A Connecticut jury is going to have to decide soon whether lavish, hush-hush business getaways that cost hundreds of thousands of dollars were legitimate, corporate team-building exercises or outrageously expensive, entirely fraudulent junkets that should put some businessmen in prison.
The question is at the center of one of the most intriguing criminal trials in Connecticut in years — and the first of any note since the coronavirus slowed the courts to a crawl two years ago. When the trial begins Monday in U.S. District Court in New Haven, jurors will learn about monogramed golf balls, swag bag binoculars for the Kentucky Derby, $100-plus scarves for wives left behind and tens of thousands of dollars of complimentary private air travel.
The five men on trial are officers and directors of the Norwich-based Connecticut Municipal Electric Energy Cooperative, a nonprofit, whole-sale electricity co-op that arranges low cost power to member utilities with commercial and residential customers in Norwich, Groton, Griswold, Bozrah and Norwalk. The men planned or participated in trips that sent scores of friends, family, colleagues and customers on utility-paid trips to two Kentucky Derbies and two golf outings at posh, West Virginia resorts.
On trial for fraud, conspiracy and theft from federally-subsidized utilities are CEO Drew Rankin, CFO Edward Pryor, board Chairman James Sullivan and board members John Bilda and Edward DeMuzzio, who sat on the board compensation committee that voted — in the midst of all the free trips — a raise for Rankin, the organizing force behind the travel in which they shared.
The five — all of whom are no longer in office — claim their collaboration made the energy cooperative a highly successful operation and the pricey getaways built esprit de corps, while giving them an opportunity to relax, recharge and reconnect.
The travel was legal, they say, under state law and the utility charter, was properly paid and accounted for and was known to the CMEEC auditor and legal counsel, who didn’t object. They have lined up expert trial witness who they promise will say as much on the witness stand.
“The trial evidence is expected to show that the defendants knew that there was knowledge of their actions across all key corporate decision-makers,” lawyers for the five argued in pretrial proceedings two weeks ago.
“They knew that the relevant annual budgets, which included the expenses for these retreats, had been approved by the board; that numerous directors were invited to attend the retreats, and many who are uncharged did attend one or more of them; and that no director, despite all sharing the same fiduciary obligation to CMEEC, ever objected to say the retreats were illegal.”
The five defendants have hired a dozen or so of the Connecticut’s top criminal defense lawyers, who have rung up more than $4 million in fees since their clients were indicted in 2018 on charges of stealing a little more than $800,000 for the travel. They were counting on CMEEC’s insurance coverage, a Directors and Officers liability policy with National Union Fire Insurance Company of Pittsburgh, to cover the bill.
But National Union has refused to pay. When Judge Jeffrey A, Meyer opens the trial Monday in New Haven, the insurance dispute will be pending a floor below in Judge Janet Bond Arterton’s courtroom.
Not surprisingly, federal prosecutors have their own, dramatically different view of the travel.
“The evidence that the Government will introduce at trial will prove that the five defendants used hundreds of thousands of dollars of money belonging to CMEEC and the CMEEC member towns for their personal benefit to pay for a series of lavish trips to the Kentucky Derby and to the Greenbrier golf resort in West Virginia,” the prosecutors wrote two weeks ago in a trial memo.
“The evidence will establish that these trips did not relate to CMEEC business, CMEEC member business, and the furnishing of efficient, low-cost and reliable electric power to the member towns and their ratepayers. Instead, these trips and the related costs — which included travel expenses, private chartered airfare, first-class hotel accommodations, meals, tickets to sporting events, golf fees, souvenirs and gifts — were intended to personally benefit, compensate, and reward the charged defendants and their family members, friends, and associates.”
Perhaps the government’s most damaging assertion is that, contrary to the defense claim of transparency, the organizers and participants in the travel were trying to keep it secret.
The travel was accounted for as “board expenses,” “delegation related expenses” and just plain “expenses.” Invitees were encouraged not to talk about the travel with non-invitees. Senior CMEEC employees were not told of the trips. And prosecutors said Rankin was not honest about who participated in the travel and what it cost when newspaper reporters found out and started asking questions.
A big part of the trial will turn on where the travel money came from. CMEEC and the member towns get millions in federal energy grants. .
Much of the travel money came from a the cooperative’s margin account, which the five defendants claim was separate from any government subsidy. The energy cooperative was so successful, they claim, in part because they launched entrepreneurial businesses that were making money. As a nonprofit, CMEEC had to distribute profits to co-op members and did so by putting funds in a margin account created to stabilize energy costs in member towns.
