BANGOR, Maine — The parent company of Bangor Gas Co. is facing more accusations of wrongdoing, this time in the form of a lawsuit that accuses its CEO and board of directors of gross mismanagement and insider trading.
The lawsuit, filed Dec. 10 on behalf of a shareholder named Richard Wickham, accuses the board of directors of Mentor, Ohio-based Gas Natural Inc., including CEO Richard Osborne, of “breaches of fiduciary duty and wholesale dereliction of their duties.” In addition, it accuses Osborne and Thomas Smith, Gas Natural’s chief financial officer, of insider trading.
Gas Natural owns Energy West, which is Bangor Gas’ parent company. It is a holding company for regulated utilities that deliver natural gas to approximately 69,000 customers in Kentucky, Maine, Montana, North Carolina, Ohio, Pennsylvania and Wyoming, according to its 2012 annual report.
The lawsuit, filed in U.S. District Court for the northern district of Ohio, cites a report issued last month by the Public Utilities Commission of Ohio that found the company did not have adequate internal controls and, in the case of its dealings with subsidiaries in Ohio, improperly charged customers more for gas than was necessary. The commission’s report concluded with a call for an investigative audit of the company’s operations in Ohio.
Jerry Livengood, general manager of Bangor Gas, told the Bangor Daily News last week that the investigation into Gas Natural will have no impact on its Maine operations.
Regarding the accusation of insider trading, the lawsuit claims Osborn and Smith used knowledge of the forthcoming commission report to sell their shares in the company. On Oct. 31, two weeks before the commission issued its report calling for an investigation into Gas Natural’s business, Osborne and Smith sold off large chunks of their shares in the company, according to the lawsuit. Specifically, Osborne sold 1 million shares (or 71 percent of his shareholdings) and Smith sold more than 50,000 shares (87 percent of his shareholdings) in an underwritten public offering at $10 per share, the lawsuit alleges.
The stock was trading near $10.50 per share in late October. Once the commission’s report was issued and the impending investigation disclosed, the stock dropped in value. On Monday, Gas Natural’s stock opened at $8.05 a share.
In addition to the accusations of insider trading, and building off the commission’s report, the Wickham lawsuit accuses Gas Naturals’ board of being beholden to Osborne and to have “utterly failed in their oversight responsibilities” to ensure the integrity of the company, which as a publicly traded company has an obligation to its shareholders.
“Rather than meet their obligations to ensure that EGAS” — EGAS is Gas Natural’s ticker symbol on the New York Stock Exchange — “operates in compliance with state regulatory requirements, for more than five years, the Board … has caused and/or permitted EGAS to engage in a flagrant scheme for the financial benefit of Defendant Richard Osborne.”
It goes on, “Defendant R. Osborne and his Board have taken every opportunity to unjustly enrich themselves at the expense of the Company and its shareholders, consistently rewarding themselves and further establishing their positions within the Company. The harm to the Company that has and will continue to flow from Defendants’ conduct is significant.”
As in the commission’s report, the lawsuit alleges mismanagement at Gas Natural’s Ohio headquarters and its subsidiaries in that state, but it does not contain any specific mention of wrongdoing at Bangor Gas.
The lawsuit is asking for a jury trial and judgments on a number of specific items related to past board decisions. It also asks for damages and/or restitution from the defendants “in an amount to be proven at trial.”