The indictment alleges that Brown used Cobb Electric Membership Corporation as a piggybank to fund various operations and activities of Cobb Energy without approval by the cooperative’s members, as required in EMC’s bylaws. Without revenues from these various business dealings by Cobb Energy, funded by the co-op’s members, Cobb Energy could not have paid Brown millions of dollars in salary and compensations, dividends in preferred stock, and forgiven a $3 million loan Brown used to purchase the stock, according to the indictment.
“Moreover, at least through 2007, the accused took steps to conceal and cover up the thefts and other crimes charged in this indictment,” the document states.
Brown is charged with 16 counts of theft by taking, three counts of racketeering, 10 counts of making false statements, and one count each of conspiracy to defraud Cobb Government and conspiracy to defraud the Cobb County School District, both of which are EMC members.
District Attorney Pat Head said some of the charges carry a 20-year sentence, while others carry a 10-year sentence.
Former Gov. Roy Barnes of Marietta and white-collar crime attorney Craig Gillen of Gillen, Withers & Lake, which has offices in Atlanta and Savannah, are representing Brown. Head said he talked to Barnes on Thursday and agreed to allow Brown to turn himself in to Cobb Sheriff’s deputies today. From there, an assigned local judge will decide whether to hear the case or be recused — if so, a judge from outside the county will be brought in — and then there will be an arraignment.
“It’s taken us nearly two years to reach this point, and that’s because it’s such a complicated case… It’s the most complicated case I think that has ever been handled by the District Attorney’s Office,” Head said.
Brown’s attorneys say the indictment is “without basis,” and they “intend to fight every inch of the way in this case.”
“Not one penny of money went to Brown that was not approved by business consultants, directors and fine lawyers,” Barnes said. “This sends a terrible message to all business. I’m proud that Cobb has been a pro-business environment, and that changed today with this indictment.”
Gillen echoed Barnes in stating, “The simple truth is this: not a single dollar went to Mr. Brown that was not authorized and lawfully approved by the board of directors.”
Asked if that meant other officials should have been indicted since they approved Brown’s actions, Barnes said, “no, nobody should’ve been indicted.”
Gillen added: “The business decisions that are reference in this indictment were made with the wise advise of some of the finest lawyers in America. Those decisions were good decisions when they were made and, in retrospect, those decisions are now even better. Mr. Brown is absolutely innocent of these charges.”
Both attorneys refused to answer specific questions about the indictment, which focuses on EMC funds being used for Cobb Energy.
In July 1997, Cobb Energy was created as a for-profit entity of the electric cooperative that serves about 200,000 customers in Cobb and surrounding counties. When created, Brown was named CEO and president of Cobb Energy, while remaining president and CEO of EMC.
On Sept. 6, 1997, according to the indictment, Brown states at an annual meeting, “We will not allow Cobb EMC to subsidize this new company.” Shortly after, EMC entered into an operating agreement with Cobb Energy, signed by Brown, transferring EMC’s workforce and obligating EMC to pay Cobb Energy a surcharge, called an adder fee, on weekly salaries and fringe benefits of what had become Cobb Energy’s employees, according to the indictment. The adder fee was said to initially be 2 percent, but was increased later to 6 percent, and then again to 11 percent. Also, EMC’s electric meters were sold to Energy for about $10 million, the indictment states.
On May 29, 1998, the indictment states that Cobb Energy entered into a contract with SCANA Energy Marketing, signed by Brown, which allowed SCANA the right to market and sell natural gas to EMC customers in exchange for substantial weekly payments to Cobb Energy. For roughly 10 years, EMC assets, including customer information, were used to market and sell the natural gas, but EMC was not paid for the use of its property and assets or received any SCANA revenues, according to the indictment. SCANA revenues through 2007 totaled more than $70 million, according to the indictment.
“Under Cobb EMC’s bylaws, the funds and customer information and the revenues from the SCANA Contract were the property of Cobb EMC and the members of Cobb EMC and could not be given or diverted to Cobb Energy without the affirmative vote of two-thirds of Cobb EMC’s members, which never occurred,” the indictment states.
