FRONT ROYAL – For the first time since Royal Examiner broke the story on Oct. 31 that the Front Royal-Warren County Economic Development Authority had overcharged the Town of Front Royal nearly $300,000 dating back to 2009, mention of that overcharge was made during Tuesday’s Town Council meeting.
Read related story: EDA may owe Town of Front Royal nearly $300K
The EDA acknowledged that it owes the town about $291,000 stemming from overcharges related to debt service payments, dating back to 2009. In an email obtained by Royal Examiner dated Sept 18, 2018, EDA Executive Director Jennifer McDonald wrote to Front Royal Director of Finance B.J. Wilson that, “According to the documentation and with help from our auditors and new accounting firm we believe the EDA owes the Town $291,278.64.”
Tuesday evening was the first public mention of the financial discrepancy, as all previous discussions had occurred during executive sessions following regular meetings. Councilman John Connolly said during Tuesday ’s meeting that Napier had drafted a resolution outlining the situation between the town and the EDA at his request.
Connolly said he had hoped the resolution would be approved at Tuesday’s meeting, but stated in a Wednesday telephone interview that he did not believe he had unanimous support from councilmen to adopt it into the agenda. He said the resolution will be discussed during Monday’s work session and hopefully adopted at council’s next regular meeting, on Nov. 26.
Connolly did permit the media to photograph a page of the resolution’s draft. That page states Napier sent the EDA a Freedom of Information Act request seeking “specific financial documents that the town’s finance director and the town’s auditor need to see to make an informed judgment as to the town’s financial standing with respect to the EDA.” The resolution states that the FOIA response was due Aug. 24.
The resolution further states that Mayor Hollis Tharpe, Town Manager Joe Waltz, Town Attorney Doug Napier, Finance Director B.J. Wilson, a councilman, and an auditor met Aug. 23 with McDonald, former EDA Chairman Greg Drescher, and EDA attorney Dan Whitten. At the meeting, the resolution states that McDonald, in response to questions posed to her by the Town’s Auditor, said the EDA mistakenly billed the town for a portion of a Leach Run Parkway bond and for an agreement related to debt service on the Avtex administration building.
The resolution also states that the town was informed on Aug. 23, during that same meeting, that the EDA had not finalized a $24 million New Market Tax Credit Program low-interest loan to finance “a number of very important” town capital improvement projects, although the EDA “previously represented multiple times” that the loan was closed. The resolution states this resulted in increased rates that will cost the town hundreds of thousands of dollars annually.
One day after that meeting, Drescher announced at the EDA’s regular August meeting that he was stepping down as chairman but would remain on the board. He stated in an email that “stepping down as chairman was not related to any meeting or issue” and that “the statement I gave outlined the reason.”
His statement indicated, in part, that Drescher was stepping back from the EDA chair because he needed to focus on his primary role as Warren County Public Schools superintendent.
The statement also said that Drescher, who was elected chairman in 2016 and reappointed in July 2018, always intended his role as chairman to be short-term. During his chairmanship, Drescher led the board through the July 2017 death of former longtime Chairwoman Patty Wines and board member Jim Eastham’s Nov. 2017 death.
Royal Examiner attempted to contact Drescher Wednesday afternoon, but his secretary said he was “in meetings the rest of the day” and would be attending an out-of-town conference until Monday.
William Biggs, the EDA’s treasurer of 30 years, resigned from his position in October, citing health reasons. He noted that he suffered a stroke four years ago and should have resigned then. He also referenced a recent fall when resigning from the post last month.
Read related story: After 30 years on EDA board Billy Biggs announces resignation
Connolly said on Wednesday that he felt it was up to the town council to protect the public’s money, and to make sure that moving forward, the town would be able to “accurately and timely pay no more to the EDA than it should.”
He went on to praise Finance Director B.J. Wilson and the town’s auditor, for their “vigilance and tireless pursuit of the true status of the historic amount the Town should have paid the EDA.”
Connolly added that with the hard work of both the auditor and Mr. Wilson, council members should “have a reasonable bead on where our finances are.”
Contacted Wednesday for an update on the status of the situation involving town finances and the overcharge by the EDA, as well as the councilmen’s contention that the EDA “had previously represented to the Town multiple times that the New Market Tax Credit Program loan had been closed and the EDA already had that money in its bank accounts” Town Attorney Doug Napier said in an email that, “The Town has two hats to wear here. One, the Town has to safeguard the Town’s taxpayers’ money. Taxpayers’ work hard for their money, and when they pay their taxes, they want to know that it is being used strictly for the public purposes Town Council tells them it will be used for. So the Town is a guardian and a fiduciary of that money.
“But two, the Town also does not want to make any sort of statement or insinuation against any person or entity that impugns the character or reputation of anyone without being strictly certain of where the Town stands on the facts.”
Napier added that “I am dependent on the Finance Director for my information about the Town’s finances vis-à-vis the EDA, and I am waiting on him to process and confirm that additional information, which I understand is voluminous and complicated. I appreciate that this takes time, longer than I or anyone else wants, but ferreting out facts to be absolutely certain of the facts often does take time.”
NEXT: A closer look at the New Market Tax Credit Program loan. It’s going to cost HOW much?
May 29, July 17 set for further motions arguments in EDA civil case
It was a who’s who of the controversy swirling around the audit and investigation into EDA finances and its aftermath on Wednesday morning, May 22, on the second floor of the Warren County Courthouse.
