New revelations about potential securities fraud in FirstEnergy utility scandal

by Laura Peterson, Senior Research Advisor
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New revelations about potential securities fraud in FirstEnergy utility scandal

New revelations in the FirstEnergy scandal provide further clues about the federal government’s investigation into potential securities fraud at the utility.

The Ohio-based company disclosed in a February 15th filing with the Securities and Exchange Commission (SEC) that a $4 million consulting payment to a former state official was likely used for “purposes other than those represented within the consulting agreement,” according to news reports.

The recipient of the payment is believed to be the former chairman of the Public Utilities Commission of Ohio, who resigned shortly after the FBI raided his home in 2020 in connection with a scandal involving FirstEnergy and a “dark money” political group controlled by former Ohio state lawmaker Larry Householder.

Householder was arrested in 2020 on racketeering and bribery charges for using money from the political group, named Generation Now, to lobby for legislation that benefited donors and help elect other state politicians who would support his bid for speakership. One such piece of legislation, House Bill 6, directly benefited FirstEnergy by subsidizing coal plants like those owned by the utility.

FirstEnergy contributed more than $30 million to Generation Now according to an FBI affidavit, though such “dark money” groups do not have to disclose their donors under federal law. Generation Now pleaded guilty on February 19th to federal racketeering and was fined $1.57 million under a plea agreement.

The FirstEnergy disclosure is significant because misrepresenting financial expenditures to government regulators and investors is prohibited by federal securities law. The SEC’s Public Finance Unit launched an investigation into FirstEnergy in August 2020 following a whistleblower complaint about potential securities violations at the company.

The whistleblower, Michael Pircio, had worked as an auditor for Clearsulting, a firm that had assisted FirstEnergy with an internal audit. After observing potential securities violations in the audit, Pircio forwarded the information to the SEC. Since making his report to the SEC, Pircio has alleged whistleblower retaliation from FirstEnergy and Clearsulting.

Whistleblower disclosures to the SEC – and Commodities Future Trading Commission (CFTC) – are protected under the Dodd-Frank Act, which allows whistleblowers to confidentially report securities and commodities fraud. The Act contains anti-retaliation provisions, including protections against discrimination and termination. Additionally, whistleblowers who provide original information that leads to successful prosecution can receive 10 to 30% of monetary sanctions under these programs.

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