The long list of pension and investment funds suing Akron-based FirstEnergy are making common cause with two fired executives who were ousted in the wake of a scheme in which the company paid out more than $60 million in exchange for a billion-dollar nuclear bailout.
They’re demanding the report from an internal investigation FirstEnergy conducted shortly after former Ohio House Speaker Larry Householder and four others were arrested for their roles in the racketeering conspiracy. The plaintiffs in the class action suit are arguing that FirstEnergy’s claim that the report is subject to lawyer-client privilege is bogus — in part because of the way the company has selectively used it.
“…FirstEnergy repeatedly used such information to attempt to exonerate its Board and select employees and thus itself as to any vicarious liability related to such individuals,” the motion says.
The motion the former FirstEnergy executives — CEO Chuck Jones and Vice President Michael Dowling — signed on to asserts that FirstEnergy has selectively released portions of the investigation to throw them under the bus, while protecting others.
“In this litigation, FirstEnergy has drawn from its internal investigation to partially inculpate Jones and Dowling while attempting to partially exculpate itself and others by asserting the purported absence of any evidence against others at the Company,” the motion says.
Separately, the pension and investment funds are also demanding documents and other information from the former FirstEnergy subsidiary that owned the Northern Ohio nuclear plants that were the subject of most of the ratepayer bailout.
Massive bribery — at the expense of Ohio ratepayers
The funds are suing FirstEnergy over losses they say they suffered when the conspiracy came to light in July 2020. Between late 2016 and 2020, FirstEnergy, subsidiary FirstEnergy Services and other utilities funneled more than $61 million through 501(c)(4) dark money groups to fund a sprawling effort to pass and protect the bailout.
Dark money was used in 2018 to elect a slate of Republicans who would vote to make Householder speaker in early 2019. It was used in 2019 to run ads intended to provide “cover” for lawmakers to support the unpopular law. And it was used to fund a nasty, falsehood-filled campaign to defeat a voter-initiated effort to repeal the law.
Householder, a Republican from Glenford, was sentenced late last month to 20 years in prison in U.S. District Court in Cincinnati. One of his co-conspirators, former Ohio Republican Party Chairman Matthew Borges, received five years for his role in the scheme.
When they spoke at the sentencing hearings, federal prosecutors decried the fact that the corrupt bailout law, House Bill 6, is still on the books — and that many uncharged players in the scheme still play roles in and around Ohio government.
In the separate class-action case, plaintiffs are seeking to know what FirstEnergy learned in its internal investigation. The company admitted to its wrongdoing in a deferred prosecution agreement and it paid a $230 million fine.
Pursuant to the investigation, FirstEnergy fired then CEO Jones and then Vice President Dowling. They aren’t part of the class-action suit, but they joined the plaintiffs in demanding to see the report from the investigation.
The filing doesn’t state why the men want to see it. But they’ve been ordered to give sworn depositions in the case even though they and U.S. Magistrate Judge Kimberly Jolson have said they’re clearly objects of federal prosecutors’ ongoing investigation. It seems likely that they want to know what the company has already shared with prosecutors.
It also seems likely that the class-action plaintiffs want to know how pervasively FirstEnergy leaders participated in the bribery scheme.
“FirstEnergy seemingly made no effort to recuse from the investigation several of the very people involved in the actions being investigated, which would be of paramount significance in an investigation for legal purposes,” the motion says. The passage is followed by several redacted paragraphs from the investigation that had unredacted words such as “fired” and “‘separated.’”
The motion adds, “…FirstEnergy repeatedly used such information to attempt to exonerate its Board and select employees and thus itself as to any vicarious liability related to such individuals.”
FirstEnergy declined to comment on ongoing litigation.
The pension and investment funds suing the company are arguing that FirstEnergy can’t hide behind lawyer-client privilege in refusing to release the internal investigation. They said it wasn’t undertaken for a legal purpose and even if it was, the company waived any privilege by selectively releasing parts of it.
To refute that the investigation was undertaken for a legal purpose, the lawyers argued that the real point was to get an independent auditor to sign off on a required disclosure about the scandal that FirstEnergy had to make with the U.S. Securities and Exchange Commission just after arrests were made.
