The only two people thus far indicted on criminal charges related to the investigation of and civil case stemming from fraudulent activities in the operations of the Front Royal-Warren County Economic Development Authority were both in court Tuesday morning.
Former EDA Administrative Assistant Michelle “Missy” Henry was granted a secured $2500 bond on the two felony embezzlement charges she was arrested for on June 24.
The granting of Henry’s bail after a month of delays brought an audible, if suppressed sigh of relief from 15 Henry family members or friends gathered in the courtroom.
Prior to Henry’s appearance, her former boss EDA Executive Director Jennifer McDonald appeared with her criminal attorney Peter Greenspun on motions hearings on what are now 14 felony embezzlement and fraudulent use of EDA resources indictments against her. The fact that two new indictments were handed down the previous day, Monday, July 22, was referenced by her attorney. Those unspecified charges date to the first three weeks of September 2018.
A hearing date of Wednesday, July 31, was set to give Assistant Commonwealth’s Attorney Bryan Layton a chance to respond to the most recent defense filing on a Bill of Particulars seeking additional detail on the charges against McDonald. That hearing appears to be pivotal in moving McDonald’s criminal cases related to the $21 million EDA civil suit forward toward trial (See related story).
Tuesday’s McDonald and Henry motions hearings were the only items on the 9 a.m. Warren County Circuit Court docket; and they marked the first appearance of Harrisonburg-based 26th Judicial District Chief Presiding Judge Bruce D. Albertson on EDA matters. Henry has spent a month in jail as her bond hearing has twice been continued due to the flux surrounding judicial seating in Warren County Circuit Court.
On June 25, the day after her arrest, retired, substitute Judge Thomas Horne deferred a decision on Henry’s bond due to his unfamiliarity with the case. That continuance was to July 19 when Judge Clifford L. Athey, who had heard all EDA-related civil and criminal cases to that point, was next scheduled to be in court. Athey is in the process of phasing out of circuit court as his September 1 move to the Virginia State Appeals Court approaches. Athey has explained that the higher court does not want him in a position of being seated there as possible appeals of lower court decisions could move up the appeals chain.
Consequently new Circuit Court Judge William W. Sharp was presiding on July 19, rather than Athey. Sharp reaffirmed his recusal from all EDA-related cases due to past personal or professional ties to potential defendants and/or witnesses, continuing Henry’s bond hearing to July 23 when Judge Albertson was available.
In arguing for his client’s bond Tuesday, Ryan Nuzzo recounted the above situation to Albertson, noting that no past decision had involved a presumption against bond for his client. Nuzzo revisited his arguments of June 25, citing both Henry’s extensive family ties to the community – 15 of her family members or friends filled the defense side of the Circuit Courtroom B public seating area for Tuesday’s hearing – as well as the financial nature of two alleged crimes dating back to 2014 to 2016; and her voluntary appearance when called as a witness before the Special Grand Jury investigating potential criminality tied to EDA operations and finances.
As to the prosecution’s arguments that Henry’s alleged crimes were a “violation of the public trust” her attorney noted she was no longer in her position with the EDA and so not able to repeat any past alleged misdeeds. Those alleged crimes involve the purchase of the Stokes Mart property; the small business loan to B&G Goods to occupy that building; and the eventual dispersal of EDA-owned assets from that failed business.
“The commonwealth could argue that they don’t know how deep the rabbit hole goes – that more indictments could be forthcoming against my client, but we can argue those at the time they occur, if they do,” Nuzzo told the court.
Nuzzo requested an unsecured bond for his client. Judge Albertson then asked were he to order a secured bond, what the defense would suggest that bond be. Henry’s attorney cited $5,000. In the end, Albertson halved that amount, setting Henry’s secured bond at $2500.
Judge Albertson agreed with the defense that Henry did not present a danger to the community, nor a flight risk were she released on bond.
Of the month-long effort to secure his client’s bond under the above-described series of judicial moves or pending moves, Nuzzo said, “Unfortunately my client became the victim of timing and a series of unfortunate events.”
