A two-year investigation by the FBI into activities and finances of the Connecticut Municipal Electric Energy Cooperative, centered around lavish trips to the Kentucky Derby, culminated Thursday with the indictment of five CMEEC officials.

The indictments unsealed Thursday in U.S. District Court in New Haven charge Drew Rankin, 57, chief executive officer of CMEEC; James Sullivan, 52, the former Norwich representative to CMEEC and former chairman of its board of directors; John Bilda, 54, Norwich Public Utilities general manager, former vice chairman of the CMEEC board of directors and a current member of the CMEEC board; Edward DeMuzzio, 77, former Groton Utilities representative and the secretary of the CMEEC board; and Edward Pryor, 62, chief financial officer of CMEEC.

They are charged with conspiracy, theft from a program receiving federal funds and aiding and abetting the theft from a program receiving federal funds. All five of them appeared Thursday afternoon before U.S. Magistrate Judge Robert Spector and pleaded not guilty. Each was released on $100,000 bonds with travel restrictions. Their next court date is Jan. 7 in New Haven.

For each conspiracy count, the defendants face penalties including a possible maximum prison sentence of five years and fines totaling $250,000. For each count of alleged theft from a program that receives federal funds, the defendants face a possible maximum prison sentence of 10 years and fines of $250,000.

CMEEC is owned by six municipal utilities in Connecticut: NPU, Groton Utilities, Bozrah Light & Power, Jewett City Department of Public Utilities, and two utilities in Norwalk.

The judge ordered travel restrictions on all five defendants but will allow Rankin to attend a pre-planned trip to New Zealand and Australia from Nov. 17 to Dec. 7. Judge Spector also ordered that the five defendants have no contact with witnesses or victims, except in connection with their employment and that they not discuss the substance of the cases in those contacts.

Grace Jones, chairwoman of the Norwich Board of Public Utilities Commissioners, said she spoke to Bilda by phone Thursday afternoon after he left the New Haven courthouse. Jones said she will call a special commission meeting next week to discuss the indictments in executive session.

"Now that we have it before us, we need to take the time to review it," Jones said. "We’ve known about their cooperating with the FBI for the past two years."

Jones also is a member of the CMEEC board of directors and said that board held an emergency meeting Thursday morning to discuss “the notice of the indictments,” since the indictments had not yet been released. She said the board took no action following the meeting.

CMEEC board Chairman Kenneth Sullivan could not be reached for comment Thursday evening.

Rankin and Sullivan faced a second indictment with similar charges and a court date of Jan. 8 in Bridgeport federal court.

Rankin and Sullivan, a lobbyist, were charged in the second indictment with using CMEEC funds for Sullivan's personal expenses and travel to and from Washington, D.C., to CMEEC meetings in Connecticut, to the Kentucky Derby and to The Greenbrier, a luxury golf resort in West Virginia.

The indictment listed five pages enumerating 86 separate expense requests Sullivan submitted to CMEEC from January 2012 through August 2015 in travel and related expenses totaling $96,515.

The indictment stated that Sullivan's personal expenses were paid using CMEEC funds without approval by the board of directors and falsely were attributed to "lobbying expenses," although Sullivan was not a registered lobbyist for CMEEC.

Sullivan resigned from the CMEEC board and from his position as Norwich utilities commission chairman in October 2015, weeks after he was accused in an unrelated sexual harassment complaint.

Sullivan is married to California U.S. Rep. Linda Sanchez, and was allowed travel to Washington, D.C., and to California for work and family.

Sanchez, who was re-elected Tuesday, issued a statement Thursday stating she would withdraw from her bid to be Democratic Caucus chairwoman in the wake of her husband's indictment.

"Earlier today, I learned that my husband is facing charges in Connecticut," she said in a statement. "After careful consideration of the time and energy being in leadership demands, I have decided that my focus now needs to be on my son, my family, and my constituents in California."

According to the indictments, CMEEC received more than $9 million in federal funds from the U.S. Department of Energy from 2010 to 2015 and each cooperative member town also received federal grants and other assistance, including hundreds of thousands of dollars to Groton and Norwich by the U.S. Department of Housing and Urban Development and from the U.S. Defense Department between 2014 and 2016.

The first indictment naming all five defendants charged each with four separate counts, one each for conspiracy and three each for theft from a program that received federal funds. The indictment alleges that the five officials conspired to "conduct the business and affairs of CMEEC for their personal, pecuniary and financial benefit, and for the personal, pecuniary and financial benefit of their family members, friends and associates."

