Company failures not fraud, says principal

One of the lead figures in a dramatic and complicated thin film battery bankruptcy case unfolding in North Carolina has come forward accusing former company officials and shareholders of trying to "smear" him.

While he didn't respond to an interview request in December in connection with our article Noose tightening in bankruptcy investigation, California entrepreneur Michael Sauvante, who espouses an unconventional—some might call it 'new age'—approach to business, recently approached the Cleantech Group to tell his side of the story.

"This thing is dragging on and on and on, and your article, quite frankly, is creating a lot of harm," Sauvante said.

So we took the opportunity to talk with Sauvante and look at latest proceedings in the case for an update story.

The background is complicated. When a company in North Carolina called Seertech filed for bankruptcy last August and a creditors' representative began asking questions at a hearing, the bankruptcy trustee's suspicions were raised when material facts were not disclosed and important books and records were not produced.

After months of investigation and review of corporate documents, trustee Rick Mitchell recently alleged in court that a set of companies controlled by Sauvante and associate Frank Bachinsky, which have gone by names including Rolltronics, Voltaflex, FASwitch, Innosigns, PlastDisplay, The Seer Group and Seertech, seemed to have been, "in a series of very complicated machinations", "raising money from investors for the benefit of the insiders without any intent or reasonable prospects of developing a saleable product." He called the case potentially a "very serious case of fraud."

The companies claimed variously to have been developing roll-to-roll lithium polymer batteries, and an active matrix display backplane for electronic paper technologies or high-contrast, thin digital signs.

At least some of the companies' intellectual property was at one time licensed from MIT, a license which lapsed due to non-payment. Other IP appears to have been transferred, pre-bankruptcy, to company insiders and is not part of the corporate estate available for recovery by the many creditors owed as much as $1.3M in Seertech alone.

In a phone call, Sauvante bristled at association with terms like fraud and criminal contempt.

"You are reflecting documents filed by a group that has been trying to smear and go after us for three years now," he said, referring to a group of former investors who were part of a class action suit against Sauvante and his companies. He says they've been feeding the trustee misleading information.

"Yes, there were a series of complicated legal moves… just because it was complex didn’t make it wrong in any way," said Sauvante.

When asked directly for inaccuracies in the Cleantech Group's original article, Sauvante said he was not "challenging the accuracy of your reporting of these documents," but "the implication that because these documents were in the court record that makes them 'facts,' and the interpretation or meaning placed on the information contained in those documents."

One of the most significant of what Sauvante called "distortions" in pages of rebuttal he submitted recently about the article was the amount of money he accepted from investors.

"We never raised anything like $8M. The total between Rolltronics and VoltaFlex was barely over $3.2M," he told the Cleantech Group.

Sauvante's associate Frank Bachinksy testified, on the record, in bankruptcy court last October that all of the two's predecessor companies, not just Rolltronics and Voltaflex, may indeed have raised $8M or more.

Sauvante also objected to the implication, he said, that evidence showing a trip Bachinsky took in April, 2006 to the Cayman Islands was for anything but a meeting with potential investors.

There had been questions in bankruptcy court transcripts about what appears to be missing money, raised by the string of companies controlled by Sauvante and Bachinsky that never produced any products.

"No funds were moved offshore by me, Frank, or our companies," Sauvante maintained to the Cleantech Group, "and I challenge anyone to show one bit of evidence to the contrary," he told us.

We looked at some of the available evidence. The trustee has received Sauvante and Bachinsky's phone records, travel expenses and some of their bank records.

These limited bank records do, in fact, show money from at least two of the companies transfered abroad, allegedly licensing fees, to the personal bank accounts (i.e. not corporate accounts) of a corporate insider.

Records do not show phone calls to any Cayman Island investors in advance of Bachinsky's April 2006 trip, nor follow up calls. None of their investors, identified in documents handed over to the court, have Cayman Island addresses of record. And while Grand Cayman hotel bills and many small receipts are claimed as expenses from Bachinsky's trip, commercial airfare to and from is not, begging the question of how he got there.