Among conditions set on Henry’s bond was avoidance of contact with any EDA civil suit defendants. Nuzzo requested detail on that condition from the court. In addition to McDonald, those defendants include Earth Right Energy principals Donald Poe and Justin Appleton and ITFederal principal Truc “Curt” Tran and their associated LLC business entities. The ninth defendant named, former Sheriff Daniel McEathron, is since deceased.
The RSW Jail website indicated Henry had bonded out before 3 p.m. Tuesday.
Town skirts EDA request for FRPD construction back payments
The Front Royal Town Council passed a series of four motions Monday, November 25, authorizing expenditures totaling $1.02 million dollars related to its civil litigation against the Economic Development Authority, as well as payments to contractors regarding construction of the new Front Royal Police headquarters across Kendrick Lane from the EDA office complex.
Of that million dollars plus total, $527,800 approved in a series of three motions is for legal and auditing fees related to the Town’s civil suit against the EDA. The $492,284.34 approved in the last of the four motions is for vendor (contractor) payments recently come due on the FRPD construction project.
The motions were all approved by 5-0 votes, with Mayor-Elect Gene Tewalt not voting as Mayor Pro Tempore as he was declared at the meeting’s outset. As noted above, over half of the authorized payments are for attorney and auditing fees for services related to the Town’s attempt to recover “as much as $15 million” from the EDA. The $492,284 was approved to cover direct payments to contractors on the Front Royal Police Headquarters construction project.
However with its litigation still pending as the EDA struggles to right its financial situation, the Town did not make good on an EDA request for back payments totaling over $8 million dollars for vendor/contractor payments it has made on the FRPD headquarters project on behalf of the Town.
In a letter from EDA Board of Directors Chairman Ed Daley to Town Finance Director B. J. Wilson dated November 15, 2019, included in the agenda packet on the final of the four EDA-related payment authorization requests, the EDA appears to attempt to force the Town’s hand on making up those back payments to the EDA.
After informing Wilson of the EDA’s receipt of FRPD project Requisition (invoice) “# 45” dated October 22, 2019, Daley wrote, “After speaking with our Board of Directors, I write to advise the Town that we will hold this pay requisition without paying until the Town of Front Royal pays the principal and interest due on this project.
“The principal, legal fees and draw fees paid by the EDA for the Town to date is $8,440,797.17,” Daley continues, adding, “The interest amount is $291,856.21 which covers interest on the previous 44 pay requisitions, up to October 31, 2019.” The recently-installed EDA Board Chairman closes by informing the Town, “Once we receive the past amount due on this project, we will process pay requisition # 45 accordingly.”
The Daley letter seeking reimbursement on the $8.44 million in police headquarter construction payments indicates an FRPD project payment and interest accrued history attached. But in the council motion on authorization of vendor payments there is no amount attached to Requisition # 45. However, in the “Revised Item # 15 motion made by Jacob Meza, seconded by Chris Holloway, an amount of $492,284.34 is cited to cover payments directly “to vendors Dustin Construction, Mosley Architects and JTS LLC for construction of the Police Department Project.”
The motion continues to cite the use of money “previously budgeted for the Police Department Project” and notes the Dustin Construction payment will be released “after signed waiver of lien is obtained.”
Contacted by phone on Tuesday, EDA Administrative Assistant Gretchen Henderson said that Dustin Construction ($243,843.48) and JTS LLC ($893.84) were included in payment Requisition # 45, but not the Mosley payment which may be from a separate invoice.
So it appears that the Front Royal Town Council has decided to respond to the EDA’s most recent request it make good on its $8.4-million FRPD project payment debt to the EDA by bypassing the EDA on that debt as the Town’s civil suit against the EDA moves forward; while simply making future invoice Requisition payments directly to the vendors.
The first EDA-related Council payment authorization of Monday’s meeting was $282,800 for “attorney fees and auditing services related to the Town’s civil suit against the Front Royal-Warren County Economic Development Authority (EDA)”.
The funds for that payment were requested to be transferred from scheduled FY 2019 and FY 2020 Town debt service payments to the EDA on a number of projects. Those projects and transferred amounts were cited as Success Farm ($10,370), Baugh Drive Extension ($6,535), Happy Creek ($6,845), Stephens Industrial Park ($11,725), Leach Run Parkway ($105,925), and “Appropriated Funds Forward ($141,400), totaling the $282,800 authorized for attorney and audit fees related to the Town lawsuit against the EDA.