“FirstEnergy’s second financial quarter ended on June 30, 2020, only three weeks before the government unsealed its Criminal Complaint,” their motion said. “This meant FirstEnergy’s first priority was convincing its independent auditor, (PricewaterhouseCoopers LLP), to bless the company’s SEC form 10-Q disclosures surrounding the criminal allegations. This was no mean feat given the circumstances… ”
The investment and pension funds also want more information from the company that became Energy Harbor.
Formerly FirstEnergy Solutions, it was the subsidiary that owned the two nuclear power plants that made up most of the reason that FirstEnergy engaged in the epic conspiracy in the first place. The plan was to prop them up with a billion-dollar bailout, spin the subsidiary off in a bankruptcy proceeding, and then sell it.
The bankruptcy was completed in February 2020 — between the passage of the bailout and before the FBI started arresting people in the conspiracy. The new name of the company was Energy Harbor.
The plaintiffs in the class action suit want the court to order Energy Harbor to produce documents from the five months following the arrests — and they want other documents they say the company is hiding by improper use of attorney-client privilege.
They want the post-arrest documents because Energy Harbor might have conducted an internal investigation similar to the one done by FirstEnergy.
The class-action plaintiffs also want to know about the maneuverings of John Kiani — the activist investor who became president of FirstEnergy Solutions and led it through bankruptcy.
“Testimony at the Householder trial connected Kiani to the (bailout) scandal because he was motivated to pass HB 6 as a profitable exit strategy from his large investment in FES,” the motion said.
Juan Cespedes played a central role in the conspiracy as a lobbyist for FirstEnergy Solutions. He pleaded guilty, cooperated with the prosecution and awaits sentencing.
In February, Cespedes testified that Kiani stood to profit personally from the sale of the reactors to the tune of $100 million. It’s unclear how much Kiani actually made, but in March — while the criminal trial was ongoing — Texas-based Vistra announced that it was acquiring Energy Harbor for $3.43 billion.
According to testimony and other evidence presented in the criminal trial, Kiani was heavily involved in passing and protecting the corrupt bailout.
Energy Harbor might not be a defendant in the class-action suit, but its predecessor provided “$43 million in furtherance of the admitted-to bribery scheme,” the motion said. “Energy Harbor is far from an ordinary third party.”
It added that because the company’s lawyers helped draft the corrupt HB 6, they were involved in a crime and the company can’t hide communications relating to it behind lawyer-client privilege.
The principle is known as the “crime-fraud exception.” Special Counsel Jack Smith has been able to obtain the notes of one of the lawyers to former President Donald Trump under the same exception in the classified documents case.
According to testimony and other evidence in the Householder case, Kiani and FirstEnergy executives pushed hard for the bailout law to pay more money over a longer term to prop up the failing nuclear plants than originally proposed.
“The draft energy legislation memoranda shows (FirstEnergy Solutions) used its lawyers to assist it in ghostwriting HB 6 provisions to benefit FES,” the motion said. “Because FES had illegally gained front-seat access to the drafting process through its support of Householder’s criminal enterprise, FES sought the lawyers’ edits to advise on advantageous HB 6 provisions to reap the fruits of its illegal conduct. The crime-fraud exception thus applies to communications concerning relevant 501(c)(4) (dark money) donations and draft energy legislation, such as HB 6.”
The plaintiffs’ motion points to another case involving bribery and another author of HB 6 — the corrupt bailout legislation.
FirstEnergy paid what it later admitted was a $4.3 million bribe to Sam Randazzo just as Gov. Mike DeWine was appointing him chairman of the Public Utilities Commission. Even though he was supposed to regulate FirstEnergy, Randazzo and a very recent employee of the commission helped to draft versions of the corrupt bailout law.
While they did, they avoided leaving electronic fingerprints. The former PUCO employee, Pat Tully, shuttled printed copies to and from Cespedes, the lobbyist who was working for First Energy Solutions, the company that was also helping draft the mammoth bailout from which it would receive the lion’s share of the benefit.
FirstEnergy Solutions didn’t only participate in drafting the corrupt legislation, its officials were present with FirstEnergy executives in a meeting with Randazzo shortly before FirstEnergy paid the soon-to-be regulator his bribe, the motion said.
FirstEnergy Solutions “participated in a December 2018 meeting with Randazzo just before FirstEnergy paid him a $4.3 million bribe on or about January 2, 2019 to purchase his official action as the soon-to-be-nominated Public Utilities Commission of Ohio Chair,” it said.
This story was republished from the Ohio Capital Journal under a Creative Commons license.