In June, two prominent Ohioans were sentenced for their involvement in one of the largest political scandals in Ohio’s history. Former Speaker of the Ohio House of Representatives Larry Householder and former Chair of the Ohio Republican Party and lobbyist Matthew Borges were both found guilty after a six-week jury trial earlier this year. In addition, multiple other individuals pled guilty and agreed to cooperate with the government; the corporation behind the scandal, FirstEnergy Corp., signed a Deferred Prosecution Agreement (DPA) and admitted its role in the scheme.

Householder was sentenced to 20 years in prison. Borges received five years. FirstEnergy signed a DPA and agreed to pay $230 million in fines. As these punishments make clear, political corruption threatens more than just those holding elected office. Corporations interacting with politicians need to be aware that they are increasingly likely to be swept up into state and federal investigations into political corruption.

This client alert lays out the bribery scheme underlying these cases, discusses the respective outcomes for FirstEnergy and the individuals charged, and offers practical tips for companies and professionals concerned with navigating this highly complex area of law.

Background¹

As of 2016, Ohio was home to two failing nuclear power plants owned and operated by FirstEnergy and its subsidiaries. FirstEnergy had made clear that, absent a government bailout, it would have to shut down the plants or have its subsidiary declare bankruptcy.

FirstEnergy and then Ohio state representative Householder agreed in late 2016 to early 2017 that Householder would run to be Speaker of the Ohio House of Representatives with financial assistance from FirstEnergy and that, in exchange, Householder would further FirstEnergy’s efforts to save the power plants.

This scheme was orchestrated using multiple 501(c)(4) companies. A 501(c)(4) is a nonprofit corporation that does not require donors to identify themselves and does not limit the amount of donations. As FirstEnergy said in an internal presentation around the time of the scheme, 501(c)(4) groups were the company’s preferred manner of donating because they were considered "dark money" and did not require disclosing where the donations come from. FirstEnergy’s presentation noted that the bulk of its contribution decisions were to 501(c)(4)s.

FirstEnergy’s 501(c)(4) was Partners for Progress. It was incorporated just weeks after some FirstEnergy senior executives traveled with Householder on the company’s jet to the presidential inauguration in January 2017. Despite appearing to be an independent organization on paper, Partners for Progress was, in reality, controlled in part by former FirstEnergy executives, who funded it and directed its payments to entities associated with public officials. FirstEnergy funded this entity with approximately $25 million between 2017 and 2019 and used this entity as a vehicle to send payments to Householder’s 501(c)(4), Generation Now.

Generation Now, also an ostensibly independent nonprofit, operated as Householder’s “slush fund” for his political operations. He used the funds provided by FirstEnergy through the 501(c)(4)s to promote his bid for the Speakership, and to purchase advertisements and media for others loyal to him that were running in general elections in 2018 and 2020 for the Ohio state legislature.

This bribery scheme between FirstEnergy and Householder was very successful: Householder received approximately $60 million from FirstEnergy and its affiliated companies, was elected Speaker in 2019, and passed H.B. 6, which provided an approximately $1.3 billion bailout to FirstEnergy and the power plants.

The Politicians’ Prosecutions

Householder, Borges, and three other Ohio political operatives were all charged in federal court in July 2020 for conspiring to violate the racketeering statute through honest services wire fraud, receipt of bribes, and money laundering. Within six months, two operatives had pled guilty; the third died by suicide in March 2021.

Householder and Borges maintained their innocence. Earlier this year, after a six-week trial in which Householder testified in his own defense, both defendants were found guilty.

The defendants were sentenced in June 2023. Householder received 20 years and Borges was sentenced to five years. Householder and Borges have both announced their intent to appeal their convictions. Neither cooperating witness has been sentenced to date.

Corporate Resolution

In July 2021, FirstEnergy signed its DPA with the Southern District of Ohio’s U.S. Attorney’s Office. As part of the DPA, FirstEnergy agreed to pay $230 million, split evenly between the Federal Government and the Ohio state entity. The company also agreed to:

1. Establish an executive director role for the Board of Directors to support the development of enhanced controls and governance policies;
2. Hire a new chief legal officer;
3. Separate the chief legal officer and chief ethics and compliance officer roles;
4. Create a “Compliance Oversight Subcommittee” to implement compliance recommendations received by outside counsel; and
5. Review and revise political activity and lobbying practices.

While FirstEnergy is in the midst of complying with the terms of its DPA, it is also embroiled in civil litigation. It paid $49 million to settle a class action brought by consumers in Ohio. Its proposed settlement to a shareholder derivative suit would, if approved by the court, include the resignation of six directors and other governance and compensation changes. On top of all that, the DOJ is still investigating two of its former executives. These executives, also implicated by the civil litigation, recently were forced to decide whether to invoke their Fifth Amendment rights against self-incrimination. The judge denied their motions to stay the depositions, even while their personal attorneys have hinted that additional indictments may be on the horizon.

Key Takeaways

Companies and individuals seeking to influence government policymaking can learn a lot from the DOJ’s case against FirstEnergy, Householder, and Borges.

1. Corporate anti-corruption compliance efforts often focus on foreign bribery schemes due to the DOJ’s recent prioritization of the Foreign Corrupt Practices Act (FCPA) and the eye-popping penalties that companies have received under the FCPA. But the Householder conviction is a reminder that domestic bribery is alive and well. Like their foreign counterparts, domestic bribery schemes can result in nine-figure penalties, reputational damage, disruption to business, follow-on civil litigation, and, for individuals, prison terms.
2. Furthermore, in contrast to foreign bribery, domestic bribery can violate both federal fraud statutes and state-level bribery statutes, meaning it can be prosecuted by federal authorities, state authorities, or both. These laws are complex and often subject to interpretation.
3. Companies walk a fine line when it comes to lobbying or endorsing a candidate for office. Campaign contributions can be bribes under certain circumstances. If a company maintains close relationships and direct channels of communication with public officials or their staff—and if those communications specifically discuss what acts the company wants the official to take for its benefit—those communications may come under scrutiny by prosecutors and be viewed as attempts to obtain an illegal quid pro quo.
4. The government is wary of 501(c)(4) nonprofits being used as slush funds for politicians. This type of funding scheme is now certainly on prosecutors’ radar.
5. Companies can, and should, examine the terms of the FirstEnergy DPA and, specifically, the compliance improvements. Separating the role of the chief legal officer from the ethics and compliance officer can, in some cases, help detect improper behavior faster. Similarly, FirstEnergy’s decision to create a formal process for analyzing compliance recommendations made by outside counsel can lead to faster implementation of external compliance solutions.
6. Companies facing civil litigation adjacent to criminal investigations or prosecutions face additional risks with respect to their current or former executives. While their right to invoke the Fifth Amendment protects them, as individuals, in any subsequent prosecution, companies run the risk of that invocation being used to generate adverse inferences against the company in their civil cases.

[1] The following description of events is taken from the FirstEnergy DPA.