A long list of pension and investment funds suing Akron-based FirstEnergy is coming to the defense of two fired executives over a scheme in which the company paid more than $60 million in exchange for a $1 billion bailout of a nuclear power plant.
They are seeking a report on an internal investigation that FirstEnergy conducted shortly after the arrests of former Ohio House Speaker Larry Householder and four others for their roles in an extortion conspiracy. The class action plaintiffs say FirstEnergy’s claim that the report is covered by attorney-client privilege is false — in part because of the way the company selectively used it.
“…FirstEnergy has repeatedly used such information to attempt to exonerate its Supervisory Board and selected employees, and thereby itself, from any vicarious liability associated with such individuals,” the motion reads.
The motion, signed by former FirstEnergy executives — CEO Chuck Jones and Vice President Michael Dowling — says FirstEnergy released select parts of the investigation to shift blame to them while protecting others.
“In this proceeding, FirstEnergy relied on its internal investigation to partially incriminate Jones and Dowling, while attempting to partially exonerate itself and others by claiming there was no evidence against anyone else at the Company,” the motion reads.
Separately, pension and investment funds are seeking documents and other information from the former FirstEnergy subsidiary that owned the Northern Ohio nuclear power plants that were the subject of much of the taxpayer bailout.
Massive Bribery — At Ohio Taxpayers’ Expense
The funds are suing FirstEnergy for losses they say they suffered when the conspiracy was uncovered in July 2020. Between slow 2016 and 2020, FirstEnergy, its subsidiary FirstEnergy Solutions, and other utilities funneled more than $61 million through 501(c)(4) obscure money groups to fund a sweeping effort to pass and protect the bailout.
Dark money was used in 2018 to select a slate of Republicans who would vote for House Speaker in early 2019. In 2019, it was used to air ads designed to provide “cover” for lawmakers to support unpopular legislation. And it was used to fund a nasty, deception-ridden campaign to defeat a voter-initiated repeal effort.
Householder, a Republican from Glenford, was sentenced slow last month to 20 years in prison in U.S. District Court in Cincinnati. One of his associates, former Ohio Republican Party Chairman Matthew Borges, was sentenced to five years in prison for his role in the conspiracy.
During sentencing hearings, federal prosecutors decried the fact that The corrupt bailout law, House Bill 6, is still on the books — and many unindicted participants in the scheme continue to play roles in and around Ohio government.
In a separate class action lawsuit, plaintiffs want to know what FirstEnergy found in its internal investigation. The company admitted to committed misdemeanor offenses as part of a deferred prosecution agreement and paid a $230 million fine.
FirstEnergy fired then-CEO Jones and then-VP Dowling, according to the investigation. They are not part of the class action lawsuit but have joined plaintiffs in seeking access to the investigation report.
The records do not say why the men want to see them. However, they were ordered to testify under oath in the case, even though they and U.S. District Judge Kimberly Jolson have said is clearly the subject of an ongoing investigation by federal prosecutorsIt seems likely they want to know what the company has already told prosecutors.
It also seems likely that the class action plaintiffs want to know how widespread the corruption was by FirstEnergy leaders.
“FirstEnergy apparently made no effort to exclude from the investigation several individuals involved in the activities under investigation, which would have been of great significance to the investigation for legal purposes,” the motion says. That passage is followed by several redacted paragraphs from the investigation that included unredacted words such as “dismissed” and “’separated.’”
The motion adds that “FirstEnergy has repeatedly used such information to attempt to clear its Board of Directors and select employees, and thereby itself, of any vicarious liability associated with such individuals.”
FirstEnergy declined to comment on the pending litigation.
Hidden Motives
Pension and investment funds suing the company argue that FirstEnergy cannot hide behind attorney-client privilege by refusing to disclose the internal investigation. They argue that it was not conducted for legal purposes and that even if it was, the company waived privilege by selectively disclosing parts of it.
To rebut claims that the investigation was launched for legal purposes, attorneys argued that the real purpose was to obtain an independent auditor’s signature on a required disclosure statement about the scandal that FirstEnergy was required to disclose to the U.S. Securities and Exchange Commission shortly after the arrests.
