A $2.5 million grant that was awarded to a startup company working to develop technology to produce fertilizer from corn cobs has been cancelled in Iowa. The Iowa Economic Development Authority cancelled the previously approved grant after it was discovered that SynGest Inc. had defaulted on its state contract by not sharing in its application that its chairman had been accused in a federal lawsuit in Illinois of racketeering and fraud. Serge Randhava was sued for fraud while he was involved with a research project involving fertilizer.

Jack Oswald, SynGest CEO, told the Associated Press, that the decision “appears to be a knee-jerk reaction.” He said the company would work to get the state to reverse its decision.

SynGest has already raised $3.5 million in private funds. So far, the company had not received any of the grant money.

State officials in Iowa initiated an internal investigation into a lawsuit against Randhava in April. In 2008, a federal jury in Illinois found “Randhava was part of a racketeering and fraud conspiracy in connection with the misuse of about $500,000 awarded by a research organization, Gas Technology Institute, to develop a fertilizer technology in a venture with his company, Unitel Technologies. A judge vacated the verdict in 2009 when the case was settled.”

Oswald appears to have signed the grant application indicating no in response to questions asking whether there were “any judgment or court actions completed or pending” against company employees or officers, and whether any had “been accused or convicted of any crime or wrongdoing.”

As a result, Debbi Durham, director, Iowa Economic Development Authority, claimed the company violated contract provisions by not disclosing the information about the previous lawsuit. Oswald responded by saying the lawsuit had nothing to do with SynGest and as a result, “there was no misrepresentation.”