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Son of Xethanol Goes Bankrupt

I have written several essays on Xethanol over the past few years. If you recall, they were a poster child for the theme of “overpromise, boost your stock price, and get rich quick” on biofuels.

For me, this story dates back to 2006, when an investigative journalist working for Dallas Mavericks’ owner Mark Cuban e-mailed me and asked about the company’s claims. They had announced that thy would “be the first to commercialize cellulosic ethanol” (if I had a nickel for every time I have heard that), and they issued press releases at every opportunity. It worked for a while – at one point their market cap was something like half a billion dollars – despite the fact that there was very little of real value within the company.

Anyway, the investigative journalist published his story (which seems to be offline at the moment), Mark Cuban shorted the stock just before the story was released, and I wrote up something on the company, which I considered to be essentially a scam:

Xethanol Story

Anyway, if you looked into their financials, they were spending money on everything but R&D, while claiming they would be the first to commercialize cellulosic ethanol – which would require a lot of R&D. I continued to follow the story, and predicted in February 2007 that they would eventually go bankrupt:

Xethanol Can’t Deliver on its Promises

Well, about this time last year they went bankrupt – more or less:

Xethanol Now Defunct

I say more or less, because what they did was stop operations as Xethanol, changed their direction, and relaunched as Global Energy Holdings Group Inc. At that point I said I wouldn’t write about Xethanol any more, but there is a final chapter to this saga:

Global Energy Holdings Group Files Chapter 11

Global Energy, formerly known as Xethanol Corp., warned in a recent securities filing that it needed substantial additional capital, but that the credit crunch has made it difficult to sell assets or obtain financing.

Global has had no operating revenue this year and said its sole source of revenue last year was an Iowa ethanol plant that ceased production because of high corn and natural gas prices. The company sold the Iowa plant last week and is also looking for a buyer or partner for a landfill gas project in Georgia.

I do want to make it clear, though, that when Global Energy Holdings Group Inc. was created from the ashes of Xethanol, they did so under new management. Therefore, I don’t attribute the same shenanigans to them as I did Xethanol. As far as I know they were making a legitimate attempt to make a go of it, whereas it appeared to me that Xethanol was just trying to make a fast buck off of very gullible investors. But they were handicapped by previous Xethanol decisions, and the current credit crisis was enough to push them over the edge.

I think that officially closes the book on the Xethanol saga – unless a grandson of Xethanol is born. But with the baggage that comes along with it, I wouldn’t bother reorganizing. If you still want to do business, get a fresh start.

November 27, 2009 Posted by | cellulose, cellulosic ethanol, fraud, Global Energy Holdings Group, scams, Xethanol | 59 Comments

How To Sniff Out a Fraud

I tend to get a lot of e-mails from people either claiming to have invented the next big thing in alternative energy, or from people who want to know if a particular company has something that seems worthwhile. Generally, I can sniff out the scams and pseudoscientists pretty quickly. There are lots of telltale signs.

In general there will be no patents, nor patents pending. They will often tell tales of having their invention suppressed. A secret catalyst or secret formulation is another frequent theme. (People too often ascribe magical properties to catalysts. Catalysts can speed up a reaction, but they do not allow you to get around the laws of thermodynamics.) Scam companies will often incorporate a hot buzzword into their company name or the name of their technology, like ‘nano…’ (implying nanotechnology). Claims that the technology will solve the world’s energy crisis are all too common. Many times, it simply comes down to “if it seems too good to be true…” However, I normally give people the benefit of the doubt and I investigate further.

Sometimes a scam isn’t easy to sniff out, and sometimes an invention is a real breakthrough. Since I have often been asked about how to sort the wheat from the chaff, I will document a recent investigation into a company that looked promising at first glance. The company first came to my attention via a poster at The Oil Drum who posted a link about a company called AlphaKat. Here was the post:

I have a member on my website board who is pushing really hard biomass gasification as means to save us all. Here’s the company he mentioned earlier with process capable of using everything one can think about:

http://alphakat.de/index.php?option=com_content&task=blogcategory&id=37&

Can anyone give some comments about this?a few Utube videos full of high optimism also…

http://www.youtube.com/watch?v=DJQuVkwkp3A
http://www.youtube.com/watch?v=qXk6iO-pKaM&feature=related
http://www.youtube.com/watch?v=RwKSwfsJ73I&feature=related

sounds too good to be true – therefore it is?