The government says margin money was used for “many but not all” trip related expenses without approval by the member towns — a violation of the co-op membership agreement.
The defense contends the CMEEC auditors specifically examined the “retreat” expenses — including use of a margin account — and “saw no issues,” in part because state law as well as the co-op’s bylaws and membership agreement allowed the practice. What’s more, the defense argues, CMEEC was performing so well there was more than enough in the margin account to stabilize rates.
But evidence of entrepreneurial margins and enabling statutes will be tedious stuff compared to everything the government intends to say about the actual travel.
Derby Trip: $294,917
For the fist trip, Rankin arranged for 30 people to fly by private charter from Groton to Louisville for a four-day Kentucky Derby trip in late April and May 2015, the government asserts. Total cost: $294,917. To pay for it, he instructed an employee to create an account within the margin account. The employee replied by email that Pryor told him the new account should be “excluded from the administrative dashboard.”
The indictment in the case says Rankin spent weeks inviting the cooperative’s employees, friends and associates — among them Sullivan’s brother, sister-in-law and son. He printed a 16-page pamphlet called “2015 Strategic Retreat: Members and Guests Appreciation Celebration.” It asked invitees: “Are you ready for some genuine Kentucky Experience and Derby Fun? Yes, a most wonderful time of year, where we take a few moments to celebrate and honor you as dedicated and awesome board members and your Strategic Guests/Partners, who give so much of your precious time and talent to CMEEC and the CMEEC member utilities.”
He also instructed an employee in a misspelled email how to distribute gift bags to the guests — and to do so quietly. The instructions were, according to the indictment:
“Perform discretely (sic) — gift bag preparation and issuance.” Each guest was to get a gift bag, into which were to be placed “two gifts (brown satchell (sic) ... in each brown satchell (sic), verify it contains one glass, one binoculars, one leather bound pad, and one wine vacuum top. There should be 29 satchells (sic), as I took one already. You can have one satchell (sic).”
Bilda, who was a city of Norwich employee as well as a CMEEC board member, was one of the Derby attendees. Prosecutors say he asked that the city reimburse him $206.61 in personal expenses he incurred at the Derby.
Two months later, Rankin emailed Sullivan, Bilda and DeMuzzio to ask whether they had time for a quick reconnaissance of West Virginia to “evaluate the location” for yet another “strategic retreat,” this one focused on the state’s luxurious golf resorts.
Bilda replied immediately.
“Everything else can be adjusted for something as important as this,” he replied.
Rankin reserved a four bedroom cottage in August and sent the others a proposed schedule for the course they would visit. The indictment says Sullivan replied, “Is your name, ‘I deserve a raise’?” The three-day trip cost CMEEC $21,000, and was accounted for as an expense of the Board of Directors’ compensation committee.
The reconnaissance must have paid off. On Sept. 14, 2015, Rankin invited board members to a “Member Delegation Strategic Retreat” at The Greenbriar golf resort.
“The retreat is planned off site and out of state to enable full focus on strategic issues, celebratory review of results, and general social/ team building,” Rankin’s email said. The three-day trip cost about $112,000, including $3,426.80 for golf balls imprinted with the faces of some of the invited guests and purchased from a company owned by Bilda’s wife. At the end of the trip, Rankin approved another $2,264.57 for the purchase by the guests of 17 scarfs from the resort “ladies shop” for gifts back home, the government contends.
CMEEC paid for a second Kentucky Derby trip in 2016, and it came together in much the same fashion as the first. Rankin emailed the “participants for the strategic retreat,” telling them, “we have an excellent agenda scheduled to produce maximum fulfillment, all in expression of appreciation to each of you for helping CMEEC be successful.” Among the invitees were Bilda’s parents. A board member was unable to attend, but his wife and mother-in-law did, as did a friend of DeMuzzio, who lived in Florida. Bilda warned a fellow invitee to be “careful who you talk to about the trip,” according to the indictment
Cost of the second Derby trip was $374,169.
A third trip to the Derby was in the works, but it fell apart when reporters began asking questions. The government claims Rankin did not answer truthfully about who participated in the earlier trips and how much they cost. The five men on trial Monday were indicted in November 2018. At the same time, the grand jury returned a second indictment against only Rankin and Sullivan.
The two are accused in the second case of using a CMEEC lobbying account to pay for about $100,000 of Sullivan’s personal expenses, consisting mostly of travel to Washington, D.C., to visit his then-wife, U.S. Rep. Linda Sanchez, a Democrat from California.