October 16, 2011
Texas

More arrests possible in wind farm fraud case

By Tony Plohetski, AMERICAN-STATESMAN STAFF, www.statesman.com 15 October 2011

An administrator for the Texas comptroller’s office conspired to illegally obtain up to $2 million in federal stimulus money for a longtime friend’s company by overselling its ability to deliver electricity-generating windmills for the city of Jonestown, according to documents filed late last week in Travis County district court.

The documents describe a scheme in which Mary Jo Woodall, a program administrator in the comptroller’s office, helped high school friend Charlie Malouff Jr. obtain the money by slipping him inside information about how to fill out the application to win the grant for CM Energies.

“We have an ongoing investigation,” Assistant District Attorney Gregg Cox said. “Arrests have been made, but there is still more investigation to be done, and there is the possibility for additional arrests and additional charges.”

According to the county filings, Jonestown City Manager Dan Dodson was warned by other company officials that the windmill company was acting suspiciously. But “Dodson responded that defrauding the government was ‘an oxymoron’ and that he was not going to lose sleep over a little white lie to get a grant,” the document said.

Woodall, Malouff and Dodson could not be reached for comment. Comptroller Susan Combs also could not be reached; agency representatives did not return calls or emails for comment. Woodall has been fired, Cox said.

Malouff, already a convicted felon on a weapons charge, and Woodall are charged with securing execution of a document by deception, a first-degree felony for which they could face up to life in prison.

The case is the latest embarrassment for the comptroller’s office, which announced this spring that the personal information of 3.5 million Texans was publicly accessible for more than a year because of a major data security lapse.

According to court documents reviewed by the American-Statesman, the $2 million was part of a federal stimulus program designed to promote the expansion of renewable energy.

The comptroller’s office served as an administrator for the program, soliciting applications and selecting recipients.

Woodall, 55, was closely involved in the process, helping choose the committee that rated grant applications and giving initial approval for all payments, according to an arrest affidavit.

CM Energies received the $2 million last year based on a mountain of impressive claims about the company’s capacity to manufacture 18 windmills for Jonestown, and on an application sprinkled with crucial buzzwords that would help move the money in its direction, the court filings say.

Once CM Energies received the grant money, the funds appear to have been diverted into other accounts, prosecutors say. In recent weeks, investigators wrote that they have obtained bank records, which include those of CM Energies, Woodall, Malouff, the city of Jonestown and a company called Central Texas Plastics, that show money flowing back and forth between related parties.

The records show, for example, that Central Texas Plastics in Marble Falls had submitted an invoice for $590,000 for “blades, attachments and nuts and bolts,” among other things.

When investigators tracked down more information about the company, they found it appeared to be based in a small house with a workshop built on the side. The owner of the house where the company has its headquarters is also a CM Energies employee.

Bank records show that the plastics company did not open an account until December 2010 and that CM Energies wrote it checks totaling almost $1 million. Central Texas Plastics then wrote checks to a different account of CM Energies, according to the affidavit.

Two of 18 turbines had been fully assembled and appeared to be operational, though it was not clear whether they were tied to the electrical grid as required by the grant agreement, the affidavit said. Eight other turbines “were in various stages of disrepair or partial construction and CM Energies appeared to have not even started construction on the remaining turbines required by the grant agreement,” according to the document.

The affidavit did not include a timeline to complete the project; however, federal officials told investigators they thought the work was finished because the money already had been paid out.

The court documents show that Travis County investigators were tipped off to the scheme when Toby Miller, an employee of CM Energies, told them last summer that he had become suspicious about his employer’s application and that Malouff might have obtained inside information that gave him an advantage in obtaining the grant.

He also told investigators that Malouff and Woodall had a personal relationship. Miller later wore a hidden camera to record a conversation between several CM Energies employees and Dodson “concerning the fact that CM Energies could not produce the wind turbine technology the city had sought to fund with the federal grant monies.”

Jonestown, a city of about 1,770 residents about 30 miles northwest of downtown Austin, had been hoping to put a wind energy project in place to supplement the city’s energy supply.

It was unclear Saturday how CM Energies was chosen. Grant papers show that the company was to be a subcontractor for the city on the windmill project and was prepared to install 25 wind turbines, though that number was later reduced to 18.

According to the affidavit, Miller reported that as part of the grant application, CM Energies employees surveyed and photographed each windmill site and that the company answered specific questions about its employees.

But later, Miller told investigators, Malouff “deliberately changed wording of the packets so that it contained information that was patently false or deleted information,” court records said.

The application said that the turbines it would install were “commercially available” and that the company has “project turnkey ability” and “ready-to-go manufacturing capabilities,” according to the affidavit – important words or phrases to include in the application.

By last summer, Miller and other company officials, including its general counsel, said they suspected Malouff was getting insider information from Woodall.

In addition to using the inside information to gain an unfair advantage over other grant applicants, CM Energies also made a series of false claims about its ability to handle such a large project, court documents show.

For instance, the grant was targeted for renewable energy technologies that were already proved, developed and ready to install.

Since then, investigators wrote in the affidavit, they have learned that the company did not have a working prototype at the time of application and had never built the kind of turbine it described.

Company consultants and engineers subsequently told investigators that the turbine prototype later developed also was not structurally sound.

In its grant application, CM Energies named two University of Texas professors as technical consultants for the company. But the professors later told investigators they had only supervised students who performed projects in which they tested various aspects of wind turbine models for the company.

“Neither of these professors were ever employed as a consultant for the company,” the affidavit said. “Further, neither of them felt that the company’s product was commercially viable at the time of their exposure to the product.”

In the court documents, investigators detailed a long, close relationship between Malouff and Woodall. Friends since high school, the two frequently traveled to San Antonio together to visit his family, according to the arrest affidavit.

A former company employee told investigators that he went to Woodall’s house and saw Malouff’s motorcycle parked next to hers; others said the couple frequently took trips together and had been seen together “as a couple.”

Investigators discovered that the two also appear to have been in business together in the past. Documents uncovered from one of Malouff’s previous business ventures included a fax cover sheet that Woodall helped design and records showing that she had invested $1,600 in the company, the affidavit said.

She also had three years of documents from CM Energies at her office, appeared to had helped draft company contracts unrelated to the grant and had participated in making “important company management decisions,” according to the affidavit.

Investigators also stumbled upon an email Malouff had sent employees saying Woodall was the primary contact for CM Energies while he traveled. She “knows exactly where we are, what I/we need, when, and knows the whole complete picture. Her decisions are as good as mine,” the email said.

Long before the case broke, Miller told investigators that he had been to Malouff’s house to pick something up and Woodall was there.

When Miller complained about something to Malouff, Malouff “responded that it would all soon be over and it will all be worth it,” the affidavit said.

According to the document, Miller told investigators that Woodall, who had overheard their conversation, then spoke up. “There’s money in wind,” she said.