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American Superconductor Examined

From the diaries…

Foreign Firms Take Millions in Recovery Act Cash

April 3, 2012 — Since 2009, a wind-power company in Devens, Mass. has taken $21.7 million in Recovery Act awards, sent the bulk of that taxpayer-funded stimulus to French firms, fallen victim to industrial espionage and fired American workers.

American Superconductor was once a paragon of so many promising alternative energy companies, a shining example of the scores of green enterprises that – we were told – needed but a helping hand in order to realize their potential. Yet since the Department of Energy first pegged American Superconductor as a winning business, the company has sent millions of taxpayer dollars to French companies, lost trade secrets to state-owned companies in China and lost American jobs.

Far from a story of successful public investments, American Superconductor’s story is an exhibition of the unintended and often perverse consequences of government-directed attempts to chart the course of American innovation.

The company, now superconducting business as AMSC, is a developer of wind turbine components and power grid systems based in Devens, Mass. The firm received $21.7 million in grants and contracts from the Department of Energy in 2009 and, according to Recovery.gov, has since subcontracted $12.1 million of its taxpayer-funded stimulus to Nexans France of 4 Rue Mozart, Clichy, France and Air Liquide, a major distributor of gases based in France.

Recovery.gov is a federal website created by the Obama administration to help taxpayers see how the government has allocated $749 billion in Recovery Act stimulus funds.

According to the site, AMSC’s awards funded a project for the Navy that is complete and another for the Long Island power grid that is more than 50 percent complete. According to the Administration’s reporting, AMSC’s awards allowed the company to retain 12 full-time position equivalencies—that is, $1.8 million per job “saved or created.”

But even these dismal numbers may be gratuitous if not deceptive estimations of AMSC’s job creation, for according to financial disclosures, the company commenced two rounds of layoffs in 2011, cutting its workforce by more than 300 employees.

These “structural changes” came about after startling revelations involving AMSC’s largest customer, Sinovel Wind Group of China. According to company documents, senior level Sinovel employees paid a $1.5 million bribe to an American Superconductor employee in exchange for help stealing encryption codes.

American Superconductor Falls Victim to Intellectual Property Thieves

American Superconductor’s near-collapse in 2011 at the hands of intellectual property thieves employed by Sinovel has been thoroughly aired in the press including articles in the Wall Street Journal, the New York Times, and Business Week.

However, none of these publications mention AMSC’s receipt of taxpayer cash or its connection with at least one major Democratic donor. For those unfamiliar with the drama that played out between AMSC and Sinovel, here’s the Reader’s Digest version:

The two wind-power companies operated according to a mutually agreed upon shipment schedule, whereby AMSC would send components to Beijing and Sinovel would pay accordingly. Early in 2011, Sinovel began refusing shipments from AMSC, stopped paying its invoices and left AMSC on the hook for some $50 million in undelivered components.

But more importantly, AMSC was left with an uncomfortable fact to disclose to investors at their March 31 filing deadline with the Securities and Exchange Commission. AMSC asked for and received a temporary reprieve, but was nonetheless forced to go public with the information on April 5 that Sinovel was no longer a paying customer, following which the price of AMSC’s common stock tumbled.

AMSC subsequently filed claims against Sinovel with the Beijing Arbitration Commission alleging that Sinovel had violated contracts. But in the months that followed, AMSC, with the help of Austrian authorities, discovered evidence—mostly e-mails—that senior-level Sinovel employees had, in June of 2010, paid an AMSC employee a $1.5 million bribe to help them steal valuable encryption codes.

According to AMSC’s SEC filings, the company submitted a civil action application to the Beijing Higher People’s Court against Sinovel and certain of its employees for trade secret infringement on September 13, 2011 under the caption (2011) Gao Min Chu Zi No. 4193. Dejan Karabasevic, formerly an employee of AMSC’s Austrian subsidiary, AMSC Windtec, confessed to taking the bribe, was convicted on Sept. 23 and now resides in Austrian prison.

AMSC said Karabasevic’s conviction was indicative of the strength of the company’s suits against Sinovel. However, Sinovel, commenting publically for the first time in October, hotly denied all accusations of trade secret theft, announced counter claims and counter suits and said it refused AMSC’s deliveries because the components failed to meet China’s tough standards.

Absent last year’s tumult, AMSC has plenty to be optimistic about, for according to the New York Times, Sen. John Kerry (D – Mass.) said he intended to raise AMSC’s case with China’s Vice President Xi Jinping personally during the diplomat’s Feb. 14 visit to America.

