6 Freedom owners, managers, employees charged; company takes plea deal with feds

KENNY KEMP | Gazette
U.S. Attorney Booth Goodwin, surrounded by other officials from the U.S. Department of Justice, the FBI and the U.S. Environmental Protection Agency, announces Wednesday that he has filed criminal charges against six former Freedom Industries officials, and the company itself, for their roles in last January’s chemical leak that contaminated the Kanawha Valley’s drinking water.
CHRIS DORST | Gazette file photo
Gary Southern, seen here outside Freedom Industries the day after last January’s chemical leak, was indicted Wednesday and charged with 13 federal crimes that, combined, carry a potential prison sentence of 68 years.

Federal prosecutors charged Freedom Industries and six of its owners, managers and employees with criminal violations of the Clean Water Act related to the January 2014 chemical leak that contaminated the drinking water of 300,000 people in Charleston and surrounding communities.

Dennis P. Farrell, William E. Tis, Charles E. Herzing and Gary L. Southern were each charged with three counts of violating federal environmental laws. Each man is charged with failing to meet a “reasonable standard of care” in running the company.

“Their negligence resulted in and caused the discharge of a pollutant, that is, MCHM, from point sources into the Elk River,” stated an indictment, unsealed today by U.S. Magistrate Judge Dwane L. Tinsley.

“Farrell, Tis, Herzing and Southern approved funding only for those projects that would result in increased business revenue for Freedom or that were necessary to make immediate repairs to equipment that was broken or about to break,” the indictment says. It says they failed to take any action to fund other repairs necessary for upkeep or improvements.

The charges against Farrell, 58, of Charleston; Tis, 60, of Verona, Pennsylvania; Herzing, 63, of McMurray, Pennsylvania; and Southern, 53, of Marco Island, Florida, were spelled out in a 37-page indictment handed up by a federal grand jury that met in Beckley this week.

If convicted, Farrell, Tis and Herzing face a maximum of three years in prison. Southern, who was charged with 10 other crimes, faces a maximum sentence of 68 years in prison.

Also, U.S. Attorney Booth Goodwin charged Freedom Industries, the bankrupt company, with the same three counts of criminal water pollution violations. The company was charged through a document called an information, rather than an indictment, a move that usually indicates the defendant has reached a plea deal with prosecutors.

Mark Welch, Freedom’s chief restructuring officer, confirmed that the company had entered into a plea agreement with federal authorities and said the move was aimed partly at limiting the possible fines and criminal defense costs if the company were to be indicted. Welch, in a prepared statement, said the plea agreement also stipulates that the U.S. Attorney’s Office will not seek restitution from Freedom for victims of the company’s crimes, because of the company’s ongoing bankruptcy proceeding.

“This will permit Freedom to focus its time and limited resources on its environmental cleanup obligations and addressing the claims of its creditors,” Welch said.

Two other former Freedom employees, plant manager Michael E. Burdette, and Robert J. Reynolds, an environmental compliance officer, were charged via information with one-count of violating the Clean Water Act. Goodwin said Burdette, 60, of Dunbar, and Reynolds, 63, of Apex, North Carolina, cooperated with the investigation and “the disposition of their charges will be clear very soon.”

Goodwin, speaking at a news conference at the Robert C. Byrd U.S. District Courthouse in Charleston, called the chemical leak “completely preventable” and said that Freedom’s executives showed “flagrant disregard for the law.”

“On January 9th, people in Charleston turned on their taps and, instead of clean water, they got water that reeked of chemicals,” said Goodwin, standing in front of nine other federal officials. “It is hard to overstate the disruption that happens when 300,000 people lose water.”

In January, Freedom’s tank farm along the Elk River, the Etowah River Terminal, leaked about 10,000 gallons of coal-cleaning chemicals into the river. The primary leaked chemical was 4-methylcyclohexanemethanol, or MCHM.

“The Clean Water Act prohibited the discharge of any pollutant into waters of the United States by any person except in compliance with a permit,” the indictment states. While Freedom did have a stormwater permit issued by the West Virginia Department of Environmental Protection, “Freedom did not have any permit allowing for the discharge of MCHM into the Elk River.”

The indictment says the company and the four executives failed to exercise reasonable care, failed to comply with the law, failed to follow their own internal operating procedures and failed to conform to common industry standards for safety and environmental compliance.

