By Michael Donoghue, Vermont News First

The Vermont State Police has opened an investigation into the possible unapproved transfer of taxpayer funds from the Town of Woodstock to the Village of Woodstock to help pay for legal fees surrounding the demotion of former Police Chief Joe Swanson, the Vermont Standard has learned.

“The Vermont State Police can confirm an investigation is underway regarding an allegation of possible financial improprieties involving the Village of Woodstock,” said Adam Silverman, chief spokesman for the VSP.

“The complaint initially was made to the Woodstock Police Department, which consulted with the Windsor County State’s Attorney’s Office due to a potential conflict of interest. The complaint then was referred to VSP’s Bureau of Criminal Investigations, which is standard protocol,” Silverman told the Vermont Standard on Tuesday afternoon.

Interim Village Police Chief Chris O’Keeffe confirmed that his department received two independent complaints a few days apart from local residents concerning financial issues.

Among the people who could be potential witnesses are Municipal Manager Eric Duffy and the Village Trustees, who both have oversight of the Woodstock Police Department. Also, selectboard members for the town could be interviewed about the transfer of their municipal funds to the village.

Attempts by the Vermont Standard to reach Duffy for a public comment were unsuccessful.

Duffy reportedly was on vacation this week, and chief of staff Stephanie Appelfeller and Fire Chief David Green were assigned to field calls for the manager. Both were asked for a comment by the Vermont Standard, but neither responded during the week.

O’Keeffe said the taxpayer complaints were nothing he would or could investigate if his own boss was involved.

The complaints apparently were not easily detected by residents and the media reviewing the public daily activity log issued by the Woodstock Police.

O’Keeffe said he believes the complaints were listed under the category of “assists.”

That vague term — “assists” — on police logs remains the catch-all category used by many Vermont law enforcement agencies to avoid public detection of major incidents and crimes in their communities.

The selectboard and Duffy are expected to continue discussion about the legal costs during a public meeting at 6 p.m. Monday.

The board agreed at its July 7 meeting that the village administration would provide the board by Sunday the financial reports concerning the legal costs. The selectboard said it had a firm expectation that no extension would be entertained, according to the meeting minutes.

O’Keeffe said he was in touch with the chief of the criminal division at the Vermont Attorney General’s Office and was encouraged to get the Vermont State Police involved to avoid any possible claims of a conflict of interest.

Attorney General Charity Clark did not respond to phone calls, texts, or email messages from the Vermont Standard this week.

Silverman said upon receiving the referral, “Vermont State Police assigned detectives and initiated an investigation to determine whether any wrongdoing or misconduct had taken place.”

He said the state police “formally opened the investigation on July 10, and it remains active and ongoing.”

Silverman said the inquiry is in the earliest stages.

He said he was unaware of any state prosecutor that has been assigned to work with Vermont State Police on the investigation.

“Given the ongoing nature of this investigation, VSP is unable to share further details,” Silverman told the Vermont Standard.

At issue, partly, is the multiple stories the public has been told by Woodstock officials about the transfer of funds.

According to the complaint, Woodstock officials have provided up to at least six stories about the town funds being used to pay for the defense in the Swanson case. Swanson claims his demotion to patrol officer was illegal, breached his police contract, and caused severe damage to his reputation.

Summary of Evolving Stories:

Story 1 – No portion is taxpayer money (7/8/25)

Story 2 – Never said it was not taxpayer money (7/30/25).

Story 3 – The appropriation of taxpayer money was discussed at a public meeting and said to be authorized by a board chair (5/28/26)

Story 4 – The appropriation of money was not discussed at a public meeting but rather in executive session (Vermont Standard newspaper article 6/04/26).

Story 5 – The appropriation was discussed between the chairs of both boards (said by Trustees chair Lisa Lawlor on 6/22/26).

Story 6 – Story 5 is not proven (said by town Selectboard chair Susan Ford on 6/22/26 to contradict Lawlor).

At issue is whether money was misappropriated without a legal basis so the reserves would not look drained in the village’s financial health picture.

Ford, the current chair of the town selectboard, acknowledged at a recent meeting that the request for a specific transfer of funds from the town to the village was never discussed in a public meeting.

Instead, Duffy, the municipal manager, approached only two members — not a quorum for a public meeting — and mentioned the need for the money, Ford said.

She said there was some discussion behind closed doors with the full selectboard, but there were no votes taken, but there appeared to be some consensus that the town should throw in some money toward the lawsuit.

Ford said the selectboard was recently asked to explain in public the spending of municipal funds on a personnel issue for 2024-25. She said the total amount on just one personnel issue was $102,236.26 and it remains pending in superior court.

“Of that, $75,072.89 was paid from municipal funds rather than solely from village funds,” she said.

“On reflection, given the extraordinary circumstances surrounding this expense, the decision should have been voted upon in an open meeting, since it was not part of the budget approved at Town Meeting,” Ford told residents at the meeting.

“I can assure you, this was not because anyone wanted to hide this from voters. This happened during the time Woodstock was trying to buy the water company…” Ford said.

Woodstock is also getting some financial help with legal expenses from the Vermont League of Cities and Towns, which insures the municipality.

Besides appealing his demotion, Swanson also initially filed a $5 million civil lawsuit in April 2025 against Duffy, the village, the town, the village trustees and town selectboard, and a private detective agency Duffy hired to conduct a background check on the police chief. The lawsuit came after the Village Trustees supported Duffy’s effort to demote Swanson, but a state judge ruled the Village Trustees failed to follow Vermont law.

Swanson’s lawyer, Linda Fraas, said she expected to double the amount when Judge H. Dickson Corbett sided with Swanson. Duffy opted to try a second time to demote the chief, and the trustees voted to uphold it after a second hearing. Now a second judge is reviewing Swanson’s appeal.

Judge Corbett, who has since died, had cleared four of the five village trustees in the civil suit, but left Duffy and then trustee chair E. Seton McIlroy among the named defendants due to their conduct. The judge also agreed with Swanson’s request to add Interim Police Chief O’Keeffe for his part in the demotion effort.

The town of Woodstock remains a defendant even though it has no control over the village police department. It does have partial control over Duffy, who serves as manager for both the town and village.

Ford recently told the Vermont Standard, “To the best of my recollection, the municipal manager approached the chair and vice chair of the selectboard when I was vice chair. The notion that, for the reasons in my statement, the municipality as a whole should pay some of the legal fees was discussed.

“This was later discussed with the chair and vice chair of the village trustees. I believe it was also discussed in executive session with the entire selectboard. As I stated, there were no votes in the public, and we don’t vote in executive session. There was a consensus that the municipality should pay some of the legal fees, but no amount was discussed,” Ford said.

She added, “Also, as previously stated, we should have voted in an open meeting, which we did not, for which I apologized Thursday night.”

Ford also said that since this discussion occurred during a closed-door session, no minutes of the meeting were kept of the conversation.