Democratic and Republican politicians alike hailed the news in 2009 that U.S. battery maker A123 Systems had won a quarter-billion-dollar federal grant, but just three years later, the company finds itself bankrupt and the target of a buyout by a Chinese competitor.

The Massachusetts-based company filed for bankruptcy protection this year, setting the stage for an auction watched closely by Washington lawmakers and the Obama administration alike.

While the Obama administration has contended it should have a say in who takes over the company, the secretive auction held in the offices of a Chicago law firm started Thursday and ended with word that the winner was Chinese-based Wanxiang Group Corp.

Just weeks earlier, Democratic and Republican members of Congress had raised concerns about Wanxiang in a sharply worded letter to Treasury Secretary Timothy F. Geithner.

Among other concerns, the politicians said that little public information was available about the internal structure, governance and ownership of Wanxiang.

“This proposed transaction raises significant national security and public policy considerations that, if not appropriately addressed, would impair U.S. national security and threaten America’s innovation leadership and job creation,” said Rep. Bill Huizenga, Michigan Republican.

Mr. Huizenga said he was concerned in particular that A123 has multiple U.S. defense contracts worth millions of dollars, and he worried that sensitive military secrets could wind up in the hands of foreign agents.

“These contracts involve military vehicles, unmanned aerial and underwater vehicles, power grids, unmanned ground and portable power systems, high-energy lasers and advanced armor,” he said. “Should any adverse foreign agent working through Wanxiang gain access to these contracts, such access would be extremely detrimental to U.S. military operations.”

Under the proposed purchase, A123’s government contracting business would not go to Wanxiang but to another U.S.-based company, Navitas Systems.

But the situation did little to allay the concerns of Republican Sens. Chuck Grassley of Iowa and John Thune of South Dakota, who issued a joint statement Monday calling for a “full review” of the bankruptcy transaction by the Treasury Department, which also must approve the deal.

“In the end, the taxpayers will be left having to repay interest to China for a business that a Chinese company now owns,” the lawmakers said.

Still, the auction hasn’t been finalized, and the deal must be approved by the U.S. Bankruptcy Court in Delaware. A hearing has been scheduled for Tuesday. In addition, the federal government insists it should give its consent before any new ownership takes over, according to court papers.

In court filings, government attorneys say the Department of Energy, which awarded the grant to A123, is entitled to proceeds from the sale unless it gives consent to transfer assets to the buyer.

But a creditors committee filed papers late last week arguing otherwise.

“[The Department of Energy] has no better claim to the proceeds of the subject property than any other creditors,” the committee lawyers said.

The developments reflect the company’s fast fall from prominence. In 2010, the company’s president, David Vieau, predicted “thousands of jobs” in the greater Detroit area.

The Washington Times reported in October, however, that federal job-tracking figures show that just a few hundred jobs were created before A123 joined a growing list of energy companies that received lots of federal money only to end up in bankruptcy.

According to federal records, slightly more than 400 jobs were created, though Energy Department officials said the government job-tracking data didn’t include many other positions that were created.

In the wake of the company’s bankruptcy this year, Mr. Thune and Mr. Grassley raised questions in a letter to the Energy Department about whether federal officials knew the company was in trouble.

“A123 has been struggling for some time,” they wrote. “Was the company struggling when the Energy Department decided to award it a federal grant?”

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