A motions hearing on the EDA civil litigation filed on March 26 was slated for the 9 a.m. Circuit Court docket before Judge Clifford L. Athey Jr., while the Special Grand Jury empanelled by Athey on March 27 to investigate potential criminality tied to the EDA financial investigation and civil litigation was beginning three days of witness testimony across the hall.
It appeared that all people named as civil defendants, save Truc “Curt” Tran who was represented by counsel, were present along with relatives, attorneys, former EDA co-workers and Front Royal Police investigators who worked the EDA office break-in case. The interesting mix created a standing room only crowd in the second-floor hallway, as well as some confusion as to which circuit courtroom was whose ultimate destination.
In opening the motions hearing Judge Athey noted that he would be leaving the circuit court bench in September for a seat on the Virginia Court of Appeals, so would not be the judge who would ultimately hear this civil case. He surmised the 26th District’s Chief Judge would assume that role.
But it was Athey who would hear and rule on a bevy of motions before him on Wednesday.
The judge agreed with defense attorney calls for more detail in the six-counts tied to the EDA civil complaints seeking a minimum total of $17.6 million from nine defendants, five people and four Limited Liability Corporations (LLC’s) tied to those five people – Jennifer McDonald, Donald Poe, Justin Appleton, Truc “Curt” Tran and Daniel McEathron.
Attorneys for the Sands-Anderson law firm that filed the suit on the EDA’s behalf have drawn heavy defense counsel criticism for listing all defendants together in one lawsuit seeking a lump-sum amount from all – “implausible conspiracies” was the term used by Jennifer McDonald attorney Lee Berlik in his motions filing.
And while there is a great deal of specificity as to acts and amounts of money in the 160 paragraphs preceding the 39-paragraphs comprising the six counts, such detail is absent in the listing of those counts of: 1/ Fraud and Fraud in the Inducement; 2/ Conversion; 3/ Conspiracy; 4/ Unjust Enrichment; 5/ Breach of Fiduciary Duty of Loyalty; and 6/ Ultra Vires (improper) Transactions and Agreements.
While not an attorney, for this long-time court observer it is surprising that the EDA civil action wasn’t broken into separate suits involving the various acts, entities and amounts of money cited in the first 160 paragraphs of the civil complaint. And while I would have asked Sands-Anderson and EDA civil case attorney Cullen Seltzer about that strategy, he was not speaking on the record following the approximate half-hour hearing.
Athey gave defense attorneys 21 days to file memos in support of their Demurrers and Motions for Bills of Particulars on the cases against their clients; and the plaintiff counsel 21 days to file Briefs in opposition to the defense assertions; and an additional seven days for defense responses to the plaintiff Briefs.
Those defense and plaintiff filings will be argued at the end of the Motions Day of July 17.
As to a motion to Quash the complaint against Earth Right Energy and its principals Donald Poe and Justin Appleton, Athey set a hearing for next Wednesday, May 29, at 9 a.m.
There was an interesting revelation by plaintiff attorneys in the wake of Jennifer McDonald’s co-attorney Jay McDannell’s request for the now seven-month, three-quarters of million dollar “forensic audit” of EDA finances the County has fronted the EDA money for. McDannell sought that detail so as to better understand and prepare a defense for his client on the financial misappropriation allegations against the former EDA executive director.
Noting the EDA and County retention of the accounting firm of Cherry Bekaert, out of its Richmond office, Seltzer said there could be a problem with the 10-day time period Athey ordered for provision of the McDonald attorney-requested audit materials.
“We’ve been hearing this for six months – it’s time to put up or shut up,” Athey told the plaintiff attorney.
Seltzer then appeared to indicate that Cherry Bekaert had not done a “forensic audit” as it has previously been referenced in County and EDA discussion, but rather what was later termed an intrinsic fact-finding. He also said a “final audit gap complaint” was not yet prepared or available for submission to discovery motions. Previously EDA officials have indicated that after the EDA board and staff have reviewed the most recent draft of the Cherry Bekaert financial investigation in closed session, the hard copy has been shredded.
“Whatever they’ve prepared – file it,” the judge instructed plaintiff counsel.
McDonald attorney McDannell also addressed the potential of criminal prosecutions against his client from the Special Grand Jury investigation going on across the hall on Wednesday. McDonald’s counsel, as well as other case defense attorneys, have pointed to the potential of Fifth Amendment assurances (the right not to self-incriminate) from testimony in the civil case were criminal indictments handed down by the special grand jury’s related investigation into their client’s actions.
Athey noted that no indictments have yet been filed and observed that similar arguments were put forth “in every divorce case where adultery is alleged”. The judge appeared to side with the plaintiff in this argument, noting that the issue could be revisited were criminal indictments, in fact, handed down against defendants in the civil case.
McDonald’s counsel also argued to quash a portion of plaintiff subpoenas on his client’s finances related to her legal representation. In explaining the request Seltzer noted that the former EDA chief executive is accused of “defrauding a significant amount of money from the EDA” and wondered if some of that money was being used to fund her defense.
“Is she using stolen money to pay her attorneys,” Seltzer asked.
However, Athey granted the defense motion to quash that portion of the plaintiff subpoena for financial records.
Tran defense motions echo earlier filings, cite vague summary of allegations
On May 2, the attorney for ITFederal and its CEO Truc “Curt” Tran followed attorneys for the other seven defendants in the EDA civil suit of March 26 in filing defense motions attacking the style and substance of the case against their clients.
