Casten’s business background under microscope
Democrat candidate for 6th Congressional District defends record
On the campaign trail and in advertisements, Sean Casten touts his experience as a clean energy entrepreneur with a track record of success creating jobs and helping the environment.
Years of work as the CEO of renewable energy companies, the Democrat says, make him uniquely qualified to serve in Congress as an outsider who will bring “a common-sense approach to the job.” Casten is challenging incumbent U.S. Rep. Peter Roskam in the suburban 6th Congressional District.
Republicans, though, have attacked Casten’s business career in campaign ads, zeroing in on a 2015 lawsuit filed by an investor in Recycled Energy Development, which converted emissions from power plants into energy. Casten was the company’s president and CEO. The suit leveled allegations of mismanagement against Casten and the company’s leadership, including “baseless accounting manipulations,” “inflated salaries,” “improperly inflated bonuses” and “irresponsible spending,” according to court documents.
Casten and his family eventually settled with the investor’s management firm and sold the company. Letters sent to investors in RED in the lead-up to the sale that were obtained by the Chicago Tribune stated that while preferred interest holders in RED would recoup their investment plus interest, common interest investors would not.
Casten says the allegations made in court by investor George Polk are not true. The lawsuit, the candidate said, was the result of a disagreement over the company’s direction and part of a hostile takeover attempt.
“Everything that was said there was false. Period,” Casten said. “If any of that was true, it would have been turned up a long time ago.”
As the political newcomer referenced his business acumen and environmental credentials, Roskam seized on the lawsuit to argue that Casten is not ready to lead and has not been forthright with voters.
“That, it is a big red flag,” Roskam said. “And it speaks to being entrusted to something. The people who entrusted him with investments found him not to be trustworthy.”
The two candidates are tussling about the best way forward in a suburban district packed with well-educated, middle-class and affluent voters. The race has national implications — it’s one of a few dozen across the country viewed by both Democrats and Republicans as critical to determining control of the House.
Casten said he is proud of his business career and called Roskam’s criticisms, the focus of a television and digital advertisement, an attempt to shift the focus of the campaign away from issues such as health care, taxes and climate change. Casten recently held a campaign event at the regional offices of the Sierra Club and has been endorsed by the national group 314 Action, which promotes scientists running for political office.
“(Roskam) cannot run on his record because his record is deplorable,” Casten said. “And his constituents don’t like it. So he is working hard to try to paint me as something other than I am, which is a successful entrepreneur.”
Casten says his businesses created jobs and, by converting industrial waste emissions into energy, cleaned the air along the way.
“Look, Roskam does not know the first thing about how to run a business,” Casten said. “He is trying to ding me. He has accused me of being a politician. I’ve never accused him of being an entrepreneur.”
Contentious legal battle
The lawsuit at the center of the debate was filed against Casten, his father, Thomas, and other members of the RED board. Sean Casten and his father started Recycled Energy in 2007. Thomas Casten is a longtime leader in the recycled energy field, founding the Trigen Energy Corporation and later serving as the chairman of the board for RED’s parent company.
The lawsuit filed by Polk and his company, Tulum Management, alleged the Castens manipulated financial results at RED “in order to paint an optimistic financial picture that was simply unsupportable.” The suit called the Casten family leadership a “reign of error” and said the family was more focused on “ego gratification” than running a profitable company, according to court filings. Polk filed the complaint in July 2015 in Delaware, alleging breach of fiduciary duty and breach of contract.
“The Castens are focused on building an energy development company and maximizing the scope and reach of the Casten legacy,” Polk contended in court documents.
Polk said he could not comment for this story, citing the court settlement. An entrepreneur and investor who focuses on energy and climate change, Polk once served as an adviser to George Soros, according to his online biography.
The matter was settled out of court after 16 months of contentious back-andforth filings in several related lawsuits both in Delaware and Cook County. The settlement specifics were not made public, but a letter sent to RED investors in July 2016 stated the company agreed to pay Polk’s Tulum $1.5 million in reimbursement of legal fees to settle the case. Casten and his family sold the company in September 2016 to Ironclad Energy Partners. One of the letters to investors, dated in September 2016, stated the purchase price was an estimated $60.6 million. The Delaware and Cook County cases were closed Sept. 28, 2016.
“We sold it under an agreement that every single investor, including Mr. Polk, agreed to because they thought that was an economically good thing to do,” Casten said. “So at the end of the day, I met my obligations to everybody who was out there.”