The now $21.3-million EDA financial scandal revolving around former EDA Executive Director Jennifer McDonald began unraveling in late spring to early summer of 2018 when Town Finance Director Wilson discovered about eight years of Town debt service overpayments to the EDA. EDA officials told Royal Examiner they have not yet seen a number on those believed Town overpayments.
Might one take a guess based on that $282,800 transfer of future scheduled debt service payments to the EDA; or might one look at the fact that transfer comes within $9,056 of the disputed FRPD interest payments of $291,856.21?
Hey, guessing is always a gamble, isn’t it?
As those keeping a scorecard on the now multi-faceted EDA financial scandal and related civil and criminal litigation know, the Town Council authorized its legal department to file the aforementioned civil action against the EDA seeking recovery of “as much as $15 million dollars” of allegedly misdirected Town assets as a precaution against unknown variables, including possible statute of limitation issues. Included in the Town’s suit for recovered assets is exactly what interest rate the Town should be paying on the FRPD construction project.
The EDA is paying 3% interest on the FRPD construction project. However, the Town is holding out for a 1% rate that would coincide with what it contends was promised to it by the EDA, or at least by its then Executive Director McDonald, as part of the New Market Tax Credit Program for which the project did not qualify because it was not a job-creating economic development project.
In fact as Royal Examiner has previously reported, then Town Manager Joe Waltz and Finance Director Wilson, as well as People Inc. regional administrator of the NMTC Program Brian Phipps all advised Council against “gambling” on competing for the NMTC funding versus accepting a guaranteed, 30-year fixed 2.65% interest rate offered to the Town in late 2017 through a private sector bank.
Contacted Tuesday, Town Attorney Doug Napier said that after Phipps’ early January 2018 work session appearance before council, Town officials contacted McDonald, who assured them Phipps “didn’t know what he was talking about” and that the NMTC bond issue had been achieved to include the FRPD project.
Consequently a council majority decided to take that gamble on the best case scenario of nine years of interest-free payments significantly reducing the total interest due on a project bond issue.
The other two EDA-related payment authorizations unanimously approved by council Monday evening were “up to $45,000 to Mitchell & Company PC for auditing services to support litigation in the Town’s civil suit against … (the EDA)” and “payment not to exceed $200,000 to Damiani & Damiani for legal services related to the Town’s civil suit against the …(EDA).”
Contacted Tuesday for a reaction to the Town Council’s response to the EDA board’s request the Town make good on its FRPD payment debt, current EDA Executive Director Doug Parsons said,
“What the Town does is their business, what they chose to pay, what they chose not to pay it’s entirely up to them. We feel confident in the figures we provided on the invoice for the Front Royal Police Department. We would love to work out this difference of opinion with them; and we’re always ready to work with them on other projects while we work out our differences.”
Watch the entire Front Royal Town Council meeting of November 25th here:
Sunday afternoon matinee: What do Dixon, Illinois, Front Royal and Warren County have in common?
A sizeable crowd gathered Sunday afternoon at 2 p.m. at the Villa Avenue Community Center for a viewing of the documentary film “All The Queen’s Horses”. The film about a city financial official in Dixon, Illinois, who is currently serving a nearly 20-year prison sentence for embezzling $53.7 million dollars over a 20-year period, seems to be of particular interest locally due to our own developing municipal-EDA financial scandal.
Rita Crundwell was arrested by the FBI in 2012 on what is to date the largest municipal embezzlement in U.S. history. Film producer/director and public accounting professor at DePaul University Kelly Richmond Pope was present to introduce her film and do a post-viewing question-and-answer session centered around what similarities she does or doesn’t see between the Dixon, Illinois situation and Front Royal and Warren County’s Economic Development Authority financial scandal.
And based on what she heard in questioning or perceptions from locals, as well as what she may know about the 15-defendant EDA civil suit and related criminal charges against multiple defendants surrounding principal defendant and former EDA Executive Director Jennifer McDonald, Pope said the local situation may be more similar to the one Dixon dethroned as the largest U.S. municipal embezzlement scandal, a $48 million dollar one in Washington, D.C.