The company failed to inspect the tank that leaked, failed to maintain the secondary containment around the tank, failed to adequately train its employees, did not have spill prevention supplies on hand, did not have a spill prevention plan and failed to develop pollution prevention plans as required by its permit, the indictment states.

“Metal tanks don’t simply corrode overnight,” Goodwin said. “Containment walls don’t simply disintegrate in a matter of days. These things take time and those matters have to be dealt with.”

Goodwin said he had communicated extensively with U.S. Attorney General Eric Holder on the case. Holder, in a prepared statement, said conditions at Freedom’s Elk River facility were “not only grievously unacceptable, but unlawful.”

“They put an entire population needlessly at risk,” Holder said. “Such conduct cannot, and will not, be tolerated. These law enforcement actions send an unambiguous message that compliance with environmental safety standards is an obligation, not a choice.”

The second count against each man is for allegedly violating the Refuse Act, a 19th-century law that prohibits dumping refuse into waterways. The third count for each man is for allegedly violating an environmental permit.

Negligent violations of the Clean Water Act are punishable by a fine of up to $25,000 per day of the violation and up to one year in prison.

Farrell, a former owner of Freedom, is charged for his involvement with the company from February 2002 to Jan. 9, 2014, the day of the leak. He served as president of Freedom, the indictment states, from October 2001 through Dec. 6, 2013, when the company was sold to Chemstream Holdings Inc. for about $20 million.

Chemstream is owned by J. Clifford Forrest, who owns Rosebud Mining, the third-largest coal producer in Pennsylvania. Farrell continued to serve in a management role after the sale and “described himself occasionally as president,” the indictment states. Forrest was not mentioned in any of Wednesday’s court filings, but previous filings in U.S. Bankruptcy Court indicate that he approved of his company’s guilty plea.

Tis and Herzing, also former owners, are charged for their involvement in the company from 2004 through “at least Dec. 6, 2013.” During those dates Tis served as the secretary of Freedom and Herzing served as vice-president, the indictment says. Farrell, Tis and Herzing were all on the company’s board of directors.

Southern, described by the indictment as the former chief operating officer, is charged for his involvement with the company from May 2009 through Jan. 9, 2014.

Steve Jory, an attorney representing Tis and Herzing, pinned the blame on Southern.

“Recently, U.S. Attorney Booth Goodwin charged Gary Southern on the basis that he was singularly responsible for Freedom Industries’ operations. Goodwin’s allegations against Southern are, in point of fact, my client’s defense,” Jory wrote. “Not only were my clients not the owners of Freedom at the time of the spill, but four and one half years prior to the spill, in 2009, Southern was hired as Freedom Industries’ Chief Operating Officer to operate Freedom Industries.”

Southern’s attorney, Robert Allen, said, “We do not believe we’re guilty of the charges and we intend to resist them vigorously.”

The indictment also alleges that, “Southern profited from the sale of goods to Freedom by companies that Southern owned or in which he had a substantial interest.”

In addition to the environmental charges, Southern was indicted on six counts of bankruptcy fraud, one count of wire fraud and three counts of making false oaths or attempting to conceal his assets, all related to statements he made after the leak.

Southern was arrested and charged last week on bankruptcy related charges but had not been indicted until Wednesday. Goodwin said Wednesday’s charges, in effect, supersede those filed last week. The bankruptcy-related charges allege that Southern lied about his role with Freedom, claiming he was only a consultant to the company, not an executive, in an attempt to shield his personal wealth from lawsuits related to the leak. The U.S. Attorney’s Office has sought warrants to seize more than $7 million from accounts belonging to Southern or a company he owns, saying they are profits from the crimes they allege. Goodwin said federal officials are seizing Southern’s assets and that they will be held through the court proceedings.

Southern’s lawyers have asked that Goodwin and his office be removed from the case because, as residents of the Kanawha Valley, they were victims of the chemical leak and resulting water crisis and, thus, have a conflict of interest. Allen said, given that request, he was “a little bit shocked” that Goodwin went ahead with the indictments.

Goodwin called the motion asking for him to step aside “without merit” and said his office has responses to the allegations that they will release “in due course.”

“You necessarily have to rely on people to do what they’re obligated to do,” Goodwin said of the Freedom executives. “The Clean Water Act, and the environmental laws of the United States, state environmental laws, they’re not optional. They’re required.”

Staff writer Ken Ward Jr. contributed to this report.

Reach David Gutman at david.gutman@wvgazette.com, 304-348-5119 or follow @davidlgutman on Twitter.

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