Polk’s management firm, which owned 74.5 percent of preferred interests, was to receive 100 percent of its balance due on preferred investments, and RED was to purchase Tulum’s common interests for $1 million, according to the RED documents. RED paid Tulum $46.35 million to buy out its interests. But while preferred interest investors would get their principal back with 15 percent annual interest, common interest holders would get little if any return on their investment, according to copies of internal letters sent to shareholders in July and September 2016, in the leadup to the company’s sale. “We do not anticipate distributions to Common Interest holders at close,” one of the letters stated, according to copies reviewed by the Tribune.
Polk and Tulum Management’s lawsuit in Delaware was a response to a lawsuit filed by RED Parent in Cook County Circuit Court that essentially attempted to block Polk from obtaining an independent audit of the company’s financials. Polk contended that RED Parent’s financial performance had triggered his right to take control.
Casten said RED “never got anything but a clean audit,” including the one performed during the course of the litigation. Without a clean audit, he said, they would not have been able to sell the company.
“Anybody who’s been involved in litigation knows that just because you say something in court, doesn’t make it true,” Casten said. “It was all, basically, an intimidation play.”
Business to politics
From 2000 to 2007, Casten was president and CEO of Turbosteam, a company that specialized in the design and sale of equipment to recover waste energy at industrial facilities and turn it into electric power. Turbosteam became a subsidiary of RED. Polk’s investment firm said in court filings that it learned in April 2013 that RED “violated the operating agreement by authorizing the inappropriate transfer of funds in May 2012 to prop up Turbosteam, which was in the zone of insolvency and facing imminent bankruptcy.”
“The overall impact of the Castens’ mismanagement is substantial,” the lawsuit states. “Under the Castens’ reign of error, all of the assets have yielded at least 20 percent less cash flows — and in some cases as much as 80 percent less cash flows — than originally projected and several ... are now inactive and thus effective write offs.”
In an October 2015 deposition, when asked if Turbosteam was still operating, Casten said, “We are winding it down.”
Polk’s lawsuit also alleged that the Castens’ role in a California company called Greenleaf Power “terminated under acrimonious circumstances.”
Asked about the Castens for this story, Greenleaf’s chief financial officer, Rob Pennington, responded with an emailed statement: “We have no comment, other than to state that RED and the Castens remain a supportive investor in Greenleaf Power.”
Casten, in a March essay entitled “Check Your Ego: How Running a Company Prepares You for Public Service,” said the family spent millions of dollars on legal fees defending itself before opening discussions about selling the company.
“We made money for our investors,” Casten wrote. “... We made lemonade out of lemons.”
After the sale of the company in 2016, Casten decided to put his experience in energy policy to use by running for office.
Clean energy model
Casten also served as chairman of the United States Combined Heat and Power Association. He graduated from Middlebury College in Vermont and holds master’s degrees in biochemical engineering and engineering management from Dartmouth College. Turbosteam’s systems helped Middlebury College win an award from the Environmental Protection Agency in 2005. Casten has said that the model for the businesses was to use technologies to lower carbon emissions, reduce energy costs and turn a profit.
The model for Casten’s renewable energy business endeavors is sound and a real effort to use technology to turn emissions from power plants into electricity, said James Braun, an engineering professor and director of the Center for High Performance Buildings at Purdue University.
“That’s a good concept,” Braun said.
Recycled Energy Development’s industrial waste energy recovery and cogeneration of combined heat and power processes, Braun said, are scientifically solid.
“If you can use that waste heat for other applications, that makes huge sense,” Braun said.
The average efficiency across all power plants in the U.S., Braun said, is about 30 percent, so anything that improves that is welcome. Cogeneration is not a new concept, Braun said, and has been used at many college campuses, including Purdue, for decades. Other forms of turning waste heat into electricity have been harder to implement, he said, because it is difficult to find methods that can do it economically. Those processes require extra hardware and can be costly.
Braun said calling the technology “clean energy” is a bit of a misnomer. “Let’s just say ‘cleaner,’ ” he said.
The process tries to improve the efficiencies of energy production, but it still produces emissions and byproduct into the environment. Most electricity generation still uses fossil fuels, Braun said, so there will be some environmental impact. Still, the Castens’ business model aims to try to reduce emissions and turn waste into energy.
“It’s a good idea,” Braun said.
Casten speaks at length about energy and environmental policy at candidate forums and embraces his background as an asset.
“I’m extremely proud of my businesses,” Casten said. “I’m happy to talk about them at any time.”