With staggering debt lapping at their heels and Wall Street breathing down their necks, execs cooked the books to make Southern Company look profitable

 Plant Vogtle in Georgia, home to $21 billion in cost overruns

 

An examination of financial statements shows Southern Company is "drowning in debt" -- caused mostly by massive cost overruns at facilities in Mississippi and Georgia -- and resorted to accounting fraud as a means of maintaining stock prices and meeting expectations of investors and Wall Street analysts, according to a report this morning at DonaldWatkins.com. Here are other take-home findings from the report, which is the first in a three-part series, under the title "How The Southern Company Cooked Its Books In A Massive $27-Billion Accounting Fraud Scheme":

(A) Former Alabama Power CEO Mark Crosswhite was a central player in the fraud scheme, but records reveal virtually nothing about the role he played. Watkins, a longtime Alabama attorney and entrepreneur, says this likely is designed to protect Crosswhite from Southern Company's efforts to dump much of the blame for its financial problems on Crosswhite and Alabama Power, while seeking a non-prosecution agreement for itself from the U.S. Department of Justice;

(B) The accounting firm Deloitte & Touche was paid more than $17 million to audit Southern Company's books, but certified that it found nothing amiss. What repercussions could that have for Deloitte? The answer is not clear at the moment, but . . . 

(C) Watkins points to provisions in the Sarbanes-Oxley Act of 2002  that could impose personal criminal liability on a dozen executives if they signed certifications that falsely claim Southern Company's books were free of fraud;

(D) A 2022 document reveals the continuation of Southern Company efforts to hide money laundering by intentionally misclassifying millions of dollars in vendor payments, Watkins reports; 

(E) Watkins reveals grim financial numbers that apparently caused desperation to set in among Southern Company higher-ups.

How did Southern Company get into such dire shape? Watkins explains, noting that his examination focuses on documents from 2002, which was the last full year that the company filed 10-Qs (which are quarterly reports) and a 10-K (which is its annual report) with the U.S. Securities and Exchange Commission (SEC). Watkins describes the 2022 10-K, filed on February 15, 2023, as a "Trojan horse for Southern Company's accounting-fraud schemes." Watkins points to two "drivers" that led Southern Company into deep trouble:

The two main drivers of the Southern Company’s accounting-fraud schemes were: (a) the desire to pump up and maintain the company’s stock prices within the range of Wall Street forecasts and expectations, and (b) the need to meet or exceed the expectations of Wall Street analysts for the company’s utilities and power industry sector.

The Southern Company’s accounting-fraud concealment techniques begin in the Risk Factors section of the 10-K. (See, “Item 1A. Risk Factors,” pages I-15 to I-26.) The company disclaims virtually everything that negatively impacts earnings and profitability. The goal of this disclaimer is to give the Southern Company “wiggling room” to pull off the accounting fraud.

The disclosed "Risk Factors" also provide a seemingly innocuous distraction from the detection of the fraud, thereby deterring heightened scrutiny on (a) whether the Southern Company's system of internal controls was adequate to prevent accounting fraud, and (b) whether the reported numbers fairly present the true financial condition of the Southern Company, in all material respects.

No disclosure of any false, misleading, or inaccurate “material" fact is made in “Item 1B. Unresolved Staff Comments.” The signatory CEOs and CFOs simply swore that there were no unresolved issues in this category. (See, 10-K, p. I-26).

What was going on behind the scenes that  drove Southern Company down a road to deception?

The drag on the Southern Company has been its growing debt load since 2017, which springs from construction cost overruns of $4 billion or more at its coal-gasification facility in Kemper, Mississippi, and $21 billion at its Vogtle Nuclear Plant Units 3 and 4 construction projects in Waynesboro, Georgia.

What is more, the Southern Company gave up and demolished its new Kemper facility in 2021, which caused a debt-financed loss of more than $7 billion.

This $28 billion in debt associated with the $21-billion cost overruns at Vogtle and the $7 billion loss at Kemper created a “Hole” in the financial records that the Southern Company had to fill, while keeping stock prices high and meeting or exceeding Wall Street expectations. Simply put, this was an impossible task.

With construction of Vogtle Units 3 and 4 dragging on for 10 years, there was no legitimate way to turbo charge the Southern Company’s operating revenues enough to plug the “Hole” created by the debt-financed cost overruns at Kemper and Vogtle. Plus, the rapidly growing debt load was sucking the profitability out of the Southern Company's consolidated operations beyond anybody's expectations.

Why is it important for financial documents of a publicly traded company to be accurate? For one, they affect a lot of people -- and involve a lot of money, Watkins reports: 

Shareholders, investors, lenders, state and federal regulators, and the Southern Company's institutional co-owners in the Vogtle Units 3 and 4 construction projects must rely upon the completeness, accuracy, and truthfulness of the matters asserted in the company's 10-K for 2022. Two of the Southern Company's three co-owners of the Vogtle project are in litigation with the company over the staggering cost overruns at Vogtle.

Here is Southern Company's grim reality today:

The Southern Company is drowning in debt, and it is leveraged to the hilt. The 10-K for 2022 is dripping with accounting fraud. In light of the company's barely manageable debt load, alone, it is shocking that Deloitte & Touche gave the Southern Company a "clean" audit opinion for 2022.

In 2017, the Southern Company's aggregate corporate debt load was only $45 billion.

Today, Southern Company shareholders are essentially "bondholders" who receive an annual yield that is slightly higher than long-term Treasuries. They have no real equity in the company's assets, which are basically hocked out to major institutional lenders.

