Published 02 082010 by david
Georgia—Eight members sued the co-op and Cobb Energy in fall 2007, saying ties between the two had drained assets from the co-op, enriched co-op insiders like the CEO, and was rife with conflicts of interest.
Eight members sued the co-op and Cobb Energy in fall 2007, saying ties between the two had drained assets from the co-op, enriched co-op insiders like the CEO, and was rife with conflicts of interest. Cobb Energy was formed in 1997 as a vehicle for entering new, non-electric businesses. The co-op had disclosed the formation of Cobb Energy, but did not disclose financial reports to members and refused to discuss who owned the stock. The case was settled in December 2008 (see below).
After the settlement described below, Cobb EMC was knocked down in court for trying to control a court-ordered vote by its members. Plaintiffs want the co-op’s current board and management ousted. Co-op management wants to retain status quo. Cobb EMC is appealing this latest decision on the grounds that the court no longer has jurisdiction over the actions that the plantiffs challenged. The plaintiffs attorney finds it strange that the EMC and its directors would now hire its tenth law firm, with 25 or 30 lawyers “attempting to assure that the board and chief executive do not have to face the vote of the members.” It is still unclear how the co-op’s legal bills will be paid.
Wins in December 2008 settlement of court case for member-owners:
The litigation forced Cobb Energy to disclose information about its finances and owners.
Financial reports showed that most of Cobb Energy’s side businesses lost money, while the company continued to both collect its markup for operating Cobb EMC and pay out dividends to select stockholders. In a 2007 audit, Cobb Energy was shown to have experienced a “significant decline in its liquidity,” had a net loss of $10 million, net capital deficit of $9.6 million, and was out of compliance with covenants of a $19.5 million outstanding loan.
The judge approved a settlement where the co-op would spend an estimated $47 million to regain control of the business it turned over to a for-profit affiliate, Cobb Energy.
The settlement also ended a 40-year contract that allowed Cobb Energy to charge an 11% markup for running the nonprofit co-op’s business. The operating contract’s markup alone was costing the co-op more than $5 million per year. Insiders, including Cobb EMC executives, business partners and some co-op board members, benefited through ownership of dividend-paying stock. The CEO and his wife acquired $3 million of the company’s stock in 2002, which paid them $265,000 in dividends each year. That stock was purchased using an interest-free loan from both companies, which was gradually forgiven.
The settlement provided two upcoming board elections under which timeline the members could replace a majority of the board in the next nine months. The co-op’s chief executive serves at its board’s pleasure.