A Family Business: U.S. Rep. Kanjorski (D-Pa) secured $10M for now-bankrupt firm. What went wrong?

A Family Business: U.S. Rep. Kanjorski secured $10M for now-bankrupt firm. What went wrong?
Sunday, 03 June 2007
By DAVE JANOSKI
Staff Writer

U.S. Rep. Paul E. Kanjorski, D-11, touted Cornerstone Technologies LLC as a way to spin anthracite into lightweight carbon fibers, building a high-tech future from northeastern Pennsylvania’s coal-mining past.

But eight years after it was launched by Kanjorski’s relatives, the firm has collapsed into bankruptcy, leaving behind bad debt, embittered former employees and lingering ethics questions about $10 million in federal contracts Kanjorski helped secure for Cornerstone. The company’s vision of producing advanced materials for the Navy never left the drawing board.

University researchers and government officials who worked with Cornerstone say its core idea — using jets of high-pressure water to pulverize coal and other materials into minute particles — was sound. But some say the company’s leadership — a quartet of Kanjorski nephews for the most part — was ill-suited and ill-prepared for the rigors of scientific research.

“It was just like the Three Stooges meet anthracite,” said Penn State fuel-sciences professor Harold Schobert, who worked on a federal contract with the firm. “These guys didn’t know how to order chemicals. They didn’t understand even the most fundamental aspects of how to conduct experiments.

“The Kanjorskis probably should have got someone pretty sharp on the technical side to run that and faded into the background … They didn’t find a technical guy they were willing to trust.

“If they wanted to collect six- and seven-figure salaries, more power to them. I think the company was doomed from the get-go.”

At least two Kanjorski nephews were on the Cornerstone payroll, according to the congressman and a former company official. Their total compensation has never been made public.

Bruce Conrad, a Cornerstone founder embroiled in a legal dispute with the company since he was ousted as company president in 2001, said Kanjorski nephew and company co-founder Peter A. Kanjorski was paid $95,000 in 2001. In the same year, a vice president who was ousted along with Conrad was paid $80,000, according to documents filed as part of Conrad’s lawsuit against the company.

Kanjorski’s daughter, Nancy, and his four nephews were owners and/or board members at Cornerstone, which rented space in a Wilkes-Barre building co-owned by the congressman before moving to larger quarters in Plains Township.

Congressman Kanjorski and Peter A. Kanjorski did not respond to repeated requests for interviews for this story. The other Kanjorski relatives could not be reached for comment.

Insecure from the start
In interviews over the past five years, Congressman Kanjorski has defended his pursuit of contracts for Cornerstone, blaming its collapse on politically motivated bad publicity and the financial drain of legal battles with disgruntled former employees.

But Cornerstone’s financial footing was never very secure, judging from a review of federal documents and interviews with officials from governmental and educational organizations that worked with the firm.

As early as September 2001, Cornerstone was having trouble paying its subcontractors, according to C. David Warren, a program manager at the Oak Ridge National Laboratory in Tennessee, which worked on a U.S. Department of Energy project with the firm.

“People complained that they were not being paid. I’ve been doing this job since 1999 and that’s the only time I’ve had that happen,” Warren said.

Cornerstone had an $850,000 Department of Energy contract to conduct research on producing minute particles of anthracite for use in carbon fibers for lightweight vehicle parts. Warren said the department terminated the contract when it became clear that the company’s approach could not adequately reduce the particles without submitting them to an expensive secondary milling process using existing technology.

When the contract was terminated in 2001, Cornerstone billed UT-Battelle, which manages the laboratory for the federal government, $241,629 for what it claimed were unreimbursed costs. Those costs included a portion of a $366,204 bill from Pennsylvania Micronics, a Cornerstone affiliate owned by Kanjorski relatives, according to Oak Ridge National Laboratory documents obtained through the U.S. Freedom of Information Act.

Cornerstone’s use of one of its own affiliates as a subcontractor was “very unusual,” Warren said. “To the best of my knowledge, we never paid it.”

