Thursday, March 22, 2012

Under the covers at Memjet – where the money came from (Kaiser foundation alleges fraud in lawsuit after $610M investment)

If you've been following Memjet-related developments, you'll find this article very interesting, if not stunning.

"Kaiser foundation alleges fraud in lawsuit after $610M investment"

By ROBERT EVATT World Staff Writer (

Published: 3/16/2012 2:28 AM

Last Modified: 3/16/2012 5:32 AM

The George Kaiser Family Foundation is suing the most prolific patent-holder in the world, claiming he fraudulently took "tens, if not hundreds of millions of dollars" from the organization after it contributed more than $610 million to fund his printing company.

The Tulsa-based foundation filed the lawsuit in U.S. District Court in Tulsa against Kia Silverbrook, his common-law wife Janette Faye Lee and their patent-holding company, Silverbrook Research Pty Ltd.

Silverbrook is an Australian who was named by Business Insider magazine as the most prolific patent-holder in the world with at least 4,394 patents to his name.

The lawsuit accuses the defendants of alleged omissions, false representations and false promises made during the investment period, which dates to 2004.

The soured deal centers on Memjet, a printing company that makes color printheads using a "waterfall" technology, in which 70,000 jets per printhead shoot millions of ink drops per second all the way across a sheet at one time - more efficient and eight times faster than other color printers.

In a written statement released to the Tulsa World, the foundation called the lawsuit a business dispute involving the control of intellectual property surrounding a revolutionary new printing technology.

The foundation "has played a key role in funding the development of this technology for many years," the statement said. "The foundation has a diversified investment portfolio, and the lawsuit seeks to safeguard the upside of our original investment. The lawsuit does not affect the foundation's current charitable activities whatsoever."

"Since this matter is now in litigation, we are not able to provide further comment."

The potential loss involving Memjet marks at least the second high-profile investment to go bad for the George Kaiser Family Foundation. The group also took a large position in a startup solar panel manufacturer, Solyndra, which filed bankruptcy last year.

The Kaiser foundation invested $340 million in the Fremont, Calif.-based company and now is awaiting a return of some of the money since the federal government had granted Solyndra a $535 million loan guarantee.

In the new case, at the time of the initial investment Silverbrook and Lee were CEO and chief financial officer, respectively, of Memjet. The company had exclusive and perpetual licenses to use technology held by Silverbrook Research.

The lawsuit states that, previous to Kaiser's involvement, "the Silverbrook and Lee companies were adept at spending cash" and Memjet was nearly out of money, and the defendants traveled to Tulsa in 2003 to make a pitch to the foundation.

Starting with an initial investment of $50 million in 2004 that grew to $75 million by 2008, the foundation intended to back the development and commercialization of Memjet, the suit says.

However, foundation officials became wary in 2009, claiming that the technology had not been commercialized by then, and requested that Silverbrook and Lee step down as a condition for further investment.

Although the two stepped down from Memjet and Kaiser invested an additional $150 million, becoming majority shareholders with 61 percent of the company, the suit alleges that Silverbrook and Lee marked up the cost of Silverbrook Research's services to Memjet but disguised them so they did not become apparent until recently.

After a further $230 million investment in 2010 to early 2011, foundation officials were again concerned that Memjet's product was not ready for market, the suit says.

The foundation made additional conditions to Silverbrook and Lee for future investment, including an intellectual property facilitation agreement to assure customers of Memjet's rights to the technology, a full audit, a streamlined holding company structure and a $10 million settlement to DuPont for a failed business deal.

The suit alleges the two agreed to the conditions, and the foundation invested an additional $155 million.

However, foundation officials now believe "the defendants have utterly disregarded all of their promises and surreptitiously drained as much value from Memjet as they could, to feather their own nests, Silverbrook Research's pocketbook and the purses of several related companies," the suit alleges.

The foundation also alleges the defendants are planning to offer the print technologies to third parties.

The foundation is asking for actual and punitive damages, as well as trust over all benefits derived by the defendant's alleged fraud.

Founded in 1999, the Kaiser foundation is a nonprofit formed as a supporting organization to other nonprofits. It listed $3.9 billion in net assets or fund balances at the end of 2009.

Kaiser is a billionaire Tulsa oilman and banker.

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