The Southern Company has survived as an ongoing enterprise in recent years by robbing Peter (its affiliates) to pay Paul (the Southern Company). CEO Tom Fanning has been stripping cash out of the company's registered and non-registered affiliates at an alarming rate.

Upon close examination, Tom Fanning has run the Southern Company into the ground with two white elephant construction projects -- Kemper and Vogtle. The Kemper facility has been demolished and the Vogtle project is tied up in legal challenges regarding the Southern Company's fitness to hold a combined "Owner/Operator" license from the Nuclear Regulatory Agency.

A. A Cover for Crosswhite?

The retired Alabama Power CEO seems to be in hiding mode at the moment, perhaps because his "friends" at Southern Company have proven not to be so friendly, as Watkins explains:

The fraud embedded in the 10-K for 2022 (and prior years 10-Ks) involved senior-management executives like Mark Crosswhite, who had a significant role in Alabama Power's internal controls over financial reporting. Crosswhite, the former CEO of Alabama Power, "retired" on December 31, 2023. The "Retirement and Consulting Agreement" Southern Company CEO Tom Fanning executed with Mark Crosswhite on December 7, 2022 is reproduced in the 10-K, at Exhibit 10(a)15.

The Agreement, which pays Mark Crosswhite $125,000, has no specified duties. Under the Agreement, Crosswhite is supervised and managed by Tom Fanning. It is basically a "keep your mouth shut" agreement.

Mark Crosswhite's participation in the accounting-fraud scheme is NOT disclosed in any section of the 10-K, even though his "Retirement and Consulting Agreement" is. Despite the Agreement, Crosswhite did NOT sign the 10-K for 2022. His successor-in-office (Jeff Peoples), who assumed office on January 5, 2023, wound up signing the 10-K on February 15th, 2023.

Mark Crosswhite is reportedly cooperating with federal investigators, who are probing the Southern Company's decades-long crime spree, in exchange for full immunity. This appears to be a pro-active defensive move by Crosswhite to protect himself from the Southern Company's efforts to isolate, package, and dump much of its illegal activity on Alabama Power Company and Crosswhite, while the Southern Company seeks a non-prosecution agreement from the U.S. Department of Justice. During a February 16, 2023, earnings call, Southern Company CEO Tom Fanning all but blamed Crosswhite for everything wrong with Alabama Power and the Southern Company.

B.  "D" is for Deloitte

One of the most curious parties in this sad tale is Deloitte & Touche, the internationally known accounting firm that conducted what appears to be a major botch job on Southern Company's books. If one were handing out grades, Deloitte would be lucky to receive a "D" for this auditing mess. "F" probably would be the proper grade. Writes Watkins:

It should be noted that the Southern Company paid Deloitte & Touche, via its affiliates, at least $17,245,000 in 2022 to audit its financial books and records. (See, K-10, p. III-2). Deloitte & Touche reported no disagreements with the Southern Company regarding accounting and financial disclosures. (See, 10-K, p. II-256). Apparently, Deloitte & Touche was not looking to bite the hand that was feeding it since the firm actually certified the phony numbers in the 10-K as fair and accurate.

Deloitte & Touche had the responsibility for detecting fraud within the 10-K. The existence of accounting fraud is a "material" fact, which must be disclosed. The auditing firm claimed that "the financial statements [in the 10-K] present fairly, in all material respects, the financial position of Southern Company as of December 31, 2022 and 2021." See, 10-K, II 72-75.

Deloitte & Touche also opined that: "Southern Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013). . . .

Neither Deloitte, nor Southern Company, explained in the 10-K how Deloitte & Touche audited vendor payments in excess of $1 million in cases where the contracts were secret, the deliverables were maintained off-site, the vendor payments were made without invoicing, and the contractual services were continuously renewed or otherwise extended through 2022.

Likewise, neither Deloitte, nor the Southern Company, has ever explained or disclaimed the fraud scheme that was detailed in notes made by vendor Joe Perkins on April 6, 2017. These notes recorded an off-site meeting between a Southern Company senior-management executive and a longtime vendor of the company. The fraud discussion captured in these notes has NOT been reported in any 10-Q or 10-K from 2017 going forward.

Yet, [hand-written notes from Matrix LLC's Joe Perkins] point the finger directly at the "bad decisions at SO"and the failure of the board of director's Audit Committee to properly monitor and audit the Southern Company's construction cost overruns for the Kemper and Vogtle projects that eventually totaled more than $27 billion in the aggregate by 2022.

According to confidential "insider" sources, these notes were withheld from Deloitte & Touche, even though they were "material" to the 10-Ks for 2017 and each successive year.

Additionally, the Southern Company's 10-K for 2022 continues a years-long pattern and practice of intentionally misclassifying millions of dollars in vendor payments to hide money laundering for legally impermissible activities and special clandestine work orders that violate company operational policies, as well as the Code of Ethics cited in the 10-K, at p. III-1.

Again, neither the Deloitte & Touche audit, nor the Southern Company's 10-K for 2022, address the nature, scope, or need for these multi-million dollar clandestine expenditures in any section of the 10-K. The Southern Company could have identified and properly classified these expense payments, but the company elected to conceal them from its auditors, shareholders, investors, lenders, and regulators. . . .

Based upon my review of these 10-Ks and 10-Qs and my personal experience in the HealthSouth accounting-fraud case, all of the 10-Qs and 10-Ks filed by the Southern Company in the past five years reek of accounting fraud. These SEC filings will need to be amended and restated.