As a membership cooperative headquartered in Marietta, Cobb EMC is owned by its customers and all profits are the property of its members. Further, EMC’s bylaws “prohibit the disposition of Cobb EMC’s assets” without approval by two-thirds of EMC customers, according to the indictment.
Brown is also accused of making false statements. The indictment claims that he continuously concealed or falsified information about Cobb Energy and its subsidiaries. In newsletters and annual reports, he touted Cobb Energy and noted how some of its subsidiaries were successful and helping to “keep electric rates as low as possible,” according to the indictment.
All the while, many of the subsidiaries other than ProCore, a call center, were losing money, the indictment states.
“Without the revenues from the SCANA Contract and the adder fees paid by Cobb EMC, Cobb Energy would have failed and Cobb Energy could not have paid Dwight T. Brown millions of dollars in salary and other compensations, dividends on his preferred stock, and forgiven the principal and interest on the loan,” according to the indictment.
Head also claims that the loan itself was another act of theft, as were the stock dividend payouts.
On Feb. 1, 2002, Brown received an interest free loan totaling $3 million from Cobb EMC and Energy. The loan money was used to buy Cobb Energy preferred stock, which he received about $1.83 million in dividends on through 2008, according to the indictment. All principal and interest on the loans were ultimately forgiven.
“The forgiven loans were a theft of property from the Cobb EMC and its members…The accused intentionally, in conspiracy with Cobb Energy and others, misappropriated property of Cobb EMC and its members,” according to the indictment. “This activity was not disclosed to or approved by the members of Cobb EMC,” as required in EMC’s bylaws.
As for the dividends paid on the stock purchased with the loaned money, “The payment of these dividends with funds belonging to Cobb EMC and its members violated the bylaws of Cobb EMC, was not disclosed to the Cobb EMC members, and was not approved or consented to by the members,” the indictment states.
The indictment comes while the electric provider remains tied up in legal sparring over a civil suit filed in October 2007, by a handful of EMC customers, led by Butch Thompson and Bo Pounds.
That lawsuit alleged breach of fiduciary duty, gross mismanagement, waste of corporate assets and unjust enrichment in relation to the management and operations of the co-op and Cobb Energy. The settlement in the case was approved Dec. 2, 2008. But just 10 days later, the EMC board made bylaw amendments that the plaintiffs said were illegal under the settlement. After a Superior Court ruling was overturned by the State Court of Appeals, the EMC asked the Georgia Supreme Court to review the case, which it announced Nov. 1 that it would.
“I’m glad the public will now see what we’ve been seeing for years, and maybe understand that we are not in it for glory but to expose what’s going on,” Thompson said in regards to Thursday’s indictment. “I’m sorry this happened in Cobb County, because it will effect the board and good people, but when wrong is committed, someone’s got to answer to it.”
Pounds simply said: “I just hope justice prevails.”
Cobb EMC’s public relations agency sent this statement on behalf of EMC’s board of directors: The Board of Directors of Cobb EMC was surprised to learn today that Dwight Brown, President of Cobb EMC, was indicted. The Board, with the help of its advisors, has thoroughly investigated these allegations for almost two years and firmly believes that Mr. Brown committed no crimes. The indictment would appear to be nothing more than a restatement of the allegations made in a civil lawsuit that arose out of transactions involving Cobb Energy, many of which occurred over a decade ago, and which was settled over two years ago with the approval of the Cobb County Superior Court. The Board will continue to monitor the situation closely and will continue to act in the best interests of the EMC and its members.”
It was in April 2009, when GBI agents and sheriff’s deputies served search warrants at Brown’s east Cobb estate and Cobb EMC headquarters. The homes of EMC board chairman Larry Chadwick and other board members were also searched.
Regarding the other board members and whether more indictments will come, Head said, “At this time we don’t have any action pending against them. We felt it best to start in this matter and see where that leads us.”