JACKSONVILLE, Fla. — COMMENTARY | A federal grand jury in Jacksonville will begin hearing witness testimony in the coming weeks related to a criminal investigation into the botched effort in 2019 to privatize JEA, the city-owned electric, water and sewer utility, according to multiple sources with knowledge of numerous grand jury subpoenas that have recently been issued.
Federal prosecutors have been investigating issues swirling around JEA for about a year, a probe that became public knowledge last April when the U.S. Attorney’s Office issued a grand jury subpoena directly to JEA demanding thousands of pages of documents. FBI agents and prosecutors have also conducted multiple interviews with an array of current and former JEA and city officials and others, according to information gleaned from public records and from sources.
Numerous subpoenas for witness testimony have recently gone out across the city, a spate of activity that suggests prosecutors are moving a case forward.
It remains unclear what precisely that case is (the FBI and U.S. Attorney’s Office don’t comment on ongoing investigations), though there are some reasons to believe it is focused at least in part on a highly controversial and much-scrutinized bonus plan that could have paid JEA's former executives millions of dollars if the utility had been sold to a private company. That plan was ultimately scrapped during the JEA sale process after the controversy around it arose, but some city officials and outside lawyers who have since reviewed it believe it to have been problematic the plan got as close to implementation as it did.
Controversies surrounded 2019 JEA sale effort
Numerous controversies arose during the 2019 sale effort — headed by former JEA CEO Aaron Zahn — to privatize the utility. Zahn was eventually fired and the JEA board put an abrupt halt to the privatization process on Christmas Eve of that year. But the opaque bonus plan, which executives at the time referred to as a "performance unit plan," has long stood out among the various other issues throughout that year.
A lawsuit JEA brought against Zahn last year accuses him of being the "ringleader of the perhaps the largest fraud in Jacksonville history." That fraud, JEA's lawsuit contends, centers around the bonus plan and Zahn's efforts to "sell JEA and loot it for millions of dollars in the process."
Zahn's attorney did not respond to a request for comment. Zahn has previously denied any wrongdoing during his time at JEA and has vigorously disputed the characterizations made in JEA's lawsuit.
Much of the scrutiny revolving around the bonus plan focuses on its lucrative nature and representations Zahn and his executives made to the board of directors about its cost and legality that, lawyers who have reviewed the controversy believe, later turned out to be inaccurate.
A special City Council investigative committee, formed in response to the JEA sale controversy, also found the bonus plan problematic.
The committee's final report, authored by attorneys with Jacksonville law firm Smith Hulsey & Busey, made no definitive conclusions about whether anyone involved at the city or JEA broke laws throughout 2019, but the lawyers wrote that JEA executives made "materially" misleading statements and omissions to the board of directors about the bonus plan — terms that, in legal settings, are sometimes elements of civil and criminal fraud cases.
Zahn's attorney has disputed the Council committee's report and has previously said every step Zahn took as JEA's CEO was carefully vetted by city and outside lawyers.
But records the Times-Union obtained last year, including internal communications from Foley & Lardner, a private law firm that was hired to assist JEA's privatization efforts, showed that lawyers had figured out the plan could have paid out as much as $1 billion in bonuses if the utility had been sold — far more than had ever been publicly disclosed — and that they had advised JEA executives against implementing it.
"I advised them months ago that the (bonus plan) was a bad idea and would kill the whole deal," Kevin Hyde, an attorney at Foley & Lardner, told his colleagues in November 2019. One of Hyde's colleagues worried the board of directors would, in a private-sector context, lose a shareholder lawsuit alleging bad faith for approving the scheme.
Nate Monroe's City column appears every Thursday and Sunday.
nmonroe@jacksonville.com
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