C. The Sarbanes-Oxley Hammer

What about the Southern Company executives who could face personal criminal liability if they falsely certified that the company's books reflected accurate information, per the Sarbanes-Oxley Act? Watkins names them:

The individuals who signed these certifications on the Southern Company’s 10-K for 2022 are: (a) Thomas A. Fanning (CEO) and Daniel S. Tucker (CFO), for the Southern Company; (b) J. Jeffrey Peoples (CEO) and Philip C. Raymond (CFO), for Alabama Power Company; (c) Christopher C. Womack (CEO) and Aaron P. Abramovitz (CFO), for Georgia Power Company; (d) Anthony L. Wilson (CEO) and Moses H. Feagan (CFO), for Mississippi Power Company; (e) Christopher Cummiskey (CEO) and Gary Kerr (CFO), for Southern Power Company; and (f) Kimberly S. Greene (CEO) and David P. Poroch (CFO), for Southern Gas Company.

 D. Reality Bites

What kind of picture is painted with the actual numbers behind the Southern Company fraud? It is not pretty -- and Watkins spells it out:

As of December 31, 2022, the Southern Company was a $59 billion revenue enterprise that was saddled with $55.2 billion in long-term debt and $7.6 billion in credit lines. Its reported $62.8 billion in debt obligations and credit facilities exceeded its stated revenues of $59 billion by $3.8 billion. What is worse, the Southern Company and its affiliates only had $1.9 billion in "Cash on Hand," as of December 31, 2022.

Could anyone figure out a way to lawfully make the company look profitable in the face of such grim real numbers? Apparently not, writes Watkins:

Facing a constant need for investment capital, a growing debt crisis, and nightmarish cost overruns at Vogtle, cooking the financial books and records at the Southern Company became the company's answer to these growing problems.

Stay tuned for Part 2, Southern Company: Using Smoke and Mirrors to Look Profitable.

When America needs a "warrior" attorney general, the meek Merrick Garland is missing in action, allowing lawlessness to reign at Southern Company and beyond

U.S. Attorney General Merrick Garland is ineffectual at his job, and President Joe Biden should replace him, according to an opinion piece from longtime Alabama attorney and businessman Donald Watkins. Garland's deficiencies probably hit home for Watkins in a personal way. Via his DonaldWatkins.com Web site, Watkins has used his investigative abilities -- honed over an almost 50-year career in the law -- to break numerous profoundly important stories related to the long-running racketeering and accounting-fraud schemes at Southern Company.

Watkins' online journalism has produced the kinds of revelatory, even shocking, stories that should spark a real attorney general to action. But Garland does not seem to be that kind of person. The U.S. Department of Justice, on his watch, seems to be in perpetual sleep mode -- doing little or nothing as corporate lawlessness reigns at Southern Company and beyond. An apparent willingness to let corporate crooks off the hook should disqualify Garland for his position, Writes Watkins, under the title "Where In The Hell Is Attorney General Merrick Garland?":

Americans of color, women, children, LGBTQIA Americans, and the elderly are losing every legal right they have won in Congress and the courts since 1865. At the same time, our children are being slaughtered in public and private schools across America, with no federal law-enforcement solution in sight.

Why is U.S. Attorney General Merrick Garland afraid to stand up and fight hard for us? Why is he always crying whenever his Department of Justice handlers trot him out for a speech or statement on TV?

Merrick Garland is absolutely the wrong person for the attorney general's job at this critical moment in our nation's history. If we needed a bourbon-drinking, martini-sipping friend to pontificate about esoteric things during "Happy Hour" in Washington, Garland would be our guy.

But, here's our real situation: President Joe Biden is old, weak, tired, and senile. What is worse, Merrick Garland is weak, tired, and unfocused.

In short, Watkins writes, Biden and Garland are not a good combination on matters of justice, especially for everyday Americans:

For example, more than two years after Biden assumed office as president, Merrick Garland still employs avowed Trump loyalists and modern-day white supremacists in key DOJ positions in Alabama and other Deep South states. This faux pas is inexcusable.

Because Biden is the weakest president since Herbert Hoover, he needs a Pit Bull as his Attorney General. Merrick Garland is NOT that guy. Whenever Garland appears in public, it feels like he is getting ready to bolt from the room for a cocktail party.

As regular readers know, I don't give Donald Trump credit for accomplishing much of anything. But Watkins does give him credit in one area:

Donald Trump was right about one thing: The president of the United States is the chief law enforcement official in the federal law-enforcement apparatus. The president appoints the attorney general as a member of the executive branch of government to oversee the day-to-day administration of this apparatus.

The attorney general is a cabinet member, just like the 23 other cabinet members who serve at the pleasure of the president. 

Nothing in the U.S. Constitution places Attorney General Merrick Garland beyond the supervisory reach of the president. Whoever serves in this cabinet post is directly answerable to the president.

The attorney general's job in the federal system is to advance and protect the president's public policy initiatives, using the federal legal apparatus to achieve this result. This, Merrick Garland is NOT doing.

That is not Garland's only failing, Watkins writes:

The attorney general also has a concomitant duty to enforce the labyrinth of more than 8,000 federal civil and criminal laws in a fair and just way. Merrick Garland is failing in this responsibility, as well.

Wall Street companies and their CEOs who commit crimes go free, while Main Street criminals get hammered and go to jail. Garland has sanctioned this two-tier system of justice on numerous occasions.

President Biden can replace Merrick Garland at-will, and Biden should do so immediately, while he still has lucid moments.

Right now, we need a real warrior in the Attorney General's job. Americans of color, women, children, LGBTQIA Americans, and the elderly are catching pure hell. The MAGA crowd is running roughshod over these groups in the "Red" states.

