Biofuel case: $4.5M for investors under federal settlement

Source: By Jeff Amy, Fox News • Posted: Tuesday, June 13, 2017

JACKSON, Miss. –  A federal judge has approved a $4.5 million settlement for private shareholders of failed biofuel maker KiOR, and a lawsuit by the state of Mississippi seeking to recover a much larger amount continues.

U.S. District Judge Lee Rosenthal issued the order Monday in Houston approving the settlement, intended to partially compensate 23,000 shareholders for money they lost because of decreases in KiOR’s stock price.

Former KiOR CEO Fred Cannon, lead investor Vinod Khosla and former Chief Financial Officer John Karnes are to pay the money under the settlement. Lawyers are to receive $1.5 million of the $4.5 million, plus expenses.

Separately, Mississippi Attorney General Jim Hood is suing Cannon, Khosla and others in state court in Jackson, demanding repayment of $77 million, plus interest. Mississippi loaned $75 money to KiOR, which built a biofuel plant in Columbus. The plant was supposed to convert wood chips into a synthetic crude oil using a special chemical at high temperature and pressure. The plant made some biocrude in 2012 and 2013, but not nearly as much as it was designed for.

Cannon and the company that Khosla reorganized to succeed KiOR after it filed for bankruptcy in 2014 paid a $100,000 fine to the Securities and Exchange Commission last year to settle allegations that the company misled investors about how much biocrude the company was able to make from wood.

Components from the $230 million plant have since been sold to two other renewable fuel companies for $2.7 million

The state claims KiOR, Khosla and others knew KiOR had limited chances for success but defrauded Mississippi into loaning $75 million to the company anyway.

The state contends that KiOR “should have informed the state about the speculative nature of the company’s technology, the fundamental difference between the company’s biocrude and actual crude oil, the reckless assumptions built into the company’s financial modeling and the company’s inability to reach an agreement with an oil company to refine KiOR’s biocrude.”

Cannon, Khosla and others are fighting the state lawsuit, saying it wasn’t them but KiOR that signed the loan agreement with the state.