In the demurrer seeking dismissal of five of the six counts (1-4 and 6) in the EDA Civil Complaint it is asserted that the filing by attorney Cullen Seltzer of the Richmond law firm of Sand-Anderson lacks the legally-required specificity and factual basis to support its oft-stated conclusion that the defendants have acted to improperly divert EDA assets based “on information and belief”.
“And many of the Plaintiff’s allegations being made solely ‘on information and belief’ is fatal under the heightened pleading requirement for fraud,” Tran/ITFederal attorney Brandon H. Elledge writes citing case history, adding of such wording, “and thus to avoid dismissal, a fraud plaintiff must supplement such allegations with ‘a statement of facts on which the belief is founded’ and also ‘must delineate at least the nature and scope of plaintiff’s efforts to obtain, before filing the complaint, the information needed to plead with particularity’.”
As to the sixth count omitted from the Tran/ITFederal request for dismissal, Count 5 – “Breach of Fiduciary Duty of Loyalty” – the demurrer notes that it “does not purport to state a claim against Mr. Tran and ITFederal” but rather asserts actual claims “only against Defendant McDonald” – which does appear to be the case as it would impact all defendants other than McDonald. See Related Story:
“As an employee of the Warren EDA, Defendant McDonald owed the Warren EDA a fiduciary loyalty,” Count 5 begins in recounting the obligations of McDonald’s role as the executive director of the EDA.
And it is in the absence of the detail of the preceding 160 paragraphs leading to the $17.6 million-plus civil suit’s call for compensation in six counts against all nine defendants upon which defense attorneys have focused their arguments for dismissal.
The six counts seeking a judgment of “not less than $17,640,446.16” against “the Defendants jointly and severally” are: 1/ Fraud and Fraud in the Inducement; 2/ Conversion; 3/ Conspiracy; 4/ Unjust Enrichment; 5/ Breach of Fiduciary Duty of Loyalty; and 6/ Ultra Vires (improper) Transactions and Agreements.
And other than that one mention of the minimum of $17.6-million-and-change of allegedly misdirected or embezzled EDA assets there is no other reference to specific amounts of money tied to any defendant in the plaintiff presentation of the resultant civil “Counts” against those defendants. In fact, only “Defendant McDonald” and “Defendant Earthright Energy LLC” are cited in the six counts – McDonald in the aforementioned Count 5 “Breach of Fiduciary Loyalty” that does appear focused on her alone; and Earthright Energy LLC in Count 6 “Ultra Vires Transactions and Agreements” related to work arrangements or contracts engaged in with Earthright Energy through McDonald without approval of the EDA Board of Directors “in the manner required by law.”
However as alluded to above and noted in previous stories on the EDA complaint and defense motions against it, there is detail concerning specific amounts of money involved in specific transactions involving specific defendants throughout the first 160 paragraphs of the complaint. Those 160 graphs appear to present the basis of fact and finance leading to the final 39 paragraphs stating of the more generalized summary of offenses described in Counts 1 through 6 of the EDA civil suit. See Related Story:
However for Tran/ITFederal attorney Elledge that detail too, is lacking.
“While the Complaint is long on allegations as to McDonald’s misconduct, it offers very little as to Defendants … Tran … and ITFederal except for conclusory recitations or vague statements made only ‘on information and belief’,” Elledge asserts, adding, “Mr. Tran and ITFederal expressly deny the meritless claims asserted against them and any alleged wrongdoing in this matter.”
Of the summary nature of the stating of the Counts against the defendants, the Tran/ITFederal defense memorandum of support of the demurrer for dismissal states, “… the group pleading method employed by the Warren EDA in its Complaint is improper and fails to fairly inform Mr. Tran and ITFederal of the nature of the claims levied against them …”
However, is that true of the first 160 paragraphs of the 199-graph complaint – well 209-graphs if you include the 10 paragraph “Prayer for Relief” seeking return of EDA assets, attorneys fees and “punitive damages (of at least one million dollars) jointly and severally against the Defendants”?
The complaint devotes many paragraphs to the securing of a $10-million bank loan for Tran/ITFederal through the EDA, citing the involvement of McDonald and then-U.S. Congressman Robert Goodlatte, R-6th, along with Tran. It is noted that loan was made at Goodlatte’s request despite repeated assertions by “Tran and Defendant McDonald …that Tran did not need the financial support of the Town and Warren EDA”.
However that “unnecessary” $10 million dollars of financial support was acquired, along with the gift of a 30-acre parcel at the Royal Phoenix site publicly valued by the EDA at $2 million for a one dollar price. Conditions were attached to that gift, including completion of the project by an eventually extended completion date of mid-2020; and a reduction of the scope of the project from an approximate 40,000 s.f. in a three-building complex alleged by Goodlatte to produce over 600 high-paying tech jobs through ITFederal to the community, to a 10,000 square-foot building producing at least 10 jobs of indeterminate wage.
And while the complaint notes that far less than $10 million appears to have been spent to date on the ITFederal Project here, the Tran/ITFederal motion for dismissal asserts Tran did nothing wrong and has worked within the parameters of his agreement with the EDA, both on the loan and a Memorandum of Understanding (MOU) regarding nearly $1.5 million in what is described as “Subsequent Payments to ITFederal” alleged to have been unauthorized by the EDA.
Regarding the Count of “Conversion” of EDA assets to Tran’s personal benefit, Elledge writes on behalf of his clients, “The only Warren EDA funds allegedly retained by ITFederal are a $10 million loan pursuant to a promissory note and a deed of trust and some $1.5 million pursuant to a Memorandum of Understanding. Thus, ITFederal received those funds in accordance with such agreements. Plaintiff does not – and cannot – allege a breach of such agreements, and it, therefore, alleges no right to immediate possession of the funds. Rather, it lawfully controls them subject to the terms of the loan documents and the MOU …
“The only payments due to Plaintiff is the repayment terms of the promissory note, and it has not – and cannot – allege that ITFederal has breached or defaulted on any of its contractual obligations,” the Tran/ITFederal filing in support of its motion for dismissal states.