The FBI launched its investigation on Oct. 28, 2016, after news reports detailed controversial trips to the Kentucky Derby hosted by CMEEC from 2013 through 2016 for dozens of CMEEC top staff, board members, their families, public officials and guests.

Initial subpoenas were delivered to CMEEC, its member utilities and host town municipal offices, including Norwich Public Utilities, Groton Utilities, Bozrah Light & Power, Jewett City Department of Public Utilities and Norwich City Hall. Subpoenas sought financial information and details of the Kentucky Derby trips.

The trips collectively cost $1.02 million, according to summaries of the itineraries and attendee lists provided by CMEEC to The Day through Freedom of Information Act requests. But the indictment alleged that in response to those FOI requests, Rankin omitted names of some participants in the Kentucky Derby and golf resort trips — including names of Bilda's parents who attended in 2016 — and underreported the costs of the trips "by tens of thousands of dollars."

CMEEC used revenues in a so-called Margin Fund of accumulated profits from utilities and management services contracts with several outside entities. Revenue in the fund is intended to be distributed among the six CMEEC owner utilities as electric rate stabilization revenue.

The indictments allege that Rankin and Bilda falsely told utility, municipal leaders and the media that no ratepayer or taxpayer money was used to fund the trips, which were categorized as CMEEC board retreats.

The indictment stated that the trips "did not relate to CMEEC business, CMEEC member towns and furnishing of efficient, low-cost and reliable electric power to the member towns."

The indictment said CMEEC officials did not seek approval from the board of directors for the trips, did not include the costs as a budgeted item and used money in the Margin Fund without written consent of the member towns or a vote by the board of directors. The use of funds was reported as "board expenses" and "delegation related expenses" in the Margin Fund.

The alleged co-conspirators "encouraged those invited to the trips not to discuss the trips with non-attendees," the indictment states. When the trips became public knowledge, the indictment states, the alleged co-conspirators reportedly made false statements to member towns' officials and to the media about the trips.

"While struggling Connecticut ratepayers wrestled with the highest electric costs in the continental United States, executives at CMEEC used funds intended to stabilize rates to fund extravagant trips for their own amusement," state Sen. Heather Somers, R-Groton, who introduced bills to bring more transparency to CMEEC, said Thursday in a news release. "Even worse, the ringleaders of this behavior worked hard to hide their activities from their members, ratepayers and state officials."

The first of the two indictments sheds light on the alleged scheme with specific references to trip expenses. The document indicates that Rankin purchased 30 trip packages to the 2015 Kentucky Derby, including event tickets, hotel rooms, food and gift bags, in the amount of $206,970. The purchase was not identified as an expense in any budget presented to the CMEEC board of directors.

In January 2015, Pryor directed that a new account be created for the costs of the Kentucky Derby trips to come from the CMEEC Margin Fund, in violation of the CMEEC Membership Agreement, without a vote of the CMEEC board of directors and without the consent of the member towns.

On or about Jan. 26, 2015, Rankin and Pryor received an email from a CMEEC employee stating "Ed asked for a new account needed for a Board Retreat purchase order that will be excluded from the Administrative dashboard." 

On or about Jan. 29, 2015, Rankin approved the expenditure of $54,021 for roundtrip chartered air service from Groton to Louisville for the 2015 Kentucky Derby.

Legal bills paid by CMEEC, NPU and Groton Utilities pertaining to the FBI investigation obtained by The Day through Freedom of Information Act requests — some heavily redacted — described many hours by attorneys reviewing multiple subpoenas, compiling documents in response to FBI requests for information and conference calls among utilities administrators and FBI investigators.

Bilda, who said he was in Florida when he learned of the indictment Wednesday, announced on Oct. 16 he plans to retire as NPU general manager sometime in 2019 once a successor is hired and a transition is completed.

DeMuzzio resigned from his position on the Groton Utilities Commission and the CMEEC board in September 2017 after he and other Groton Utilities Kentucky Derby trip participants were found to be in violation of the Groton City ethics code.

“CMEEC has received millions of dollars in grants from the U.S. Department of Energy,” Connecticut's U.S. Attorney John H. Durham said in a news release. “Instead of protecting these funds and returning excess revenue to member towns and ratepayers, these defendants are alleged to have used the CMEEC Margin Account as a secret slush fund to pay for lavish junkets for themselves and their family and friends, as well as for other inappropriate expenses. The U.S. Attorney’s Office is committed to working with our federal law enforcement partners to safeguard public funds and prosecute those who steal from the public."

c.bessette@theday.com