- FirstEnergy Solutions’ board and management knew about plans to contribute $40 million to Generation Now, a 501(c)(4) group associated with then Ohio House Speaker Larry Householder, in the midst of the utility’s Chapter 11 bankruptcy and campaign for a ratepayer bailout in 2019
- The payments were later deemed by federal prosecutors to be part of a nearly $60 million bribe scheme which resulted in a since-repealed $1 billion ratepayer bailout that benefited several nuclear and coal-fired power plants in Ohio owned by FirstEnergy Solutions
- Attorneys from Akin Gump who represented FES knew about the payments, and identified others involved in the bankruptcy case who knew, including legal and financial consultants for the FES debtors and some the utility’s creditors
- A U.S. bankruptcy court judge ruled today to grant final approval for $68 million in fees and expenses that FES racked up with Akin Gump over the course of a nearly 2-year restructuring process. The judge had spent over a year questioning Akin Gump about its ties to the bribery scandal
FirstEnergy Solutions’ management, board, and some top consultants for the utility and its creditors knew about plans to spend over $40 million on political contributions during the company’s Chapter 11 bankruptcy, according to court filings and statements by a major lobbying and law firm that represented the utility.
The money would later be deemed by federal prosecutors to be part of a nearly $60 million bribery scheme that resulted in House Bill 6, the 2019 Ohio law that provided a since-repealed $1 billion ratepayer bailout that benefited several nuclear and coal-fired power plants owned by FirstEnergy Solutions (FES). The law also included other provisions that financially benefited FirstEnergy Corp., which at the time was still the parent company of FES.
FirstEnergy Corp reached an agreement this summer with federal prosecutors that attributed the lion’s share of the bribe payments, just over $43 million, to its former subsidiary FES, which emerged from bankruptcy in February 2020 as a separate company called Energy Harbor.
Energy Harbor was subpoenaed last year in connection with the H.B. 6 bribery investigation, and in September turned over 6,000 records to prosecutors.
In July of 2020, U.S. Bankruptcy Judge Alan Koschik was prepared to grant final approval for the fees and expenses of a number of outside firms involved in the FES restructuring. The arrest of Larry Householder, the now-indicted former speaker of the Ohio House, in connection with the H.B. 6 bribery scheme led Koschik to hit the brakes on the process. The judge has since granted final approval for the fees and expenses of most of the financial and law firms that worked on the case, with one key exception that Koschik addressed at a hearing today.
Koschik ruled today that he will grant final approval for the over $68 million in fees and expenses that FES racked up with Akin Gump Strauss Hauer & Feld LLP. Akin Gump served as co-counsel to the FES debtors during the company’s nearly two-year restructuring, and also lobbied for H.B. 6 and other state and federal bailout proposals on behalf of the utility.
In an October 12, 2021 letter to Koschik and statements made during a bankruptcy court hearing later last month, Akin Gump partner Abid Qureshi revealed that multiple members of the firm knew in 2018 and 2019 about plans for FES to contribute money to Generation Now Inc., a 501(c)(4) group associated with Householder. Generation Now pleaded guilty earlier this year to racketeering in connection with the H.B. 6 bribery scheme.
Qureshi’s letter to the court said that several restructuring and corporate lawyers for Akin Gump attended meetings on May 28 and August 7 of 2019 where FES’s board approved of two resolutions drafted by Akin Gump corporate lawyers authorizing up to $40 million in total contributions to Generation Now.
The letter from Qureshi also revealed that others involved in the bankruptcy case were informed of the planned expenditures at a second August 7, 2019 meeting (emphasis added):
Later that same day, several Akin Gump restructuring and corporate lawyers were present at a meeting attended by FES management, FES’ restructuring advisors, FES creditors, and the creditors’ advisors and lawyers, in which discussions about the proposed expenditures, their purpose, and that they would be paid through Generation Now took place.
At the related court hearing last month, Judge Koschik expressed concern that despite a “major law firm with their lobbying wing representing the Debtors during the course of this case” his court had found itself to be “indictment adjacent,” according to a copy of the hearing transcript obtained by the Energy and Policy Institute from the court reporter.
