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Analysis: Bribery scandal shows how Ohio politics is polluted with dark money
After Citizens United U.S. Supreme Court ruling, Ohio lawmakers never put up transparency requirements
Larry Householder speaks after guilty verdict. Photo by: WEWS/WCPO.
CINCINNATI — A utility bailout at the center of a massive bribery and money laundering scandal was such bad legislation — and it was pushed in such bad faith — that it’s hard to see how it could have survived without the more than $60 million in bribes that sustained it.
And, while FirstEnergy CEO Chuck Jones claimed in text messages that the bill was good for “Bob and Betty Buckeye,” he clearly wasn’t eager for Bob or Betty to know that his company was behind it. The mechanism he used to fund the scheme — 501(c)(4) “dark money” groups — don’t have to disclose their donors.
That means that if federal law enforcement hadn’t gotten involved, the public likely would never have learned that FirstEnergy itself paid about 17 cents on the dollar for the billion-dollar ratepayer bailout former House Speaker Larry Householder engineered for the company.
A jury last week convicted Householder — who personally got about $500,000 in benefits — and former Ohio Republican Party Chairman Matt Borges of racketeering in the case. U.S. District Judge Timothy Black is yet to sentence them, but both face maximum prison terms of 20 years.
Jones and some other former FirstEnergy executives have denied wrongdoing and haven’t been charged. After the jury convicted Householder and Borges on Thursday, U.S. Attorney Kenneth L. Parker refused to comment on who, if anybody, might be indicted next in the scandal.
But in July 2020, Parker’s predecessor was quick to identify a big culprit: the scores of millions of utility dollars that ran through 501(c)(4) groups that were created for the sole purpose of hiding the money’s source. That money was then used to fund a sleazy, misleading campaign so that an uncompetitive company could raise rates for customers who had no choice about buying their product.
It was hardly a triumph of the free market.
Something to hide
As he announced the arrests of Householder, Borges, and three others, former U.S. Attorney David DeVillers said “I don’t see how (the conspiracy) could possibly have happened” if not for the misuse of 501(c)(4) dark money groups.
Federal law says such organizations are supposed to be for “social welfare,” but DeVillers didn’t see any such activities.
“Not one dime went to any social program,” he said.
The use of such money has exploded in the wake of the 2010 U.S. Supreme Court decision Citizens United v FEC, which for the first time allowed unlimited direct corporate spending in elections. Bad consequences were immediately predicted at the highest level of government, with former President Barack Obama telling justices to their faces that it “will open the floodgates for special interests — including foreign corporations — to spend without limit in our elections.”
In Ohio, the situation grew so extreme that by 2020 Householder was working with Ohio utilities on a scheme to secretly use their money to keep himself in power for the foreseeable future — and presumably continue to do their bidding.
But there are other culprits for what’s been happening in Ohio and elsewhere, government watchdogs said. Congress and and most state legislatures never passed laws requiring the transparency that most of the justices voting in favor of Citizens United said was vital to fighting corruption.
“We had this opportunity right after Citizens United to create better disclosure, but it didn’t happen,” said Catherine Turcer, executive director of Common Cause Ohio. “So now political insiders are using money that’s hidden from public scrutiny and that’s hurting voters.”
A bill so bad it had to be bought
Instead of promoting social welfare, Ohio’s utility bailout, House Bill 6, did the opposite. In addition to raising electricity bills — including for poor families — many aspects of the legislation and the bad faith behind its passage undoubtedly raised public cynicism about government generally.
And they almost certainly would have killed the bill in any process that was on the level. Consider:
• After the federal bank bailouts of 2008 and 2009, most voters weren’t all that jazzed about paying to rescue big companies with highly paid executives who sit in luxury boxes at sporting events and fly around in corporate jets — two things Householder and FirstEnergy executives did as they hatched the bailout. As legislation, HB 6 was such a stinker that 17 GOP House members voted no on it even though their own, brand-new speaker had made it a top priority. Speakers have great power to move or kill legislation. So those lawmakers were crossing Householder at their peril, but they did it anyway.
• When HB 6 passed, the backlash was immediate and a serious effort to reverse it started right away. As opponents gathered signatures, Householder looked for a loophole. If the subsidies created by the bailout were regarded as a tax, it wouldn’t be subject to a citizen-initiated repeal. Householder pushed a measure retroactively declaring that HB 6 was just that. So the speaker not only pressured colleagues to support a big corporate bailout, he also wanted to officially make it a tax hike. In any normal environment, corporate bailouts and tax increases aren’t issues most Republicans publicly embrace.
• The bill was titled the “Ohio Clean Air Program,” but it was anything but. They were much smaller than the nuclear subsidies the law created, but HB 6 also provided hundreds of millions in coal subsidies benefiting FirstEnergy and AEP and some went to a plant that isn’t even in Ohio. Even before the public learned about all the bribery and skullduggery that went into passing and keeping the law, the news organization Vox called HB 6 “the worst energy bill of the 21st century.”
