Criminal charges may become a factor as the Pike County Fiscal Court continues to seek full repayment of a $400,000 loan a previous administration made to the principals of a company whose promised natural gas to liquid fuel plant never materialized.
On Feb. 5, Pike Commonwealth’s Attorney Bill Slone confirmed to the News-Express that his office, along with Kentucky State Police, have launched an investigation into the circumstances involved in RCC Big Shoal’s failure to repay the loan from the county.
Slone said he has been aware of the case for some time, but as information has arisen recently, he began to feel as though an investigation is warranted. Slone said his office has begun an investigation along with the KSP Special Investigations Branch, which has assigned a detective to assist.
“I feel like the circumstances merit further investigation,” he said. “I believe I will most likely present what we find through our investigation to the grand jury.”
That, Slone said, could occur as soon as April or May.
While the criminal charges could ultimately result in jail time if those charged are found guilty, Slone said his goal is the same as that of Pike County Judge-Executive Ray Jones and the current Pike County Fiscal Court.
“My goal is to get the county’s money back,” he said.
RCC Big Shoal principals David Farmer and Bill Johnson were able to obtain a $400,000 loan from the administration of former Pike County Judge-Executive Wayne T. Rutherford with promises of building a natural gas-to-fuel plant in the Big Shoal area of Pike County.
The project never materialized and the majority of the loan remains unpaid.
The Pike County Fiscal Court, represented by Jones and now-County Attorney Kevin Keene, filed a lawsuit in Pike Circuit Court against the company and won a judgment against RCC Big Shoal. However, a move of the case to federal court was accompanied by a change in tactic by the county’s legal representation, to instead go after Farmer and Johnson individually.
Jones said his administration is committed to recovering the county’s money.
“It’s my responsibility as county judge to do everything in my power to make sure that all legal avenues are pursued to recover monies that belong to the taxpayers of Pike County,” he said. “We are continuing to pursue these individuals to the extent allowed by law.”
Deposition reveals company has no assets, no bank account, but company’s principals have benefitted from investments
Late last month, RCC Big Shoal President and CEO David L. Farmer appeared via videoconference from his residence in Orange County, California, for a deposition in the Pike County Fiscal Court’s ongoing lawsuit.
In the deposition, Farmer spoke on the status of the company, maintaining that the project, currently slated to be built in Floyd County, is on target, but also confirming that the company is also without funding and doesn’t even currently have a bank account.
Under questioning from Jones, who is representing the county in the lawsuit, Farmer also confirmed that, of the nearly $2.2 million in capital the company raised beginning in 2014, a vast majority has gone toward salaries and expenses for Farmer and the company’s other employee and investor William Johnson, including rent paid to them for their home offices.
Farmer and Johnson, Farmer agreed during the deposition, have taken approximately $1.3 million out of the company’s account.
In 2014, Farmer said, the company paid $62,500 to Johnson and Farmer for rent for their in-home offices, in addition to $193,750 in salaries and $149,532 in deferred salaries (loans), as well as $10,709 for meals and entertainment.
In addition, the records show, the company spent $75,862 on travel and lodging in 2014.
The following year, the records show, the company took in $519,331. Jones pointed out during the deposition that, out of that, $357,000 went directly to Farmer and Johnson. In 2016, Jones pointed out, the company brought in $302,031 and $223,000 went to Farmer and Johnson for salaries, loans, rent and other costs.
In 2017, Farmer confirmed, out of $337,884 of money flowing into the company, approximately $320,712 was paid to Farmer through those same line items — salary, loans, rent and other items.
In 2018, the records show, the company brought in $466,928 and almost $280,000 went to salaries and expenses for Farmer and Johnson.
Farmer said that the expenses are not “unusual.”
“These expense are not unusual at all for two people involved in business development,” Farmer said to Jones. “I’m not sure why you think they’re so exorbitant.”
The salaries, he said, were researched and are standard in the type of business in which RCC Big Shoal is involved.
“I’m not sure what you consider standard, but $100,000 in salary is not very much to live on these days,” he said.
Jones also questioned the rent and travel expenses Farmer and Johnson incurred.
Farmer said the spending on travel was far less than what he has spent in previous jobs and that the travel was necessary to deal with vendors and suppliers, as well as to receive training.
“We did quite an extensive amount of traveling in the first two years to get the project developed,” he said. “That’s the nature of development. If you don’t meet with people, you can’t do due diligence on what they can provide to meet your needs.”
The rent issue was heavily questioned by Jones.
“So basically, you’re taking money that these investors put in to pay your living expenses?” Jones asked Farmer, responded that the rate he and Johnson are receiving is what is allowable under the law.
Farmer said during the deposition that tax documents were prepared for the parent company, RCL Chemical Conversion, for the 2014, 2015 and 2016 tax years, but the documents were not filed.
“(The accounting firm) advised us to file them,” Farmer said. “We didn’t finish the drafts.”
Farmer said the company did not have the money to pay the accounting firm and so the tax documents were not taken beyond draft form. Farmer said the company was under the impression that because of the classification of the millions of dollars it had received, it would not owe taxes, but that it would be responsible for penalties for late filing if it did not do so.
The company also, Farmer said, has closed out its bank account and has no assets.
Farmer responded that RCC Big Shoal’s assets are limited to documents, agreements with suppliers and vendors, the intellectual property and the know-how to put this kind of project together.
“We have no physical assets,” he said.
CEO says company continues to work to establish project, intends to pay Pike County back
Farmer said the company has not stopped trying to raise capital for the business, but that COVID-19 has been a hindrance in the last year.
“There was certainly a retraction in global economies,” he said. “Investors kind of pulled their money in close to their vests … that seems to be turning around now.”
The Pike County litigation, he said, also represented an impediment in talks with potential funders before COVID-19 hit.
“Before (COVID), frankly, it was Pike County’s litigation that slowed us down, because we couldn’t raise money when we were in the middle of a lawsuit,” he said. “Even though we tried as much and as hard as we could to negotiate fairly with Pike County, they wouldn’t entertain it.”
Farmer said the intention has always been to pay Pike County back its money and that the company has commitments for $300 million in financing.
“I think our prospects are good,” he said. “We’ve pretty well got the project financed, we’ve just got to get this last bit of budget raised.”
In 2016, when the project’s move to Floyd County was confirmed, RCC Big Shoal announced that a new funder — a company called Y2XI — had committed to fully funding the project.
During the deposition, Farmer said that funding fell through.
“At the end of the day, they misrepresented their available funds to us,” Farmer said. “And they canceled their binding agreement and the monies that they had put into our company we converted into a debt instrument.”
Currently, Farmer said during the deposition, the company has only spent approximately $6,000 for engineering work, but the next phase of the project includes the bulk of the engineering.
Pike County, he said, will be paid back for its investment.
“We owe you the amount as per the original agreement, and the interest accrued and we’ll pay you as soon as we can, as soon as was intended by the original contract,” Farmer said.