During the same October 26 court hearing, Qureshi went into more detail about who else was in the room when FES’s board authorized millions of dollars in payments to Generation Now, according to the transcript (emphasis added):
…. there was an incredible amount of transparency around everything that was happening in connection with these efforts with respect to all of the Debtor’s creditor constituencies. So, when these decisions were being made to have FES, to have the Debtors make these political contributions, to have the Debtors use their efforts to get HB-6 passed, to have the Debtors assist in the effort to defeat the referendum that followed the passage of HB-6, there was continuous dialogue with all of the stakeholders in the bankruptcy case.
So, with respect specifically, Your Honor, to the spending authorizations that were approved by the board, there were a very large number of professional firms in the room: the chief restructuring officer, Alvarez & Marsal as financial adviser, Lazard as investment banker. In addition to that, Your Honor, you had the legal and financial advisers for the Unsecured Creditors’ Committee. You had the legal and financial advisers for the various ad hoc groups in the case. You had independent counsel that represented each of the independent directors that were members of the FES board of directors.
FES’s chief restructuring advisor from Alvarez & Marsal knew
Qureshi identified FES’s chief restructuring officer and financial advisor Alvarez & Marsal as among those who knew about the payments to Generation Now during the bankruptcy. Charles Moore, managing director for Alvarez & Marsal North American Commercial Restructuring, served as chief restructuring officer for FES during that time.
Koschik approved payment of a $3 million completion fee for Alvarez & Marsal’s work on behalf of FES in May of 2020, just a few week’s before Householder’s arrest. The firm’s application for payment of the completion fee, also filed before Householder’s arrest, highlighted Alvarez & Marsal’s role in “assisting the Debtors with efforts to seek and obtain legislative assistance providing critical financial support to allow the nuclear generating units to avoid deactivation and decommissioning.”
Allegations of bribery and kickbacks first surfaced in 2019, when opponents of H.B. 6 accused supporters of the bill of trying to block a petition drive for a voter referendum on the bailout by offering signature gatherers cash and plane tickets.
Alvarez & Marsal also reported a total of $68.9 million in fees and expenses in monthly compensation and staffing reports filed with the bankruptcy court that covered the time period between March of 2018 and February 2020.
A timesheet entry for Moore found in a monthly compensation report confirms that he participated in the May 28, 2019 FES board meeting mentioned by Qureshi, and worked with Akin Gump on materials for that meeting.
“Corresponded with Akin and A&M Team to finalize materials for board meeting,” the timesheet entry said. “TC with Akin to prepare for board meeting and participate in a board meeting.”
A timesheet for Dan Jurgens, a senior director of Alvarez & Marsal, also included correspondence on August 7, 2019, another date mentioned by Qureshi, with the “A&M team and FES management regarding HB6 considerations.”
Moore testified on behalf of FES at a June 2019 legislative hearing on H.B. 6, where he said that unless FES could secure legislative support from Ohio by the end of that month, the company would move forward with plans to deactivate the Davis-Besse nuclear plant. Moore said the support was needed before FES could authorize $52 million to refuel the Davis-Besse plant on time, but said nothing about FES’s board authorizing up to $15 million in payments to Generation Now just a few weeks earlier, at a meeting Moore attended. At the time, FES faced serious questions about whether its nuclear plants in Ohio really needed a ratepayer bailout to continue operating.
After H.B. 6 passed and groups funded by the utility defeated the referendum petition campaign, Jurgen expensed a $2,700.32 “Out of town Client dinner” on 11/19/2019 with FES management, and representatives from Akin Gump and Milbank, the law firm that represented FES’s unsecured creditors. Also listed was Juan Cespedes of the Oxley Group, an outside lobbyist for FES who pleaded guilty last year to racketeering in connection with the H.B. 6 bribery scheme.
Moore did not respond to an email from the Energy and Policy Institute requesting comment from Alvarez & Marsal for this blog post.
Alvarez & Marsal also served as financial advisor for Murray Energy during the coal producer’s Chapter 11 bankruptcy. Environmental groups involved in that case raised questions about Murray Energy’s links to the Householder scandal, but those questions were left largely unanswered.
