The Oregon Department of Justice (DOJ) has filed a civil complaint against officials in Morrow County, saying they used inside information to buy a fiber-optic business from a local nonprofit at a low price, capitalizing on Amazon’s growing data center business to enrich themselves.
Filed July 15, the complaint alleges that a small cadre of “insiders” abused their relationships to Inland Development Corporation, a nonprofit whose mission was to expand fiber-optic internet access in underserved public institutions, including rural schools, hospitals, courthouses, and libraries in eastern Oregon.
Five of the defendants purchased Inland’s for-profit subsidiary, a fiber-optic provider called Windwave Communications, at a “sharply undervalued price,” the state DOJ claims.
Defendants allegedly relied on “confidential, non-public information” and “deliberately withheld financial information about lucrative new business opportunities with Amazon Web Services to manufacture an artificially low valuation for Windwave,” according to the complaint.
In 2018, the insiders purchased Windwave from Inland for $2.6 million when it was worth at least $9.5 million, the complaint says.
While serving on the board or other roles with Inland, Windwave, or both, “defendants organized, advocated for, planned for, aided, contributed to, and otherwise advanced the sale of Windwave to themselves.”
“This nonprofit was created to connect eastern Oregon communities—not to quietly enrich a handful of officials behind closed doors,” Attorney General Dan Rayfield said in a statement to media.
The complaint names eight people, including two port commissioners, the Port of Morrow’s general manager, a Morrow County commissioner, and a state legislator.
The Scheme
Established as a nonprofit in 2004, Inland formed Windwave the same year to provide broadband services, installing and maintaining the fiber-optic network in Morrow County, with its population of 12,000.
As large data centers, including those built by Amazon, began locating in northeastern Oregon between 2011 and 2017, Windwave’s value grew rapidly.
The defendants were allegedly aware that Windwave’s revenues were surging and that the company was entering a “new period of unprecedented profitability” because “its single largest customer intended to build numerous large scale data centers in northeastern Oregon,” according to the state DOJ.
As general manager of the Port of Morrow, defendant Gary Neal was directly involved in Amazon’s plans to acquire land for multiple new data centers that would further boost Windwave’s value, according to the complaint.
According to an email included in the state DOJ’s complaint, defendants Marvin Padberg and Jerry Healy attended Port of Morrow closed executive sessions where Neal disclosed his non-public communications with Amazon representatives relating to those plans.
In the email dated March 28, 2018, sent exclusively to his fellow defendants, Healy wrote that the “delay [of the insider’s purchase of Windwave] over the last year has already cost us 2017 net profits of $1,500,000 …”
“These were people in power who knew that Windwave was about to explode in value—and instead of protecting the public’s interest, they cashed in,” AG Rayfield charged.
When assigning a value to Windwave, the defendants cherry picked the data, the state DOJ alleges.
Even though they had access to up-to-date financial information, the defendants allegedly gave an outside valuation firm outdated data that excluded key details that showed Windwave was thriving.
They used that information to justify their purchase of Windwave in 2018 for just $2.6 million, though internal communication shows that defendants allegedly knew the company was worth much more.
In addition, the complaint alleges that defendants negotiated contractual terms to “place Inland in a position of vulnerability and contemplated using that position to extract loan terms that were favorable to them while potentially harming Inland’s charitable mission and the public.”
Just one year after the sale, Windwave nearly doubled the annual price of its services to Inland, from $200,000 to $350,000 per year, according to the complaint.
Seeking Damages
The Oregon DOJ is seeking damages of at least $6.9 million, or, alternatively, for the sale of Windwave to be voided. It also seeks an injunction and other remedies to ensure accountability for nonprofit resources.
“The insider sale of Windwave not only diverted public value into private hands but potentially undermined the long-term availability of affordable broadband for these essential services,” the state DOJ contends.
Defendants Padberg, Healy, and Neal, as well as Morrow County Commissioner Don Russell have all now left their offices.
The complaint also names Windwave CEO Blake Lawrence, who shares ownership of the business with the four former public officials, and Rep. Greg Smith (R-District 57), who represents Morrow County in the state Legislature.
Attorneys for the defendants didn’t immediately respond to calls seeking comment.
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