KiOR: The inside true story of a company gone wrong. Part 3, “You’ve Cooked the Books”

Another investor gets nervous

On October 5th, John Schneider of Artis Capital Management, L.P. (a principal investor in KiOR) notified Cannon that Artis, as the state of Mississippi alleged in its lawsuit, “suspected that KiOR had not been honest in its public filings.”

A Climate of Fear

A KiOR insider from this period described it as a “fearful working atmosphere” by the end of 2011. For employees to “to survive and keep their jobs , and not being isolate or fired, they had to remain silent and accept the “party-line”  involving the fraudulent and deceiving information fed to the public and investors.”

Paul O’Connor resurfaces

On November 29th, Paul O’Connor called Dennis Stamires and told him straight out that he had concerns about the authenticity of the data on yields and related costs which Hacskaylo has  been reporting to the Board. In particular, O’Connor analyzed and compared the data the Board was receiving from Hacskaylo and noted several discrepancies.

The state of Mississippi in its lawsuit stated:

John Hacskaylo made a power point presentation to the Board of Directors in December 2011 that included a graph that plotted projected yields of 63 [gallons of] biocrude per bone-dry ton. Paul O’Connor compared the graph in the [latest] presentation to one that had been presented in February 2011 and concluded that the  presentations were inconsistent.

Stamires and O’Connor agreed to work together to convince the board to launch an independent technology audit, but not to reveal their misgivings to the public just yet. Rather, they decided to focus on the Board or, alternatively, a direct approach to Vinod Khosla.

O’Connor recalls: “I was trying to be careful, because I had seen the tactic from some of the people, to silence people from revealing secrets. But I felt if you know what the problem is, you can solve it.”

The two also agreed to try to engage Professor Vasalos in the Audit . He was an expert on biomass conversion to fuels and had reviewed KiOR’s technology and data from the pilot and demo units. Also, he had spoken to Cannon about changing the KiOR’s technology to improve yield. They agreed he was in an excellent position to conduct an unbiased  diligent assessment  of the status of  KiOR’ technology, and O’Connor agreed to meet with Vasalos in Amsterdam.

The state of Mississippi said:

O’Connor emailed Samir Kaul on December 14, 2011 to notify him…having received no response, O’Connor sent another email to Kaul on December 17, 2011 that further elaborated his concerns.

Meanwhile, Stamires reached out to Jennifer Camacho, an Attorney from Greenberg Traurig in Boston, who did patent and freedom to operate work for KiOR. Stamires knew that Camacho had a long good relationship with Samir Kaul, having worked together at another company before KiOR, and he knew that Camacho had frequent discussions with Kaul regarding KiOR’s activities.

Stamires recalls: “By now I had a real sense of urgency, and I asked Jennifer to brief Samir about Hacskaylo’s manipulation and falsification of the data, and the highly inflated yields. I told her that incorrect data may not only adversely affect the financials of KiOR’s business, but also may compromise the legal validity of patents based on false data.”

On December 12th, Camacho replied to Stamires, writing: “Thanks for your note. I will reach out to Samir tomorrow.