Nate Monroe: Conviction spotlights culture of silence at JEA that aided falsehoods
COMMENTARY | The fraud charges in the JEA corruption trial of the agency's former leaders, which concluded last week with a conviction of ex-CEO Aaron Zahn and an acquittal of CFO Ryan Wannemacher, were directly related to a narrow conspiracy to steal money, but federal prosecutors have also long taken aim at a broader series of lies: The entire 2019 effort to privatize JEA was based on "false and fraudulent" financial projections, and Zahn himself was an inexperienced leader who had no business running the city-owned agency in the first place.
Zahn's conviction cut right to the heart of a culture of silence within JEA's upper ranks and City Hall that gave the utility's disingenuous management team a long runway to deceive the public. Is it truly any wonder one of those management team members took it further and committed an actual crime?
In that broader and non-criminal series of falsehoods, there were many complicit actors, from members of the board of directors to some of Zahn's former colleagues, and to former Mayor Lenny Curry's administration. There were many, in other words, who were engaged in selling the Jacksonville public on a ridiculous lie that privatizing JEA — that is, selling it to a private power company like Florida Power & Light — was a necessary prophylactic to head off financial disaster for the city-owned utility and for the city itself, financial projections that appeared dishonest in real time and that time has shown were nothing more than contrived junk. And before all that, there was the foundational lie that Zahn was the right man to lead JEA.
There is no evidence these people were criminally complicit in Zahn's secret plan to skim profits off the top of that transaction, the act for which he was convicted, but many of them faced critical junctures during which they either chose to empower Zahn or sit silent, enabling a leader who many of them knew possessed troubling tendencies.
The board of directors swallowed hook, line and sinker Zahn's doomsday forecasting even as there were critics, in this newspaper, in the public power industry, and within JEA, who called bull as these presentations were happening. It was obvious Zahn had taken a black-swan scenario — a rare, cataclysmic event that reduces a business to irrelevance — and repackaged it as a mainstream view of JEA's future and a near certainty. Yes, his presentations, as Zahn's attorneys noted at trial, included disclaimers that said the forecasts "should not be relied upon by present or prospective JEA bond investors to purchase or sell any security or to make an investment decision." But those slides were not dwelled on nor were they intended to be. Like the fast-talking, scary disclaimers tacked onto to the tail end of those plucky ads for medications, these hedges were perfunctory legalese — weasel words.
And the board knew it, or should have known it. Instead, the board members reacted with performative shock and awe. There seemed to be an unspoken understanding at the time that Curry, the then-mayor, wanted JEA privatized, and so this culture of silence pervaded: Was it odd that Paul McElroy, who'd earned plaudits from the board and was in line for a contract extension, abruptly retired? Was it even stranger that Zahn, who'd never run any utility of any size, applied to replace McElroy, leading one of the largest public utilities in the United States? Well yes, but Curry seemed to dislike McElroy and favored Zahn, so there was no sense in objecting too loudly. Was it strange that, shortly after Zahn's arrival, JEA, whose finances had heretofore been talked about in glowing terms, suddenly was said to be facing vaguely dark days ahead? Well yes, but then again Curry didn't seem to like JEA much, so maybe there was something to it.
At trial, former JEA Chief Operating Officer Melissa Dykes, one of the top leaders who worked closely with Zahn, said the board's reactions to Zahn's presentations appeared to be "theater." Indeed.
"There's a bit of theater to the whole meeting," she said.
Theater in a public meeting, where public business is actually supposed to be organically conducted and not preordained. In the lead up to the July 23, 2019, board meeting, during which the board gave Zahn a greenlight to put the agency up for sale, Zahn had ducked, dodged and weaseled his way out of answering whether he intended to privatize the utility. And yet, this is what the public heard after the vote: “If you’d been paying attention, you’d have seen the historic moment coming," said board member Alan Howard.
It was clear at the time and most certainly in the years since that those board meetings were scripted nonsense. The board was incurious, lazy, compromised or a combination of all three.
Dykes, the former COO, never disclosed her feelings about the board's behavior in real time, nor did she proactively raise any red flags before the board, with legitimately misleading information in hand, approved a long-term incentive plan that in truth was the vehicle for Zahn's get-rich-quick scheme — the center of his indictment and conviction. At trial, Dykes acknowledged having far more knowledge about the workings of that scheme than her previous public comments would have suggested.
Shortly after the board placed Zahn on administrative leave in 2019 and named Dykes the interim leader, she told the media she was aware of the incentive plan “as all employees were” but that she was so focused on the day-to-day operations of JEA that she was not “intimately involved in the details of the plan.” All employees were not, in fact, aware of the multi-million dollar payouts that were possible at the time the board voted to approve the plan, as Dykes acknowledged she knew during the trial. Nor were they aware that Zahn had always intended to tie to a potential sale of JEA to the value of the incentive plan, the key to unlocking massive payouts, another facet of the plan Dykes acknowledged she knew. The board, in fact, was told this incentive plan was to be calculated every three years and make modest payouts to employees — direct lies.
