Earlier this month, a jury found former Ohio House Speaker Larry Householder, along with a former chairman of the Ohio Republican Party, guilty of a federal racketeering conspiracy involving approximately $60 million that an energy company paid to a dark money group Householder controlled in order to obtain a billion dollar bailout for its nuclear power plants. The case, which has been described as “the largest bribery, money laundering scheme ever perpetrated against the people of the state of Ohio,” could have major implications going forward for how politicians and campaign operatives utilize nonprofits that are not required to disclose their donors.
Dark money was so integral to the corruption on display in Householder’s prosecution that his nonprofit, Generation Now, was among those charged with him–the group pleaded guilty in February 2021. FirstEnergy, the company that primarily funded it, was also required by the Justice Department as part of a deferred prosecution agreement to release a statement calling the use of section 501(c)(4) nonprofits “central” to its influence effort because they allowed the company to “conceal payments for the benefit of public officials and in return for official action.”
Though not the first federal corruption prosecution to involve bribery and dark money, the Householder case is perhaps the most prominent validation yet of concerns about potential corruption that advocates have regularly expressed since the Supreme Court’s decision in Citizens United v. FEC opened the door to massive amounts of anonymously-sourced political spending in American elections. The majority in Citizens United claimed that spending by a group that is “independent” of a candidate or campaign could not “give rise to corruption or the appearance of corruption” and that “effective disclosure” would allow the public to determine whether elected officials are “in the pocket” of “so-called moneyed interests.”
Both premises were severely undercut in the Householder case, where millions of corporate dollars secretly flowed through a supposedly “independent” political entity as part of a corrupt bargain for legislative action by a lawmaker who benefited from the funds. The prosecution of the former Ohio House speaker shined a rare light on how big money in politics actually operates in the shadows. Here are three lessons about dark money in American politics drawn from the details of the Householder case.
The secrecy provided by dark money is ideal for bribery
From the moment Householder was charged in July 2020, the Justice Department emphasized that secrecy was “vital to the success” of Householder’s enterprise, which is why “the conspiracy had to create Generation Now,” a section 501(c)(4) nonprofit that is not required to disclose its donors. Ahead of the trial, former U.S. Attorney David DeVillers, who was responsible for initially bringing the case, called dark money the “perfect animal for bribery.” “There is no way they could have gotten away with this scheme or artifice without a dark money group,” DeVillers said.
Evidence supporting the charges against Householder and his associates made clear that they prized the secrecy provided by dark money. In secretly recorded calls cited by prosecutors in charging documents, Neil Clark, a lobbyist and political advisor who died by suicide after being charged along with Householder, touted the secrecy provided by nonprofits, saying “they can give as much or more to the (c)(4) and nobody would ever know.” In another conversation cited by prosecutors, Clark was recorded saying, “it’s a secret, a (c)(4) is secret. Nobody knows the money goes to the Speaker’s account, it is controlled by his people, one of his people, and it’s not recorded. A (c)(4) is non-recorded.”
Testimony during the trial further demonstrated that the individuals involved viewed secrecy as key. Jeff Longstreth, Householder’s political advisor who operated Generation Now and pleaded guilty in October 2020 for his role in the conspiracy, testified about steakhouse dinners in Washington, DC during former President Donald Trump’s inauguration weekend where Householder and FirstEnergy executives discussed both a potential bailout and Householder’s desire to become speaker. According to Longstreth, the FirstEnergy executives “were going to be supportive financially for Mr. Householder to become speaker” and one of them emphasized the money “needed to be undisclosed and unlimited contributions” through an organization like a 501(c)(4). “I knew their donations were (predicated) on the expectation that something like House Bill 6 would happen,” Longstreth said.
Soon after, Generation Now was created, followed by Partners for Progress, Inc., a nonprofit that would distribute funds provided by FirstEnergy to entities like Generation Now. On the same day Longstreth opened a bank account for Generation Now, according to prosecutors, he also contacted one of the FirstEnergy executives and provided “wiring instructions” for the company to use to fill the account. FirstEnergy was ultimately responsible for more than 90 percent of the more than $64 million that moved through Generation Now.
Anonymous political spending may only be anonymous to the public – politicians often know who is spending to benefit them
When a super PAC called Growth & Opportunity PAC launched attacks against Ohio legislative candidates in 2018, there was basically no way for the public to know who was paying for the effort to influence their votes. All of the PAC’s money came from nonprofit groups, primarily Generation Now, that are not required to disclose their donors.
But, as the government made clear in its prosecution, Householder knew who to thank for the more than $1 million that moved from Generation Now to Growth & Opportunity PAC as well as the tens of millions of additional funds raised into the nonprofit. According to a Columbus Dispatch report from the trial, secretly recorded phone calls played in court demonstrated that “Householder kept score on how much money special interests gave to his rival and how much they plowed into a dark money group under his control.”
As part of his defense strategy, which sought to characterize his actions as normal political activity, Householder freely admitted on the stand that he raised money for Generation Now. While the former speaker denied to the jury that he promised legislation when he secretly accepted large contributions from FirstEnergy, Juan Cespedes, a former FirstEnergy lobbyist who testified after previously pleading guilty for his role in Householder’s enterprise, told a dramatically different story.
