House bill

Judge dismisses FirstEnergy’s attempt to drop securities lawsuit involving House Bill 6

CLEVELAND, Ohio — A federal judge ruled late Monday against FirstEnergy Corp. to dismiss claims that the House Bill 6 scandal caused the market value of utility shares to plummet by $10 billion.

U.S. District Judge Algenon Marbley’s order means shareholder lawsuits against the company for alleged securities violations can continue. The lawsuits accuse the utility and 25 current and former administrators of hiding from regulators and investors a vast program of state corruption.

“Dismiss this complaint, as [FirstEnergy and its top leaders] to urge, would be to take a harshly strained view of bribery laws, pleading requirements, and the facts of the case,” wrote Marbley, the Chief Judge for the Southern District of Ohio, in the 75 pages. “This court will not do such great harm to the statutory rights of shareholders and investors to recover against those who defrauded them.”

Jennifer Young, a spokeswoman for FirstEnergy, said the company does not comment on ongoing litigation.

The shareholder lawsuits alleged that FirstEnergy and its senior officials filed false and misleading statements with the United States Securities and Exchange Commission about its push for House Bill 6. The investor allegations also claimed that the company had pressured to prevent shareholders from knowing about his lobbying efforts.

The legislation offered a $1.3 billion bailout of two aging nuclear power plants that were owned by a subsidiary of FirstEnergy. Prosecutors said the company paid $60 million to a nonprofit controlled by Ohio House Speaker Larry Householder and a clique of allies to pass the bill and fight against a referendum push. The bill was enacted in 2019.

Marbley’s decision cites shareholder allegations, including how House Bill 6 guaranteed revenue allowed FirstEnergy shares to trade at artificially high prices and how its credit ratings improved. The shareholder lawsuits say the utility used the inflated prices to issue $2.5 billion in stock and $2.5 billion in debt.

In July 2020, Householder and four other people were charged with racketeering. Within two days of the arrests, the utility’s shares fell 35%, a loss of $7.68 billion in the market value of its shares, according to the lawsuits.

Over the next few months, the stock’s value plummeted by $2.4 billion, the documents show.

“As of November 2020, major ratings agencies had downgraded FirstEnergy’s credit ratings to ‘junk status,'” Marbley’s decision reads, citing shareholder allegations. “Investors, including [those who filed lawsuits]lost billions of dollars collectively.

FirstEnergy filed its motion to dismiss the lawsuit in May 2021. The utility claimed the payments to the nonprofit, Generation Now, were contributions protected by the First Amendment. He also claimed that there was no agreement with Householder or his allies for the payments.

That changed three months later, when the company admitted in paperwork that it had funded the scandal by bribing Householder and others. He agreed to pay $230 million as part of a deferred prosecution agreement with federal attorneys.

Last year, Ohio lawmakers repealed significant parts of House Bill 6, including the nuclear power plant bailout.

Marbley’s decision relates to securities lawsuits. This litigation is different from the derivative lawsuits the shareholders have filed and which Marbley and U.S. District Judge John Adams in Akron are overseeing.

In these cases, the investors, on behalf of the company, sued the directors and officers of the utility and alleged a lack of oversight in allowing the scandal to occur. A settlement in these cases is pending.

Householder and four other people were charged with racketeering: political aide Jeffrey Longstreth and lobbyists Juan Cespedes, Neil Clark and Matthew Borges.

Longstreth and Cespedes pleaded guilty, but they were not sentenced. Clark committed suicide last year. Householder and Borges have denied the allegations and plan to go to court. A date has not been set.