But at issue for the EDA as plaintiff is an alleged fraud perpetrated by Tran in conjunction with McDonald in her role as EDA executive director and possibly others, to acquire the loan, gift of property and “Subsequent Payments to ITFederal”. That fraud is alleged to involve a $140 million in purported ITFederal government contract the plaintiff found no evidence exists – though Elledge asserts it does – as well as websites said to create a false impression of financial viability of Tran companies the plaintiff asserts there is no discovered substantive support of, and false representations of Tran’s personal worth and intentions of investment in this community.
“Plaintiff does not allege any cohesive fraudulent scheme here, but rather a series of independent transactions connected only by the involvement of Defendant McDonald … In the portions of the Complaint referencing Mr. Tran and ITFederal, Plaintiff obscures who actually made what representations at issue by repeating the phrase ‘Tran and Defendant McDonald represented, through McDonald (emphasis in context) … Such vague construction fails to establish Mr. Tran’s connection to the alleged misrepresentations by omitting how Mr. Tran managed to represent anything ‘through McDonald’,” the Tran/ITF filing states, adding, “By lumping Mr. Tran together with Defendant McDonald and referencing ‘multiple occasions,’ Plaintiff unsuccessfully tries to create an impression of wrongdoing without articulating who made what statement to whom on which occasion.”
From a different angle, Tran/ITFederal attorney Elledge echoes Jennifer McDonald attorney Lee Berlik’s argument that his client is being villainized for the alleged actions of other defendants and/or bad decisions by past EDA boards.
“Plaintiff suggests every statement by every counterparty it now regrets crediting was a false statement by Ms. McDonald … instead of a false statement to Ms. McDonald (emphasis in context),” Berlik wrote in his April 16 filing on his client’s behalf, adding, “The Warren EDA is looking for someone to blame for every decision it now regrets since new leadership has taken over – and Ms. McDonald is it.”
From Tran’s legal perspective he has simply taken advantage of a series of sweetheart deals offered by the EDA Board of Directors at the urging of friends in high places, including Congressman Goodlatte and the EDA’s then executive director.
What could possibly be wrong with that?
At issue in the wake of the filing of the series of defense demurrers for dismissal of the cases against their clients is will that question in regard to all defendants ever be argued in front of a jury in a Warren County or any other courtroom?
2017 EDA Investigation Part 6: FRPD questions former Town Councilman Bret Hrbek
FRONT ROYAL – Just over two years ago, on May 18, 2017, McDonald telephoned the Front Royal Police Department to report a break-in at the office located at 400-D Kendrick Lane. Found at the scene were photos of McDonald with the face scratched out on the board meeting room table, and another photo of McDonald’s face with a knife stuck through the forehead in the seat she normally occupied during board meetings, as well as some defaced family photos, also on the meeting room table.
According to the Front Royal Police Department investigative file, obtained through a Royal Examiner Freedom of Information Act (FOIA) request, McDonald also told police that May 18th morning, that a week earlier, on May 11, 2017, she arrived at work to find a knife lying in her desk chair. There was no signed of forced entry, nor was a call made to police.
Police said nothing was reported missing, there was no sign of forced entry and to this day, the case remains unsolved.
Despite the fact that McDonald reported to officers nothing was missing from her office, she later told police when they invited her in for a sit-down, recorded interview with Investigators Landin Waller and Crystal Cline that several files were missing from the office, specifically the ITFederal folder, the Regional Justice Academy folder and the Workforce Housing folder.
Using information gleaned from the interview with McDonald, the FRPD investigative team invited Ron Llewellyn and John Costello–both of whom McDonald said knew about the missing files—to sit down for interviews.
In late spring of 2017, this reporter was contacted by a source who relayed a conversation the source held with Bret Hrbek regarding Truc “Curt” Tran and his identity as the “anonymous benefactor” who would fund the building of an $8 million regional justice training academy in Warren County, that was described by McDonald and then-Sheriff Daniel McEathron during a radio interview I conducted with them in the spring of 2016.
As Front Royal Police Department Investigators continued interviews with anyone who might have a link to the case, Hrbek also came up on the Department’s radar. He would prove, however, to be of little value to the investigation.
In the next video segment, Jennifer McDonald’s longtime co-worker and EDA Director of Marketing Marla Jones answered investigator’s questions as they attempted to unravel the mystery of exactly what transpired at the EDA office at 400-D Kendrick Lane on May 18, 2017.
EDA civil complaint: How does a gift become a $651,690 loss?
In Part 2 of Royal Examiner’s look into details of the March 26 EDA civil suit, another prominent Front Royal-Warren County Economic Development project resulting in a significant, if not multi-million dollar financial loss will be explored. That project was the Workforce Housing apartment complex plan designed to provide affordable housing for entry-level workers in teaching, law enforcement and emergency services professions.
It was a project that immediately attracted Royal Examiner and one public officials’ attention due to unanswered questions about costs, legality and eventually, changing circumstances.
Councilwoman Bébhinn Egger first publicly began asking hard questions about the price listed on a “gift”; and then EDA-requested town building code exemptions to reduce costs that would likely not be granted to a private-sector developer. Later County Supervisors Archie Fox and Tom Sayre joined in the questioning as the foundation of the project continued altering in a fluid and ever-changing manner.
