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Investors slam former owner, bankruptcy trustee in Aspirity Energy fraud allegations

Two years after Aspirity Energy filed for bankruptcy, the US trustee tasked with liquidating the bankrupt Minneapolis energy company had owner Tim Krieger on the witness stand – under oath.

But during a nearly three-hour review, Krieger frustrated the veteran bankruptcy attorney at almost every turn. Citing his Fifth Amendment right not to incriminate himself in criminal acts, Krieger declined to answer more than 300 questions, according to a court-approved transcript of the interview.

The former Iowa State national wrestling champion declined to provide details about his 30-year career as a commodities trader. He declined to describe his role in a corporate restructuring that allegedly stripped Aspirity of more than $20 million in assets.

And he would not explain why he allegedly transferred millions of dollars in cash to himself, his friends and other company insiders, according to the transcript.

A year later, administrator Randall Seaver threw in the towel. In August 2020, he agreed to dismiss his fraud allegations against Krieger in return for $725,000, saying further litigation would likely be unsuccessful because Krieger “has few remaining assets”, according to court records. Bankruptcy court judge Kathleen Sanberg approved the settlement a month later.

Now, Seaver is taking steps to ensure that none of those funds go to Aspirity investors. In late December, he filed motions opposing $11 million in claims filed by more than 200 investors, saying there wasn’t enough money left to pay them a dime.

Instead, most of the proceeds from the settlement will go to attorneys who have worked for the bankrupt company for the past four years, according to court records.

Many of the company’s biggest investors, who individually hold promissory notes worth up to $500,000, are furious.

“I think the settlement was wrong, said Samuel Edison, a California investor who lost $105,000. “Randall Seaver did not protect ticket holders at all. He openly said he didn’t have enough money to do a proper forensic accounting, so he accepted Krieger’s statements about his financial situation.”

Seaver declined to discuss the case. In a written response to questions, Matthew Burton, one of Seaver’s attorneys, noted that hiring a forensic accountant would have been “expensive” and would have “reduced the distribution available to creditors.” He also noted that Seaver has hired attorneys who are “well versed in conducting forensic findings.”

Krieger also declined to be interviewed directly. He wrote long, blasphemous responses to questions from the Star Tribune via email.

In these, he repeatedly denied wrongdoing and blamed most of Aspirity’s problems on the company’s former executives.

“I didn’t take $18 million out of the business when it was about to go out of business,” he said. “All casts were correct.”

The company, which formed as Twin Cities Power in 2006, has reaped tens of millions in annual profits for a decade by trading power futures. Krieger admitted earning up to $6 million a year.

“Why would I want to loot or destroy a business that I made so much money for? That I worked so hard at?” Krieger said. “The truth is, I loved this business and did everything I could to save it. I sold virtually all my assets and put almost everything I had into trying to save it. “

The investors who lost are targeting both Krieger and the team, led by Seaver, brought in to settle the debt.

Burton and the other attorneys will together receive at least $410,057 for their work on the case. Terry Gerth, an investor whose family lost more than $360,000 in Aspirity, said he decided not to hire his own forensic accountants to investigate Krieger after discovering it would cost between $25,000 and $50. $000.

“Seaver seemed to drop the ball,” Gerth said.

Barbara Young blamed the death of her longtime partner James Kelley on Aspirity’s collapse. Young and Kelley lost $559,000, more than any other investor who filed a claim, according to bankruptcy records.

“It was our life savings. Jim couldn’t take it,” said Young, 89, who lives in upstate New York. “In a year, he was gone. He let himself go. He had no more reason to live.”

Krieger noted that Aspirity warned people they could lose everything by investing in the company’s subordinated unsecured bonds, a small-scale form of junk bond. Krieger said the company even returned $1 million to investors shortly before the board voted to shut down the struggling company in 2017.

“I’m sorry they lost their money, but no one lost more than me,” Krieger said.

Krieger blamed most of Aspirity’s problems on the company’s decision to go primarily into electricity retailing in 2015. In its first decade, Krieger said, the company didn’t lost money only once. He said he earned between $1 million and $6 million a year until 2016, while the company posted gross profits of up to $40 million a year.

But the company stumbled when it moved into retail, selling power to homeowners in deregulated states. The company lost $4.7 million in 2015 and another $12.9 million the following year, when its revenue hit just $13.5 million.

The company’s deteriorating finances led its auditors to issue a “going concern” warning in 2016. Some investors are now suing auditors for not sounding the alarm sooner. In a class action lawsuit filed last year against Baker Tilly and Deloitte LLP, investors claim auditors aided and abetted the fraud.

In documents filed in court this month, auditors denied misrepresenting the company’s financial statements, saying they did their job properly and ensured all insider trading was properly disclosed. .

“As a public company, we had to do annual and quarterly audits by these well-known, respected, and incredibly expensive firms,” ​​Krieger wrote, noting that the firm sometimes spends more than $1 million a year on audit fees. ‘audit. “So how could a stupid kid from Iowa (me) outsmart and outsmart the SEC, Baker Tilly, Deloitte, the state of Minnesota bankruptcy trustee, and all those investors? …I’m either an incredibly deceptive brain…either I’m innocent. Which one do you think it is?”

In his responses to questions from the Star Tribune, Krieger said he sold his $1.1 million beachfront home north of Seattle, along with a $295,000 diamond and other assets, as he “desperately” tried to save Aspirity. Company records show he made capital contributions totaling $500,000 as the company collapsed.

But the trustee’s lawsuit said Krieger transferred more than $20 million in company assets, including transferring $3.5 million to his personal bank account and another $516,000 to his ex. wife. Seaver said the withdrawals wiped out Aspirity’s cash reserves, preventing the company from paying its debts.

Using personal and corporate bank records, Seaver documented nearly $10 million in unexplained transfers between 2015 and 2017, according to court records. Among the recipients are several of Krieger’s longtime friends and associates.

Seaver said Krieger used the money to finance his “extremely lavish lifestyle” and to “hide and remove” the funds from the reach of his creditors.

Krieger said most of the $10 million tracked by the trustee was used to buy out business partners or pay off personal loans. He denied giving money to his ex-wife.

Given the trustee’s allegations, many investors don’t understand why Krieger hasn’t been criminally prosecuted for his actions. Several investors said they complained to Minnesota Attorney General Keith Ellison about being referred to other agencies, including the U.S. Securities and Exchange Commission and the U.S. Department of Justice.

“Krieger was not held accountable,” said Edward Shoop, a Vermont investor who tried to get the attorney general’s office to file charges against Krieger for fraud after he lost $13,000. “He didn’t go to jail. No one held his feet to the fire.”

Although the Minnesota Attorney General’s Office has prosecuted white-collar crimes in the past, the office is now focusing on violent crimes after a series of budget cuts reduced the number of prosecutors.

“What happened to these investors is unfortunate,” said John Stiles, spokesman for Ellison. “The Attorney General’s Office does not have criminal jurisdiction over this matter, which our office has consistently explained to investors…Because the federal government has criminal enforcement authority over alleged securities fraud and investors, especially for interstate cases like this where investors reside in multiple states, this case could be ripe for possible federal criminal prosecution.”

The SEC and the Justice Department declined to comment.