He referred further questions about Cornerstone’s bill to financial officials at Oak Ridge, who did not respond to questions submitted in writing on May 8.

Dr. Eugene Shin, who worked for Cornerstone in 2000 and now works for NASA, said he believes the company’s management “did their best.”

“It’s a company involved in complex technology. Their experience was not in science and technical areas as much.

“The problem was there was not enough manpower and resources to do to what they wanted to do.”

A patent’s value
In its September 2006 bankruptcy filing, Cornerstone listed debts of $1.3 million and assets of $14,100. No value was placed on two assets that might be of some worth – two custom-built water-jet mills that cost $100,000 and the patent for the process used by those mills.

The company’s bankruptcy lawyer, John Doran, said he’s unsure what price might be placed on those items.

“This was custom-made equipment. It doesn’t have a market. Weigh it up and decide what it’s worth,” Doran said.

“There’s going to be a long wait before someone steps up and says, ‘I want to give you money for that patent.’ There’s a lot of patents that aren’t worth the paper they’re written on.”

Even if there were interest, the University of Missouri-Rolla, where Cornerstone chief scientist Marian Mazurkiewicz and other researchers first developed the process, could have a legal stake in the patent, university officials say.

“They filed a patent we felt was improperly filed,” said David Summers, a professor from the university. “We were not even aware of it until someone sent us a clipping of Cornerstone announcing they had a patent.”

The university sent Cornerstone a letter noting its claim on the patent in 2003, but has taken no legal action, Summers said.

“What are we going to get out of it? I’m not sure the university is convinced there’s enough resources coming out of this to justify anything.”

University of Missouri-Rolla spokeswoman Mindy Limback said the university would have no comment on the patent because of possible future litigation. She also declined comment on an $85,177 debt to the university Cornerstone reported on its bankruptcy filing.

Former Cornerstone chief scientist Mazurkiewicz, who is owed $600,000 in unpaid salary, according to the bankruptcy filing, said the money owed to the university stems from his initial work for Cornerstone at the university before he joined the company.

“They were supposed to pay the University of Missouri, but they never did. They were cheating from the beginning,” Mazurkiewicz said.

Federal money
Cornerstone’s origins lie in Congressman Kanjorski’s 1987 visit to the University of Missouri-Rolla, where Mazurkiewicz and other scientists were researching the use of water jets for underwater mining.

Hoping to harness that technology to find new uses for the region’s anthracite coal, Kanjorski secured a $2.1 million U.S. Department of Defense grant to research the use of water jets to clean large-caliber artillery shells. The money was funneled through Earth Conservancy, a nonprofit land-reclamation project Kanjorski formed to acquire 16,000 acres of former mine land in Luzerne County. Research funds went to the University of Missouri-Rolla and King’s College and Wilkes University in Wilkes-Barre.

When water jets proved unsuitable for mining or shell-cleaning, Kanjorski turned to the U.S. Economic Development Administration for a $1.1 million grant to research using water jets to pulverize old tires. The recipient of that grant was the 11th Congressional District Regional Equipment Center, another nonprofit formed by Kanjorski to lease surplus federal heavy equipment to local municipalities.

But in 1997 the center forfeited the grant because center officials said they objected to hiring a firm co-owned by Kanjorski relatives, Impact Technologies, to conduct the research.

About a year later, in September 1998, Kanjorski managed to get $4 million in federal funding for “materials micronization technology” research included in the defense appropriations bill for fiscal year 1999. A footnote in the bill restricted that research to work on the “micronization” of coal and other particles for use in “composite materials, fuel cell membranes, filtration technology, diesel fuel and other materials and processes important to national defense.”

While any company could have submitted a proposal to perform that research, apparently only one did, according to Luis Leme, an attorney for the U.S. Office of Naval Research — Cornerstone Technologies LLC. The company was established by Peter A. Kanjorski and Bruce Conrad, a former Carbon County planning director, in December 1998.

According to various legal documents, Peter A. Kanjorski and Conrad, who had worked with the congressman investigating various uses for water-jet technology, each owned 20 percent of Cornerstone. The remaining 60 percent was held by KOR Holdings, which was owned by Peter A. Kanjorski and other relatives of the congressman.