In case you forgot, that manner was:
– In the fall of 2014 a 3.5-acre parcel at the end of Royal Lane in Front Royal is presented to the EDA Board of Directors as a gift for public use;
– It is a gift assessed at $305,000 with an inflated $445,000 price tag attached to it;
– It is a gift from relatives of EDA Executive Director Jennifer McDonald, Mr. and Mrs. Walter Campbell, who are in the real estate business;
– As of April 2017 it is no longer a gift;
– It is revealed there was an undisclosed developmental deadline tied to the original owners’ receiving federal tax credits for the gift of the property for public use that was not met;
– The 3.5-acre property must be returned to the owners or purchased by the EDA at the inflated $445,000 price attached to the deed of gift;
– On April 28, 2017 the EDA Board of Directors agrees to purchase the property for $445,000 because it is indicated by EDA Executive Director McDonald and then-board Chair Patty Wines that the EDA has already invested nearly a half million dollars in preparatory work, including site planning, engineering, town and state DEQ permitting fees, though not a shovel of dirt had been turned on the parcel at the end of dead-end Royal Lane;
– Following the May 19, 2017 release of a 383-page summary of the project following a request for information by Councilwoman Egger, the EDA’s executive director verifies to this reporter that only $10,500 of unrecoverable money had been invested in the property at the time of the EDA board decision to purchase;
See related story.
– It is revealed by the EDA that a private sector development group, the Aikens Group, has been involved secretly from the 2014 advent of the project and that Aikens had agreed to purchase the property from the original owners for the $445,000 price attached to the property transfer;
– The forensic audit of EDA finances launched in the wake of the Town of Front Royal’s mid-2018 discovery of nearly a decade of debt service overpayments to the EDA totaling over $291,000 begins in mid-September 2018; and continues to this day at a cost of over three-quarters of a million dollars.
– On November 28, 2018, the EDA sells the Workforce Housing property to Cornerstone LLC for $10 (ten dollars).
– On March 26, 2019, “The Workforce Housing – Royal Lane Property Embezzlements” are listed as a $651,690 loss in a civil suit filed on behalf of the EDA as a result of the aforementioned forensic audit.
– Contacted in April after Royal Examiner received the Royal Lane Deed of Sale, EDA Board Chairman Gray Blanton, who was appointed chairman in September 2018, said he only saw the final page of the deed of sale, which was the signature page. Due to Dan Whitten’s recusal for potential conflict of interest as both EDA and County Attorney, local real estate attorney Joe Silek Jr. represented the EDA in the transaction. Also contacted regarding the transaction, Silek said that no price was on the deed of sale when it was forwarded from the EDA to the Winchester law firm of McCarthy-Akers for completion. Asked why the EDA would agree to take a $444,990 loss (that appears to have grown to a $577,501.77 or even $651,690) on the property, Silek said, “I don’t think they did,” and referred us to attorney Doug McCarthy of McCarthy-Akers for further information. At publication of this story Royal Examiner had yet to get a response from a May 3 message left for McCarthy at the company phone number seeking information about the transaction.
EDA civil complaint
How does the EDA civil action view this project history in seeking the return of $651,690 of lost EDA money? Of the late November sale, it says this:
“When interviewed on December 6, 2018, Defendant McDonald continued to maintain that the Aikens Group would refund the Warren EDA the full cost of the Royal Lane Property and any improvements, when she knew said property had been conveyed by the Warren EDA on November 28, 2018 to Cornerstone for consideration of $10.”
What the complaint doesn’t state is why the EDA board or its legal representation would agree to sell a property under heavy scrutiny by the forensic audit at a loss in the range of $450,000 to $650,000.
That transaction came as scrutiny of the executive director was intensifying as the forensic audit progressed. Following several hours of closed session discussion of the forensic audit findings and her job performance on December 14, 2018, McDonald had her contract, check-writing and administrative authority over EDA bank accounts stripped by the EDA board. Facing a second closed session on the same topics a week later, McDonald submitted her resignation and according to the EDA lawsuit attempted to cap her financial liability at $2.7 million dollars.
However as noted above, it was not McDonald’s signature on that $10 deed of sale, nor was she the EDA’s legal representative in that transaction that is simply one chapter in what has been a twisting and seemingly inexplicable, nearly five-year saga surrounding the attempted transfer of the Campbells’ 3.5-acre Royal Lane parcel to a public use.
As previously reported, in an initial defense motion filing McDonald attorney Lee Berlik claimed his client is being vilified and scapegoated for past bad decisions of the EDA Board of Directors. “The Warren EDA, Plaintiff in this action, is engaged in an attempt to smear Ms. McDonald by blaming her for every bad decision made by the Warren EDA board over the last several years and turning business deals the Warren EDA now regrets into implausible conspiracies.”
However, the EDA civil action alleges a lengthy pattern of gaps, conflicting or misinformation from McDonald to the EDA board regarding what is termed the “Royal Lane Property Embezzlements”.
“The Warren EDA Board minutes during the time of these discussions do not reflect that Defendant McDonald ever timely disclosed the true ownership of the property, or her own active real estate agent business relationship to the owners, thus depriving the Warren EDA Board of knowledge that Defendant McDonald had an interest in the transaction,” paragraph 21 of the complaint states about the advent of the project.
That “active real estate agent business relationship” circa 2014-15 at the project’s inception is described in the previous paragraph of the complaint as McDonald’s role as “a real estate agent” in the Campbells’ “Century 21 – Campbell Realty” business.