According to Cespedes, during an October 2018 meeting with Householder, another FirstEnergy lobbyist passed a $400,000 check to Householder before saying, “Our client cares very much about our issue.” After Householder looked at the check, he replied by saying, “yes they do,” because, in Cespedes’ words, “he saw a contribution amount that far exceeded what he expected.” Though both Householder and the FirstEnergy lobbyist, Bob Klaffky, disputed some of the particulars of the meeting and denied that it was a pay to play situation, they acknowledged that Householder personally accepted the six-figure check to Generation Now.
Householder had insight into other dark money spending that benefited him as well. As CREW was the first to publicly highlight in a letter sent to the Justice Department in November 2020, a nonprofit called Citizens for a Working America was a significant funder of a federal super PAC’s spending that benefited Householder’s own 2018 election. During the trial, the government introduced evidence showing that $400,000 from FirstEnergy was funneled to the super PAC through Citizens for a Working America and another nonprofit following a request from Householder’s fundraiser.
Prosecutors also played an ad for the jury, paid for by the FirstEnergy-funneled funds, that accused Householder’s opponent of being backed by “dark money special interests.” Along with the ad, the government played audio of a secretly-recorded conversation between Householder and Clark that occurred before the ad was posted online in which they discussed the content of the ad and Householder praised the use of the word “dark” because his opponent’s last name was Black.
It’s “commonplace” for public officials to benefit from secretly-funded nonprofits
Though the prosecution of Householder represents what is believed to be the first time that racketeering laws have been used to charge a 501(c)(4) organization, he is far from the only politician to benefit from a closely-affiliated nonprofit that special interests can secretly dump money into. Indeed, on the federal level, the leadership of both political parties in both the House and the Senate have close ties to big spending dark money groups, as do many prospective presidential candidates.
In Ohio, “[e]very statewide politician controls a 501(c)(4), they just do,” according to former U.S. Attorney DeVillers. “And if they say they don’t, that’s b—–t.” Some evidence supporting this contention came out in the Householder trial. In a secretly recorded conversation with undercover FBI agents posing as investors interested in sports gambling, Householder confidante Clark was taped advising the agents to make contributions to dark money groups aligned with Householder, Ohio Gov. Mike DeWine, and state Sen. Matt Huffman. “Everybody has a c4,” Clark said.
FirstEnergy funds also ended up flowing to nonprofits associated with politicians other than Householder. In the statement of facts attached to its deferred prosecution agreement with the Justice Department, FirstEnergy agreed that the nonprofit Partners for Progress “was controlled in part by certain former FirstEnergy Corp. executives, who funded it and directed its payments to entities associated with public officials.” On its 2019 tax return, Partners for Progress disclosed giving $13 million to Generation Now as well as a combined $375,000 to nonprofits that supported Gov. DeWine and his daughter, Alice, who ran for a county prosecutor position. The DeWine aligned nonprofits, Securing Ohio’s Future Inc. and Protecting Ohio Inc., were both led by a former DeWine aide.
A proceeding related to the Householder scandal but tangential to the prosecution itself further revealed how political professionals viewed it as “commonplace” for elected officials to have close associations with dark money groups. As part of an effort to gain approval from a U.S. bankruptcy court judge for $68 million in fees and expenses that FirstEnergy Solutions (FES) racked up with Akin Gump Strauss Hauer & Feld LLP over the course of a nearly 2-year restructuring process, attorneys from Akin Gump filed a letter and sworn declarations with the court providing “additional information about the firm’s knowledge related to FES-authorized contributions to Generation Now.”
In his declaration, Akin’s Geoffrey Verhoff stated that “corporate contributions to issues-based nonprofit organizations (commonly referred to as 501(c)(4) organizations) are commonplace and elected officials at both the federal and state level regularly have affiliations with such organizations.” Verhoff, who avoided testifying during Householder’s trial by invoking his Fifth Amendment rights, further described how his team advised FirstEnergy Solutions on a “bipartisan political contributions” strategy in 2018 that included Generation Now, the Democratic and Republican Governors Associations, “and other 501(c)(4) organizations.” During a hearing with the bankruptcy judge, Verhoff clarified that the advice involved “other (c)(4)s being affiliated with certain candidates running for governor” while one of his colleagues further reinforced the view that “it is not atypical for a 501(c)(4) organization” like Generation Now “to be affiliated with specific politicians.”
Hopefully, Householder’s guilty verdict will send a cautionary signal to politicians and campaign operatives about the misuse of tax-exempt organizations to avoid public disclosure of political funds. The case is being interpreted as an indication that the Justice Department is taking such abuse seriously, which is a positive development. Other agencies with a role in overseeing politically-active nonprofits, such as the Internal Revenue Service, the Federal Election Commission, and state campaign finance regulators need to similarly step up. Otherwise, if nothing changes, we’ll undoubtedly continue to see similar scandals across the country.