Michael Sauvante is articulate, persuasive and charming. He characterizes himself as a socially and environmentally responsible businessman, committed to building businesses built on sustainable values and advocating a "triple bottom line" of emphasis on economic, natural and social capital. He pointed the Cleantech Group to press articles available on the Internet supporting his character and vision (see this, this and this.)

"Would you not agree that [these documents] paint a picture that's diametrically opposite?" Sauvante asked.

Yet for the gentle picture he'd like painted, the socially conscious entrepreneur has used surprisingly strong-arm tactics in his companies' bankruptcy proceedings. He has been absent from hearings, resisted requests for company documentation in defiance of court orders, filed a complaint about the trustee to the North Carolina bar, missed response deadlines, and even taken the highly unusual move of using a draft of this story—provided to him as a courtesy for fact checking—in court last week in a failed attack against bankruptcy trustee Mitchell, a move for which he and his lawyer were reprimanded by the judge, as evidenced in a recording of the hearing.

We called the trustee Mitchell. When asked what makes him suspicious of wrongdoing, he said he noted a pattern in Sauvante and Bachinsky's series of companies, all involving the same individuals.

"When you go through all these various companies, and they're all pre-revenue technology companies, and no technology is ever developed over six-to-eight years, and with these mergers a hundred people, maybe two hundred people, lost a ton of money... you tell me."

"If it's three feet long, and about a foot high, and is black with white stripes and it stinks like hell, it may not be a skunk, but it probably is," he said.

"I don't know what will become of this case," Mitchell said. "I have referred it to the FBI, which is my duty when I see something that is not right. I do know there are an awful lot of people out an awful lot of money," he said.

The case is a long way from being settled. But it's not going well for the executives to date. In a hearing last week, there were indications Sauvante will be sanctioned and possibly referred to a North Carolina District Court to face sanctions for criminal contempt.

The bankruptcy judge, Justice Craig C. Whitley, calls the case extraordinary.

"From twelve years of experience on this bench and much more than that as a lawyer in the bankruptcy courts, there is more than enough here to justify reasonable doubt as to whether everything is on the table," he said in a hearing in November.

It's not clear how many investors are affected by the bankruptcy of Bachinsky and Sauvante's string of companies. While Sauvante told the Cleantech Group the "vast majority" of his investors have stood behind him and his management, and "have become friends of mine," public and company records show some two thirds of the investors in at least one of his companies, Voltaflex, previously sued for fraud in multiple venues. All were settled with in 2005.

Yet Sauvante still has supporters.

Reached by the Cleantech Group, former Rolltronics and Voltaflex chief operating officer Glenn Sanders called the allegations against Sauvante "laughable if they weren't so terrible," claiming the companies indeed worked hard on Sanders' watch to produce prototypes that they showed at trade shows and to magazines.

Gene Tresenfeld, who has $22,700 in embattled Rolltronics and VoltaFlex, and who also invested in another new age business he believed passionately about in which he lost $25,344, wrote the Cleantech Group that he keeps investing because he believes in Sauvante.

"Despite all that Michael has been put through professionally and personally, his principled determination to be part of sustainable business practices has been unwavering. Throughout the time I've known Michael, I have never had cause to question his integrity."

Tresenfeld, along with investor Norris Coit, authored a glowing reference of Sauvante for trustee Mitchell, and called into question the various shareholders and creditors Sauvante says are smearing him. Upon not getting satisfaction, the two wrote the judge, asking him to replace the trustee with one "that will more appropriately represent the interests of the estate."

Asked about the Tresenfeld and Coit letter, trustee Mitchell told the Cleantech Group he didn't think it was material.

"Mr. Sauvante, I'm sure, is a compelling kind of person. I don't think you do the kind of things he does without being that way. But you got a lot of people who think he's an absolute crook, and all his cohorts, and two people who come to me and say he's a nice guy? They kind of get out-voted."

The bankruptcy proceeding continues.

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