Merrick Garland is an Attorney General "in-hiding" while we are being forced back into pre-1865 living conditions. This retrogression isn't working too well for us!

Unfortunately, this is the cold, hard, truth.

From Clint Eastwood to Rambo and "The Art of War," Donald Watkins draws on iconic works of art to inspire his reporting on rampant lawlessness at Southern Co.

 

What inspires a journalist to investigate wrongdoing? For longtime Alabama attorney and businessman Donald Watkins, who has become a leading voice in uncovering the racketeering and accounting-fraud scandal at Southern Company, inspiration comes from one book and two films. The book is a historic text on military tactics, which has been applied to many environments outside the military realm. The films, one from the 1960s and one from the early 1980s, are action pictures that essentially focus on the pursuit of justice. Writes Watkins at his Web site, under the title "The Art of War":

My favorite book is The Art of War by the ancient Chinese military strategist Sun Tzu (5th century B.C.). Wikipedia describes this book well. I have used the strategies and tactics taught in The Art of War throughout my legal career.

The Art of War is composed of 13 chapters. Each one is devoted to a different set of skills or art related to warfare and how it applies to military strategy and tactics.

For almost 1,500 years, this book was the lead text in an anthology that was formalized as the Seven Military Classics by Emperor Shenzong of Song in 1080. The Art of War remains the most influential strategy text in East Asian warfare and has influenced both East Asian and Western military theory and thinking and has found a variety of applications in a myriad of competitive non-military endeavors across the modern world, including espionage, culture, politics, business, and sports.

The films feature characters and actors who have become cultural icons. Writes Watkins:

I have two favorite movies: The 1968 Clint Eastwood classic, Hang ‘Em High and Sylvester Stallone’s 1982 action hit, Rambo: First Blood.

After a gang of men unsuccessfully tried to lynch him for a cattle-rustling crime he did not commit, Jed Cooper (Clint Eastwood) is saved by marshal Dave Bliss (Ben Johnson) and judge Adam Fenton (Pat Hingle). The lawmen offer Cooper a job as a federal marshal with the caveat that he refrain from using his new law-enforcement position to go after the men who tried to lynch him. But, when Cooper finds that some of the men who attacked him are involved in another set of crimes, he brings them to justice.

Vietnam veteran and drifter John J. Rambo (Sylvester Stallone) wanders into a small Washington town in search of an old friend. Rambo is met with intolerance and brutality by the local sheriff, Will Teasle (Brian Dennehy). When Teasle and his deputies restrain and shave Rambo, he flashes back to his time as a prisoner of war and unleashes his fury on the officers. Rambo narrowly escapes the manhunt, but it will take his former commander (Richard Crenna) to save the hunters from the hunted.

The takeaways from these two movies have inevitably bled over into my professional life. Combined with The Art of War, these works of art have sharpened my fighting skills, honed my ability to focus on the strategies and tactics for favorable outcomes in various legal battles, and enhanced my ability to defeat a host of mighty forces that hinder equal rights for all, fair play in business, and the fair administration of justice.

Our first post here at Legal Schnauzer, on June 3, 2007, was about the unfair administration of justice.  Almost 4,600 posts later, we still are writing about the subject. Some of the posts have been about our own legal battles, but the vast majority have been about cases that do not involve us. We believe in the words of Martin Luther King, written from the Birmingham Jail: "An injustice anywhere is a threat to justice everywhere."

My wife, Carol, and I have encountered one judge after another who seems to have little, or no, respect for the rule of law. Donald Watkins has had similar experiences, and they help drive his investigative reporting on the Southern Company story, which centers on what might prove to be the worst corporate scandal in Alabama history. 

Count us as two people who deeply appreciate Donald Watkins' willingness to apply his skills, knowledge, and experience to promoting the fair administration of justice. The issue is just as important now as it was when we first started writing about it almost 16 years ago.

Curious inaction from Biden Administration, plus its close ties to a Southern Company board member, suggest a fix might be in on a case of criminal fraud

Joe Biden and Southern Co. board member Ernest Moniz

Does the appointment during the Obama-Biden administration of a Secretary of Energy (who now is a member of the Southern Company's board of directors) -- along with the inaction of federal agencies toward the company's massive accounting-fraud schemes-- raise this disturbing question: Has the Biden administration, apparently doing favors for simpatico parties, essentially "fixed" the criminal case for Southern Company?

Longtime Alabama attorney and businessman Donald Watkins raises the issue head-on and points to a number of factors that suggest a "fix" is in place to favor Southern Company. In a post titled "Did Biden’s DOJ “Fix” Criminal Case for Southern Company?" Watkins is not shy about calling out the current occupant of 1600 Pennsylvania Avenue. Watkins writes:

Whenever a federal law-enforcement agency fails to ask a single question about officially reported criminal conduct, including financial crimes, and fails to ask for documentation evidencing the reported financial crimes, the case has been “fixed.”

Whenever a chief compliance officer at a New York Stock Exchange/Securities and Exchange Commission (SEC)-regulated company fails to ask a single question about reported accounting fraud at his/her publicly traded company in the aftermath of HealthSouth, Enron, WorldCom, and Tyco, the case has been “fixed.”

Whenever an “independent” law firm hired by the offending New York Stock Exchange/SEC-regulated company to conduct the internal investigation referenced in JM, §9-28-900 for a non-prosecution agreement with the Department of Justice (DOJ) fails to ask a single question about reported accounting fraud and fails to request the documentation evidencing such fraud, the case has been “fixed.”