The congressman’s role
Although he was not an owner of Cornerstone, Congressman Kanjorski often took an active role in its operations, former employees and associates say.

According to Conrad, Peter A. Kanjorski, who was CEO of the firm, made no decision without consulting his uncle. In August 2000, the congressman personally presided over a meeting between Peter A. Kanjorski, two other Kanjorski nephews and Conrad to resolve a dispute over offering shares in Cornerstone to several key employees, Conrad maintains.

Thomas Unger, a former senior vice president at Cornerstone, said in published interviews in 2002 that Kanjorski took an active role at Cornerstone and acted “like a CEO.” Unger, who, like Conrad, was fired from Cornerstone in 2001, did not respond to repeated requests for an interview for this story.

He and Conrad were Cornerstone’s adversaries in a series of lawsuits in Northampton County Court that were put on hold by Cornerstone’s bankruptcy filing last year.

Cornerstone claimed the two former employees had disclosed privileged company information to another firm in violation of a confidentiality agreement, a charge Conrad and Unger denied. In turn, Unger sued Cornerstone for alleged age discrimination.

The congressman agreed to give testimony in a deposition for the case, but Unger’s attorney postponed the deposition several times, Kanjorski said last year.

Cornerstone filed for bankruptcy on Sept. 26, 2006, three days before a Northampton County judge was to hear arguments on whether he should hold Cornerstone in contempt for allegedly disobeying his orders to give company information to Unger in a pre-trial process known as discovery.

“I’ve sat through this case for four years, and I’ve watched the most twisted, obstructive effort to deny discovery that I have ever seen,” Judge William F. Moran said when ordering the contempt hearing.

“Maybe the people who are involved in this think they are immune from the law because of who they are. But they’re not in this county,” Moran said, according to a hearing transcript.

Moran threatened to issue warrants if Cornerstone’s officers failed to show up at the Sept. 29 contempt hearing. “And if Congress is in session, I don’t know whether we can bring anybody in or not.”

Penn State professor Schobert, who headed the university’s Energy Institute at University Park when Cornerstone was still operating, said he and his colleagues had their doubts about the company and the congressman’s involvement in its scientific initiatives.

“I’ve had discussions with Congressman Kanjorski on many energy issues. I think he is a very sincere man in trying to find new, novel approaches to energy and new uses for anthracite. Unfortunately, he has, I believe, no scientific background and he sometimes gets these fly-by-night kooks.”

Schobert said he began to doubt some of Cornerstone’s scientific claims because the company was very secretive about its process.

During a visit to Cornerstone’s former facility in Plains Township, company officials refused to allow Penn State researchers to observe the water-jet mill in operation or to give them samples of materials it had reduced, he said.

“Our staff volunteered to sign a non-disclosure agreement on the spot, but that wasn’t good enough. They said we couldn’t go into the enclosure where they had the machinery because there was too much noise. But Cornerstone people were walking in and out of there with no ear protection.

Schobert subsequently suggested to Cornerstone officials that they might more logically work with the university’s materials research department.

“I went through a lot of agony because I knew Congressman Kanjorski was behind this. I was thinking, ‘If I just gracefully exit from the Cornerstone scene am I screwing myself out of millions of dollars that Mr. Kanjorski could earmark or whatever?’”

‘No clear product’
The majority of Cornerstone’s federal research was funded by the U.S. Office of Naval Research through earmarks Congressman Kanjorski had inserted in the agency’s budget for 1999, 2001 and 2002.

But what Cornerstone hoped to provide the Navy was ill-defined, judging from correspondence between the company and an Office of Naval Research program manager.

“The proposal fails to specifically indicate how the … technology will serve the Navy,” program manager James Kelly wrote to Cornerstone in 2000. “There is no clear product for the Navy to be found anywhere in the proposal.”

In the correspondence, obtained through the Freedom of Information Act, Kelly urged that “the final delivery should be more than just a final report. A prototype unit should be constructed and delivered to the Navy or one of its contractors for evaluation.”