“FirstEnergy’s second fiscal quarter ended on June 30, 2020, just three weeks before the government disclosed the criminal complaint,” their filing said. “This meant that FirstEnergy’s first priority was to convince its independent auditor (PricewaterhouseCoopers LLP) to bless the company’s SEC Form 10-Q disclosures regarding the criminal charges. This was no easy task given the circumstances…”
Investment and pension funds also want more information from the company that became Energy Harbor.
Formerly FirstEnergy Solutions, this subsidiary that owned two nuclear power plants was most of the reason FirstEnergy got involved in an epic conspiracy. The plan was to bail them out with a billion-dollar bailout, spin off the subsidiary in bankruptcy proceedings, and then sell it.
The bankruptcy was completed in February 2020—between the passage of the bailout and the FBI beginning to arrest those involved in the conspiracy. The company’s recent name was Energy Harbor.
The class action plaintiffs want the court to order Energy Harbor to release documents dating back five months to the arrests — as well as other documents they say the company is hiding by improperly using attorney-client privilege.
They want records after the arrest because Energy Harbor may have conducted an internal investigation similar to the one FirstEnergy conducted.
The class action plaintiffs also want to know about the actions of John Kiani, an activist investor who became CEO of FirstEnergy Solutions and led the company into bankruptcy.
“Testimony at Householder’s trial linked Kiani to the (bailout) scandal because he was motivated to pass HB 6 as a profitable exit strategy for his large investment in FES,” the motion says.
Juan Cespedes played a key role in the conspiracy as a lobbyist for FirstEnergy Solutions. He has pleaded guilty, cooperated with prosecutors, and is awaiting sentencing.
In February, Cespedes testified that Kiani personally profited from the sale of the reactors to the tune of 100 million dollarsIt’s unclear how much Kiani actually made, but in March — while the criminal trial was ongoing — Texas-based Vistra announced it was acquiring Energy Harbor for $3.43 billion.
Exception to the crime of fraud
Kiani was heavily involved in implementing and protecting the corrupt bailout, according to testimony and other evidence presented in the criminal trial.
Energy Harbor may not be a class action defendant, but its predecessor provided “$43 million in admissions of bribery,” the filing said. “Energy Harbor is far from a mere third party.”
He added that because the company’s lawyers helped draft the corrupt HB 6 bill, they participated in a crime and the company cannot hide related communications behind attorney-client privilege.
This rule is known as the “criminal fraud exception.” Special counsel Jack Smith was able to obtain notes from one of former President Donald Trump’s lawyers based on the same exception regarding secret documents.
According to testimony and other evidence in the case, Householder, Kiani and FirstEnergy executives pushed tough for a bailout bill that would have paid larger amounts of money over a longer period of time to prop up failing nuclear plants than originally proposed.
“The draft energy legal memorandum shows that (FirstEnergy Solutions) used its attorneys to help ghostwrite HB 6 provisions to benefit FES,” the motion reads. “Because FES illegally gained direct access to the drafting process by supporting Householder’s criminal enterprise, FES sought legal advice on the favorable provisions of HB 6 to reap the rewards of its illegal conduct. The criminal fraud exception therefore applies to communications regarding relevant 501(c)(4) donations (dark money) and proposed energy legislation such as HB 6.”
The plaintiff’s motion points to a different case involving bribery and a different author of HB 6, the Business Rescue from Corruption Act.
FirstEnergy paid Sam Randazzo a $4.3 million bribe, it later admitted, just before Gov. Mike DeWine appointed him chairman of the Public Utilities Commission. Although he was supposed to regulate FirstEnergy, Randazzo and a very recent commission employee helped develop a version of the law on saving victims of corruption.
While they were at it, they avoided leaving electronic fingerprints. Former PUCO official Pat Tully carried tough copies to and from Cespedes, a lobbyist who worked for First Energy Solutions, a company that also helped craft the massive bailout package from which it was to receive the lion’s share of the benefits.
Not only did FirstEnergy Solutions participate in drafting the bribery law, its representatives were present along with FirstEnergy executives at a meeting with Randazzo shortly before FirstEnergy paid the prospective regulator a bribe, the filing said.
FirstEnergy Solutions “attended a meeting with Randazzo in December 2018 just before FirstEnergy paid him a $4.3 million bribe, on or about January 2, 2019, to buy his official position as the soon-to-be-nominated chairman of the Public Utilities Commission of Ohio,” the statement said.