• Lawmakers who weren’t in on the scam were told the bailout was needed to protect Ohio companies and jobs. But witnesses testifying at the trial said the real plan was to get the subsidies and sell off the nuclear plants. One witness testified that John Kiani, an activist investor who became chairman of the subsidiary that owned the plants, stood to make $100 million off of their post-bailout sale (which was completed by a successor company last week.) The witness, lobbyist Juan Cespedes, was tasked with soothing lawmakers who would be infuriated by an announcement that the plants were being sold so soon after they cast such a tough vote to bail them out. Knowing how damaging the job would be to his reputation, Cespedes demanded that he be paid double the $750,000 he was offered to do it. The FirstEnergy subsidiary readily agreed, Cespedes testified.
• With so many Republicans defecting, Householder and FirstEnergy needed to attract some Democratic votes to pass HB 6. They promised the Dems that even though generation-owning FirstEnergy Services was in bankruptcy, the company would not seek to alter its union contracts in order to cut pay and benefits. Whatever. Within 12 hours of the bill’s passage in July 2020, the company started trying to get the bankruptcy court to modify contracts and provide concessions, Assistant U.S. Attorney Emily Glatfelter said during the trial.
• In Householder’s drive to become speaker, pass HB 6 and protect it from repeal, dark money from Ohio utilities flooded the airwaves and mailboxes with ads unfairly attacking unsuspecting candidates and falsely claiming that the repeal effort was really a Chinese attempt to take over the Ohio power grid. In a mind-bending piece of dishonesty, Householder’s dark money group even funded an ad against his primary opponent attacking him for accepting “dirty” dark money. On the witness stand, Householder claimed that he didn’t know much about dark money. But prosecutors played a wiretap recording of Householder and Neil Clark — a co-defendant who died by suicide after his arrest — cynically joking about the ad.
A machine that ran people over
The scope of the political operation run by Householder and funded by FirstEnergy was breathtaking. According to testimony at the trial, once you became a member of “Team Householder” as a candidate for the Ohio House, there wasn’t much to do — except to vote to make Householder speaker and support bills that he declared to be priorities.
Former aides and a man who auditioned for the team said that Householder’s machine would fundraise, knock on doors, produce direct-mail, radio and TV ads, and then pay to circulate or broadcast them. It was a one-stop shop, so long as you were on Team Householder.
Some of the dark-money funded ads bordered on the libelous.
In the 2018 General Election, one attacked Montgomery County Commissioner and Democratic House candidate Dan Foley as “just another corrupt politician.” The ad was riffing off of a traffic stop in which Foley took a field sobriety test and was given a speeding ticket. It closed by saying “We can’t trust Drunk Dan Foley.”
Even though Foley was never charged — much less convicted — of drunken driving, a Householder aide spitballed ideas for the ad, calling him “DUI Dan Foley,” “Dan DUI Foley,” and “Drunk driving Dan Foley,” according to emails presented at the trial.
On the witness stand, Beth Ellis, a member of a Clinton County farm family, described what it was like to be on the other side of Team Householder. In addition to its other ills, her story illustrates how the use of non-transparent corporate money can drive average people from participating in politics altogether.
Ellis was a member of local boards and commissions and she founded a charity for veterans with post-traumatic stress disorder. She testified that she decided to run in the 2018 Republican Primary because she wanted to work on those issues in the Ohio House.
Ellis said she knew little about Capitol Square politics and, when robocalls and radio ads started attacking her as a “Columbus insider,” she knew even less about who might be behind them. Thanks to the federal criminal investigation, we now know that they were funded by the Householder operation with FirstEnergy money to help elect Shane Wilkin of Hillsboro, who is now serving in the Ohio Senate.
When Ellis’ son got off the school bus one day and found an attack against her in the mailbox, she searched in vain to see just who was attacking her.
“I didn’t know who it was from,” Ellis testified. “It was an organization I didn’t recognize. I tried to Google it and I couldn’t find anything about it.”
The bullying continued into the trial. One of Householder’s attorneys, Mark Marein, loudly demanded why Ellis wanted to come to court and say such terrible things about his client.
She responded that she was there because of a subpoena, adding that she would rather be anywhere but there.
Ellis might have offered something as a citizen legislator. But after her experience, she sounded as if she’ll never go anywhere near Ohio legislative politics again.
“Honestly, I want to forget about the whole thing,” she testified.
A sure thing
Through phone wiretaps and surreptitious recordings of meetings, investigators had hours of tough-guy diatribes by Clark, the long-time Capitol Square lobbyist who described himself as Householder’s “proxy” in the bailout affair.
