Lawsuits threatened over Crow Wing Power mine royalties
An investigation into Crow Wing Power by the Minnesota Attorney General's office may not be the only complication co-op officials will be contending with in coming weeks.
The co-op's board of directors meeting Thursday, May 16, revealed some members are signalling they may pursue legal action against the co-op in the form of civil suits. Accusations of impropriety have been leveled at Crow Wing Power officials regarding past business dealings and management of the company. It marks another point of contention for the electric power cooperative, which services 38,000 people in Crow Wing, Cass and Morrison counties. Gary Bakken—co-op member and a Breezy Point Council member—spoke at Thursday's meeting, where he criticized how co-op officials handled transparency to members and called for a forensic audit.
In comments to the Dispatch, Bakken said he's looking into external, third-party legal counsel to address the issue going forward.
"A class action civil suit is in the works," Bakken announced, sitting outside the Crow Wing Power facility on Highway 371. "I am heading that up. We have a firm that's expressed interest in these types of cases. I'm waiting to hear from the attorney's office."
Bakken said until he gets a concrete answer he won't disclose which firm he's in talks with.
In a similar vein, Crow Wing Power board member Bryan McCulloch said he's aware a group of lakes area figures—a loose coalition of businessmen, lawyers, property owners, elected officials, former co-op employees and others in contact with the Dispatch—are engaging in talks with Twin Cities firms to possibly pursue civil action against the co-op.
McCulloch said auditors with Brady, Martz & Associates—a third-party accounting firm—have advised co-op management to work with and comply with disgruntled members pursuing legal action.
"They gave the board some pretty strong advice that they better work with this group and appease this group, or things might get difficult for the cooperative," McCulloch said.
In light of potential civil suits, other board members said they weren't aware of these developments.
"I'm definitely surprised," said board member Dwight Thiesse, who thought members wouldn't jump the gun and instead wait for an investigation by the Minnesota Attorney General to be competed. "I think, let him get done with what he's doing and let's see what happens."
"I'm wondering how big it is," board member Gordon Martin said. "There's 38,000 members out there. I wonder if it's a small group or a big group that's concerned about this. The class action thing, we'll just have to wait and see. We're going to wait for an opinion from the attorney general."
Thursday's revelations come on the heels of eight tumultuous months for Crow Wing Power after the Minneapolis Star Tribune published an article Aug. 31 pointing to possible impropriety by co-op officials. This piece shed light on a royalty agreement signed Nov. 20, 2008, that stipulates three executives from Crow Wing Power—CEO Bruce Kraemer, former Chief Operating Officer Doug Harren and former Chief Financial Officer Don Nelson—retain royalty interests to a manganese deposit by Emily.
If developed, the deposit has the potential to garner executives millions over the course of the mine's lifespan. Members of the co-op's executive staff, along with board directors, stated members were not notified of the royalty agreement in 2008 or subsequently.
Prior to that, the co-op sold Hunt Technologies and used $23 million in profit with the stated intention to develop the mine and give investment returns back to members. Since then, public scrutiny has been directed at $490,000 in bonuses for seven board members, as well as concerns executives took money on the side.
Calls for resignation
In a statement to the Dispatch, McCulloch said he is calling for the resignation of Crow Wing Power attorney Paul Johnson, CEO Bruce Kraemer, as well as directors Gordon Martin, Dwight Thiesse, Gert Roggenkamp and Bob Kangas for their mishandling of company affairs in the 2006 Hunt Technologies sale and the 2008 purchase of the Emily manganese deposit.
Beyond addressing ethical responsibilities, McCulloch said calls to resign are intended, in part, to honor the concerns of the co-op membership and hopefully save Crow Wing Power from a potential class action lawsuit in the hundreds of thousands, if not millions.
In addition, McCulloch said he's calling for a forensic audit of Hunt Technologies.
In a statement through company spokeswoman Char Kinzer, Kraemer said he is not aware of what McCulloch's intentions are with regards to calls for resignation.
"Everyone's got an opinion on it," said Thiesse, who noted he's not considering resigning at this time. "We thought what we were doing, what we had to do to help the co-op out with their rates and stuff, but I guess (McCulloch)'s got his own opinion."
"I can't believe it. I'm surprised that Bryan would do that," Martin said. "I didn't know he had those feelings, with me anyway."
Johnson, Kangas and Roggenkamp did not respond to requests for comment.
The big question
In an April letter to the editor, Kangas addressed longstanding concerns that members of the board of directors took undisclosed bonuses or compensation for their work on the sale of Hunt Technologies. As Hunt is a for-profit subsidiary, Crow Wing Power directors exercise oversight via the Hunt Board of Directors, which features the same members as the Crow Wing Power Board.
"Did the Hunt Board directors receive compensation for the extra work? Yes. We were offered $70,000 for the six years of work," Kangas wrote in a letter published by the Dispatch April 24. "The immensity of this endeavor warranted compensation for those who accepted it. Two board members chose not to receive it—Gordon Martin because he felt he was amply compensated and Dwight Thiesse."
In his letter, Kangas said they didn't disclose these payouts sooner because the Hunt buyer required signing a nondisclosure agreement to move forward with the sale.
"I didn't take that $70,000 compensation because I didn't think it was right," Martin said. "I still don't think it was right."
In discussions with the Dispatch, multiple sources not only raised concerns regarding $490,000 doled out to seven directors in 2006, but also separate payouts in the hundreds of thousands to executive staff, particularly Kraemer and then Nelson.
During phone interviews Thursday, board member Paul Koering and McCulloch said they were of the understanding members of the executive staff received bonuses as part of the sale—with estimates ranging from $300,000 to $500,000—though they didn't have first-hand knowledge of the situation. Koering joined the board in 2016, McCulloch in 2012.
"I have asked about it and I have not received an answer yet," Koering said. "It was discussed (Thursday). ... I'm talking with a lot of co-op members and they want to know the answer to this."
As for members on the board at that time, Martin said 2006 was a long time ago and he couldn't recall if executives took extra forms of compensation. Thiesse said it was his understanding they had, though he declined to say how much these executives received.
A source privy to internal co-op business, who declined to be identified, said there's indications executives could have garnered sums in the multi-millions around the time Crow Wing Power sold Hunt Technologies.
McCulloch said Kraemer has been questioned multiple times about his earning as an executive and, as such, it's his expectation Kraemer will have to address those concerns at the annual meeting between 9 a.m. to noon, June 8, at the Crow Wing Power facilities at 17330 N. Highway 371.
Editor's note: In a previous version of this article, it incorrectly stated CEO Bruce Kraemer iterated multiple times that he would divulge his earnings at the June 8 annual meeting. In addition, Breezy Point Council member Gary Bakken was erroneously described as a former lawyer. While Bakken has operated with a funeral trusting state licensed consulting business, he does not practice law. The article has been updated to reflect this. The Dispatch regrets these errors.