Following Jinping’s visit, AMSC received an initial hearing with the Beijing Arbitration Committee, a hearing AMSC spokesman Jason Fredette called, “the beginning of a process.” Fredette said that although the company has yet to receive a court date from Beijing, they are confident they will get one before the end of the year.

“We continue to have strong relationships with China,” he said.

An aside: Much to the New York Times’ chagrin, that prestigious publication wrote, in April 20, 2011, a piece lauding China’s leadership in alternative energy innovation, including Sinovel. Importantly, this article ran more than two weeks after AMSC’s disclosure but several months before its revelations of intellectual property theft.

The Times write:

“And local maker Sinovel, which got its start with imported technology, later used its own invention to develop the first major offshore wind farm outside Europe.” (Emphasis mine, irony ours)

The implication would be that Sinovel not only stole AMSC’s technology and left them hanging for millions in unpaid invoices, but that they then turned around and sold elements of that same thieved technology to European companies—a stunning portrait of just how ruthless Chinese companies can be.

American Superconductor Survives

Unlike Solyndra, SunPower or the myriad other green enterprises that have gone belly up after taking Obama-cash, AMSC survived its brush with free market reality through a strategy of layoffs and cash injections from Kevin G. Douglas, a wealthy Democratic donor and the top shareholder in AMSC, according to SEC and FEC records.

When Sinovel broke ties, AMSC has left with an uncomfortable fact to disclose to the SEC at their March 31, 2011 reporting deadline. SEC documents indicate that the company requested and received and temporary reprieve on that deadline, but it was nonetheless forced to go public with the information that it had just lost 70 percent of its customer-base on April 5. Following the disclosure, the price of AMSC’s common stock plummeted from $24.87 at market open April 5 to $13.30 at market close on April 7, bottoming out in Oct. 3 at $3.42.

In the run up to the disclosure and throughout the subsequent fallout, Douglas added direct and indirect shares of AMSC’s common stock totaling 4.8 million shares – a curious decision given that the company was floundering through the direst straits of its history with no change in sight. But even with Douglas’ timely investments, on which he took predictable and tremendous losses, losses he has yet to recover, the company was still forced to commence layoffs.

According to SEC filings, AMSC announced 30 percent layoffs in May and another 20 percent in November, cutting its workforce by more than 300 employees.

Among those who lost their job was CEO Gregory Yurek, but you won’t find him standing in the unemployment lines with his former employees, for according to SEC filings, during one week in October, Yurek exercised stock options and sold shares on six out of seven days, getting liquid fast for more than $10.4 million. And what’s more, AMSC’s board members awarded him a two million dollar annualized pension, meaning he continues to take payments from the taxpayer-underwritten operation he captained into an iceberg.

Kevin Douglas and the Obama Administration

Whatever Douglas’ reasons are investing so heartily in AMSC just as the company was floundering through the most dire straits of its history, they undoubtedly orbit Obama’s green policies.

On March 30, 2011, President Obama delivered an address at Georgetown University, Washington, a speech he used to introduce his Blueprint for a Secure Energy Future. According to the president’s blueprint, government-directed investments in the alternative energy sector have and continue to be essential to our economic revitalization.

How ironic  that one day after Obama lauded grants to wind-power companies, American Superconductor, a wind-power company that received such grants, reported to the SEC that it was on the brink of collapse!

Douglas and his wife Michelle have given more than $130,000 to Barack Obama and Democratic committees, according to Federal Election Commission records. What’s more, just days after AMSC’s stock price collapsed, Douglas and his wife Michelle gave $71,600 to the Chicago-based super PAC, Obama Victory Fund 2012.

Bearing that happy confluence of dates in mind, the president’s message is laughable:

 “A global race is underway to develop and manufacture clean energy technologies, and China and other countries are playing to win. Less than thirty years ago, the United States boasted more than 80 percent of the worlds wind capacity… Yet today China has moved past us in wind capacity…”

He goes on to laud federal green energy grant programs similar to those that contributed to AMSC’s efflorescence:

“The Section 1603 renewable energy grant program under the Recovery Act has been an essential tool in deploying renewable energy resources in the U.S. over the past two years, successfully increasing U.S. manufacturing and supporting tens of thousands of new jobs for Americans…”

* * *

As election season intensifies, President Obama will continue to tout his so-called green initiatives as forward-looking, job-creating policies. But every blueprint he brings forth; whether for a “secure energy future” or for an “American built to last” or whatever: the president’s attempts to centrally-plan the American economy will only undermine hardworking American entrepreneurs while enriching Obama’s pals and strengthening America’s enemies.

Follow S.E. Robinson on Twitter @Stevie_Rob

 

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