I checked out some of the videos, which sounded intriguing but highly improbable. Regardless, I did some digging. The technology was invented by a German named Christian Koch. Dr. Koch had teamed with Austrian immigrant Michael Spitzauer to bring the technology to the U.S. Dr. Koch has a U.S. patent pending on the process (United States Patent Application 20050115871). You can see interviews (in English) with both Dr. Koch and Spitzauer here:

Interviews with Koch and Spitzauer

I noticed a couple of things when I read through the patent. First, the claims that were being made were that it could turn any biomass into diesel, but the patent seems to indicate that you must start with an oil of some type. The technology sounds very much like thermal depolymerization (TDP), which as we know works (except not on things like woody biomass), but is not economical. It was certainly not a biomass gasification process. However, there is nothing that I am aware of that is capable of unraveling cellulose and turning it into a fuel in 3 minutes. So it definitely sounded too good to be true.

This sounded interesting, so I worked my way to the website of Michael Spitzauer. The website is incredibly cheesy, poorly designed, and full of fractured English. If you dig, you can see that he has made his wife – a former cocktail waitress – a Senior Vice President of the company. Technical expertise among the team seems to be in very short supply. I also spotted the tell-tale buzzword “Nano”-diesel:

Green Power Inc

At this point, things are starting to smell funny. Digging a little deeper, I found that Spitzauer has been convicted of fraud, and has been involved in multiple shady dealings. He was also scammed by a Nigerian advance fee scheme, so may not be the sharpest knife in the drawer:

Austrian Fights Extradition

Something’s Rotten – Green Power

Yet Another Gas Scam? – Discussion on Snopes’ Message Board

Trash-to-diesel technology raises eyebrows

In that last link, he says the oil companies are out to get him, and this is why his past has been exposed:

“The big oil companies in Europe and this country have made threats to us, but even if they would do something to our lives, this company will go on,” Spitzauer said. “Our plant works, and we will make diesel for the people.”

But doubts have been raised about the claims made for Green Power’s technology and about Spitzauer’s personal history — a history that includes a fraud conviction in his native Austria, a lengthy extradition battle in a separate case, and the bankruptcy of his previous business venture.

In an interview, Spitzauer, 38, said none of that was relevant to Green Power and its prospects. “What easier way is there to discredit somebody than to look at something in their past?” he said. “We are here for the future.”

So, we have a process that sounds too good to be true and the involvement of a convicted fraudster who is now saying the oil companies are out to get him. Not knowing more, I would steer clear. This all sounds much like the claims that Xethanol was making. Some of their key players had been previously accused of fraud as well. What happened? Their claims fell apart, and Xethanol finally went bankrupt (as I had predicted) because they couldn’t do what they said they could do:

Xethanol Now Defunct

Finally, I should point out that Michael Spitzauer has had a falling out with Dr. Koch. So it is still possible – albeit I think remotely – that Dr. Koch’s original invention is what he claims it is. But, if you want to put the technology to a real test, run some biomass through the machine that is spiked with a radioisotope (maybe C14) that would show up in the product. I will bet money that the spiked carbon doesn’t show up in the hydrocarbon, and that will be the end of that. If I were a prospective investor, I would insist upon such a test.

This particular case turned up a lot of dirt pretty easily once I started digging. It isn’t always that easy. But there are a still a good number of people who are convinced that this is for real. I think it is very telling, though, that skepticism runs high among the chemists and chemical engineers mentioned in the various links. But as I said, one can design tests to prove or disprove the claims.

March 9, 2009 Posted by | Alphakat, fraud, scams, Thermal Depolymerization | 73 Comments