That similarity is based on the fact that the evidence assembled indicated that Dixon Comptroller, or Chief Financial Officer, Crundwell is believed to have acted alone, whereas the D.C. situation involved multiple people.
Yes, Pope told the local audience, Crundwell’s family members did benefit from her spreading her wealth around, but no hard evidence was produced that any were legally complicit in Crundwell’s crimes. Of course, those charged civilly or criminally here have yet to have their day in court to contest the allegations against them.
If locally McDonald spread the story that her high cash flow was based on an improbable three-year run of luck on the slot machines at Charles Town, West Virginia’s Hollywood Casino, Crundwell had a variety of “rumors” floating to cover her family generosity and high-dollar quarter horse stable operation. Among those were an inheritance from rich, former boyfriend who passed away years earlier; and high-dollar horse sales from her high-profile, 400-quarter and show horse operation that took her around the country.
But nearly $54 million dollars out of a small city of around 16,000 residents’ annual budget for so many years – the question lay heavy on that community as a similar one now does on ours: “How did a high-school educated municipal clerk pull it off?”
Well, Crundwell was an attractive, gregarious, well-though-of local girl the community was proud of, and upon which the city’s mayor and council relied heavily on to conduct Dixon’s financial operations.
“It’s human nature to trust them,” one Dixon resident told Pope’s documentary camera of the local girl making good in an $80,000 a year city position.
Another question asked was how could so much money be removed from a small city budget over such a long period of time without somebody noticing?
Well, someone did notice – a municipal financial official from a neighboring city, Sterling, Illinois. In fact, the Sterling official wrote to Dixon officials citing the similarity in the two cities’ annual operational budgets, citing a RED FLAG in that while Sterling carried a surplus, Dixon carried a “huge” deficit of around $20 million. However, that warning was filed away without action, as the rationale that Dixon was doing a lot of borrowing at the time was self-generated to explain the difference.
Another factor in how it happened to Dixon was cited as its “Commissioner” form of government, which essentially does not carry multiple administrative and financial staff positions. Dixon’s staff was small with no direct oversight of Crundwell’s activities, other than by a poorly-paid, part-time elected council and mayor.
“Rita was the checks and balances,” one person told the documentary camera.
So, when she added seven bank accounts to facilitate her fraud to the City’s six legitimate bank accounts, no one noticed – for a long time.
However in November of 2012, after finally-alerted Dixon municipal officials notified the FBI of possible financial crimes in their midst, Crundwell eventually pled guilty to federal money laundering and wire fraud charges. The 19-year-and-7-month sentence handed down was above guidelines and near the maximum 20 years she faced. Crundwell is scheduled for release from prison on March 5, 2030.
And much as locally here, as McDonald’s alleged embezzlement schemes were uncovered essentially by accident when Front Royal Finance Director B. J. Wilson was asked by his elected council to find a way to make a half-million dollar, interest-free internal loan to fund a new town police radio system; in Dixon a Crundwell assistant Kathe Swanson uncovered some questionable financial transactions while covering for Crundwell during an absence from the office. It is noted in the film that Crundwell took four months a year off, apparently to take care of her horse operation, and maybe to spend some of her embezzled funds on some additional personal expenses.
And while it took a while to get to it in the film, once uncovered and successfully prosecuted, public outrage targeting Dixon’s elected officials saw a total turnover of the city’s elected leadership.
Towards the end of her Q & A with the audience, which included Mark Egger’s recounting of his daughter’s experience of outright vilification at times in trying to raise questions about EDA operations and projects while on the Front Royal Town Council in 2016-17, and other audience assertions of municipal and even law enforcement cover ups, filmmaker Pope told the crowd she might well return to explore the local dynamics of this community’s unfolding experience.
One interested observer of Sunday’s matinee was New York Times reporter Abbey Ellin, who apparently hooked up with Pope at the airport on the way into Front Royal. In fact, as the Q & A was breaking up around 5 p.m. from the 2 p.m. showing, Ellin was being maneuvered toward the airport return trip with the filmmaker by local transport service operator Michael Williams to assure Pope did not miss her return flight out of the D.C. area.