That raises all kinds of troubling questions about the Biden Administration. Here is one such question: Does Team Biden take justice issues seriously, or does it reduce the "rule of law" to a matter of swapping favors back and forth? Consider the following from Donald Watkins:

Why has no federal regulatory or law-enforcement agency under President Joe Biden’s watch expressed an interest in the accounting-fraud schemes at the Southern Company? Maybe, it's because Deloitte & Touche signed off on the company’s 10-Qs and 10-Ks and they have full confidence in Deloitte & Touche? Well, Ernst & Young signed off on HealthSouth’s 10-Qs and 10-Ks. Arthur Andersen signed off on Enron’s and WorldCom’s 10-Qs and 10-Ks. PricewaterhouseCoopers signed off on Tyco’s 10-Qs and 10-Ks. All of these companies were well-respected accounting firms. Their sign-offs were meaningless and only served to hinder the eventual discovery of the accounting-fraud schemes.

Has Joe Biden’s DOJ agreed, in principle, to forgive the Southern Company for its long-running, multi-state racketeering enterprise and massive, multi-year accounting-fraud schemes in exchange for: (a) the payment of multi-billion dollar fines and penalties, (b) the purging of scapegoat executives like former Alabama Power Company CEO Mark Crosswhite and a dozen or so other Southern Company senior-management executives, (c) the “retirement” of Tom Fanning, and (d) the customary promise from the Southern Company of good behavior going forward?

It also might raise eyebrows in the direction of the former Energy Secretary who now sits on the Southern Company board -- and the questions hardly stop there, per Watkins:

 

What role, if any, did Southern Company board member Ernest Moniz play in getting the non-prosecution deal done? Moniz was Secretary of Energy from 2013 to 2017 under the Barack Obama-Joe Biden administration. Biden is very fond of Moniz. He joined the Southern Company board of directors on March 1, 2018.

Was the Southern Company’s appointment of Chris Womack as incoming CEO, effective on May 24, 2023, a goodwill offering to the Biden administration’s diversity agenda and a public relations gimmick to fumigate the foul smell of DOJ’s planned non-prosecution deal for the Southern Company?

Did Bill Clinton, a Southern Company "special friend" with strong connections to Biden’s DOJ, pull off the ultimate “fix” for the Southern Company, and at what cost to the company's customers?

Is the Southern Company really "too big to prosecute"?

How much money are the minions in the Southern Company’s sphere of influence obligated to raise for Joe Biden’s re-election campaign in this non-prosecution scenario?

In light of these burning questions, did Joe Biden's DOJ "fix" this criminal case for the Southern Company?

You decide!

Southern Company CEO Tom Fanning is almost out the door with loads of ill-gotten gains -- the "benefits" of fraud schemes-- but obstacles might block his exit

Tom Fanning

 

CEO Tom Fanning is expected to retire soon at Southern Company, and he might hit the exits with a stash of ill-gotten gains -- you might call them "benefits" of a massive accounting-fraud scheme, over which Fanning presided. Will Fanning make out like a bandit? Not necessarily, says longtime Alabama attorney and businessman Donald Watkins in a post titled "Will Tom Fanning Exit Southern Company with Mega Cash, Stock Options Based Upon Accounting Fraud?" Writes Watkins:

This week, I will begin publishing my exclusive series of articles on how the Southern Company hoodwinked its external auditor (Deloitte & Touche), its regulators (the U.S. Securities and Exchange Commission and state Public Service Commissions), its two largest shareholders (the Vanguard Group, Inc, BlackRock, Inc.), its banks and other lenders (including the U.S. Department of Energy), and other stakeholders with cooked financial books and records that concealed up to $27 billion in accounting fraud over a 10-year period, all while pretending to meet the earnings expectations of unsuspecting Wall Street analysts.

It was a masterful accounting-fraud scheme. In fact, it was much better than the one used in the $2.7-billion HealthSouth accounting-fraud case.

Along the way, CEO Tom Fanning was rewarded handsomely with a multimillion-dollar annual salary, fantastic bonuses, and valuable stock options. Fanning has made more than $100 million in total compensation that was based on cooked Southern Company financial books and records.

Did anyone in Southern Company's chain of command bother to notice that Fanning was about to reap huge benefits from fraudulent financial records? Apparently not. Could that put some higher-ups in the company at legal risk? Yes, says Watkins:

Those entities and persons who should have detected the accounting fraud at the Southern Company and its affiliates were too busy hanging out in the sky boxes at sporting events and concerts, or getting "wasted" at PGA events like the Masters, or experiencing the thrill of big-game hunting and fishing trips, or enjoying corporate jet rides to exotics ports of call, or smiling while their wives, mistresses, and children spent the money loaded onto the gift cards they received, in violation of the company's Code of Ethics. The Southern Company was able to anesthetize the guardians of the public interest using unreported gifts and a waterfall of opulence as tranquilizers. It worked, very well.

In the process, Tom Fanning and his loyal crew got rich – super rich. Meanwhile, the customers of Alabama Power Company, Georgia Power Company, and Mississippi Power Company got raped and pillaged each month.

A lot of good and decent employees who served as chief executive officers and chief financial officers of Southern Company and its affiliates signed their names to 10-Qs and 10-Ks trusting that the parent company’s financial books were "clean," as required by the Sarbanes-Oxley Act of 2002. They were NOT.

Sarbanes-Oxley is the federal criminal statute that burned the corporate executives at HealthSouth, Enron, WorldCom, and Tyco, who willingly or unwillingly cooked their companies' financial books and records.

