GOLDMAN: Were federal prosecutors conned into pursuing Governor McDonnell?
RICHMOND, Va. – David Maurer’s acclaimed book, The Big Con: The Story of the Confidence Man, examined a con man’s cunning ability to fool almost anyone. The University of Kentucky Professor’s literary insights inspired the Oscar-winning movie The Sting, starring Paul Newman and Robert Redford.
But apparently Virginia’s federal prosecutors have failed to read it.
I didn’t vote for Republican Governor Bob McDonnell.
But something never “smelled” right about the unprecedented U.S. States Department of Justice’s relentless investigation into a popular Republican Governor during a gubernatorial election year.
Any objective observer has to concede the timing greatly impacted on campaign strategy.
The investigation focuses on roughly $170,000 in cash, gifts and loans from Mr. Jonnie Williams, founder of Virginia-based Star Scientific Inc., to Governor Bob McDonnell’s family or business interests. The 58-year-old businessman lives in our Richmond metro-area out in Henrico. Star’s corporate offices are in Glen Allen.
The Washington Post seized the lead in using unnamed sources to keep the technically “secret” investigation on the front pages. Their sources must know what the prosecution is thinking, they have yet to be rebuked.
A recent story described the investigation’s status, which has grown to encompass the Governor’s wife:
“Williams is a critical witness who can offer investigators insight into the key issue for such a case: whether the governor and first lady agreed to take official actions that could help Williams’s company in exchange for his gifts…Legal experts said that if federal prosecutors pursue corruption charges against the Virginia governor, they will probably do so under the federal Hobbs Act, which prohibits elected officials from taking money or other items of value in exchange for the performance of official duties.”
“To prove a violation of the law, they would have to show that McDonnell agreed to perform official acts for Williams. Whether McDonnell followed through on those pledges — and whether an action by McDonnell resulted in benefits to Star — would not necessarily matter, experts say. “It’s not necessary under the law” for a payor to have benefitted, said Justin Shur, a lawyer who is the former deputy chief of the Justice Department’s public integrity section. The key, Shur said, is to prove that an elected official agreed to take some kind of official action in exchange for gifts or loans. “There needs to be a direct connection between the two,” Shur said. Similarly, when trying to prove a crime, prosecutors need only show that McDonnell derived some benefit from the items given.”
As a former Chairman of the Virginia Democratic Party, Democratic National Committee member, and campaign strategist for several winning Democratic gubernatorial candidates, I understand why Republicans might view the situation with a jaundiced eye.
When the gubernatorial election year started, McDonnell had earned an “Eagle Scout” image during two decades in public office.
Being the most popular Republican Governor commanding any major state, he dominated the state’s political landscape, clearly the GOP top electoral asset in this year’s gubernatorial contest. The photogenic chief executive held a spot on every short list for his party’s 2016 national ticket.
But now, as my recent Washington Post OPED pointed out, the Williams investigation had vaporized the GOP’s top asset, indeed creating a climate making the businessman’s minor and totally legal in-kind contributions to GOP gubernatorial nominee Ken Cuccinelli radioactive politically. It likely proved the single most destructive issue to his campaign strategy.
Yet while partisan suspicions are common in today’s political climate – conservative Cuccinelli backers despise the Post and its role as Democratic Terry McAuliffe’s strongest editorial backer – my earlier piece for the newspaper examined why Cuccinelli’s inept campaign and baffling strategy gave the GOP candidate little real hope since the summer.
Blaming the Post or any major state daily – NONE support Cuccinelli – for the GOP’s 2013 troubles avoids addressing the party’s fundamental challenges. But the “victimization” sentiment is out there.
I had worked with Attorney General Cuccinelli to get several important voting rights bills enacted at the 2013 General Assembly in response to a big federal court win myself and others scored against his office.
There isn’t much genuine bipartisanship left anymore on tough issues. So it seemed useful for me to prepare an article showing the McDonnell investigation had not actually tainted the election outcome prior to today’s results.