And although Dykes testified she thought the plan was a terrible idea, she did nothing to alert the board to that fact before it signed off on it (she claimed she believed Zahn had fully briefed board members on the plan, a belief she apparently clung to even after board members had asked basic questions that should have made clear they did not understand its workings or its true purpose).
Herschel T. Vinyard, JEA's former chief administrative officer, seemed eager to take credit for thinking Zahn's incentive plan was a bad idea and for creating "circuit breakers" designed to slow down its implementation. Yet wouldn't the most effective circuit breaker of all have been disclosing to the board, prior to its vote, his purportedly strong feelings about what a terrible idea it was?
Neither Vinyard nor Dykes were charged with crimes, but that does not compel the public to think their actions noble. Prosecutors made clear during the trial they held a low opinion of Dykes in particular. The two sat on their biscuits while the board of directors approved something they testified they believed to have been a toxic idea, yet to this day they project total self-confidence they acted appropriately. Shameful. They should never again be permitted within a country mile of any role that involves maintaining public trust.
The crux of Zahn's get-rich scheme was to create phantom stocks out of JEA's value — a value built over more than a century of existence that neither Zahn nor any member of his management team made any meaningful contribution toward (quite the opposite). How is it that the creation of a stock-option plan within a government agency didn't raise more eyebrows?
Kevin Hyde, a lawyer with Foley & Lardner, and Stephen Amdur, an attorney with the New York firm Pillsbury Winthrop Shaw Pittman, worked closely with Zahn's JEA and did perform work on that incentive plan. But neither were hired to opine on the plan's overall legality: Zahn was deft at siloing experts and outside consultants to give his plans the patina of legitimacy. Yet, still, this idea — a stock option plan in a government agency — didn't give someone, anyone, a bad feeling?
Jason Gabriel, Jacksonville's former general counsel, was one of the few actors in this sorry saga who, even without all the information, listened to his gut: This plan was a bad idea.
He'd come to that conclusion even before he understood the plan's potential — or rather, its intention — to generate multi-million dollar payouts in the event of a sale of JEA. Gabriel had issues with it on a "very fundamental level," he testified during the trial. "We weren't comfortable with this."
Gabriel didn't wait to be told by someone else, like a prosecutor or FBI agent, that the plan was a bad idea before deciding it was a bad idea; he simply knew it was and acted, ultimately shutting the plan down before it made any payouts. He broke the code of silence, stirring anger in Zahn in the process. It's a damning fact indeed that there are few others who worked with Zahn who can claim the same.
There is no compelling evidence Curry knew of Zahn's get-rich scheme, but his decision to empower Zahn was a kind of original sin in this long-running epic. Instead of simply having a straightforward public debate over privatizing JEA, Curry tried to have it both ways: Aware of the idea's deep unpopularity, he ran for re-election claiming he would not submit any plans to privatize JEA to the City Council. Left unsaid was his plan to install a useful idiot within JEA who'd do it for him, and his assumption his appointees on the board would let him do it.
He was right.
Who they were
The JEA board of directors was, at the time, a volunteer board appointed by the mayor and approved by the City Council. Utility experience was not required and none of the members of the 2019 board possessed experience in that field.
Every board member testified at trial except one: Camille-Lee Johnson, who invoked her Fifth Amendment rights and refused to answer substantive questions outside the presence of the two juries who decided the case. In a court filing, Johnson's attorney said she'd largely forgotten her time as a board member and should have been excused from testifying. It's not clear what aspect of her testimony Johnson believed might incriminate her.
Both Johnson and Zahn were members of the Young Presidents' Organization, a secretive networking group for corporate leaders under 45.
The 2019 board of directors:
? Chair: April Green, chief financial officer at Bethel Baptist Institutional Church.
? Alan Howard, mergers and acquisitions attorney at Milam Howard Nicandri & Gillam.
? Johnson, CEO at Lee Wesley, a restaurant franchisee and operations management company.
? Andy Allen, CEO of Corner Lot, a development firm.
? Fred Newbill, pastor at St. Timothy Baptist Church.
? Kelly Flanagan, chief financial officer at Augusta National Golf Club (in 2019, the CFO for the Jacksonville Jaguars).
Nate Monroe is a metro columnist whose work regularly appears every Thursday and Sunday. Follow him on Twitter @NateMonroeTU.
This article originally appeared on Florida Times-Union: Nate Monroe: Culture of silence aided JEA's falsehoods, controversy