Today, the Southern Company's Sarbanes-Oxley signatory officers are at-risk of going to jail. Bill Clinton, Barack Obama, and Kamala Harris will NOT be able to “fix” this problem for the company in Washington. This is NOT a problem that can be solved with political "juice." This is a financial-crimes problem.

Could Tom Fanning encounter serious problems before he is out the door? The answer appears to be yes, writes Watkins:

Mr. Fanning almost made it to the exit door with his bags of cash and ill-gotten wealth. Right now, nobody is blocking this exit door but me. Mr. Fanning can leave the headquarters building in Atlanta, but the cash and ill-gotten gains from the accounting-fraud scheme must stay in the Southern Company.

Whenever they wake up, I think federal law-enforcement agencies in Atlanta and Washington should claw back all of the bonuses that were awarded to corporate executives of the Southern Company based upon the accounting fraud scheme.

So that you know, I have been exposing wrongdoing throughout my entire 50-year career. This is the worst racketeering-enterprise and accounting-fraud scheme I have seen.

The rollout of my exclusive accounting-fraud articles will commence this week.

With public authorities seemingly helpless to take on lawlessness at Southern Company, Donald Watkins develops a powerful online voice to seek justice

Donald Watkins Jr. and Donald Watkins Sr.

Numerous readers have asked longtime Alabama attorney and businessman Donald Watkins why his online journalism has focused so heavily this month on the Southern Company racketeering scandal. Watkins addresses those questions in a new post -- and he does not pull any punches. In a piece titled "We Must Reform the Southern Company," Watkins essentially states that this story involves corruption that is profoundly important to the public -- especially to residents of Alabama, Mississippi, Georgia, and Florida -- and to the nation. At this moment in history, no regulatory or law-enforcement entity seems capable of cleaning up the mess, so citizen reporting -- especially by someone who has served as a lawyer in cases of corporate fraud -- might be the best chance. From the new Watkins post:

In recent weeks, I have received many inquiries from concerned parties affiliated with the Southern Company, Alabama Power Company, Georgia Power Company, and Mississippi Power Company who want to fully understand why these utility companies have been the focus of my investigative articles this month. This is a fair question.

I find that the best person to speak for me is me. I do not use messengers or surrogates as spokespersons. When I speak, I do so in my own voice and in articles published under my own name.

From his experience as a defense lawyer in the HealthSouth accounting-fraud case, Watkins has the skill set to sort out a matter as broad and complex as the Southern Company scandal. He writes:

I am undressing the Southern Company and its affiliates publicly for the following reasons:

1. Based upon my experience as an attorney in representing national corporations and in sifting through the rubble of the HealthSouth implosion from 2003 to 2005, I firmly believe that the top executives at the Southern Company are big-time crooks. They ran an ongoing multi-state racketeering enterprise and massive accounting-fraud scheme for more than a decade.

2. Based upon his own words and deeds, I believe James Y. “Jim” Kerr, II, is a polished, callous, dangerous, and unreformed bigot. Even though Kerr’s titles at the Southern Company are executive vice president, general counsel, chief compliance officer, and chief of staff to CEO Tom Fanning, he really serves as the “de facto” CEO of the company. What is more, Jim Kerr did not give a damn about whether the Southern Company suppressed the environmental justice rights of its black customers, or not. He is a modern-day version of Eugene “Bull” Connor who happens to be nesting at the Southern Company.

3. David J. Grain, the top Black on the Southern Company board of directors, and other Blacks in senior management positions have been reduced to mannequins who serve a window-dressing function. They wield no real power within the company. None of them can fire Jim Kerr or tell him what to do. In fact, Kerr really bosses all of them. Kerr has as much respect for these Black executives as he had for the Black residents of North Birmingham, whom he condemned to a long, slow death from the toxic pollutants that poisoned the air, ground, and water in their neighborhoods.

You might think that state or federal authorities would be the ones to tackle the Southern Company fraud. But Watkins has little confidence in their ability, or willingness, to take on such a task:

4. No state or federal public official will stand up to the Southern Company and demand that the company stop mistreating its nine million captive customers who must buy electric power from its monopolistic affiliate companies. The public officials and law-  enforcement agencies that could protect the public from the racketeering activity and accounting-fraud schemes practiced by the Southern Company simply turn their heads and look the other way. Additionally, the Southern Company, acting by and through its agents on the ground, absolutely corrupted one current and two former federal law-enforcement officials in Birmingham, Alabama. Meanwhile, the Southern Company continues to rape and pillage its nine million customers, at-will, each and every month on their electric bills.

5. My personal value system will not allow me to stand idly by and watch the Southern Company engage in unpoliced lawlessness. I have withstood the company’s coordinated efforts to: (a) railroad my son and me in a rigged federal criminal justice system, (b) imprison us, (c) attempt to kill me at two federal prisons, and (d) trash my son’s and my name in the white-owned media using paid media hustlers and “dirty tricks” operatives. None of these efforts has succeeded. The Southern Company underestimated our strength, resolve, and resources to (a) correct a plain injustice in our individual case, and (b) promote the fair administration of justice for all nine million of its customers.

6. My son and I are victims of the Southern Company’s criminal racketeering enterprise. We have a formal RICO complaint with the U.S. Department of Justice. The Southern Company is aware of our RICO complaint, as CEO Tom Fanning was served with a courtesy copy of the complaint on January 27, 2023. In response to our RICO complaint, the Southern Company paid political hustler Steve Flowers to write a drive-by character assassination article and Bill Britt’s Alabama Political Reporter to distribute the Flowers article on the Internet. This response constituted a sanctioned act of retaliation against a known witness in a federal criminal RICO case and a violation of federal felony statutes prohibiting obstruction of justice and witness tampering.