During a September 2019 dinner at which Householder and two undercover FBI agents were present, Clark explained what the explosion of post-Citizens United 501(c)(4) dark money meant for Ohio politics.
“Now there’s C4s,” Clark said. “Now they’re never going to find out” who ultimately contributes hordes of money to politics.
Clark also explained that the flood of dark money stripped away the already-thin veneer that big contributors are only interested in the public good.
“Instead of going to Key West for fundraisers, let’s call what it is — pay to play,” Clark said in a seeming acknowledgment that the contributions would be deemed illegal if they were ever exposed.
At other points, Clark also acknowledged an obvious corollary: In a political system awash in secret corporate contributions, huge businesses like FirstEnergy are unbeatable.
And, because the government controls how much utilities’ regulated monopolies can charge, it stands to reason that they would have a huge incentive to flood the zone with dark money. That would allow them to buy measures such as HB 6 that directly benefit their bottom lines, stock prices and executives’ compensation.
An irresistible force for years to come
FirstEnergy’s executives seemed eager to lock in such a capability.
After House Bill 6 was passed and the repeal effort was defeated, Householder started making plans that could conceivably allow him to remain speaker until 2037. Under Ohio’s current term limits, lawmakers can only serve in the House or the Senate for eight consecutive years, prompting some to bounce between chambers because they want to keep serving.
But Householder wanted to put an amendment on the ballot that would limit lifetime service in the legislature to 16 years. That might sound good to those who don’t like decades of legislative tenure in a state that has ostensible term limits.
But crucially, Householder’s measure would reset the clock for everybody. That would mean that he and his colleagues could stay just where they were for another 16 years, provided they could keep getting elected, presumably with the help of undisclosed corporate contributions.
The speaker set up another 501(c)(4) dark money group and — as he had done so often — dunned FirstEnergy to contribute. That prompted Jones, the company CEO, to call Householder “an expensive friend.”
But that doesn’t mean the company didn’t like the idea.
In a February 29, 2020 text conversation with other FirstEnergy officials, Vice President Michael Dowling was asked what he thought about the speaker’s term-limit initiative.
“Never thought about it until speaker called Chuck (Jones) about it,” Dowling responded. “Speaker likes it. Wants our $ support.”
Then Dowling affirmed that while Householder might be an expensive friend, FirstEnergy believed that he was well worth the cost to keep in power.
“What we do like is consistency in current leadership,” Dowling wrote.
Other witnesses said that another huge Ohio utility, AEP, reacted favorably to Householder’s request for financial support of his term limits proposal. Such support might have kept the dynamics that allowed the corrupt utility bailout to stay in place well into the future.
Lifting the veil
In the wake of the 2010 Citizens United decision overturning the ban of direct, unlimited corporate spending on campaigns, such spending exploded. But in their decision, the majority of justices said that forcing disclosure of the sources of political money was crucial.
Justice Anthony Kennedy wrote that such transparency would allow the public to “see whether elected officials are ‘in the pocket’ of so-called moneyed interests.” The exact opposite of what happened with HB 6, in other words.
Laws doing what the court admonished have been slow in coming.
“We’re getting ripped off because we can’t follow the money,” Turcer of Common Cause Ohio said of the 13 years since the ruling.
In the wake of last week’s guilty verdicts, Reps. Bride Rose Sweeney of Westlake and Jessica Miranda of Forest Park vowed to re-introduce the Ohio Anti-Corruption Act. The measure would attempt to force the kinds of disclosure that late-Justice Kennedy said would allow us to know whose pockets our leaders are in.
But without Republican support, it seems unlikely to go anywhere in a chamber with a gerrymandered GOP supermajority.
Patrick Llewellyn is the director of state and local campaign finance at the watchdog group the Campaign Legal Center. He said agencies such as the Federal Election Commission and the IRS need to do more within their realm to stop dark money abuses.
But Llewellyn said there have been hopeful developments on the state level.
Last November, for example, Arizona voters passed the “Right to Know Act.”
It would require any group that spends more than $50,000 in statewide elections or m0re than $25,000 in other elections to track and report original sources of donations over $5,000. Those thresholds would have been rounding errors in the Ohio bailout scandal — into which FirstEnergy pumped $10 million in a single day.
How enforceable the new Arizona law is remains to be seen.
But Llewellyn said that such legislative remedies are vital. Federal law enforcement can’t always be expected to protect voters and taxpayers as it did in Ohio, at least in the case of the utility bailout.
“I think it’s important to remember in the Householder scandal and similar scandals is that criminal prosecution shouldn’t be — and is not the only — solution to stopping wealthy special interests from secretly influencing elections,” Llewellyn said. “Voters have the right to know the sources of big money spent to influence their votes — even in the absence of criminal activity.”
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