However, Darrell Smith, general manager with Magnolia Electric Power Association, said the company has actually recovered $5 million of the initial $5.3 million investment with the now defunct Stanford Financial Group. The group has been shut down amid allegations of massive worldwide fraud.
"Back in late 2007-08 this money was invested in a bond account," Smith explained. "It was lying there doing nothing. At that time (the board) decided to invest it where it could take slight advantage of the market."
Smith also explained that this was standard practice among power associations.
Emergency reserve funds are maintained for many years. It allows companies to be eligible for lines of credit, especially in emergency situations like Hurricane Katrina.
"In 20 days we spent $20 million," Smith said of the 2005 disaster. "The power was out and we weren't bringing in revenue. We couldn't possibly maintain a system without a reserve account."
Smith said it is part of his job to recommend to the board where to invest the money, but it is up to each member to do their own research and decide what to do. The board decided to go with Stanford, which came up clean by all accounts, Smith said.
"There was a local agent we knew," Smith said. "That was important to us. We chose to go with a very conservative portfolio."
Of the initial $5.3 million invested, Smith said $5 million has now been moved to separate accounts. A new adviser in Jackson has been sought out and $3 million in mutual funds were moved there, Smith said. He said another $2 million has been moved to a general partner who will manage the funds until they regain some of the market losses.
"We actually have control of $5 million of the original investment," Smith said.
When news of Stanford's downfall was heard, MEPA hired a consultant and a financial attorney.
"We also sought guidance, as we knew we could from the (Mississippi) secretary of state," Smith said. "That office was instrumental in helping us move the $3 million in mutual funds to a new advisor in Jackson."
Smith also expects to collect the remainder of the investment, $300,000, through the Securities Investor Protection Corporation and through the U.S. Securities and Exchange Commission.
"There were gains we were entitled to," Smith said. "But I expect to recoup the original investment."
Smith said he along with the board has learned from this experience.
"We basically have a new investment policy the board has adopted," Smith said. "It is very conservative ... We are going to do the best job we can with who we invest with."
Smith said no one has the ability to look into a company and see any wrongdoings.
He also said that the association's 34, 313 members won't be affected by the recent loss and that members will actually see about $1 million in capital credits returned to them this year. They may also see power rates lowered during the first quarter of 2010 due to the stabilization of natural gas prices, which is used to generate power.
"This Stanford thing has not affected rates at all," Smith added.
Magnolia Electric Power Association serves customers in Lincoln, Lawrence, Franklin, Walthall, Amite and Pike counties in Southwest Mississippi.
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