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.

View down Royal Lane toward the wooded Workforce Housing property – Royal Examiner File Photos/Roger Bianchini

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;

Well there were stakes in the ground at the boundary with a daycare center off Royal Lane in May of 2017; below the 383-page document released May 18, 2017 in response to Councilwoman Egger’s request for specific information on the Workforce Housing Project.

– 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.

Some answers, more questions, (one hint) on EDA workforce housing

– 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.

From right, EDA Board Chair Gray Blanton, Executive Director Jennifer McDonald and board member Ron Llewellyn during open session of Dec. 14, 2018 EDA meeting.

– 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.

Buy it, sell it – price, what price? It all makes sense to us … – with a Public Domain photo nod to the silent-film era Keystone Kops

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.

Artist’s rendering of one of three, initially-planned 12-unit Workforce Housing apartment buildings. After EDA purchase the plan was reduced to two building. Five years after its inception the project remains dormant.

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.

Above, as acting FRPD Chief Bruce Hite listens, Jennifer McDonald leans forward to make a point to Town Manager Joe Waltz – but Waltz wasn’t the entire audience (below) at a town-county Liaison Committee meeting of May 18, 2017 if our digital photo date tag is correct, coincidentally the same day the 383-page Workforce Housing informational packet was released.

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.

Why are these people laughing in April of 2017? – They’re agreeing to buy the 3.5-acre Workforce Housing property that was previously gifted for free for $445,000, or perhaps $577,000 or maybe even $651,000 give or take. It gets funnier tho, they sold it for $10 in November of 2018.

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?!?

Some people just don’t see the humor of things – above, Archie Fox and Tom Sayre take a stern posture at June 5, 2017 joint County-EDA work session on the Workforce Housing Project; while below EDA Board Chairman Greg Drescher and his executive director express varying degrees of pique at the questioning. At a recent county supervisors meeting Sayre said he has feared his past questions about the EDA Workforce Housing Project might land him at ‘the bottom of a lake’. Lighten up, guys…

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.

It all made sense, didn’t it Dan – why is everybody mad at us? County Administrator Doug Stanley may have been thinking of asking County-EDA attorney Dan Whitten, to his left, in wake of recent public hearing attacks on county officials for a lack of oversight of EDA operations.