So, as the involved numbers of sought assets for recovery climb, along with the number of both civil and criminal defendants, along with conspiracy theories about how it happened, it seems national interest in Front Royal and Warren County’s slice of what Pope described as a $3.7-trillion-dollar national embezzlement problem is rising as well.
Looks like us local first chroniclers of our town and county histories better get cracking on those side projects …
Removal Petition hearing on County Board continued to December
An as-yet undetermined date in December was set for the continuation of a hearing on the citizen-launched Removal Petition against the five sitting Warren County Supervisors. The hearing was on the Warren County Circuit Court docket Friday morning, November 22, at 8:45 a.m.
Judge Bruce D. Albertson heard motions and the reasoning for the continuance by video hook up from his home courtroom base in Harrisonburg. When a suggested date of December 6, when Albertson will be in court on EDA-related criminal hearings, did not work for one of the two defense attorneys, James Cornwell, the judge said he would like a specific December date agree upon within two working days.
As he had the previous day during hearings on EDA-related criminal charges, Commonwealth’s Attorney Bryan Layton notified the court of his intention to remove himself from EDA prosecutions with a newly-elected Commonwealth’s Attorney John Bell slated to take over at the turn of the year, prior to any EDA-related trials getting under way. And with Bell planning to recuse himself from EDA prosecutions to assure there is not even a perception of possible conflicts of interest that might impact future EDA legal proceedings, Layton suggested that despite his desire to continue with the EDA cases, that they, like yesterday’s criminal cases, be turned over to the office of Rockingham County Commonwealth’s Attorney Marsha Garst.
Rockingham Assistant Commonwealth’s Attorney Michael Parker appears poised to take on the bulk of cases Layton has been working, along with the EDA Special Grand Jury investigation. Layton again noted Parker needed time to get up to speed on the background of the various cases he is taking on.
Defense co-counsel Cornwell and Acting County Attorney Jason Ham had no objection, by remote phone hook up, to Layton’s call for the continuance of the Removal Petition hearing.
During Friday’s hearing it was reported that notice of certification of the required amount of signatures had been received from Warren County Voter Registrar Carol Tobin. That certification, which came despite the loss of 107 signatures that could not be verified as registered county voters, allows the Petition for Removal from office of the supervisors to proceed.
The filing required a minimum of 10% of the number of registered county voters who voted in the last election. That number is cited as 6,958, requiring a total of 696 countywide. Even with the 107 lost signatures, the petition contained 835 verified signatures.
The petition was filed October 18 as part of the grass roots public reaction to the Front Royal-Warren County Economic Development Authority financial scandal that has led to a number of dueling civil litigations surrounding the EDA’s attempt to recover $21.3 million dollars in allegedly misdirected or embezzled EDA assets. The EDA civil litigation alone has already cost the County and its taxpayers $1.31 million dollars in legal and investigative financial audit costs.
And with a $750,000 cap on attorney’s fees payable to the Sands Anderson law firm of Richmond removed by the supervisors on Tuesday, that number is anticipated to keep climbing over the coming year or more as the civil cases proceed and what is anticipated to eventually be in the neighborhood of a million pages of related documentation is submitted for those civil, and related criminal, cases.
The Removal Petition contends the County’s elected Supervisors were directly negligent and in dereliction of their official duties in allowing the alleged EDA financial embezzlements to develop under their indirect stewardship since at least 2014-15.
After the Front Royal Town Council voluntarily abdicated certain oversight functions several years ago when the County took over the Town’s operational funding of the EDA, the County Board alone now appoints EDA Board of Director members. It is those appointed members of the quasi-governmental EDA that have direct oversight authority of EDA staff, a defense motions filing in the Removal Petition case states.
The Removal Petition cites the board members’ three misdemeanor criminal indictments on misfeasance and nonfeasance charges filed September 20 as one primary legal basis of the recall. Those charges targeted the supervisors, along with current and former EDA board members, for an absence of due diligent oversight of the actions of former Warren County Economic Development Executive Director Jennifer McDonald in the final four months of 2018.