But the research – on my own without any compensation – revealed a troubling picture I frankly never expected.
All avenues of research confirmed the Washington Post’s observation that the “key question for prosecutors is who is most believable about the interactions between the governor and Williams.”
This insight makes both empirical and logical sense.
Prosecutors rightfully had early questions about the Williams-McDonnell’s relationship.
Virginia has admittedly weak state financial disclosure laws for elected officials. Thus these items from the Star founder had either not been disclosed or reported in the vague, non-transparent manner seemingly permitted by state law. However, Section 151 of the federal Hobbs Act is applicable to state officials.
Prior to the McDonnell investigation, Star Scientific faced a relentless federal probe into years of questionable company stock transactions. This probe could have proven ruinous to Star along with Mr. Williams. But once Star’s founder began fully cooperating with the Governor’s pursuers, the securities probe seemingly faded away, the company telling shareholders not to worry.
As famed New York Yankee catcher Yogi Berra once said, some things are simply too coincidental to be a coincidence.
Long story short, Mr. Williams says the Governor knew the roughly $170K came with strings attached. McDonnell swears Williams is wrong, moreover had no cause to believe otherwise.
The Hobbs Act prohibited McDonnell from accepting such largess if the governor knew or should have known Mr. Williams expected an illegal quid pro quo. McDonnell denies any agreement to accept the money in exchange for an official act. Williams admits they had no express quid pro quo, which would make both him and the governor guilty of a felony.
A CURIOUS MEDIA FAILURE
With all due respect to reporters who have covered this unprecedented story, the inexplicable failure by the Virginia media to provide the necessary in-depth profile examinations of Mr. Williams is self-evident.
He claims to know evidence capable of taking down the Virginia Governor.
An “MRI” examination into Mr. Williams thus became a basic journalistic obligation.
His relevant history discussed below is easily accessible to any interested journalist. It leads to the next question, “is it possible prosecutors are equally in the dark or possess insufficient interest in this history?”
Moreover, federal prosecutors have ready access to countless federal and state documents not available to me over the Internet, assuming someone even knew they existed. The mainstream media also given their resources and confidential sources.
Given this failure, the people of Virginia have been left without the necessary information as regards the answer to the fundamental question: Just who, the heck, is the real Jonnie Williams?
He has been called a “genius” with “an uncanny ability” to see a central path to a solution that other highly trained people have missed.
On the other hand, the website cites a little-known newspaper article quoting a former employee of Williams saying “Jonnie Williams could sell a snowball to an Eskimo.”
However, “when it came to backing up what he was selling, now that was another story. Let’s face it, he was a salesman through and through.” This description, given repeatedly during his business career, comes from a newspaper story about him in 1981.
Trying to figure out the “real Jonnie Williams” would have stumped the panelists on the legendary quiz show “What’s My Line?”
CON MAN EXTRAORDINAIRE OR MISUNDERSTOOD HIGH-TECH MEDICINE VISIONARY?
Contrary to the impression given by prosecutors to Virginians, Mr. Jonnie Williams first appeared on the radar of federal law enforcement officials back in the 1980’s as reported in an exclusive Boston Globe expose.
It turns out Mr. Williams eventually wound-up in Massachusetts after fleeing Virginia.
- COLONIAL OPTICIANS – THE LOW TECH FAILURE
According to the Fredericksburg Free-Lance Star, Mr. Williams skipped town in 1981 as his Colonial Opticians eye glass business collapsed.
He owed small business suppliers tens of thousands of dollars in accounts payable, and apparently failed to repay a $45,000 federal Small Business Administration loan.
Yet even those damaged by his business tactics expressed awe at his being a “super salesman.” As one ex-employee put it, Mr. Williams “could sell a snowball to an Eskimo.” This is sentiment later occurs again in stories about the man at the heart of the biggest election year scandal in Virginia history.
2. CME-SAT INC – TRYING OUT A NEW MODUS OPERANDI THAT ENDS IN BANKRUPTCY
The first test to smooth out the kinks in what would evolve into a consistent Williams’ MO is apparently a company called CME-SAT Inc.