Whatever the EDA board’s knowledge of the situation was, the complaint asserts further issues around the EDA workforce housing purchase, including an inflated sales price based on a sales contract it alleges McDonald forged.
“Notwithstanding that the Warren EDA authorized only up to $445,000 to purchase the Royal Lane Property, Defendant McDonald in fact directed the Warren EDA to pay $577,511.50 (emphasis added) for the Royal Lane Property which included property settlement costs of $2,511.50,” graph 29 of the EDA complaint states.
The complaint continues with graph 31’s assertion, “The original sales contract contemplated a purchase price of $445,000. See attached Exhibit 2. Defendant McDonald’s forged contract with the altered purchase price information reflecting a purchase price of $575,000 included a payment of $125,000. See attached Exhibit 3. The unusual payment of $125,000 occurred on March 15, 2016 prior to and outside of property settlement to a third party.
“Thus at closing, the sellers of the Royal Lane Property, the aunt and uncle of Defendant McDonald, and/or Defendant McDonald, were enriched by an additional $130,000 to the detriment of the EDA …When confronted with this discrepancy , Defendant McDonald falsely stated that $575,000 was the Warren EDA authorized purchase price and that the Aikens Group, a company that Defendant McDonald represented intended to develop the Royal Lane property, had repaid $125,000 of the purchase price to the Warren EDA,” graphs 32 and 33 of the complaint assert.
OKAY, wait, what?!? – “McDonald in fact directed the Warren EDA to pay” an additional $132,511.50 (and they agreed to that?); then the inflated-price contract was “forged”; then the Aikens Group appears out of a hat again?!?
Whoever was puppeteer whomever, however, the complaint continues that in order to support her assertion the Aikens Group had repaid the added $125,000, McDonald “provided a redacted loan statement from Ocwen Loan Servicing LLC that omitted the property address and name and address of the Borrower.
“Later investigation revealed, however, that $125,000 had not been repaid to the Warren EDA. Instead, records show that a check payable to ‘Owen Loan Servicing LLC’ had been written from a Warren EDA bank account in the amount of $125,000,” graph 34 and 35 of the complaint states, leading to the conclusion the payment was made “to the benefit of Defendant McDonald and/or her family.”
However, unlike ITFederal CEO Truc “Curt” Tran, Earth Right Energy principals Donnie Poe and Justin Appleton, and former Sheriff Daniel McEathron, the latter as a partner in McDonald’s real estate companies, who were all listed as co-defendants with McDonald in the March 26 civil filing, despite the involvement of their property in this magical mystery tour real estate transaction the Campbells were not named as defendants in the March 26 civil suit seeking recovery of the above-cited EDA funds.
I don’t know about you, but this one made me dizzy.
EDA Investigation, Part 5: Local businessman John Costello is interviewed by the FRPD
FRONT ROYAL – Those Royal Examiner readers and viewers who have been following the EDA Break-in Series will notice that this one – part 5 – does little to clarify facts or answer any questions for lead investigator Landin Waller.
After then-Executive Director Jennifer McDonald reported a break-in at the Front Royal-Warren County Economic Development Authority (EDA) office on May 18, 2017, detectives processed the scene, interviewing all subjects present, taking photographs, dusting surfaces for fingerprints, checking all doors and windows for signs of forced entry (there were no signs of forced entry, which were documented by photographs) and also questioning workers in adjacent offices and buildings within the Kendrick Lane campus.
McDonald was interviewed for about 90 minutes by Investigators Landin Waller and Crystal Cline, during which she cited a list of people whom she felt might be responsible for the alleged break-in, none of whom were ever established as substantive suspects by police. She also told the investigators that an EDA board member, Ron Llewellyn, had brought up the subject of files missing from her office.
Investigators found that interesting, as McDonald had previously reported that nothing was missing in the reported incident.
Officer Waller invited Llewellyn to have a conversation about the alleged missing files. Llewellyn’s interview was remarkable in several ways:
- Llewellyn states that he went to former Town Councilman and Vice-Mayor Shae Parker’s Hanna Signs business office after hours to pick up an order, and saw a group of people meeting there that included Parker, former Town Manager Mike Graham, former Town Mayor Stanley Brooks, former Town Councilman Tom Conkey and current Town Councilwoman Bébhinn Egger. Parker has stated to Royal Examiner that this meeting never occurred; Miss Egger stated that she has never even been in Parker’s place of business. Graham, Brooks and Conkey have also stated, on the record, that this meeting never occurred, at Parker’s shop or any other location.
- Llewellyn stated to Investigator Waller that the EDA board believed that some in the community weren’t supportive of McDonald, so they got together and voted as a group to give her a pay increase to “reaffirm” the board’s belief in her. Why, one might ask, would the board of an agency funded, in part, with tax dollars give a raise because of the public’s displeasure with the employee’s performance?
- Llewellyn stated that Congressman Goodlatte called McDonald, stating “you’ve got to resolve this” because this reporter – then the WZRV radio station News Director – had called Goodlatte’s office inquiring about ITFederal’s ability to accomplish what the congressman had claimed in the way of financial investment ($40 million) and job creation (600-plus). Llewellyn states that McDonald called the station owner, at Goodlatte’s prompting. (Within days, perhaps coincidentally, I was fired May 13, 2016 by station owner Andrew Shearer by telephone, after completing the noon news and a daily talk show, with no reason provided.) WZRV news staffer Roger Bianchini’s inquiries to ITFederal officials on the same topic were abruptly shut down by Shearer later the same day.
