On May 11, 2021, Chief Judge Algenon L. Marbley of the U.S. District Court for the Southern District of Ohio upheld all of Plaintiffs’ claims in this shareholder derivative action seeking to hold certain current and former FirstEnergy Corp. (“FirstEnergy” or the “Company”) directors and officers accountable for their roles in orchestrating one of Ohio’s largest public bribery schemes. Specifically, the Court found Plaintiffs had sufficiently alleged Section 14(a) derivative claims under the Securities Exchange Act of 1934 concerning FirstEnergy’s issuance proxy statements from 2018 through 2020 that falsely and misleadingly represented that the Board effectively managed risk and promoted compliance with laws, and omitted any disclosure regarding FirstEnergy’s ineffective internal controls, failures to appropriately address the bribery scheme, or Board-approved compensation programs that encouraged the illegal conduct that led to the Ohio bribery scheme.. This determination allows the Court to exercise supplemental jurisdiction over Plaintiffs’ state law claims, including breach of fiduciary duty and unjust enrichment related to the same criminal scheme. The Court then held that demand was futile on the majority of the FirstEnergy board of directors (the “Board”) under Rule 23.1 of the Federal Rules of Civil Procedure, and that Plaintiffs also have standing to assert their state law claims.
This decision represents an important victory for investors because the Court further expanded upon the view that a company’s directors cannot solicit shareholders’ votes using a misleading proxy statement that conceals a company’s illegal activities and the company’s true financial status. The Court held that a misleading proxy statement can provide an “essential link” in causing harm to a company for purposes of establishing Section 14(a) claims in the context of the re-election of directors.
Read more about the significance of the May 11, 2021 decision here.
On July 22, 2021, both FirstEnergy and the Department of Justice announced that FirstEnergy had signed a historic deferred prosecution agreement (“DPA”) which included a fine of $230 million. In its DPA, FirstEnergy admitted that it had “paid millions of dollars to [Householder] . . . in return for [Householder] pursuing nuclear legislation for FirstEnergy Corp.’s benefit in his capacity as a public official.”
On January 25, 2021, Cohen Milstein and co-lead counsel, Saxena White P.A. and Bernstein Litowitz Berger & Grossman LLP, filed an amended, consolidated shareholder derivative complaint in the Southern District of Ohio on behalf of nominal Defendant FirstEnergy Corp. (“FirstEnergy” or the “Company”), Co-Lead Plaintiffs Employees Retirement System of the City of St. Louis and Electrical Workers Pension Fund, Local 103, I.B.E.W., and additional plaintiff Massachusetts Laborers Pension Fund against certain current and former officers (collectively, “Defendants”) of FirstEnergy. Plaintiffs allege that Defendants breached their fiduciary duties, unjustly enriched themselves, wasted FirstEnergy’s assets, and violated Section 14 of the Exchange Act of 1934.
On June 3, 2021, on behalf of the same plaintiffs, Cohen Milstein and co-lead counsel filed an Interveners’ Verified Shareholder Derivative Complaint in Miller v. Anderson, No. 5:20-cv-1743-JRA, U.S. District Court for the Northern District of Ohio, asserting the same claims as the January 25, 2021 complaint filed in the U.S. District Court for the Southern District of Ohio.
Cohen Milstein represents Massachusetts Laborers Pension Fund in both cases.
These cases arise out of what the United States Attorney for the Southern District of Ohio declares “is likely the largest bribery, money laundering scheme ever perpetrated against the people of the state of Ohio.” FirstEnergy stands accused of funneling over $60 million of FirstEnergy funds to the former Speaker of the Ohio House of Representatives Larry Householder (“Householder”) and other public officials in exchange for favorable legislation, causing the largest political bribery scandal in the history of Ohio and one of the most egregious examples ever of the misuse of corporate funds to undermine our country’s system of representative government.
FirstEnergy is one of the largest investor-owned electric utility companies in the country. By late 2016, the Company was struggling to remain profitable due to the ebb of demand in nuclear power. Faced with these difficulties, Defendants decided to seek “legislative solutions” to the Company’s financial woes. Between 2017 and 2019, FirstEnergy transferred tens of millions of dollars—while publicly reporting only a fraction of that amount—to various entities controlled by Householder to support Householder’s bid for Speaker of the House, and to support other House candidates that FirstEnergy and Householder believed would vote for Householder’s Speakership candidacy. Eventually, through the use of these illegally secured funds, Householder was elected Speaker of the House in 2019. Subsequently, Householder and his associates introduced and passed HB6, which subsidized FirstEnergy’s power plants to the tune of over $1 billion dollars. During the same period of time, FirstEnergy’s board of directors repeatedly rejected concerned shareholders’ proposals to increase transparency into FirstEnergy’s political spending. Defendants’ ploy would meet a rude awakening, however, as on July 17, 2020, the U.S. Attorney for the Southern District of Ohio filed an 80-page criminal complaint with an FBI affidavit against two FirstEnergy lobbyists, Householder, and Householder staff members, identifying FirstEnergy in all but name. Various stakeholders have subsequently filed lawsuits against FirstEnergy, both civil and criminal.
The Southern District of Ohio case is Employees Retirement System of the City of St. Louis and Electrical Workers Pension Fund, Local 103, IBEW v. Charles E. Jones, FirstEnergy Corp., et al., Case No. 2:20-cv-04813-ALM-KAJ D, United States District Court for the Southern District of Ohio, Eastern Division.
The Northern District of Ohio case is Jennifer Miller v. Michael J. Anderson, et al., Case No. 5:20-cv-01743-JRA, United States District Court for the Northern District of Ohio