As members of the Board of Directors of Emery Telcom, we feel compelled by recent events to respond to questions related to the investigation of the company's senior management currently being conducted by the office of the Attorney General of the State of Utah.
On Feb. 5, 2004, agents of the Attorney General of the State of Utah, executed a Search Warrant in connection with an investigation of Emery Telcom's senior management, Greg Killpack, chief executive officer; Ajay Tipnis, chief financial officer; and Gary Harrison, then network services manager and, now, chief operations officer. Prior to that time, the Board had no knowledge of the investigation, had not been made aware of any perceived problem by any employee, had not been asked for any information, and had not been asked to take any action. In addition, the employees had not raised these perceived problems with the independent auditor of the company.
As part of the search warrant process, individuals provided information in secret which was relied on by the Attorney General's office to prepare an Affidavit supporting the search warrant. The Affidavit was filed under seal, and was not available to the public or the Board until a few weeks ago.
To this point, we have refrained from public comment in consideration of the Attorney General's investigation and to protect all of the parties involved, including those few people who made the accusations as well as the people under investigation. We believe our constraint has been appreciated by the Attorney General's office. However, since the Affidavit was unsealed and distributed in our community this past week, we feel we can no longer maintain our silence in good conscience. It is important for the sake of our members, the community and the company, that we clarify the record.
From the beginning, the Board of Directors has taken this matter very seriously and has completely cooperated with the Attorney General's office. We have provided total access to all company records and have directed all employees to cooperate fully with the Attorney General's office. Mr. Killpack, Mr. Tipnis, and Mr. Harrison have also fully cooperated with the Board in this process.
The Board aggressively launched its own independent investigation and immediately engaged the services of highly respected and experienced outside attorneys and expert consultants specializing in telecommunication regulatory issues. Our purpose in directing this independent investigation was made clear and simple to those we hired: conduct a complete, fair and objective investigation, and call things as you see them without regard to the consequences.
During the course of their six-month, in depth investigation, these independent investigators have conducted extensive interviews with company employees, consultants, attorneys, and others having knowledge of the allegations raised by those providing information to the Attorney General's office. The independent investigators have interviewed all individuals who provided information referenced in the Affidavit with the exception of one individual who refused to speak to them on the advice of counsel. In addition, the outside investigators have met with the Attorney General's office on several occasions.
At this point, the Board's independent investigation is nearly complete. After months of investigation, while there were some instances of incorrect accounting-not unusual for the complex and highly regulated telecommunications industry-there is not any substantial or credible evidence of any criminal misconduct on the part of the three individuals under investigation. To the contrary, over and over again, the investigation has revealed that the criminal allegations provided to the Attorney General were incorrect, mistaken, and/or totally false.
Although we are still somewhat constrained by the ongoing Attorney General's investigation, we would like to provide some examples:
One allegation was that Greg Killpack directed an employee to falsely book the costs of a certain Marconi Router (a piece of equipment that routes data), in the amount of $150,000, to Emery Telcom rather than to ETV, so that the costs would be covered by the ratepayers. After investigating this allegation, and receiving the input of national regulators, it was determined that the Marconi Router was booked correctly in the first place to Emery Telcom. Therefore, this allegation is completely false.
In another allegation, Ajay Tipnis, was accused of fraudulently using 2003 minutes of use numbers to justify a 2002 rate increase for Emery Telcom before the Public Service Commission. Apparently, the employee providing the information to the Attorney General's office believed that a corporation could not use future numbers (in this case, 2003) for a 2002 rate case. This is absolutely false. In fact, Utah law expressly allows the use of such future numbers, and, further, the use of the 2003 minutes in Emery's case was fully disclosed in writing to the Public Service Commission.
Another allegation claimed that Gary Harrison was involved in the theft of Qwest property when Emery Telcom purchased the Price-area local phone service from Qwest in 2001. This allegation claimed that the "stolen" equipment was worth $237,000. This charge is completely false. In fact, when Emery Telcom took over the Qwest exchanges, there was equipment left behind. Qwest, on a number of occasions both before and after the date on which Emery Telcom acquired the Qwest exchanges, told Emery Telcom and other independent telephone companies acquiring Qwest exchanges at that time that any equipment left behind was not wanted by Qwest. The list referenced in the Affidavit with the so-called $237,000 "value" was only an estimate for new, similar equipment in order to determine whether Emery Telcom could add the equipment to its assets for rate base purposes. It determined not to do so. Therefore, any suggestion that the property was either stolen or worth $237,000 is totally false.
The Board of Directors is disappointed in the way these accusations have been made. The employees did not share their concerns with the Board, nor did they address these concerns with the independent auditor of the company. Had these employees first come to the Board to share their concerns and allow us the opportunity to address them, we believe far less damage and emotional stress would have been placed upon our employees, our members and the community at large. These costly accusations have divided our company, the community and compromised the integrity of three executives.
We are also concerned about on-going and sometimes inappropriate efforts to advance these allegations by individuals abusing their positions of trust in the community. We particularly deplore the personal attacks on senior management that have been, and continue to be, made by those making and disseminating these allegations. The only goal of those who continue to knowingly and purposely disseminate false information within the community must be to unfairly turn public opinion against the officers and directors of the company for personal gain.
Throughout the past several months, Emery Telcom has continued its commitment to providing its members with uninterrupted, quality service. We will maintain this commitment and look forward to a resolution of this trying ordeal.
Sincerely, Emery Telcom Board of Directors Paul Crawford, Kendall Mortensen, Kathy Justice, Olive Anderson, Randy Jensen, Darrell Gardner, Kevin Tuttle, Morris Sorensen, Delynn Fielding