLAUGHLIN Assistant U.S. Attorney BENJAMIN F. LANGNER Assistant U.S. Attorney


Documents

ROBERT ALLEN WALKER, - Star Tribunestmedia.startribune.com/documents/Gov+Trial+Brief.pdf · The nub of the case is that defendant Robert Allen Walker used Bixby Energy Systems, Inc