FirstEnergy’s headquarters in Akron. Source: Google Maps.
After years of hearings, depositions and court filings, some of the biggest investors in Akron-based FirstEnergy are still accusing the company of stonewalling their demands for information related to a massive bribery scandal that’s already sent two to federal prison.
For its part, FirstEnergy says the plaintiffs in the suit either don’t understand or are misrepresenting the boundaries of attorney-client privilege.
The back-and-forth has taken place in a class-action suit filed by large pension and investment funds against FirstEnergy over a scandal in which the company admitted paying out more than $60 million in bribes between the start of 2017 and the end of 2019. In exchange, the Republican-controlled Ohio legislature passed a $1.3 billion, ratepayer-financed bailout that was mostly intended to benefit FirstEnergy.
Former Ohio House Speaker Larry Householder, R-Glenford, in June was sentenced to 20 years in prison for his role in helping to lead the conspiracy and former state GOP Chairman Matt Borges received five years for his lesser role. Two others who cooperated with prosecutors have pleaded guilty and are awaiting sentencing, while a fifth man who was charged, lobbyist Neil Clark, died by suicide.
In its deferred prosecution agreement, FirstEnergy alleged improper acts by three players who haven’t been charged.
It said that former CEO Chuck Jones and Vice President Michael Dowling paid tens of millions in bribes to make Householder speaker and to pass and protect the bailout. And FirstEnergy said that the two paid a $4.3 million bribe to Sam Randazzo right around the time Gov. Mike DeWine nominated Randazzo to be the state’s top regulator as the chairman of the Public Utilities Commission of Ohio.
All three men deny wrongdoing, while U.S. Attorney Kenneth L. Parker has said the criminal investigation is ongoing.
The large investors, which include the California Public Employees Retirement System, are suing FirstEnergy on claims that the company violated federal securities law by not disclosing the risky behavior in which Jones and Dowling were engaged. Along with most everybody else, the investors were taken by surprise when Householder and the others were arrested in July 2020 — and their investments in FirstEnergy took a beating when the company’s stock price plummeted.
In their lawsuit, the investors have accused FirstEnergy of trying to protect other executives and board members who might have been culpable — or at least might have known of the scheme.
One means the company is accused of using to protect them was by tasking attorneys who aren’t involved in the litigation with conducting an internal investigation into the scandal. Then in sworn depositions, attorneys representing FirstEnergy have told current and former board members and executives not to testify about anything they learned from attorneys.
As part of a filing last week disputing the maneuver, attorneys for the investors submitted parts of transcripts from the depositions of Julia Johnson and Tracy Ashton.
At the time of the bribery scheme, Johnson was a member of the FirstEnergy Board of Directors and a member of its Corporate Governance and Corporate Responsibility Committee. As she held that job, she also worked as a political operative for other utility and telecom companies, the Energy and Policy Institute reported.
Despite her post overseeing corporate governance and ethics, Johnson said she believed that CEO Jones was a man of vision until his arrest caught her unawares, according to the excerpts from transcripts.
Over and over in the documents, FirstEnergy lawyers interrupted questions about what she knew about the scandal to instruct her not to talk about things she learned from FirstEnergy lawyers. Johnson often followed those instructions.
Interestingly, Johnson said the board didn’t ask any questions of Jones or Dowling when it told the executives it was firing them on Oct, 29, 2020.
Ashton was assistant controller at FirstEnergy. As one who helped oversee daily accounting operations, she might also have had reason to know tens of millions were flowing into a criminal conspiracy.
Yet as with Johnson, company lawyers in her deposition repeatedly instructed her not to talk about anything she might have learned from company lawyers. That included things that were later made public in the deferred prosecution agreement and disclosures to the U.S. Securities and Exchange Commission.
Lawyers for the investors claim that communications by attorneys not involved in the litigation — such as those who conducted the investigation — can’t be hidden behind attorney-client privilege. So they are demanding to be allowed to conduct follow-up depositions of company officials.
“First, the parties must complete the depositions that FirstEnergy improperly obstructed,” they wrote last Thursday. “Reopening depositions is appropriate where, as here, a party improperly precludes witnesses from testifying about discoverable information.”
The investors’ attorneys are also demanding to depose the attorneys who conducted the internal investigation. Plaintiffs’ attorneys argue that FirstEnergy waived any privilege when it shared that information with an outside accountant and government officials.
“Second, under the extraordinary circumstances of this case, depositions of attorney-investigators to be scheduled in the ordinary course according to the Deposition Protocol are appropriate,” the filing said.
For their part, FirstEnergy’s lawyers are saying that so long as the attorneys who conducted the investigation also gave legal advice, what was discussed is privileged.
“It is black-letter law that communications between clients and lawyers about information are privileged to the extent that the information is intertwined with legal advice,” they wrote in a court filing dated Friday. “Requiring witnesses to testify about information obtained solely from their lawyer also would reveal the lawyer’s work product, including the lawyer’s assessment of the relevance of information, the reliability of evidence, and the conclusions drawn from the lawyer’s review of evidence.”
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