Case: 1:20-cv-00705-DRC Doc #: 1 Filed: 09/09/20 Page: 1 of 124 PAGEID #: 1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF OHIO EASTERN DIVISION EMPLOYEES RETIREMENT SYSTEM OF THE CITY Case No.: OF ST. LOUIS, Derivatively on Behalf of FIRSTENERGY CORP., JURY TRIAL DEMANDED Plaintiff, v. CHARLES E. JONES, MICHAEL J. ANDERSON, STEVEN J. DEMETRIOU, JULIA L. JOHNSON, DONALD T. MISHEFF, THOMAS N. MITCHELL, JAMES F. O’NEIL, III, CHRISTOPHER D. PAPPAS, SANDRA PIANALTO, LUIS A. REYES, LESLIE M. TURNER, PAUL T. ADDISON, JERRY SUE THORNTON, WILLIAM T. COTTLE, GEORGE M. SMART, JUSTIN BILTZ, MICHAEL J. DOWLING, JAMES F. PEARSON, STEVEN E. STRAH, K. JON TAYLOR, ROBERT REFFNER, and EBONY YEBOAH-AMANKWAH, Defendants, and FIRSTENERGY CORP., Nominal Defendant. VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT Case: 1:20-cv-00705-DRC Doc #: 1 Filed: 09/09/20 Page: 2 of 124 PAGEID #: 2 TABLE OF CONTENTS I. INTRODUCTION ......................................................................................................... 1 II. JURISDICTION AND VENUE..................................................................................... 8 III. PARTIES ...................................................................................................................... 8 A. Plaintiff .............................................................................................................. 8 B. Nominal Defendant ............................................................................................ 9 C. The Individual Defendants ................................................................................. 9 1. The Director Defendants ......................................................................... 9 2. The Officer Defendants ........................................................................ 13 D. Relevant Non-Parties ....................................................................................... 15 IV. FIRSTENERGY’S DIRECT INVOLVEMENT IN THE OHIO BRIBERY SCHEME .................................................................................................................... 17 A. Background of FirstEnergy and the Company’s History of Corporate Governance and Oversight Failures .................................................................. 17 B. Amidst a Grim Outlook, FirstEnergy Turns to Shady Backroom Deals, Despite Investor Demands for Increased Transparency ..................................... 21 C. The Director Defendants Consciously Ignored Persistent and Pervasive Red Flags as the Bribery Scheme Began .......................................................... 27 D. The Director Defendants Consciously Ignored Further Red Flags Related to Householder and Generation Now as HB6 was Passed ................................. 37 E. The Director Defendants’ Failure to Exercise Oversight Resulted in FirstEnergy’s Continued Involvement in the Bribery Scheme ........................... 48 F. The U.S. Attorney’s Complaint Implicates FirstEnergy in the Largest Public Bribery Scheme in Ohio History ............................................................ 52 G. The Fallout from the Bribery Scheme Continues .............................................. 59 H. Defendants Jones, Strah, Pearson, Taylor, Reffner, Dowling, and Yeboah- Amankwah Unlawfully Profited at FirstEnergy’s Expense by Selling Shares While in Possession of Non-Public Information .................................... 66 V. THE DEFENDANTS VIOLATED SECTION 14(a) OF THE EXCHANGE ACT....... 71 ii Case: 1:20-cv-00705-DRC Doc #: 1 Filed: 09/09/20 Page: 3 of 124 PAGEID #: 3 A. Defendants Issue False Proxies in Violation of Section 14(a) of the Exchange Act ................................................................................................... 71 1. The Director Defendants Caused First Energy to Issue Materially False and Misleading Statements in the 2018 Proxy .............................. 71 2. The Director Defendants Caused First Energy to Issue Materially False and Misleading Statements in the 2019 Proxy .............................. 76 3. The Director Defendants Caused First Energy to Issue Materially False and Misleading Statements in the 2020 Proxy .............................. 81 VI. DAMAGES TO FIRSTENERGY ................................................................................ 86 VII. DEFENDANTS WERE OBLIGATED TO SAFEGUARD THE COMPANY’S INTERESTS ................................................................................................................ 87 A. The Duties of All Defendants ........................................................................... 