KiOR: The Inside True Story of a Company Gone Wrong. Part 5, The Collapse 

KiOR files for bankruptcy

On November 9th 2014, as the state of Mississippi noted, “the KiOR house of cards had fully collapsed,” and KiOR filed for Chapter 11 bankruptcy protection. Mississippi also noted that “Vinod Khosla and those individuals and entities affiliated with him are seeking to be released from any derivative liability they may have to KiOR.”

The Mississippi Development Authority contested Khosla’s bid “to whitewash his fault” and attempted to convert the Chapter 11 proceeding into a Chapter 7 proceeding. Ultimately, the KiOR Columbus facility assets were sold at auction for pennies on the dollar, and the KiOR technology and its pilot plant and offices in Pasadena , Texas were re-organized as Anaeris Technologies, and the company continues to pursue its technology today.

As Mississippi stated in its lawsuit, the SEC launched a securities fraud investigation:

KiOR and certain of its officers and directors were named defendants in a securities fraud class action and a shareholders’ derivative lawsuit that were consolidated in federal court in Houston, Texas. Mark Ross has filed a whistleblower action against KiOR in which he alleges that he was wrongfully terminated for continually bringing the disparities between the company’s financial modeling and actual performance to light.

Finally, the Attorney General of the State of Mississippi sued the individuals and entities he held responsible for “the commission and cover-up of one of the largest frauds ever perpetrated on the State of Mississippi.” Among the targets were Vinod Khosla and Samir Kaul. As “the deep pockets” in any judgment or settlement, it was vital to Mississippi’s recovery of money to link Khosla and Kaul to a conspiracy. Otherwise, they might be treated as victims themselves — investors who had also suffered financial damage. Leaving Mississippi without a bundle of cash to chase in recompense.

Mississippi alleged:

Kaul was on the KiOR Board of Directors from the outset of the company and was actively involved in monitoring the Company’s progress, including the development of the Company’s technology and the Company’s short and long 

term financial projections. Khosla and Kaul received regular, detailed updates on the status of the Company’s technology and financial projections from the founding of the Company through the present day. In fact, Khosla exercised such control over KiOR and was so involved its management that the Company’s lead director, Gary Whitlock, has testified that KiOR belonged to Vinod Khosla prior to the Company’s initial public offering of stock and Khosla was free to do with the Company as he pleased. 

Khosla interviewed and approved most or all of KiOR’s senior management and members of the Board before they were hired or appointed. Vinod Khosla has at all times had the ability to terminate or demand the termination or resignation of KiOR’s senior executives and, upon information and belief, has threaten to exercise and/or has exercised such ability in order to control KiOR. 

Samir Kaul and Vinod Khosla directed and controlled the representations made by Khosla Ventures’ agent, Dennis Cuneo, while Cuneo was acting within the course and scope of his agency. Kaul and Khosla were aware of Cuneo’s misrepresentations and undertook no efforts to amend or correct them, precisely because Cuneo’s misrepresentations were consistent with Kaul’s and Khosla’s directives. 

Mississippi recounted the specific failures of the company’s technology and the cover-up that ensued.

1. KiOR’s total process yields were not high enough to render the Company profitable.

2. KiOR’s catalyst costs, catalyst replacement rate and capacity creep all contributed to render the Company unprofitable.

3. KiOR did not make a high quality crude oil, but instead made a biocrude that was high in oxygen and acids which made the biocrude difficult to refine within the standard equipment of major oil companies.

4. KiOR had been informed by [Catchlight Energy] and other major oil companies that they were unable and unwilling to refine the Company’s biocrude in quantities that the parties found acceptable.

5. Due to its inability to convince a major oil company to refine its biocrude, KiOR was forced to construct and operate its own refinery in Columbus. These additional costs had not been included in the Company’s financial modeling and projections.