- According to a letter from then-EDA board Chairman Greg Drescher, Llewellyn stated the Front Royal Police Department did not take the break-in “seriously” and that “it never hurts to have another set of eyes on something” regarding the hiring of a private investigator by the EDA on July 17, 2017. The EDA board by way of its chairman, Drescher, eventually requested FRPD to shut down its investigation in favor of the private one being conducted by the EDA/McDonald-contracted investigator.
As a board member Llewellyn seemed to have a good bit of information involving the EDA, its inner-workings, and even knowledge of Congressman Goodlatte, and how important it was for him to contain certain information regarding Truc “Curt” Tran and ITFederal. So when Llewellyn told Waller that that he had learned of the missing EDA files from local businessman John Costello at a meeting at the Element restaurant in Front Royal, Waller was anxious to interview Costello.
John Costello had plenty of information to unpack it seemed—just not about EDA files. He seemed genuinely confused when asked about knowledge of any events occurring at the EDA office. Asked about meeting Llewellyn at Element, Costello explained that they were both part of a group of friends who had enjoyed playing tennis over the years, before poorer health set in, and that the group mostly met for drinks once a week. But Costello said that he and Llewellyn had not regularly talked for some time, citing a falling out that occurred after he and a group of friends got together in 2009 to help Llewellyn save a financially-strapped business.
Costello explained to Detective Waller that despite investing heavily in their friend Llewellyn’s business, he was less-than a friend in return:
Front Royal Police Department detectives continued investigating the May, 2017 incident. As they worked the case, their next lead would have them call in local financial advisor Bret Hrbek, in July, 2017 for an interview. Next up in the series, Royal Examiner readers will witness a July, 2017 interview with Hrbek, as we explore the Front Royal Police Department’s exhaustive attempts to clear the case.
EDA civil complaint details allegations surrounding key projects
While attorneys for defendants in the EDA civil litigation have focused on what they contend are vagaries in details of the cited misdirection of EDA assets, the complaint itself lists some detail, including specified amounts of money moved on a variety of projects contended to be conduits for the alleged embezzlement or misuse of EDA or EDA-enabled resources.
As previously reported by Royal Examiner, the projects or methods identified as those conduits for misdirection of EDA assets in the civil complaint are: the ITFederal Loan; Subsequent Payments to ITFederal; Workforce Housing – Royal Lane Property Embezzlements; Afton Inn Project Embezzlements; Criminal Justice Training Academy aka Skyline Regional Justice Training Academy; Unlawful Payments Concerning Earth Right Energy LLC; and Unlawful Payment of Town and Warren County Funds for Defendant McDonald Owned/Controlled Real Estate”.
Due to the voluminous material cited in the 199-paragraph, 32-page EDA civil complaint concerning the above-cited EDA projects, loans, private business and contractual arrangements, we will begin Royal Examiner’s more detailed exploration of the EDA lawsuit and initial defense responses by narrowing on specific portions of the complaint. Note that Royal Examiner is not asserting the truth of either the allegations in the complaint or defense responses to those allegations – merely reporting their existence and some detail.
Of particular focus regarding alleged false information being used to prop up the movement of the largest amount of misdirected EDA assets, a $10-million bank loan little of which appears to have been spent here nearly four years on is ITFederal’s recruitment as the first commercial redevelopment client at the former Avtex Superfund site. Six pages of the complaint are devoted to the ITFederal loan process.
Of the securing of a $10-million dollar loan to ITFederal the complaint states in paragraph 89, “Tran and Defendant McDonald represented, through McDonald, to the Town, the County and the Warren EDA multiple times that (a) Tran was a high-net worth individual, (b) he did not need any financial assistance from the Town, the County and the Warren EDA to make the ITFederal Project financially viable, (c) ITFederal/VDN Systems had procured a $140 million contract with the Nuclear Regulatory Commission to provide information technology services on a long-term basis and (d) Tran had the endorsement and support of U.S. Congressional Representative Robert Goodlatte …”
Continuing in paragraph 99, “On information and belief, despite any nominal award of any federal contracts to ITFederal and/or VDN, the actual work and payments under any such federal contracts … appear to be not more than $5,000 over the last five years.”
Paragraph 100 of the complaint states, “The websites for ITFederal, VDN and ACRC (three Tran companies) all appear to be bogus websites with little or no substantive information or recent activity in connection with purported businesses. In some cases it appears they have not been updated since 2012. Based on information and belief, these websites were created to convey a false impression that ITFederal, VDN and ACRC were active businesses with a substantive source of income with the intent of fraudulently inducing the Warren EDA to make the ITFederal loan.”
As previously reported here, in motions filings McDonald attorney Lee Berlik has contested the assumption that McDonald was consciously lying in regard to many of the allegations against her, rather than simply repeating lies she was being told; or in other instances following through on methods of moving EDA assets approved by the EDA board to facilitate projects it later regretted becoming involved in.
“The Warren EDA, Plaintiff in this action, is engaged in an attempt to smear Ms. McDonald by blaming her for every bad decision made by the Warren EDA board over the last several years and turning business deals the Warren EDA now regrets into implausible conspiracies,” Berlik wrote on the first page of a defense motions filing on April 16, adding emphasis in context, “Plaintiff suggests every statement by every counterparty it now regrets crediting was a false statement by Ms. McDonald … instead of a false statement to Ms. McDonald.”