In response, Cornerstone wrote that it wouldn’t provide a prototype because its machinery was based on its own “intellectual property” developed before it received the military contracts and “shipping a prototype would put all of Cornerstone’s future business activities at extreme risk.”

The company offered instead to supply large samples of its ultrafine powders to the Navy and its contractors.

In the end, no Navy contractor ever found a use for Cornerstone’s powders and all the Navy got from Cornerstone’s $9.3 million in defense contracts were several hundred pages of final reports and supporting documents.

“The products were never commercialized successfully (to my knowledge) for someone to make a useful product for the Navy,” program manager Ignacio Perez wrote in response to questions posed to the Office of Naval Research. Other methods of reducing materials have “significantly surpassed Cornerstone’s,” he wrote.

“There might be some application (unknown to me at present) in which Cornerstone technology might become cost effective.”

Cornerstone listed the Office of Naval Research as a creditor on its bankruptcy filing – owed an “unknown” amount for an “incomplete contract.” But Perez “considers the contracts to be completed since he has received all of the final reports due under those agreements,” according to the agency’s public affairs office.

Still promising
Despite the failure of Cornerstone, some researchers say its water-jet process still might have a future.

Summers, the University of Missouri-Rolla professor who helped develop water-jet technology there, said there’s some promise in the use of fine particles of anthracite mixed with water as a substitute for diesel fuel.

“It’s something we’re revisiting now. It has a huge potential and it’s kind of frustrating to us as a research center and a university that the thing has died. It has a lot of value.”

Summers said uncertainty over the ownership of Cornerstone’s patent presents a possible obstacle to future work in the field.

The large defense contractors that tested powders Cornerstone produced for the Navy continue to research ways of reducing materials for use in electronics and other products, according to Doran, Cornerstone’s bankruptcy attorney.

“They were trying to develop this technology with larger companies that then went off on their own,” Doran said.

James Adair, a Penn State materials science professor who worked with Cornerstone, said the company’s technology for reducing anthracite offered opportunities for disposing of the culm banks that dot the coal regions while developing new commercial uses for coal.

“I was impressed with the concept and I’m sorry that it didn’t pan out. I thought what they were doing was quite noble, to be honest. There has to be a use for all that carbon-rich material.”

Congressional earmarks funded Cornerstone
BY DAVE JANOSKI
STAFF WRITERS
06/03/2007

U.S. Rep. Paul E. Kanjorski used his seniority and ties to powerful Democrats to secure $10 million in contracts for his nephews’ firms.

Earmarking — the insertion of spending for specific pet projects into appropriations bills outside of the normal legislative process — has long been a controversial practice in Washington.

Over the last decade, the annual cost of earmarks has more than tripled, reaching $64 billion in 2006, according to the Congressional Research Service.

The new Democratic majorities in the House and Senate pledged to reform the process. But some observers of Congress say the few reforms that have been passed will do little to curb earmarks. Lawmakers in both houses have already submitted their earmark requests to party leaders as they prepare to work on the 2008 budget.

“The announcements have gone out by the committee chairs and ranking members: ‘Get your earmark requests out,’ ” said Ronald Utt, a senior research fellow with the Heritage Foundation, a conservative think-tank. “I don’t think anything has changed. Congress doesn’t seem to think there’s much wrong with this.”

In October, Mr. Kanjorski told The New York Times that his fellow Pennsylvania Democrat, John Murtha, a powerful member of the Defense Appropriations Subcommittee, helped him get funding for eight to 10 projects, including contracts that went to Cornerstone Technologies LLC.

Murtha powerful ally

As a longtime senior member, and now chairman of the subcommittee, Mr. Murtha is able to insert earmarks into appropriations bills when House and Senate leaders meet in what is known as a conference committee to reconcile the separate appropriations bills approved in each chamber. The resulting conference reports — and the added earmarks — are then typically approved in both chambers with little debate or scrutiny.

http://www.thetimes-tribune.com/site/news.cfm?newsid=18420223&BRD=2185&PAG=461&dept_id=415898&rfi=6

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