87 B. The Company’s Code of Business Conduct, the Board of Directors Code of Ethics and Business Conduct, Corporate Governance Policies, Insider Trading Policy, Corporate Political Activity Policy and Board Committee Charters ........................................................................................................... 89 VIII. DERIVATIVE AND DEMAND FUTILITY ALLEGATIONS .................................. 100 A. Demand is Excused Because the Director Defendants Face a Substantial Likelihood of Liability ................................................................................... 101 1. The Director Defendants Face a Substantial Likelihood of Liability for Disseminating False and Misleading Proxy Materials .................... 101 2. The Director Defendants Face a Substantial Likelihood of Liability for Failing to Exercise Their Fiduciary Duties to FirstEnergy ............. 103 B. Demand is Excused Because Director Defendants’ Conduct Did Not Constitute a Valid Exercise of Business Judgment ......................................... 106 IX. CLAIMS AGAINST DEFENDANTS ....................................................................... 110 X. PRAYER FOR RELIEF ............................................................................................ 116 XI. JURY DEMAND ...................................................................................................... 117 iii Case: 1:20-cv-00705-DRC Doc #: 1 Filed: 09/09/20 Page: 4 of 124 PAGEID #: 4 CAST OF CHARACTERS NAME TITLE AFFILIATION Anderson, Michael J. Director (2007-Present); Chair of the FirstEnergy Audit Committee; Member of the Finance Committee Biltz, Justin Director, State Regulatory Affairs – Ohio First Energy (May 2016 - August 2018) Director, State & Regulatory Affairs (August 2018 – present) Borges, Matthew Registered Lobbyist for FirstEnergy FirstEnergy Solutions Solutions Cespedes, Juan Multi-Client Lobbyist Retained by FirstEnergy Solutions FirstEnergy Solutions Clark, Neil Ohio Based Lobbyist Enterprise Demetriou, Steven J. Director (2017-Present); Member of the FirstEnergy Finance and Operations, Safety and Nuclear Oversight Committees Dowling, Michael SVP, External Affairs (2011-Present); FirstEnergy Vice President, External Affairs (2010- 2011); Vice President, Communications (2008 -2010) Householder, Larry Member of the Ohio House of Ohio House of Representatives (January 2017-Present); Representatives Speaker of the House (January 2019-July 30, 2020) Johnson, Julia L. Director (2011-Present); Chair of the FirstEnergy Corporate Governance and Corporate Responsibility Committee; Member of the Fin ance Committee Jones, Charles E. CEO and Director (2015-Present) FirstEnergy Longstreth, Jeffrey Campaign and Political Strategist to Enterprise Larry Householder Misheff, Donald T. Director (2012-Present); Non-Executive FirstEnergy Chairman of FirstEnergy Board (May 2018-Present); Member of the Audit and Corporate Governance and Corporate Responsibility Committees Mitchell, Thomas N. Director (2016-Present); Chair of the FirstEnergy Operations, Safety and Nuclear Oversight Committee; Member of the Corporate Governance and Corporate Responsibility Committee O’Neil, III, James F. Director (2017-Present); Chair of the FirstEnergy Compensation Committee; Member of iv Case: 1:20-cv-00705-DRC Doc #: 1 Filed: 09/09/20 Page: 5 of 124 PAGEID #: 5 NAME TITLE AFFILIATION the Operations, Safety and Nuclear Oversight Committee Pappas, Christopher D. Director (2011-Present); Chair of the FirstEnergy Finance Committee; Member of the Compensation Committee Pearson, James F. VP of Finance (March 2018-April 2019); FirstEnergy CFO (2013 -March 2018) Pianalto, Sandra Director (2018-Present); Member of the FirstEnergy Compensation and Audit Committees Reffner, Robert SVP and Chief Legal Officer (2018- FirstEnergy Present) Reyes, Luis A. Director (2013-Present); Member of the FirstEnergy Corporate Governance and Corporate Responsibility Committee and Operations, Safety and Nuclear Oversight Committee Strah, Steven E. President (May 2020-Present); CFO FirstEnergy (March 2018-May 2020); Senior VP of FirstEnergy’s Utilities Operations (Until March 2018) Taylor, K. Jon CFO (Present); Vice President of FirstEnergy Utilities Operations (2019 -2020) Turner, Leslie M. Director (2018-Present); Member of the FirstEnergy Audit and Compensation Committees Yeboah-Amankwah, Vice President, General Counsel and FirstEnergy Ebony Chief Ethics Officer v Case: 1:20-cv-00705-DRC Doc #: 1 Filed: 09/09/20 Page: 6 of 124 PAGEID #: 6 “This is likely the largest bribery, money laundering scheme ever perpetrated against the people of the state of Ohio. This was bribery, plain and simple. This was quid pro quo.” —David DeVillers, United States Attorney, Southern District of Ohio I. INTRODUCTION 1. Plaintiff Employees Retirement System of the City of St. Louis (“Plaintiff”), a shareholder of FirstEnergy Corp. (“FirstEnergy”