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Company president charged with deception in Elk River chemical spill

Posted at 12:54 PM, Dec 10, 2014
and last updated 2014-12-10 12:54:04-05

Freedom Industries

For West Virginians getting their drinking water from the Elk River, the pungent aftertaste from a chemical spill in January has lingered in the legal system, with more than 60 lawsuits filed.

On Monday, the FBI added a criminal case against the former president of Freedom Industries, Inc., the company whose storage tank leaked more than 7,000 gallons of a black licorice-scented chemical used to clean coal. Representatives of the company were not immediately available for comment.

Gary Southern lied to dodge responsibility for the spill, according to the criminal complaint filed in a West Virginia federal court.

Southern, who was arrested on Monday after the filing, was released on bond and can only travel between West Virginia and Florida, where he has homes.

Complaint: False impression

Southern lied under oath, saying he had just taken on leadership responsibilities at Freedom only days before the spill, FBI Special Agent James Lafferty wrote in the complaint.

He wanted to leave an impression that — because of that — he could hardly be held responsible, the complaint said.

In reality, Southern had been a leading executive at the company since 2009, when he became chief operating officer, Lafferty wrote.

Then there was the matter of the former president’s paycheck.

In a bankruptcy filing on behalf of the company, Southern made an application to further collect his check using the same justification — he had not been in charge long, when the tank containing 4-methylcyclohexane methanol (MCHM) sprung a leak.

He later withdrew the application to keep collecting the check, according to the complaint.

Complaint: Deception worked

But the alleged deception worked, the FBI agent wrote. A committee for creditors swallowed the line, saying it believed Southern had been involved with Freedom for just a short time.

“…Southern’s goal in making the false and/or deceptive statement is to protect his assets from legal judgments that may result from lawsuits…,” the complaint said.

Southern faces charges of lying under oath, bankruptcy fraud, and also wire fraud for transferring much of his wealth out of his bank account.

Southern, who is also the target of two lawsuits, has $7.7 million in assets, the complaint said, and he moved $6.5 million from his Wells Fargo bank account into an annuity account with Jackson National Life Insurance Company, Inc.

Nausea, headaches, rashes

The chemical was discovered leaking on January 9 into the Elk River, which supplies the city of Charleston with water. A do-not-use order was issued to 300,000 residents, some of whom could not drink or bathe in their water for more than a week.

MCHM is not directly lethal but can cause nausea, vomiting, dizziness, headaches, diarrhea and skin rashes.

A month after the spill, tap water tests in 10 homes detected MCHM still in the water supply, albeit at levels within the state’s legal limit.

Freedom Industries, Inc., in a settlement reached with plaintiffs, agreed to transfer $2.9 million into a trust fund to be used for “the greater good.”