The start-up hawked instructional videos for physicians [first eye doctors but then other specialists] featuring lectures by well respected names teaching at John Hopkins and Harvard University.
Physicians on Main Street America must keep up with the latest developments in their field. These instructional videos were intended to fill that need.
Williams, the company President and treasurer, along with his partner Dr. Frank E. O’Donnell, sold $2.2 million in stock to get the venture started, the bulk most likely to professionals at the schools and their associates. The two paid themselves hundreds of thousands in salaries and travel expenses.
The company went belly-up, never making a profit, but not before Williams and O’Donnell cashed out over a $1 million. Many investors, doctors featured in the videos, university officials, and a related hospital felt double-crossed. The whole mess eventually landed in a Tampa, Florida bankruptcy court, the docket listing over $100,000 in outstanding debts.
3. SPECTRA PHARMACEUTICAL SERVICES, INC. – THE SEC TAKES NOTICE OF WILLIAMS
“In many ways, Spectra has been the model for their subsequent ventures” wrote the Globe investigative reporter referring to Williams and O’Donnell.
Spectra does indeed approximate the classic form of their MO.
First you acquire the commercializing rights to proprietary research, claiming it can be the basis for a unique, legitimate “product.” Then you form a new or reformatted stock company. Next associate the company with respected individuals or institutions in the appropriate field. This in turn will help validate your stock sales pitch. By the time the truth emerged, Williams and partners had invariably already cashed out while honest investors were cleaned out.
The basis for Spectra centered on a claim that a special ointment using Vitamin A could cure any number of eye diseases. Needless to say, the “cure all” turned out to be hardly a cure, indeed the research questionable at best, the “independent” researcher conveniently on the Spectra payroll.
Having likely been alerted by an investor believing he or she had been defrauded, the Securities and Exchange Commission investigated. The watchdog agency accused Williams of using research with false claims to promote Spectra stock. Williams, without admitting guilt, made the SEC charges go away by paying a $295,000.
However, the Globe suggests Williams continued to sell Spectra after he surely knew the company to be worthless, using the same questionable claims the firm had previously been required to admit publicly were based on suspect research.
The newspaper further alleges Williams secretly paid a Florida financial newsletter to promote the stock to unsuspecting readers. It is also suggested that Williams conveniently sold his stock at a time these maneuverings temporarily raised the price before Spectra ultimately went bankrupt.
4. EYE TECHNOLOGY INC OF ST. PAUL – ANOTHER FAILED WILLIAMS COMPANY
According to the Globe, Williams’ helped create Eye Technology Inc. Executives at CME-SAT charged Williams used company money to defray start-up costs at Eye Tech. Williams denied these allegation. After going public, the company went nowhere until Williams merged it with Star in 1998, according to Bloomberg News.
5. MORGAN LABORATORIES INC. OF SARASOTA – A SCAM PREVENTED?
Williams got a big chunk of stock in this new start-up. The plan had been to sell an initial $3 million in shares. The deal contained the basic earmarks to their usual MO. But the IPO was withdrawn at last minute by the brokerage house bringing it public.
6. KASHNER-DAVIDSON SECURITIES CORP OF SARASTOA – A CURIOUS SIDEBAR
The Globe indicates Williams worked out of this brokerage house while the Morgan Lab deal blew up. Williams denied any links to the firm but “documents show he and an associate lent the company money and had expenses covered.”
7. PSYCHEMEDICS CORP. OF LOS ANGELES – WHAT HAPPENED HERE?
This Williams company went public selling $3 million worth of stock. Kashner-Davidson handled the deal. Williams supposedly owned a good chunk of stock. What happened to the company? It remains an apparent mystery as an Internet search turned up nothing.
8. C.A. BLOCKERS INC – DID WILLIAMS GET THE IDEA FOR STAR TOBACCO HERE?
Williams helped organize the company’s initial public offering. Once again it amounted to an initial $3 million worth of shares, according to The Globe.
