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Electric Co-Op CEO Accused of Massive Thefts

MARIETTA, Ga. (CN) - A 31-count racketeering indictment accuses the CEO of one of the nation's largest electrical co-ops of stealing "millions of dollars" and lying to cover it up.

Dwight T. Brown also took millions in no-interest loans and "forgiven loans" from Cobb Electrical Membership Corporation without revealing it, according to the 75-page grand jury indictment. The nonprofit co-op serves more than 200,000 customers.

The Atlanta Journal-Constitution printed an investigative series on Brown and Cobb EMC in 2007, and the state indictment is the culmination of a 2-year investigation by Cobb County District Attorney Patrick Head, according to the newspaper.

The lengthy indictment alleges a pattern of fraud and concealment by Brown, who "knowingly and willfully falsified, concealed, and covered up material facts by a trick, scheme, or device; made false, fictitious and fraudulent statements and representations, and made and used false writings and documents," concerning the establishment of the for-profit company Cobb Energy and its relationship to the nonprofit cooperative Cobb EMC.

As a nonprofit electric co-op, Cobb EMC does not issue stock but allows its members to have ownership in the company. Members include individuals, private companies, or political entities, including state government branches and school districts. The ownership is governed by Cobb EMC bylaws.

All revenue beyond operating costs and expenses is known as "patronage capital," and belongs to the members. Any use of patronage capital requires written notice to members and an "affirmative vote by two-thirds of the members," according to the indictment.

Brown is accused of diverting patronage capital from the nonprofit co-op to form the for-profit company Cobb Energy in 1998, and lying to the co-op's members about the relationship between the nonprofit and new, for-profit Cobb Energy.

Just days after forming Cobb Energy, and after Brown became its president, CEO and chairman of the board, he stood before Cobb EMC's members and said: "We will not allow Cobb EMC to subsidize this new company. ... We make the pledge that Cobb Electric Membership Corporation will not subsidize this other company, and this other company is created to work for you and to work for Cobb Electric Membership Corporation," according to the indictment.

Brown then led Cobb EMC in signing an operating agreement with Cobb Energy, diverting the co-op's entire workforce to Cobb Energy and "obligating Cobb EMC to pay Cobb Energy a surcharge, called an 'adder fee' on the combined weekly salaries and fringe benefits" on Cobb Energy's employees, the indictment states.

For 10 years, Cobb Energy charged Cobb EMC members 11 percent extra on services previously provided by Cobb EMC, and the terms of this operating agreement "were not disclosed to Cobb EMC's members," according to the indictment.

In addition, Brown sold all of Cobb EMC's meters to Cobb Energy for $10 million, and had Cobb Energy enter into an agreement with SCANA Energy Marketing - a natural gas retailer - to market its natural gas services to Cobb EMC members, using Cobb EMC's membership data, according to the indictment.

"Cobb EMC was neither paid any money under the SCANA contract, nor paid anything for the use of its customer data. These facts were not disclosed to Cobb EMC's members," the indictment states.

Four other electric co-ops were parties to the contract with SCANA before Cobb EMC. In 2005, Cobb EMC became a party to the contract, and though SCANA paid $4 million for non-compete provisions in the contract, "none of that money went to Cobb EMC," according to the indictment.

After promising the co-op members that Cobb EMC would remain an independent, member-owned entity, not supporting or subsidizing Cobb Energy, Brown signed away Cobb EMC's workforce, meters and natural gas revenue to Cobb Energy, thus "subsidizing Cobb Energy to the tune of millions of dollars per year," and did all of it without any notification to members, in violation of Cobb EMC bylaws, the indictment states.

It adds: "Neither Cobb EMC's annual reports for the years 1998-2005 nor its official newsletters, each of which bore Dwight T. Brown's picture, title and signature, disclosed the fact that the revenues from the SCANA contract went to Cobb Energy or that Cobb EMC was not paid for the use of its valuable data."

Brown went so far as to tell members, via the Cobb EMC newsletter, that he was enrolling "to become the first Cobb EMC/SCANA Energy natural gas customer," when indeed "there was no such entity as 'Cobb EMC/SCANA Energy,' Cobb EMC was not a party to the SCANA Contract, and none of the revenues from the SCANA Contract went to Cobb EMC," according to the indictment.

When the SCANA contract ended, Brown ordered Cobb EMC to pay Cobb Energy $3.4 million, "though Cobb EMC had never received any revenue from that contract," according to the indictment.

The grand jury said that Brown's pattern of fraud continued in his role as CEO of both Cobb EMC and Cobb Energy: He received a separate salary from Cobb Energy, and received personal perks from both companies. Cobb Energy gave Brown and his wife a personal loan of $2 million - a "forgiven loan;" Cobb EMC gave the Browns a personal, "forgiven loan" of $1 million, with no payback on interest or principal; the Browns used the loans to buy $3 million of preferred stock in Cobb Energy, "which paid them $256,000 in dividends per year," according to the indictment.

Brown continued to claim for a decade that Cobb Energy was not funded by Cobb EMC members, including this statement from the May 1998 Cobb EMC "Connections" Newsletter: "It is important to realize that [Cobb Energy] is ... being financed independent of Cobb EMC."

Charges against Brown include state RICO claims, 8 years of theft of revenue from SCANA, 8 years of false statements, theft involving SCANA termination expenses and service fees, conspiracy to defraud Cobb County and its school district, theft of meter reading fees, theft involving stock dividends, and theft of loans.

Brown's misrepresentations culminated with his statement at the 2007 Cobb EMC Annual Meeting: "I will tell you that we have never, ever done anything without telling you. And if you don't believe it, go back and dig out all your newsletters, all your annual reports and you will find that it's all there."

But according to the indictment, "It isn't."

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