Beginning with her presentation of Tran and ITFederal to the EDA board and town government in 2014, the complaint alleges a lengthy effort by McDonald to mitigate Tran and his company’s costs and liability while at the same time working toward securing of a $10-million loan the complaint asserts she repeatedly told local officials Tran did not really need to accomplish his project.
Rather, the Town’s initial assistance in the way of a $10-million dollar “bridge loan” to facilitate a $10-million bank loan then EDA Attorney Blair Mitchell noted Congressman Goodlatte had requested in a 2015 email correspondence with McDonald, was presented as a means of promoting long-sought commercial redevelopment at the site. It is perhaps also noteworthy that the EDA put up the 117-acre balance of the Royal Phoenix Business Park property as collateral for the $10-million dollar ITFederal loan from First Bank & Trust.
“Tran and Defendant McDonald stated that Tran did not need the financial support of the Town and the Warren EDA, but that such assistance was requested by Rep. Goodlatte,” graph 90 of the complaint states; further noting the request that 30 acres of the 147-acre Royal Phoenix Business Park be donated to Tran and his company “free of charge” – well he did end up paying a dollar for the parcel valued at $2 million in open EDA meeting discussion – and to secure the loan to facilitate construction “of all or a part of the ITFederal Project.”
Then U.S. Congressman Goodlatte, R-6th, participated in the October 2015 ITFederal ribbon cutting, taking credit for the company’s arrival here and promoting a promised $40-million ITFederal investment in the community that would create 600-plus high-paying, largely tech industry jobs.
The EDA complaint filed by the Sands-Anderson law firm of Richmond also addresses Tran’s alleged ties and access to resources from the federal EB-5 Visa Program created to trade U.S. citizenship in exchange for significant private investment – cited at $1 million dollars – in the U.S. economy.
“Tran and Defendant McDonald represented, through McDonald, on multiple occasions to the County, the Town and the Warren EDA that ACRC had obtained or was in the process of obtaining EB-5 financing to finance the ITFederal Project,” the complaint asserts.
“The new venture must create and sustain at least ten full-time employees for at least two years in order for the investor seeking citizenship to convert his or her green card into full citizenship … ACRC (American Commonwealth Regional Center) is another entity established and controlled by Tran … ACRC represents it is an approved EB-5 regional center … However, based on a search on the USCIS website on February 12, 2019, ACRC does not appear to be an approved regional center for EB-5 financing.
“There is no evidence that ACRC has ever successfully obtained or used EB-5 financing in connection with the ITFederal Project or for any other purpose,” the complaint states.
The complaint also notes that in 2017 Tran requested a modification of his Borrowers Note and Deed of Trust that would have forced the initially-discussed purchase price of about $2 million to kick in if certain developmental conditions were not met by specific dates. That extension to September 2020 significantly reduced the required scope of the project from its initial three-building complex housing all those high-dollar jobs Goodlatte had trumpeted in a press release.
“On information and belief, little to no proceeds of the ITFederal Loan has been applied to the ITFederal Project … Tran and Defendant McDonald have converted all or a portion of the proceeds of the ITFederal Loan to their own personal benefit,” that section of the complaint concludes.
But there’s more – under “Subsequent Payments to ITFederal” an additional four pages of the EDA complaint allege an additional $1.82 million dollars of “Unauthorized ITFederal Payments”. Those payments include $1,432,771.32 in reimbursements to ITFederal for work done at the site and over $392,000 in vendor payments.
McDonald attorney Berlik also contends that the complaint fails to meet a legal obligation “to connect any alleged facts to specific claims” against defendants, limiting their ability to construct a viable defense against those claims against them.
But regarding those “Unauthorized ITFederal Payments” the complaint offers some specificity. It disputes McDonald’s initial explanation to her board that those payments were draws on the ITFederal Loan. “The proceeds of the $10 million loan made to ITFederal was issued in full at the time of closing in 2015; there is no evidence that the Warren EDA retained those funds or had any ability to approve invoices or otherwise control or direct those funds.”
The complaint then disputes representations attributed to McDonald that those payments would be reimbursed to the Warren EDA by a grant from the Virginia Economic Development Partnership (VEDP). “It is clear from the VEDP documentation that Tran and Defendant McDonald met with the VEDP relating to ITFederal in the 2014/2015 timeframe, but that Defendant McDonald was unable to provide the information VEDP was requesting to award a grant related to the ITFederal Project …Defendant McDonald deliberately took Warren EDA funds and gave them to Tran/ITFederal with no reasonable expectation that such funds would be repaid or otherwise funded from another source,” the EDA litigation states.
The complaint concludes with an assertion that McDonald personally benefitted from those payments “as part of a scheme with Tran to fraudulently obtain Town and County funds for their own benefit.”
Well laid out, fraudulent schemes or implausible conspiracies?
That will be at issue for attorneys on both sides when and if the civil litigation proceeds into the courtroom for the requested jury trial. As previously reported, several defendants have moved for either dismissal of charges or delays in the civil process until the special grand jury investigating potential criminality related to the EDA civil suit is completed.
Next up, Workforce Housing – not as much money, a total loss to the EDA cited at $651,700, but perhaps an even more convoluted trail to that loss on a project initially presented in 2014 as a free land “gift” to the EDA. That cited financial loss appears to have been cemented by the EDA’s November 28, 2018 sale of the involved 3.5-acre Royal Lane parcel for $10. It is a sale accomplished over two months into the ongoing Cherry Bekaert forensic audit of EDA finances that resulted in the current civil litigation to recover lost assets.
Now why, you may wonder, would they do that?!?