- Associated Press - Thursday, January 15, 2015

JACKSON, Miss. (AP) - The state of Mississippi has sued billionaire Vinod Khosla and others, saying they knew long ago that bankrupt biofuel firm KiOR had poor prospects for success, but misled the state into loaning the company $75 million.

The lawsuit, filed Tuesday in Hinds County Circuit Court, alleges Khosla and others engaged in fraud, negligence and conspiracy to hide the fact that KiOR’s technology never performed as well as they represented.

“The State of Mississippi reasonably relied upon these misrepresentations, omissions and ratifications, and as a consequence, loaned KiOR Columbus $75 million,” the lawsuit states.

Attorney General Jim Hood hired the Ridgeland law firm of McCraney Montagnet Quin & Noble to investigate KiOR days after it filed for bankruptcy in November. The suit seeks to recoup what KiOR owes the state, as well as punitive damages.

A spokeswoman for Khosla didn’t immediately respond Wednesday to a request for comment.

KiOR and Khosla have been engaged in an escalating legal fight since the company filed for Chapter 11 bankruptcy protection. The state is trying to force KiOR into liquidation, scuttling plans by a Khosla-controlled company to buy the assets and continue research into the biofuel process. It’s also asking a bankruptcy judge in Delaware to block KiOR from waiving future lawsuits against Khosla. KiOR responded by accusing the state of trying to extort it in bankruptcy court.

Last week, KiOR asked a Lowndes County chancery judge to take its Columbus plant into receivership, with Khosla sending Mississippi Development Authority Director Brent Christensen a letter claiming the state’s hardline litigation tactics had driven away a possible buyer.

The McCraney firm will only be paid if it wins money for the state, getting a share of any award. Critics of Hood’s office have long objected to such contingency fee contracts.

At the heart of the new suit is how much crude oil substitute KiOR could make from a ton of wood. The state says KiOR told it and others that it could make 72 barrels per ton of dry wood. But the suit cites internal KiOR documents that say the company could only make 20 to 22 gallons per ton while it was operating its Columbus plant, which was actually a decrease from what it could make in its demonstration facility at its Pasadena, Texas, headquarters.

“Despite its representations to the contrary, KiOR was not and had never been a commercially viable operation,” the lawsuit states. “Assuming its commercial facility operated at full capacity (which the Columbus facility never did); the company would still operate at a loss.”

The lawsuit says KiOR management repeatedly tried to silence internal critics who raised questions about the numbers the company gave to the state and to investors. Among those is former director Paul O’Connor, who wrote a stinging letter when he left the KiOR board last year.

The suit also claims that former Chief Operating Officer Bill Coates resigned in 2011 after telling other company officials they had “cooked the books” and informed them he was not “going to be a part of this scam.”

KiOR is also being sued by shareholders and a whistleblower lawsuit has been filed by a former employee. The U.S. Securities and Exchange Commission is investigating the allegations.


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