Opening arguments delivered, testimony phase underway in trial of former JEA executives

Jurors in the criminal trial of two former JEA executives heard opening statements Feb. 21 from attorneys and testimony from a former longtime JEA executive as prosecutors began to present their case.

Former JEA CEO Aaron Zahn and Chief Financial Officer Ryan Wannemacher are on trial in U.S. District Court on accusations of conspiracy and wire fraud. Prosecutors accuse them of crafting an unlawful bonus plan that would have paid them millions of dollars through privatization of the city-owned utility.

The trial in the Bryan Simpson U.S. Courthouse is before two separate juries, one each for Zahn and Wannemacher.

The gallery on Feb. 21 included reporters from several Jacksonville news organizations, a reflection of the extensive media attention the case has received since the men went under investigation and were indicted in 2022.

The government's lead prosecutor, Assistant U.S. Attorney Tysen Duva, told jurors that Zahn and Wannemacher acted both in public and secretly in scheming to "walk out the back door with tens of millions of dollars."

Duva said JEA had been on solid financial footing for years when board member Tom Petway raised the possibility of selling the utility as he was leaving the board in 2017. Former Mayor Lenny Curry appointed Zahn to the CEO board in February 2018 to fill Petway's seat.

In April of 2018, amid growing debate about whether to sell the utility, JEA CEO Paul McElroy resigned after 16 years as an executive with the utility.

Melissa Dykes was named interim CEO, but weeks later Zahn was named to the position after the board interviewed him and Dykes.

"Then things got odd … in that Mr. Zahn, who had zero utility experience and had been on the board for a hot second, as they say, became interim CEO of JEA," Duva said.

Duva said that with Zahn as JEA's leader, a position he would cement in November 2018 when he was named full-fledged CEO, "there was an immediate sea change" in the utility's direction and discussion about privatization heated up.

A two-part conspiracy

The conspiracy between Zahn and Wannemacher involved two elements, Duva said.

He said the defendants crafted an unlawful employee incentive program, known as the performance unit plan, that called for units of payment valued at $10 each to be offered for purchase by JEA employees.

Like stocks or bonds, the value of those units was designed to rise or fall with changes in the utility's financial performance. Duva said the plan's stated goal was that employees would be incentivized to work harder and boost the company's earnings.

The payouts were weighted, with top executives standing to receive a larger share of bonuses than lower-ranked employees.

Duva said Wannemacher and Zahn presented the PUP to board members during a July 2019 board meeting, saying the plan would involve "nominal" payouts of $3 million to $4 million across JEA's workforce.

"What they didn't tell the board, what they didn't tell the city, what they didn't tell the JEA ratepayers, what they didn't tell the City Council, was the ballooning effect of that bonus plan, the arithmetic behind it and how much money they expected to receive if JEA sold," he said.

A sale of JEA was the second element of the scheme, Duva told jurors.

Toward that end, he said, Zahn misled the board about the financial condition of JEA, creating a narrative that the previous leadership had been blind to disruptions in the energy industry.

Those included the expanding use of rooftop solar systems and the increasing energy efficiency of homes, businesses and appliances, both of which threatened to eat into energy companies' revenues.

In May through June 2019, Duva said, Zahn presented the board with three scenarios for JEA's future, including one in which the utility would be sold. The other scenarios generated "gloom and doom" outcomes, including the utility raising rates, laying off more than 500 employees and cutting off its annual contribution to the city, which makes up 10-12% of the city budget.

At that time, Duva said, "JEA employees are getting up in the morning and hearing that if we don't do something different, 30% of us won't have our jobs anymore."

JEA board 'hoodwinked'

In July 2019, the JEA board approved the PUP plan and also voted to investigate putting the utility up for sale. Duva said the board had been "tricked, deceived and hoodwinked."

The next month, JEA issued an "invitation to negotiate" the sale.

Duva said it was later revealed that NextEra Energy, the parent company of Florida Power & Light, had been prepared to pay $11.05 billion for "the very dying business that Aaron Zahn was trying to convince the JEA board existed."