Please notice that the Southern Company has not disputed a single fact that I have published in my recent articles about the company. The company cannot do so because my facts are based upon Southern Company corporate documents, handwritten notes made by its co-conspirators, and recorded conversations between top executives.

Just so you know, Southern Company executives and employees are flooding me with source documents and inside information for my articles.

How do Southern Company officials plan to get through this mess of their own making? Watkins has a pretty good idea of what they are thinking:

The Company’s strategy is to ride out this storm. Top executives think that laundered campaign contributions to powerful Democrats in Washington, accompanied by influence peddling from former Democrat presidents, can buy the Southern Company’s way out of a criminal prosecution in one of the biggest racketeering and accounting fraud cases in corporate history.

I personally know how weak, impotent, and inept Joe Biden’s Department of Justice is when it comes to taking on Wall Street crooks. As such, my goals are to: (a) dismantle the cancer of corruption that is destroying the Southern Company and (b) reform what used to be a great company by using the power of online media to restore integrity, respect for humanity, care for its customers, and social responsibility to its corporate mission.

I am confident that my strategy and goals will prevail. They always do.

Southern Company board member David J. Grain saw his personal wealth explode as he failed to address racketeering schemes that have the company in peril

David J. Grain

 

A member of Southern Company's board of directors has used board connections to enrich himself while turning a blind eye to apparent misconduct that has the company engulfed in scandal, putting investors and the firm itself at risk, according to a report today at DonaldWatkins.com.

Donald Watkins, a longtime Alabama lawyer and businessman, says the story of David J. Grain signifies a Southern Company culture gone wildly off track. Under the headline "David J. Grain: Getting Rich From His Southern Company Platform," Watkins writes:

David J. Grain serves as the lead independent director at the Southern Company, a New York Stock Exchange/Fortune 500 company. He is also the chief executive officer and managing director of Grain Management, LLC, a private-equity and telecommunications-infrastructure firm.

In January 2019, Grain parlayed his Southern Company relationship to secure a seat on the board of New Fortress Energy, a NASDAQ company specializing in the production of liquefied natural gas. Grain’s relationship with New Fortress Energy will be the subject of an upcoming article.

Grain has used his Southern Company directorship, New Fortress Energy board seat, and political relationship with the Democratic Party to grow Grain Management’s assets under management from $359 million in 2012, when he joined the Southern Company's board of directors, to $8 billion today.

How do Grain's exploding wealth and his role on the Southern Company board intersect? Watkins explains, noting that it all has come with a cost, especially for customers and the public in general. In short, Watkins reports, Grain failed to do his job, especially in his oversight role as a board director:

After Grain became lead independent director on May 26, 2021, his firm’s assets under management grew by $2.9 billion. Along the way, Grain pocketed $365,000 in Southern Company director fees in 2021, courtesy of the Southern Company’s financially strapped electricity and natural gas customers.

As discussed below, had David Grain fully and faithfully discharged his fiduciary responsibilities as a Southern Company director, particularly as lead independent director, the company’s long-running, multi-state, racketeering enterprise and massive accounting-fraud schemes would have been detected and reported in time to preserve and protect shareholder value, as well as the integrity of the company’s business operations.

Had David Grain done his job, the Southern Company's general counsel, chief compliance officer, chief of staff, and in-house bigot, James Y. "Jim" Kerr, would have been fired following his phone call with CDLU Chief Executive Officer Kevin B. Forbes in 2018.

Had David Grain done his job, former Nuclear Regulatory Commission chairwoman Kristine L. Svinicki would NOT have been appointed to the Southern Company's board of directors on October 18, 2021, and she would NOT have contaminated the board’s governance with her glaring conflicts of interest. Now, Ms. Svinicki may be in personal legal jeopardy based upon legal advice from Jim Kerr on conflicts of interest.

Instead, Grain was apparently too busy enriching himself from his Southern Company directorship platform. As a result, the work environment within the corporation's Atlanta headquarters has become so toxic, executives need to don a hazmat suit before entering the building.

At the heart of Watkins' report is this question: What does Grain Management do, and how does it do it? The answer is disconcerting:

Grain Management invests in global broadband technology and other telecommunications assets. The company targets the acquisition of hard assets (e.g., Federal Communications Commission licenses, fiber networks, wireless spectrum licenses, and cell towers) and companies with inflation-protected revenue streams and sustainable cash flows that are uncorrelated to market cycles in secondary markets. Grain’s investment portfolio is linked here.

The capital for Grain Management’s acquisitions comes from venture capital firms. It is channeled into nine investment funds that are used to acquire and build Grain Management’s portfolio of broadband and telecommunications assets.

Grain Management’s business model is simple, but distasteful and possibly illegal. White-owned venture-capital firms use a black-owned private equity firm as a “front” to compete for and acquire FCC licenses and other telecommunications assets as a “small business” and/or “minority-owned business.” The federal government provides bidding credits, or discounts, which are applied to the gross bid amount based upon his firm’s status as a "small business" and/or "minority-owned business."

This business arrangement looks, smells, and feels like "fleecing" in the digital era.

