Connecticut issuer shakes up leadership after embezzlement arrests

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WASHINGTON - The Connecticut Municipal Electric Energy Cooperative said it has suspended or removed its CEO, chief financial officer and other officials after they were arrested on charges of embezzlement of cooperative funds.

CMEEC disclosed the arrests in Nov. 16 EMMA notices a week after a federal grand jury returned indictments for CMEEC CEO Drew Rankin, CFO Edward Pryor, and CMEEC board members James Sullivan, John Bilda, and Edward Demuzzio. CMEEC is owned by municipal utilities in the Connecticut cities of Groton and Norwich, the Borough of Jewett City, and two taxing districts of the City of Norwalk.

In a statement posted to CMEEC’s website, the cooperative said it had suspended or removed the accused men from leadership positions and appointed CMEEC Director of Finance and Accounting Michael Lane as interim CEO. CMEEC is also launching an internal investigation, according to the statement.

“Our intent throughout this process is to serve and represent our members in the best way possible,” CMEEC said. "All staff remains in place and the company is fully operational. CMEEC’s core mission, to energize customers and community prosperity by delivering sustained lower-cost energy solutions, remains unchanged.”

CMEEC is responsible for the financing, acquisition and construction of generating resources and implementation of power supply contracts. It issues tax-exempt bonds in support of that mission. CMEEC’s most recent financial disclosures showed about $108 million of bonds outstanding as of Dec. 31, 2017. It most recently issued $75 million of revenue bonds in April 2013.

According to the indictments unsealed Nov. 8 in U.S. District Court for the District of Connecticut, the five men conspired from 2014 to 2017 “to conduct the business and affairs of CMEEC for their personal, pecuniary and financial benefit.” The group arranged lavish trips to the Kentucky Derby and to a luxury golf resort in West Virginia for themselves and for associates, family, and friends, the Department of Justice alleged, and paid for the trips with CMEEC funds.

Court documents note that CMEEC was the beneficiary of federal funds in the form of grants from the Department of Energy, meaning that the defendants allegedly stole from a program receiving federal money.

“CMEEC has received millions of dollars in grants from the U.S. Department of Energy,” U.S. Attorney John Durham said in a statement. “Instead of protecting these funds and returning excess revenue to member towns and ratepayers, these defendants are alleged to have used the CMEEC margin account as a secret slush fund to pay for lavish junkets for themselves and their family and friends."

The documents detail the alleged abuses. For example, Rankin allegedly used in excess of $800,000 of CMEEC funds from the cooperative’s margin account as well as funds from CMEEC member towns to pay for outings to the 2015, 2016, and 2017 Kentucky Derby horse races. The men conspired to keep the nature of those trips as well as another “strategic retreat” at a luxury golf resort in West Virginia secret from the public and from other board members, the DOJ said.

“Rankin falsely stated that CMEEC paid for the retreats ‘through non-member funds generated by CMEEC not related to member utilities or their customers,’” the DOJ found. Both Rankin and Bilda lied to members of the press who had begun asking questions about the trips, prosecutors said, with Bilda telling a reporter in October 2016 that the Kentucky Derby trip that year "did not cost the ratepayers or taxpayers a dime." Around that same time, Rankin allegedly omitted some names from the attendee list of one of the trips when the list was requested by a local elected official.

The court is due to schedule further proceedings next month. In the meantime, CMEEC is trying to reassure stakeholders that it has taken appropriate action and that its operations aren’t threatened by the attrition in its leadership structure.

CMEEC directed questions about the matter to its general counsel, Robin Kipnis, who did not respond to a request to be interviewed.

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Securities law Financial crimes Munis Municipal disclosure DoJ Connecticut Washington DC
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