Kashner-Davidson handled the deal, although to make it happen, Williams had to “lend[s] [the] brokerage house $375,000” so it could meet SEC requirements to handle such a stock sale. Blockers professed having original research from experts at the University of Louisville School of Medicine to enabling the company to add an ingredient to a cigarette that “block[ed]’ the activity of certain cancer-causing elements found in the smoke.
9. LASERSIGHT, INC – BANKRUPT COMPANY THAT CAUGHT THE SEC’S EYE
Here is another Williams’ company that eventually “settled with the SEC over allegations of orchestrating sham transactions” involving the firm’s President. It later went bankrupt.
10. C. A BLOCKERS – BACK AGAIN, ANOTHER GREAT BANKRUPTCY DEAL FOR WILLIAMS?
The President for the Louisville, Kentucky company decided to associate with Williams after having been stymied in finding the money to get the business rolling. L. Douglas Kenny had been experiencing trouble trying to “produce a cigarette with the additive” in his search to make safe smoke. According to the Globe, Mr. Kenny surely knew the “researchers” had never actually shown the alleged “blocker works in humans.”
Williams learned Kenny’s father had been Dean of the Medical School. This fit with his MO. After the product went public, no one liked it indeed it had never been tested. The company eventually went bankrupt. However, they may have sold some cigarettes in Israel under the name “Spectra.”
A BIGGER CON? STAR SCIENTIFIC INC. CLAIMS TO TAKE ON BIG TOBACCO
Sometime around 1990, Williams and partner Frank O’Donnell acquired defunct C.A. Blocker’s manufacturing facilities in settlement of a debt.
After experimenting with several non-viable products, by 1999 Williams began claiming University of Kentucky tests proved he had invented a unique tobacco curing process allowing him to produce a safer cigarette.
“He [Williams] had a process that was advertised beyond belief as the magic bullet,” said Chris Cogging, research head at Lorillard Tobacco Inc. “He never came up with any data.”
In 2000, Williams and O’Donnell created Star Scientific, Inc.
Forbes Magazine valued the principle investors’ stock holdings at many hundreds of millions provided their safer cigarette claim was real. But in this article entitled “Blowing Smoke,” the author pointedly asked whether the Star might merely be just another “good way to line the pockets of the principal investors, whose shares are already worth $131 million.”
In 2007, Williams finally admitted Star had no such viable product as independent experts long suspected.
Star’s stock price plummeted 90 percent.
But fortuitously, rumors claiming Big Tobacco owed huge sums for ripping-off Star’s patents would propel the stock up 700 percent by the time of first trial in June 2009.
Then boom, the jury ruled Williams claims “all hat and no cattle” as they say in Texas. Within months, Star stock had plunged 90 percent.
BIGGER STILL? STAR SCIENTIFIC INC. MAKES ALLEGED HISTORIC BREAKTHROUGH
Suddenly, a few months later, headlines saying “Star Scientific Shares Spike As it Stumbles Onto A Potential Alzheimer’s Cure” blazed across the Internet.
Williams claims a proprietary tobacco based anti-inflammatory compound with unique potential in many health product areas. It is the key to his new line of Anatabloc health care products.
But after more than $60 million in new operating losses, the share price has fallen back again. Yet Williams paid himself $9 million in 2011 alone. Star actually lost nearly $220 million in the last 10 years.
WHAT WILLIAMS HAS NEVER DONE
Needing to show mass marketing appeal for his new Anatabloc line of health care products – which he concedes is critical to Star’s survival – Williams began enlisting public relations “ambassadors” like golfing greats Fred Couples and Nancy Lopez.
A Virginia Governor and First Lady would be great promoters.
But why risk committing a federal crime to “buy” their support when the McDonnells already where talking up your product?
Virginia’s First Couple were well-known promoters of the “health care product culture.”
They were users, indeed Mrs. McDonnell had owned a self-employed business marketing nutritional products.
Williams realized they would champion Anatabloc once introduced.