Duva said examinations by accountants and auditors revealed that the true scale of the bonuses would be far greater than Zahn and Wannemacher had claimed, with each $10 performance unit being worth as much as $11,500.

After a report from the City Council auditor, the JEA board rescinded the PUP plan and halted steps toward selling the utility. JEA remains under city ownership.

An 'absurd' theory

Zahn's lead attorney, Eddie Suarez, called the government's case an "absurd" theory that "on its face just doesn't make any sense."

Suarez said JEA was "stable, but it was not thriving" when Zahn became involved with it. He said the utility had not fully game-planned for industry disruptions and had entered a "disastrous" power purchase agreement for energy from the Plant Vogtle nuclear power plant in Georgia.

JEA is responsible to pay $3 billion for the $30 billion project, which has been beset by work delays and increases in construction costs.

Suarez said the board hired Zahn, a Yale graduate with experience in finance and investment, because he could bring ideas from outside the energy industry to JEA.

"They were looking for a young, visionary leader," Suarez said. "They were looking at someone from the private sector, someone who could shake things up."

In presenting the PUP plan and the sale option, Suarez said, Zahn was giving the board the kind of ideas they were expecting from him.

Countering Duva's description of the scenarios that Zahn presented to the board, Suarez described them as a standard business practice designed to alert decision-makers to potential disruptions and challenges. He likened scenario planning to a fire drill.

No 'death spiral'

He said the scenarios involving layoffs and discontinuation of funding to the city were presented to show what could happen, he said, not necessarily what was going to happen.

Contrary to the prosecution, Suarez said, Zahn only used the term "death spiral" to say that JEA wasn't in one.

Writing on a poster board, Suarez asked the jury to consider all of the layers of approvals and signoffs Zahn and Wannemacher would have needed to pull off the scheme. Between the sale of JEA and adoption of the PUP, approvals would have had to come from the Florida Ethics Commission, the Florida Attorney General's office, the City Council, the JEA board and a vote by Jacksonville citizens.

Wannemacher's attorney, Jim Felman, told the jury that his client "never conspired with Aaron Zahn or anyone else to commit a crime."

Rather, Felman said, Wannemacher created a formula for the incentive plan and delivered a summary to the JEA board.

"And that is all that Mr. Wannemacher did, other than to accurately and correctly explain this plan to all of the city's lawyers, all of the city's auditors and anyone else who wanted to talk about it," Felman said.

Former JEA CEO testifies

Retired JEA CEO McElroy, the prosecution's first witness, answered questions about the history and business model of the utility. He also discussed the dynamics of the political discussion about selling JEA that preceded his resignation.

"The political climate got very tense," he said.

Delays at the start

Opening statements were scheduled to begin Feb. 20 but were delayed after jurors who were chosen to hear the evidence against Zahn were excused.

Among them, one man reported being exposed to family members who tested positive for COVID-19 and another said he would face serious financial problems because his employer would not pay his wages while he served on the jury.

Their excusals resulted in another round of juror selection, with four new alternates being seated for a total of 16 jurors.

Senior U.S. District Judge Brian Davis began the proceedings Feb. 20 by announcing that he had excused a juror in the Zahn case because of illness.

When the juries were seated, the Zahn jury sat in three rows of seats, with chairs marked with red tape for the Zahn jury and blue tape for the Wannemacher jury.

As was the case during jury selection, the defendants sat at separate tables on the west side of the courtroom.

Zahn sat at a table nearest the bench with attorneys Suarez, Brian Albritton and Raquel Jefferson, who are based in Tampa.

Wannemacher sat behind Zahn with Felman and counsel Brandon Breslow to his left. Felman and Breslow also are based in Tampa.

Duva and and co-prosecutor Chip Corsmeier, also an assistant U.S. attorney, sat at the east table nearest the jury box.

Angela Hill, the case agent from the FBI, was seated with the prosecution.

The trial is expected to last four weeks. The conspiracy charge is punishable by a prison term of up to five years, and a conviction for wire fraud carries a prison sentence of up to 20 years.