Cobb EMC Chief Indicted on Racketeering And Theft

From: AJC


The head of Marietta-based Cobb EMC was released from jail Thursday night after a Cobb County grand jury indicted him on 31 counts of racketeering and theft.

Dwight Brown's indictment Thursday capped a two year criminal investigation of the nonprofit electric cooperative that provides power to about 200,000 customers.

Brown turned himself in and was booked into the Cobb County Jail about 6:15 p.m. Thursday, and was released on his own recognizance about 9 p.m. His attorney, Craig Gillen, promises a fierce fight.

The indictment accuses Brown of stealing millions from the customer-owned cooperative and its customers, which include the Cobb County school system and government, and of making false statements to customers in order to conceal the thefts.

It also opens a new chapter in a legal saga that began in 2007, after an investigative report by The Atlanta Journal-Constitution raised questions about the relationship between Cobb EMC and a for-profit company set up and owned by co-op insiders, including Brown.

For more than a decade, the for-profit Cobb Energy ran the non-profit electric company under a 40-year contract, charging a mark-up that eventually hit 11 percent for work the co-op had previously done for itself.

Brown “is innocent of these charges and we intend to fight each and every charge in court,” Gillen said Thursday.

Racketeering carries a punishment of up to 20 years in prison and a fine. The other charges could result in as many as 10 years in prison.

The initial AJC report led to a customer lawsuit against the co-op and Cobb Energy that was settled in December 2008. Pat Head, the district attorney for Cobb, began the criminal investigation shortly after.

The indictment focuses on the relationship between the two companies, specifically business transactions in which the co-ops assets were allegedly used to subsidize Cobb Energy, and for which the co-op and its member-owners received no compensation.

Brown was CEO of both companies and a major Cobb Energy stockholder.

The indictment lists more than $50 million since 1997 that it said was either taken out of the co-op or was not paid to the co-op by Cobb Energy.

Some of the theft charges involve Brown’s receipt of $3 million in loans -- later forgiven -- from the two companies and his receipt of Cobb Energy stock dividends. Brown and his wife earned about $265,000 in annual dividends from their shares.

The indictment lists a number of occasions in which Brown -- or reports signed by Brown -- allegedly misrepresented the health of Cobb Energy or failed to disclose the extent to which the co-op and its members subsidized it.

“No other individual had as much information about Cobb EMC and Cobb Energy and no other individual had as much power and influence within those entities,” the indictment said.

Brown's attorney, Craig Gillen, promised a fierce fight.

Gillen denied his client received any illicit money from the Cobb Energy’s relationship with Cobb EMC.

“This is a racketeering indictment which charges theft of millions and millions of dollars,” he said. “The simple truth is that not a single dollar went to Mr. Brown that was not lawful and was not authorized by the respective boards of directors” of Cobb EMC and Cobb Energy.

He said the decision to engage in transactions in the indictment were “based on the wise advice of some of the finest attorneys and business consultants in America. Those decisions were good decisions at the time and, in retrospect, are even better decisions.”

Head said he couldn’t discuss the case, but left open the possibility of further indictments against others. Search warrants issued in 2009 included homes of some of the co-op’s board members.

“This is a very complicated case that’s going to be well-represented on both sides and for that reason I think the less we talk about it in the press the best off both sides will be,” he said.

His office took two years investigating because of the complexity, he said: “It’s the most complicated case, I think, that has ever been handled by the District Attorney’s office.”

He said it will be challenging to prevent evidence to a jury. “But it’s like any other case. You try to boil it down to the most simplistic terms you have so it’s easily digestible.”

Attorney Pitts Carr, who represented customers in their lawsuit against the co-op, said the indictment “confirms, in our opinion, that the Cobb Energy arrangement was, as alleged in our complaint, a methodology to siphon off assets that properly belong to the EMC’s members,” he said. “We certainly hope this energizes the leadership to bring in new management.”

Cobb EMC was created in the 1930s to bring power to what was then a rural part of Georgia. It is one of 42 co-ops in Georgia, and one of several serving now densely populated suburbs in metro Atlanta.

Electric co-ops are owned by members and profits are assigned to those members based on how much electricity they buy. Most co-ops return at least some of that capital back to members regularly. By 2007, Cobb EMC had not returned that money for more than 30 years. The company has said it used the money to build out its system, and that it rewarded customers in other ways, such as rebates based on power cost savings.

Although they are monopolies for all but the biggest customers, Georgia’s electric co-ops aren’t regulated by the state as investor-owned utilities are. They’re considered self-regulating because customers own them and elect boards of directors.

Brown and the co-op’s board formed Cobb Energy in the late 1990s to both branch into other businesses and protect the co-op from a takeover, according to depositions in the civil case.

The co-op transferred its meters and employees to the new company, and initially owned 100 percent of the company’s stock. Its ownership eroded over time, while Brown, co-op employees and other co-op insiders purchased stock of their own.

Most of the theft allegations in Thursday’s indictment focused on one of Cobb Energy’s first side ventures, which was to sell natural gas service for SCANA Energy.

According to the indictment, Cobb Energy used Cobb EMC’s customer list to do that, but the co-op got none of the revenue.

Later, when Cobb Energy got out of the contract, Brown “directed that Cobb EMC pay Cobb Energy approximately $3.4 million in connection with the termination of the SCANA contract, even though Cobb EMC had never received any revenue from that contract.”