He made that happen. The McDonnells were thus backers before being allegedly “bought.”
Fact — The Williams MO has never included “buying” an elected official.
Why start now?
It defies his successful MO totally.
Was it monumentally stupid – politically and ethically – for the McDonnells to allow Williams to “launch” his Anatabloc product line with a lunch at the Governor’s Mansion, for the First Lady to travel – all-expenses paid by Star – to promote Anatabloc at conferences, even have samples of the product slipped into the “goodie bags” given to GOP Governor’s at a meeting of the Republican Governor’s Association?
The Governor is right, he should be embarrassed. But it is not illegal for Williams to promote his company in such ways, or for the McDonnells to likewise promote their genuine support for the product.
As the former Mansion chef has said, Williams’ cleverly tried to “ingratiate” himself with the McDonnells. That’s legal too according to federal court decisions.
Isn’t this “Crony capitalism” as the saying goes? Yes.
Is it what we want in Virginia’s First Family? Hell no.
But even such bonehead bad judgment – now conceded by the Governor – isn’t grounds for a criminal charge, much less a career-ruining investigation when it appears to require giving someone like Mr. Williams a huge financial benefit in a quid-pro-quo for his agreeing to help take down a Governor of Virginia..
“PLAYING THE PROSECUTORS”
According to media reports, “[Williams] has told authorities that McDonnell frequently spoke with him about ways he and the state could help Star Scientific gain prestige and scientific endorsement for its new anti-inflammatory supplement”.
This unwittingly supports the Governor’s view of Williams’ usual MO, precisely how he came across to McDonnell. The Williams MO builds relationships, gets the “buzz” going in the right circles, and stays clear of the Hobbs Act. Ironically McDonnell’s office wisely made the Anatabloc web site remove the Governor’s testimonial. Yet this is precisely – and legally – what Williams wanted! His promotional experience over the past 30 taught him how to use such a testimonial to enhance a product’s appeal.
Prosecutors apparently believe Williams’ claims that McDonnell tried to get the Virginia Tobacco Commission to fund Star-friendly research. But Williams’ lawyer is twin brother to a long-time Commission powerbroker, now its Chairman. Why would he need the Governor? Besides, a search of the Commission website suggests those types of projects didn’t readily if ever received funding.
Judge Sol Wachtler famously said a prosecutor can indict a “ham sandwich.” But would any sensible prosecutor invest money with Mr. Williams or tell a sick relative to stop taking prescription medicine and switch to a Star product?
From his earliest days as a legendary used car salesman in Fredericksburg, everyone recognized Jonnie Williams had the “gift.” Mr. James Sealey, a businessman who said the super salesman skipped town owing him thousands, still marveled. “That guy could sell you anything. I mean anything” he said. “Let’s face it,” he added with a grin, “Jonnie could talk his way out of anything.”
“He was a very slick salesman,” said David Muller, who competed with Williams back in the 1990’s. Williams is “the guy who could sell snowballs in Alaska,” Muller told Bloomberg News.
Sensing prosecutors believed McDonnell “dirty,” did Jonnie cleverly put a different “spin” on benign yet dumb actions to get them to give him a “get out of jail” free card? Given his history, at a minimum any reasonable person must have substantial and legitimate concerns.
MORE TO COME:
I will be exploring current facts and more history in greater detail in the weeks ahead. But for now, I leave you with this observation:
For a guy who made a fortune claiming he could revolutionize the tobacco industry due to something he cooked up in his microwave, and is now blatantly claiming he cooked up the cure for Alzheimer’s at the same time but didn’t know it for a decade, selling prosecutors on this latest Con Job in order to a financial windfall by making those stock sale troubles go away may deserve a new chapter for the 100th anniversary update of Professor Maurer’s book.
Paul Goldman is in no way affiliated with WTVR. His comments are his own, and do not reflect the views of WTVR or any related entity. Neither WTVR nor any of its employees or agents participated in any way with the preparation of Mr. Goldman’s comments.