Emery Telcom Investigation Continues
Editor's Note: In preparing the Emery Telcom Story entitled: "Emery Telcom Investigation Continues," I was informed that they were unable to speak about the case because of advice offered by their legal council. Since that time, their Board of Directors, has been allowed to offer more information than is in the original article. I am running both of the articles below. The first article and then the response from the Emery Telcom Board of Directors.
Emery Telcom, an Orangeville based business is still under investigation from the Utah Attorney General's Office. No charges have been filed in the case, but recently the affidavit was released on which the search warrant was issued. The search warrant was executed on Feb. 5 at the business. Certain accounting documents, both paper and electronic relating to the business activities of Emery Telcom were seized. Also, another site in Colorado described as the home office of Emery Telcom's chief financial officer was searched.
The affiant, Capt. Ross E. Larsen is a criminal investigator for the Utah Attorney General's Office, he has investigated over 50 white collar crimes. He had reason to believe that there was probable cause that the documents contained attempts to commit or conceal a public offense; documents are being possessed with the purpose to use it as a means of committing or concealing a public offense; documents consist of an item or constitutes evidence of illegal conduct, possessed by a party to the illegal conduct.
Property and documentary evidence stored in the form of magnetic or electronic coding on computer with the aid of computer related equipment is probable evidence of the crime of communications fraud, and/or theft, and/or unlawful dealing with property by a fiduciary and other criminal offenses enumerated under Utah Code for the Public Service Commission. These items were seized in order to conduct an investigation to see if any of the claims warrant criminal charges.
These accusations became available to Larsen which established the grounds for the issuance of a search warrant. Larsen spent time in oral interviews and also reviewing written statements by Emery Telcom employees, some currently working there and a former employee. These witnesses came forward voluntarily and oral statements were taken independently of one another and corroborate evidence of their accusations against questionable and illegal business practices of specific managers of Emery Telcom.
The affidavit of the search warrant has been sealed until recently. This sealing was requested by an additional court order. The four witnesses wished to remain anonymous during the investigative process and feared reprisal from those they were accusing.
Accusations of alleged misbookings and miscodings of expenses both large and small dates back many years. These questioned misbookings involve the non-regulated subsidiary Emery Communication and Video-ETV; Emery Telcom long distance and Emery Telcom Internet; these are subsidiaries of the regulated company Emery Telcom. This includes the questioned booking of expenses from these subsidiary companies to Emery Telcom so the subsidiary companies can show they are running in the black on their audits and allows Emery Telcom to be reimbursed for these expenses by rate increases and settlements approved by the Public Service Commission. These alleged and questioned misbookings are still under investigation by the Utah Attorney General's office and no charges have been made.
The company is also accused of another method of committing fraud by contracting with local mining companies or other telecommunication companies to upgrade equipment. The outside companies pay Emery Telcom for the costs associated with the upgrade and Emery Telcom allegedly reflects the expenses as a capital outlay on its books, therefore allowing it to get a second recoupment of money, this time from the Public Service Commission, alleged the informants.
The informants reported another suspected illegal activity involving the theft of Qwest property, which they said was kept hidden from Qwest and remained in the custody of Emery Telcom. This equipment's estimated value is over $237,000.
The affidavit states that Emery Telcom is a cooperative utility regulated by the Public Service Commission. As such, the rates are set by the PSC. This rate structure allows Emery Telcom to make a profit on expenditures for capital improvements. This rate is fixed at 10 percent profit plus reimbursement for capital improvements. Emery Telcom, Carbon-Emery Telcom and Hanksville Telcom are among the regulated businesses. All of the Emery Telcom businesses and subsidiaries are managed and the accounting is done by one business Emery Telcom. The questioned and challenged shifting of expenses from the non-regulated businesses to the regulated business would guarantee by the rate structure the recoupment of expenses for capital improvements and also an additional 10 percent return.
The informants also reported that they believed fictitious information was used in the Carbon-Emery rate case which was being reviewed by the PSC. Spread sheets involving expenses involved did not include all the pertinent information regarding local service rates and tariffs according to the informants.
The investigation is ongoing by the Utah Attorney General's Office and no charges have been brought against company officials at this time.
Larry Salazar, company spokesman, for Emery Telcom said, "The managers would really like to discuss the situation, but at the advice of our legal council, we cannot at this time. This is a pending investigation. The company focus right now is in seeing that our customers are not affected by what's taken place. The company continues to operate for the benefit our customers. It is our goal that the customers not feel any of the consequences of this investigation."
Paul Crawford, president of the Emery Telcom Board of directors said, "On Feb. 5, 2004 agents of the Attorney General of the State of Utah, pursuant to a search warrant, initiated an investigation of Emery Telcom's senior management by conducting a search of the company's offices and interviewing the company's employees and directors. At that time, the Board of Directors of Emery Telcom engaged independent legal counsel and consultants to conduct the company's own investigation into the allegations which were being made in connection with the Attorney General's investigation. Inasmuch as both the Attorney General's and Emery Telcom's investigations are ongoing, the Board of Directors has been instructed by legal counsel not to discuss at this time, any details regarding the findings of those investigations.
"The Board of Directors is aware that the affidavit supporting the search warrant was recently unsealed and made available to the public. Further, the Board of Directors is aware of the allegations and claims reported in that affidavit. The Board of Directors understands that each of those allegations and claims has already been or is continuing to be investigated by Emery Telcom's independent counsel.
"Since the inception of the Attorney General's investigation, those in senior management which are the subject of the Attorney General's investigation have continued to function in their respective capacities and in so doing, they have the full support of the Board of Directors of Emery Telcom.
"We are still under a gag order and we can't just do things on a whim. The people we have hired are very capable and we have full confidence in them. The board is united. The thing to remember is these are still just allegations. It is business as usual. It has been very hard for the people who work at Emery Telcom and I feel sorry for them," said Crawford.