Company president in chemical spill facing charges

AP News
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Posted: Dec 09, 2014 8:09 PM

CHARLESTON, W.Va. (AP) — The top executive charged in a chemical spill that left 300,000 people without drinking water lied about his role with the company to protect his personal wealth of nearly $8 million from lawsuits, according to an FBI affidavit.

In bankruptcy court hearings and meetings, former Freedom Industries President Gary Southern repeatedly said he had little to do with the company before it was sold a few weeks prior to the January chemical spill. But an FBI affidavit said Southern had overseen day-to-day operations at the chemical storage company, hired employees and executed contracts for several years, according to a complaint unsealed Monday.

"They are either outright lies, or are, at the very least, misleading," FBI Special Agent James F. Lafferty II said in a sworn statement. "All of the statements indicate or suggest an effort to deflect blame from Southern for the discharge of (the chemical) MCHM into the Elk River."

Southern negotiated the sale of Freedom Industries to Chemstream Holdings Inc. just weeks before the spill, and discussed how much money would be set aside to deal with necessary repairs at the site, the complaint said. Investigators discovered holes in tanks, shoddy last-resort containment walls and other deficiencies.

Southern, who has previously denied wrongdoing, faces charges of bankruptcy fraud, wire fraud and lying under oath. If convicted of all the charges, he faces up to 30 years in prison.

He was arrested in Florida, where he owns a home on Marco Island, and was released Tuesday on a $100,000 bond. His next hearing is in West Virginia on Dec. 18.

Southern's public image suffered when he appeared unsympathetic to much of an entire valley of people lacking clean water.

The day after the spill, he told reporters he had a "long day" and tried to leave a news conference multiple times as he swigged a bottle of water in front of TV cameras.

"Look guys. It has been an extremely long day," Southern said Jan. 10. "I have trouble talking at the moment. I would appreciate if we could wrap this thing up."

Deno Stanley, owner of Adelphia Sports Bar & Grill in Charleston, said he hoped the charges set a precedent for executives like Southern.

"That guy should've went to social graces 101 class," Stanley said Tuesday.

On Jan. 9, a tank at Freedom Industries in Charleston leaked coal-cleaning chemicals into the Elk River, about a mile and a half upstream from a water treatment plant. Tap water from faucets started smelling like licorice. It also had a blue-green color to it. Drinking the water was banned for several days.

Freedom filed for bankruptcy eight days later.

The affidavit said Southern had a "substantial motive" to downplay his employment with Freedom. He was trying to protect his net worth of at least $7.7 million from lawsuits, according to the affidavit. Many businesses sued Freedom and the regional water company because the tap-water ban shuttered their operations for days. Some sued related parties, including Southern.

Creditors are seeking more than $176 million. Many involved in the case don't think much cash will be left, however, and point to Freedom's proposed $2.9 million insurance settlement as the biggest pot of money.

The affidavit said Southern started May 2009 as chief operating officer with direct oversight over the Charleston facility where the spill occurred. He also was on the board of directors from March 2010 to October 2013. After Freedom was sold to Chemstream, Southern made $230,000 a year as Freedom's president, according to court records.

In bankruptcy court, Southern described his role before the sale as a "part-time, financial type consultant to help the owners of that business get their finances and systems kind of back on track."

He said he was involved only "superficially" in Chemstream's purchase of Freedom. He also told creditors, under oath, that he was not part of the Freedom organization before the acquisition, the affidavit said.

Southern's attorney, Bob Allen of Charleston, said the former executive plans to vigorously fight the charges.

"We just feel like Gary is being unfairly singled out," Allen said Tuesday.

Southern was fully aware of the lawsuits facing him and the FBI and EPA investigations into possible Clean Water Act violations, the affidavit said. U.S. Attorney Booth Goodwin said the charges were part of an ongoing investigation.

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A previous version of this story inaccurately quoted from the FBI affidavit. FBI Special Agent James F. Lafferty II said in a sworn statement: "All of the statements indicate or suggest an effort to deflect blame ...," not "defect blame."