However, the fact those indictments were dismissed by Judge Albertson as non-criminal by Virginia Statutes, even dating to English Common Law under which they were filed, may complicate the petitioners’ argument.
Just two days before Friday’s hearing defense co-counsel Cornwell and Ham filed a Demurer with the court seeking dismissal of the petition. Grounds cited for dismissal include a lack of jurisdiction for the filing; a lack of legal authority for the supervisors to act directly to limit the activities of EDA staff; and “Legislative Immunity” precluding the Judicial Branch of State Government from a “quasi-criminal” investigation of a Legislative body such as the county supervisors regarding how they conduct their business.
It would appear that while the timing of the defense Demurrer filing might have precluded proceeding with arguments Friday, a December hearing date could see arguments on these crucial legal points of contention.
On October 28, Judge Albertson denied a petitioner’s motion to immediately remove the five sitting supervisors prior to any arguments on the legal dynamics of the Removal Petition.
Targeted by the Removal Petition are Daniel J. Murray of the North River District, Thomas H. Sayre of the Shenandoah District, Tony F. Carter of the Happy Creek District, Archie A. Fox of the Fork District, and Linda Glavis of the South River District. As of the turn of the year in the wake of Murray and Glavis’s retirements and Sayre’s defeat at the polls in November, only Carter and Fox will be impacted by the Removal action.
See Related Stories:
Delays in EDA criminal cases due to transfer of prosecutorial authority
On Thursday, November 21, four Front Royal-Warren County Economic Development Authority criminal defendants saw preliminary hearings, and in one case trial dates over the objection of Donald Poe’s attorneys, continued to future dates. Those defendants were former EDA Executive Director Jennifer McDonald, her husband Samuel North, former EDA small business client B&G Goods principal William Lambert, and former EDA solar panel contractor Earth Right Energy principal Donald Poe.
A date of January 10, at 1 p.m. was set for motions hearings and possible trial date settings on joint defense-commonwealth motions in McDonald’s, North’s and Lambert’s cases. Only Poe co-counsel William Ashwell objected to the delays, noting his client was in a somewhat different position that the other defendants.
That position is trial dates on all four charges against Poe already set for December 6 (perjury to the grand jury) and three financial charges of obtaining or conspiring to obtain money by false pretenses set for a three-day trial January 22 to 24.
Ashwell told the court his client was “pretty anxious to clear his name” adding, “I think we need to get things going now.”
Noting the defendant’s objection, Judge Bruce D. Albertson included the Poe cases in the continuations granted Thursday to the 1 p.m. docket on January 10.
As explained by Commonwealth’s Attorney Bryan Layton, primary among the reasons for those continuations is the naming of a new prosecutor’s office to handle the EDA-related criminal prosecutions. Layton has been leading the Special Grand Jury empaneled to investigate potential criminality tied to the $21.3 million dollar EDA civil litigation since former Warren County Commonwealth’s Attorney Brian Madden left the office to assume a judicial appointment in Frederick County.
However, with a newly-elected Commonwealth’s Attorney, John Bell who was hand to observe Tuesday’s proceedings, poised to take office at the turn of the year Layton notified the court he was withdrawing as special prosecutor for the EDA grand jury investigation into EDA affairs.
And Bell told the court due to peripheral past legal representations or political affiliations, he would recuse himself from EDA prosecutions to “avoid any appearance of impropriety so the people of Warren County are assured there are no thumbs on the scales (of justice).”
Chief 26th Judicial District Circuit Court Judge Albertson, himself a replacement after all Warren County Circuit Court judges recused or left for higher court appointments prior to pending recusals, accepted Layton’s recommendation of the Rockingham County Commonwealth’s Attorney’s Office to take over the EDA criminal prosecutions.
Rockingham Assistant Commonwealth’s Attorney Michael J. Parker was present to represent the office of Rockingham Commonwealth’s Attorney Marsha Garst. Courtroom discussion indicated Parker would take the point for Rockingham’s work on the EDA cases.
Related to various motions hearings scheduled for Thursday afternoon’s 4 p.m. docket, Layton noted the “voluminous material” related to the EDA cases and asked the court for “an extra period of time to get Mr. Parker up to speed.”
