July 07, 2009

$10.4M Verdict in Biofuel Fraud Trial

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MOBILE, AL --- A jury has ordered a biofuel company, owned by a former head of the Alabama Ethics Commission, to pay $10.4 million over allegations that his firm fraudulently claimed it could produce cheap fuel from hay, waste wood and other material, the Associated Press reported.

Cello Energy, run by former ethics chairman Jack Boykin, lost the federal lawsuit filed by Parsons & Wittemore Enterprises, a New York-based paper company that invested in the company. 

The jury ruled June 29 that Cello Energy and the partnership that owned it, Boykin Trust, were liable for $2.8 million for breach of contract with Parsons & Whittemore. The paper company owns a couple of pulp mills in southwest Alabama. 

The jury also found that the companies, along with Boykin and his son Allen Boykin, were liable for another $104,537 for fraud and awarded $7.5 million in punitive damages against all the defendants. 

Cello Energy built and staffed a plant, but Parsons & Wittemore argued the facility never accomplished its long-promised goal to produce motor fuel from wood chips, crop residue and other biomass. 

Parsons & Whittemore invested $2.5 million in Cello Energy and had another $10 million option for a one-third ownership share. Unknown to Parsons & Whittemore, however, Boykin also negotiated a deal with a California firm, Khosla Ventures, which invested $10 million in the construction of a plant in Bay Minette to turn wood chips, hay and other cellulosic material into diesel fuel. Parsons & Whittemore asserted that this deal diminished the value of its own investment. 

George Landegger, CEO of Parsons & Wittemore, characterized Boykin's promises about the fuel plant as lies. Boykin has denied the fraud charges, vowing to move forward with his fuel-producing plans.

Parsons & Whittemore also sued Khosla, accusing the company of interfering in its business relationship with Cello Energy. But the jury in that case found in favor of Khosla, a Silicon Valley company, AP reported.

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