Other outside firms that worked for FES or its creditors knew too
Koschik already granted final approval of the fees and expenses for several other outside firms involved in FES’s bankruptcy case that Akin Gump now indicates knew about the planned payments to Generation Now, including:
- $19,517,052 in fees and $175,734.91 in expenses for Lazard & Freres, the investment banker for FES
- $8,732,130.75 in fees and $54,028.93 in expenses for FTI Consulting, Inc., financial advisor to the Official Committee of Unsecured Creditors
- $22,051,723.55 in fees and $655,630.38 in expenses for Milbank LLP, counsel to the Official Committee of Unsecured Creditors
William Ng, a managing director in the corporate financing and restructuring sector for FTI Consulting, attended a call with the FES debtors re: “nuclear subsidies legislation” on 8/7/2019, the same day as the board meeting and follow up meeting with stakeholders where Akin Gump says plans were discussed to contribute up to $25 million to support Generation Now’s response to a possible voter referendum to overturn H.B. 6.
Ng did not respond to a request for comment.
At a hearing held in August of 2020, about a month after Householder’s arrest, Trish Lazich from Ohio Attorney General Dave Yost’s office warned Koschik about approving compensation for the firms employed by the Official Committee of Unsecured Creditors before all the evidence from the federal investigation was in. Lazich said, according to a transcript:
Well, Your Honor, I think we would take an extremely conservative approach, and we would ask the Court to hold off on any approval of interim or final fees, just because we don’t know what’s going to happen with the federal indictment. You know, kind of like the old saying, once the horse gets out of the barn, it’s kind of hard to put him back in. I would hate to see payment of fees to professionals and others that later are the subject or somehow linked or involved with the federal indictment, and then we have to look at potential disgorgement issues.
Initial members of the Unsecured Creditors committee were appointed in April of 2018 by the U.S. Trustee assigned to the FES bankruptcy, and included representatives of BNSF Railway Company, IBEW Local 272, and the Bank of New York Mellon Trust Company, among others.
Koschik signaled at the August 2020 hearing that it is well within his power to direct the disgorgement of any fees and expenses already paid by FES, prior to his final approval of those fees and expenses. Most of the fees and expenses approved by Koschik after Householder’s arrest had already been paid by FES.
At the August 2020 hearing, Koschik announced he was granting final approval of fees and expenses to the firms employed by the Unsecured Creditors committee, and he issued an order a few days later.
Lisa Beckerman, an attorney for Akin Gump, argued in favor of granting final approval for the firms employed by the Unsecured Creditors committee at the same hearing.
“I mean, again, I don’t see how the Committee’s professionals could be implicated by this in any way, shape or form,” Beckerman said regarding the H.B. 6 criminal investigation.
“The Committee, as an outside party here, was not and really could not have been in a position to ever be involved directly with, you know, any of the issues or the allegations raised in the criminal complaint,” Parker Milender, then an attorney for Milbank who’d represented the Official Committee of Unsecured Creditors, told Judge Koschik.
“I am convinced by Mr. Milender’s point that they had no fiduciary duty to the Debtor itself in terms of advice with respect to matters concerning anything that is at issue with the criminal investigation,” Koschik said in response.
More than a year later, Qureshi’s letter would be filed with Koschik, and indicate that counsel for the Unsecured Creditors committee was present when payments to Generation Now were discussed during the bankruptcy.
Milender has since moved on to a new law firm. Evan Fleck, another attorney at Milbank who represented FES’s Unsecured Creditors committee, did not respond to a request for comment for this blog post.
The law firms of Kramer Levin Naftalis & Frankel LLP and Baker & Hostetler LLP represented the Ad Hoc Noteholder Group, which included Nuveen Asset Management and Avenue Strategies, currently the two largest remaining shareholders in Energy Harbor. The FES debtors agreed to pay the fees and expenses of the Noteholder Group’s counsel, under a Process Support Agreement reached in 2018.
“ The Company and the Supporting Parties shall consult and coordinate with each other regarding their applicable lobbying and other efforts to obtain state and/or federal legislative and regulatory relief for the Company’s generating assets,” according to the term sheet for the Process Support Agreement.
