04.29 Ledger 01 - The Cherokee Ledger-News

16 THE CHEROKEE LEDGER-NEWS NEWS APRIL 29, 2009
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EMC: Executives investigated for racketeering, theft
FROM PAGE 1
A civil lawsuit alleged that
Cobb EMC’s assets were taken
from members and used for financial
gain through the co-op’s relationship
with Cobb Energy. That
lawsuit was settled in December.
The criminal investigation began
when, at the beginning of
April, Cobb District Attorney Pat
Head sought out help from the
Cobb Sheriff’s Office and the GBI.
The four search warrants, filed in
Cobb Superior Court, said that
Head was seeking the investigative
assistance to search for evidence
of an alleged theft from
Cobb EMC. It alleges crimes of
racketeering, theft by taking and
theft by taking by fiduciary.
The allegations are that Brown
and the others made unlawful decisions
and transactions that negatively
affected Cobb EMC.
“The allegations, among others,
were that the assets of Cobb
EMC were unlawfully transferred
to Cobb Energy Management
Corporation, a for-profit
corporation …,” the warrants
state.
Brown served as the president
and CEO of Cobb EMC and Cobb
Energy. Boone, McGinnis and
Chadwick were board members
for both Cobb EMC and Cobb Energy.
“Allegations were also made
that Brown and other Cobb EMC
board members unlawfully profited
from the assets of Cobb EMC
for their own personal use,” the
warrant states. “Allegations
were made that … the CEO and
board members (Boone, McGinnis
and Chadwick) directed and
participated in the unlawful taking
of these assets and participated
in efforts to conceal or disguise
these takings from Cobb EMC
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and its members.”
Some of those transactions include
transferring a generator
valued at $431,000 from Cobb
EMC to Cobb Energy for a 49 percent
stock ownership in Cobb Energy.
The board of directors OK’d
the motion to make that transaction.
That, however, was impossible,
because Cobb EMC already
owned 100 percent of the stock in
Cobb Energy, the warrant states.
“At that time, payment to Cobb
EMC in the form of 49 percent
stock ownership in Cobb Energy
was not possible without substantial
detriment to Cobb EMC,” the
warrant states.
The warrant also alleged that
$9.7 million worth of meters was
to be transferred, approved by the
Cobb EMC board, to Cobb Energy,
however, an outside accounting
firm valued the meters at $15.5
million.
It was also alleged that the Cobb
EMC board, under the chairmanship
of Chadwick, contracted an
outside firm to read meters. However,
Brown and Cobb Energy
management ignored the board’s
decision and entered the contract
between Cobb Energy and the
meter-reading company, and
charged Cobb EMC an adder fee,
which ended up being increased
to 11 percent. From 2000-2004 and
2005-2007, Cobb EMC paid Cobb
Energy more than $2.7 million in
adder fees.
The warrant also alleges that
Brown, Chadwick, Boone,
McGinnis and their relatives
were paid from dividend-paying
preferred stock with money obtained
from Cobb EMC.
“They and or their relatives
were unlawfully paid dividends
SAVE $100,000
by Cobb Energy,” the warrant
states. “Those dividends were
paid indirectly with funds derived
from Cobb EMC improperly
through breaches of fiduciary duties
of these persons to Cobb
EMC.”
Through an employment agreement,
Cobb EMC and Cobb Energy
loaned Brown $3 million—
loans that, through a modified
employment agreement, were to
be completely forgiven by February
2011. The money from the
loans was used to buy preferred
stock in Cobb Energy for Brown
and his wife, the warrant states.
Also, the warrant alleges that
Cobb EMC paid Cobb Energy $3.4
million as a result of a contract
termination between SCANA Energy
and Cobb Energy, although
Cobb EMC had no obligations regarding
the contract.
A call center also is at the center
of the investigation. Prior to 1997,
when Cobb Energy was formed,
Cobb EMC operated its own call
center, but, after 1997, the call center
services were transferred to
ProCore Solutions LLC, a subsidiary
owned and created by
Cobb Energy. Cobb EMC paid
$14.3 million for ProCore services,
even though the same Cobb
EMC employees continued to do
the work. The multi-million dollar
payment never was disclosed
to Cobb EMC members.
A Cobb Energy spokesman said
that the alleged crimes have not
affected the credits that members
are suppose to receive at the end
of each year, and that Cobb EMC
couldn’t comment as to whether
any restitution ordered by a judge
to be paid back to Cobb EMC
would be returned to its members.
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