Bloomberg News

Ex-Virginia Governor McDonnell Indicted With Wife

January 22, 2014

Former Virginia Governor Robert McDonnell, once a rising star in the Republican Party, was accused by U.S. prosecutors of using his office to enrich himself and his family in exchange for helping an in-state company’s chief executive promote his dietary supplement.

McDonnell and his wife, Maureen, who was also indicted, allegedly took benefits including vacations, loans, private plane flights and a Rolex watch from Jonnie Williams, the former chief executive officer of Glen Allen, Virginia-based Star Scientific Inc. (STSI:US)

In return, McDonnell set up meetings for Williams with state officials and held events at the governor’s mansion to push Anatabloc, a dietary supplement billed by the company as an anti-inflammatory compound, according to a 14-count indictment filed yesterday in federal court in Richmond, Virginia.

In the indictment, the McDonnells are portrayed as under growing financial strain from credit card debt, family obligations and money-losing vacation rental properties. The charges trace a rapidly evolving relationship with Williams that began in March 2009 when McDonnell was running for governor and began using the businessman’s plane. The two had never met at the time.

Tattered Image

The scandal and probes surrounding McDonnell’s relationship with Williams dominated the governor’s final year in office, leaving in tatters the image of a politician who had led the Republican Governors Association and was mentioned often as a potential running mate for Republican presidential candidate Mitt Romney in the 2012 election.

The McDonnells, who are both 59 and from Glen Allen, denied wrongdoing and vowed to fight the charges, calling them a prosecutorial overreach.

“I did nothing illegal for Mr. Williams in exchange for what I believed was his personal generosity and friendship,” McDonnell said in an e-mailed statement. “I never promised -- and Mr. Williams and his company never received -- any government benefit of any kind from me or my administration.”

“The Department of Justice has overreached to bring these charges,” said William Burck, of Quinn Emanuel Urquhart & Sullivan LLP, an attorney for Maureen McDonnell.

Jerry Kilgore, an attorney for Williams, declined to comment on the indictment.

Honest Services

The charges against the McDonnells include theft of honest services through wire fraud, obtaining property under color of official right and making false statements.

If convicted, the couple faces as long as 30 years in prison. Conviction on some of the charges would trigger forfeiture of about $140,000 and more than two dozen gifts from Williams ranging from Rebecca Minkoff shoes to a Peter Som dress and Peter Millar golf shirts, according to the indictment.

Ascending to the governor’s office increased the financial pressure on the McDonnells, according to an e-mail Maureen McDonnell sent a top aide of her husband’s, who had blocked her from accepting Williams’s offer to pay for a designer gown for the governor’s inauguration.

“I need to talk to you about the inaugural clothing budget,” Maureen McDonnell wrote in the e-mail, cited by prosecutors. “I need answers and Bob is screaming about the thousands I’m charging up in credit card debt. We are broke, have an unconscionable amount in credit card debt already, and this inaugural is killing us.”

‘Rain Check’

Maureen McDonnell told Williams “she could not accept the dress at that time but that she would take a ‘rain check’ from him,” according to the indictment.

From April 2011 through March 2013, Williams’s largesse included $19,000 spent on Oscar de la Renta, Louis Vuitton and other luxury goods during a New York shopping spree for Maureen McDonnell, and payment of a $15,000 catering bill for McDonnell’s daughter’s wedding, according to the indictment. Williams lent the couple a total of $120,000, none of which was reported to banks from which the couple borrowed more money, a violation of federal law, prosecutors said.

At Maureen McDonnell’s request, Williams provided two round-trip airline tickets for two of the couple’s daughters to attend a bachelorette party in Savannah, Georgia, according to the indictment. The party was for one of the daughters.

Financial Ties

McDonnell allegedly hid some of his financial ties to Williams from the public by having gifts and loans made to family members and a real-estate company McDonnell was involved with, which was losing $60,000 a year on two Virginia Beach houses. That allowed the governor to avoid reporting it on annual disclosures required of Virginia officials.

McDonnell accepted a Rolex watch from Williams with “71st Governor of Virginia” engraved on the back, and was given use of Williams’s Ferrari, according to the indictment.

Virginia ethics law allows elected officials to accept gifts of any size as long as they annually disclose those worth $50 or more. It permits gifts to politicians’ immediate family members while not requiring disclosure.

Reforming the law emerged as a major legislative issue in the state as the scandal unfolded.

In exchange for Williams’s gifts and loans, Robert McDonnell gave Williams access to government officials to promote Anatabloc and hosted events in the governor’s mansion aimed at encouraging Virginia university researchers to study the product’s active ingredient for possible use in medical treatments, according to the indictment. Almost all of Star Scientific’s sales come from Anatabloc.

State Officials

Maureen McDonnell was a featured speaker at Star Scientific marketing events, offering testimonials about the company and its products, according to the indictment.

Williams, who founded Star Scientific, stepped down as CEO on Dec. 27.

He led the company as it tried to market safer types of cigarettes and tobacco products, before shifting its focus to skin cream and nutritional aids based on chemicals in tobacco plants. The company lost money every year for the decade through 2012, according to its most recent annual filing with the Securities and Exchange Commission.

Williams’s businesses have drawn scrutiny before.

Star and Williams were sued by shareholders in May alleging the company made misleading research claims, and last month the Food and Drug Administration issued a warning letter to Star for selling Anatabloc as a drug without agency approval.

SEC Settlement

In 1993, Williams paid $295,000 to settle SEC allegations that he sought to inflate the value of a pharmaceutical company that later collapsed. He neither admitted nor denied wrongdoing, according to the SEC.

The McDonnells’ indictment came 10 days after Robert McDonnell left office.

The Washington Post reported that in December charges against the McDonnells were delayed following an appeal by their lawyers to Justice Department officials in Washington.

Calls for overhauling the state’s ethics law intensified in the wake of the charges.

The indictment is “a reminder that our Commonwealth needs to enact ethics reform that promotes open and transparent government,” Pat Mullins, chairman of the state Republican Party, said in an e-mailed statement.

David Toscano, Democratic leader in the House of Delegates, said in an e-mailed statement the events “underscore how critically important it is for the General Assembly to pass a bipartisan ethics reform bill this year.”

Stephen Farnsworth, a political scientist at the University of Mary Washington in Fredericksburg, Virginia, said that while the Republican governor’s troubles put a spotlight on ethics, it’s unlikely to cause any lasting damage to the state’s Republican Party because districts are drawn to favor incumbents.

“By the time the next election rolls around there will certainly be other things we’re talking about in Virginia,” he said.

The case is U.S. v. McDonnell, 14-cr-00012, U.S. District Court, Eastern District of Virginia (Richmond).

To contact the reporters on this story: Andrew Zajac in Washington at azajac@bloomberg.net; William Selway in Washington at wselway@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Stephen Merelman at smerelman@bloomberg.net


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