Grain's company certainly sounds like a business enterprise, but matters of race and political connections help fuel it. Writes Watkins:

In 2014, Grain Management played the race card when it requested an FCC rule waiver that would allow the company to bid as a “small business” for an upcoming AWS-3 spectrum license auction even though the company’s lease arrangements with AT&T and Verizon caused Grain Management to exceed the lid on the small business program’s income requirements. The waiver request would allow Grain Management to bid in the auction using valuable bidding credits that were reserved for small, minority, and disadvantaged businesses.

Prior to making the waiver request, David Grain made a $12,000 campaign contribution to Barack Obama’s presidential re-election campaign and a $8,400 donation to Congressman James "Jim" Clyburn (D-S.C.) in January of 2012. Clyburn was Democratic Majority Whip from 2007 to 2011 and later served as Nancy Pelosi's Majority Whip from 2019 to 2023.

On July 21, 2014, the FCC voted 3-2 to grant the requested waiver after concluding that it was in the public’s interest to do so. The waiver request was supported by the Minority Media & Telecommunications Council, Rev. Jesse Jackson, and other Democratic power players in Washington, all of whom received generous donations from David Grain, Grain Management, and/or networking companies aligned with them.

Congressional Republicans smelled a quid pro quo “rat” in connection with this FCC waiver and tried to investigate how and why it was granted. At the time, nothing came of this effort.

Something, however, could come of it in the future:

Based upon newly discovered evidence arising from the Southern Company's racketeering activity and accounting fraud schemes, Grain Management's 2014 FCC waiver, as well as the firm’s 2021 successful FCC license bid award discussed below, may arouse the interest of the House Judiciary Committee, chaired by Rep. Jim Jordan (R-Ohio).

Between 2014 and 2021, David Grain continued to “juice” the political system with big contributions to powerful Democrats. In 2016, Grain contributed $95,000 to the Democratic National Committee. In 2017, Grain contributed $13,100 to Sen. Mark Warner’s (D-Virginia) campaign and $7,700 to Congresswoman Yvette Diane Clark (D-New York).

In 2018, David Grain contributed $32,000 to Democrats for Opportunity, $12,000 to the Forward Together PAC, $12,150 to Sen. Bill Nelson (D-Florida), who lost his re-election bid, and $26,401 to Bennie Thompson (D-Mississippi, who chaired the January 6th Committee).

During this seven-year period, Grain made a single $500 contribution to the Republican Party of Florida.

Grain’s political contributions, Democratic Party connections, and Southern Company directorship paid off big-time when Joe Biden took office. On February 24, 2021, exactly one month and three days after Joe Biden was sworn-in as president, Grain Management was awarded a C-band license for $1.3 billion at the conclusion of FCC Auction 107. Together with bidding credits for a minority-owned “small business,” Grain Management’s bid represented 1.6% of the $81.1billion in net license prices. Grain Management was the most surprising top five winner at the auction.

Beneath the surface, Gain's company presents a picture of private investors profiting in spectacular fashion, with the assistance of federal tax dollars. Writes Watkins:

Since 2009, the federal government has poured more than $150 billion into digital infrastructure. Passed in 2021, the Infrastructure Investment Bill and American Jobs Act, alone, dedicates $65 billion for broadband funding.

Venture capitalists are NOT long-term partners. They are financial “vultures,” who typically own nearly 100% of the assets parked inside a private equity firm like Grain Management. They put up the money needed to acquire digital assets developed with federal tax dollars and private investments, use Grain's minority status to win bids for FCC licenses, and flip these assets for gigantic profits as soon as they can.

On September 3, 2019, for example, Grain Management completed the sale of its nationwide portfolio of wireless communications assets to American Tower. Through this transaction, American Tower acquired approximately 400 cell towers and other related property interests from Grain.

During the rollout and ramp up of Grain Management since 2007, the company has received management fees from the $8 billion under management and bonuses from the sale of assets in the portfolio. These fees and bonuses enable Grain Management to acquire and maintain office locations, professional staffing, and vendor support services.

Today, Grain Management has offices in Washington, New York, Sarasota, Florida, and London.

Has Grain's status as a Southern Company director helped spike his personal income? Watkins answers with a resounding "yes":

Grain was on the Southern Company governance scene during the entire time when the company was engaged in a multi-state racketeering enterprise and massive, multi-year accounting-fraud schemes.

As lead independent director, a position Grain assumed on May 26, 2021, he is tasked with the following key authorities and responsibilities:

• Working with CEO and Chairman Tom Fanning to set the agenda for board meetings

• Approving information sent to the board

• Meeting regularly with Chairman Fanning

• Serving as the primary contact director for stockholders and other interested parties

• Communicating any sensitive issues to the directors

• Overseeing the independent directors’ performance evaluation of Chairman Fanning, in conjunction with the chair of the Compensation and Management Succession Committee

David Grain’s professional background, leadership position on the Southern Company's board of directors, and assigned areas of responsibility since 2021 placed him in a position to know about AND stop the racketeering, criminal conspiracy, obstruction of justice, and accounting fraud under investigation by news-media organizations and federal law-enforcement authorities.

Grain failed to act because he was too busy getting rich with his own deals, all while using his Southern Company position to cloak himself with the credentialing necessary for a black entrepreneur to be taken seriously in the world of FCC auctions and Wall Street transactions.

Has David Grain engaged in wrongdoing, and if so, will he be held accountable? Too many variables likely are in play to provide a definitive answer at the moment. But, Watkins writes, the broad picture suggests Grain could wind up with some significant problems landing on his desk:

It is unknown at this time whether David Grain is a cooperating witness with federal law-enforcement officials. However, it is known that the Southern Company is seeking a non-prosecution agreement from the U.S. Department of Justice for itself and its affiliates.