Kevin Warvell, then the CFO of FES, signed the Process Support Agreement, which was also signed by supporting parties that included Avenue Strategies, Nuveen Asset Management, and other financial institutions.
Lobbyists for the FES Noteholders Group were involved in the indirect bailout of the W.H. Sammis coal-fired power plant via H.B. 6.
Judge Koschik approved Akin Gump fees and expenses after questioning the firm’s work related to the H.B. 6 bribery scandal
For well over a year after Householder’s arrest, Judge Koschik had peppered Akin Gump’s attorneys and lobbyists with tough questions about the bribery scandal in Ohio at hearings regarding the firm’s application for final approval of its fees and expenses, and in long-delayed sworn statements filed last month with Qureshi’s letter.
The stakes increased in July, when the charges filed against FirstEnergy Corp. by federal prosecutors identified over $59 million paid to Generation Now. Prosecutors attributed nearly $17 million of that total to FirstEnergy Corp. and over $43 million to FES.
FirstEnergy Corp. admitted to the payments in a “Statement of Facts” signed by CEO Steven Strah as part of the company’s agreement with prosecutors. FirstEnergy also admitted that “two or more persons conspired or agreed to devise a scheme… to defraud the public of its right to honest services of a public official through bribery or kickbacks” in connection with the payments.
Qureshi told Koschik that Akin Gump has reviewed FirstEnergy deferred prosecution agreement, but maintains that the law and lobbying firm “isn’t aware of any evidence that its attorneys and professionals knew of any illegal activity, including by anyone at its client FES, in connection with House Bill 6.”
Qureshi also informed Koschik that Akin Gump doesn’t see any reason to revise its application for final approval of the firm’s fees and expenses, which was originally filed before news broke of Householder’s arrest in July 2020.
“In my experience, corporate contributions to issue-based nonprofit organizations (commonly referred to as 501(c)(4) organizations) are commonplace and elected officials at both the federal and state level regularly have affiliations with such organizations,” Akin Gump lobbyist Geoffrey K. Verhoff said in a sworn statement filed with the bankruptcy court, under order by Koschik. “By way of further example, corporate contributions to political committees (commonly referred to as “527 groups”) and legislative campaign committees are also commonplace in my experience.”
Verhoff equated $500,000 that FES paid to Generation Now ahead of the 2018 elections with “bipartisan” contributions made to 527 groups like the Republican Governors Association and Democratic Governors Association during the 2018 elections. His statement was signed in January of this year, months before prosecutors deferred prosecution agreement with FirstEnergy was made public, then sat under seal until it was finally filed.
Householder was no ordinary politician, having faced a federal investigation and corruption allegations during his first tenure as Ohio House Speaker during the 2000s, a fact that was widely known and reported as Householder worked to regain the speakership in 2017-2018 with the support of Generation Now and secret money from FirstEnergy and FES.
A key difference between 527 groups like the RGA and DGA and a 501(c)(4) like Generation Now is that 527 groups have to publicly report their donors, while 501(c)(4)s do not. The Energy and Policy Institute reported on FirstEnergy Corp. and FES’s contributions to the RGA and DGA in 2018, based on publicly available reports those groups filed with the IRS.
Koschik has questioned Akin Gump during multiple hearings about a motion for FES to make political contributions that was drafted during the closing months of the 2018 elections, but never filed with the court. Akin Gump described work on the draft motion in a monthly invoice to FES for September of 2018.
The following month, FES spent at least $1 million dollars on political contributions without Koschik’s awareness or approval.
“In October 2018, FES paid Generation Now another $500,000 for Public Official A’s benefit – $400,000 of which was hand-delivered to Public Official [Householder] A during an in-person meeting on or about October 10, 2018,” according to the statement of facts that FirstEnergy Corp. admitted federal prosecutors could have proven if the company hadn’t reached a deferred prosecution agreement, and its case had gone to trial.
The $400,000 came on the same day of a FirstEnergy meeting with Republican gubernatorial candidate Mike DeWine at a RGA fundraiser. One day later, FES contributed $500,000 to RGA. DeWine won the election, and signed H.B. 6 into law in July of 2019.