That voluminous material was referred to as a “terabyte” of digitized information ordered by the Virginia Supreme Court to handle what has been referred to in previous hearings as 700,000 to one million pages of related documentation.
Despite his counsel’s objection and Poe not joining the other defendants in waiving their rights to speedy trials, Earth Right Energy principal Poe will join the other three defendants in court for hearings on January 10 on the 1 p.m. docket.
Judge Albertson continued Poe’s scheduled jury trial on his perjury charge from December 6, to the previously scheduled first day of an anticipated three-day trial on the EDA financial fraud charges, January 22, with the following dates available were that trial to go beyond one day.
Albertson also set a hearing for the aborted December 6 perjury trial date to set a new date for Poe’s now in limbo financial charges trial.
Albertson also granted North attorney Frank Reynold’s request for a Bill of Particulars on the three charges his client faces related to actions cited as occurring “on or about August 1, 2015” to be responded to by January 8, two days prior to the newly scheduled motions hearing date.
Reynolds, like Lambert attorney Phil Griffin, told the court he and his client did not want to have to navigate the perhaps digital planetary-sized “terabyte” of EDA financial fraud-related documentation for information on a limited, yet thus-far unspecified accusation against his client.
McDonald is facing 32 felony financial fraud indictments; her husband North three; Lambert three, and Poe four, including the perjury charge, related to information contained in the $500,000 County-EDA contracted Cherry Bekaert financial fraud investigation of EDA financial affairs during McDonald’s executive directorship of the EDA.
EDA authorizes litigation to recover Workforce Housing parcel or its value
Following an hour-and-a-half Closed Session Friday morning, November 15, the Front Royal-Warren County Economic Development Authority Board of Directors unanimously approved a motion to authorize litigation to sue Cornerstone, LP, LLC, its principals and affiliates to recover “EDA land improperly conveyed to Cornerstone without EDA authority or collect the full value of the conveyance and such other damages to the EDA”.
The land in question is the 3.5-acre Workforce Housing parcel sold to the Cornerstone group on November 28, 2018, at a price of $10 dollars.
After initially receiving the parcel as a $10 gift from the aunt and uncle of former EDA Executive Director Jennifer McDonald, local realtors Mr. and Mrs. Walter Campbell, the EDA Board agreed to purchase the property for $445,000 in April 2017 after missing a previously undisclosed developmental deadline that would have enabled the Campbells to pursue tax credit compensation for the gift of the land to a public purpose.
It is believed that Cornerstone, LP, LLC, is a branch of regional developer the Aikens Group. Aikens was cited by former EDA Executive Director McDonald as a behind-the-scenes, private sector player in the Workforce Housing financial riddle from its inception in late 2014.
When contacted in April about the transaction Gray Blanton, who signed the Deed of Sale to Cornerstone for the EDA as board chairman in November 2018, told Royal Examiner he had only seen the final signature page of the four page document. Blanton seconded the motion made by Greg Harold to authorize the litigation.
Local real estate attorney Joe Silek Jr., who represented the EDA due to the recusal of then EDA Attorney Dan Whitten for a potential conflict of interest as EDA and County Attorneys, told us in April there was no price 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 or even a $651,690 if disputed EDA developmental and peripheral purchase costs are included, Silek said, “I don’t think they did,” and referred us to attorney Doug McCarthy of the McCarthy-Akers law firm for further information.
As we first wrote in April, as of publication there has been no response to a phone-message inquiry about the transaction from the attorneys who represented the buyer in the now legally-disputed sale.
Of the transaction, the initial March 26 filing of the EDA civil suit says, “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.”
That transaction came as scrutiny of McDonald’s executive leadership of the EDA was intensifying as the Cherry Bekaert financial fraud investigation progressed. Following several hours of closed session discussion of the Cherry Bekaert 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 by email, and according to the EDA lawsuit attempted to cap her financial liability to the EDA at $2.7 million dollars.
As previously reported, in initial defense motion filings McDonald’s now former civil case attorney Lee Berlik claimed his client was being vilified and scapegoated for past bad decisions of the EDA Board of Directors.
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” among other allegations of financial fraud that have led, not only to civil liability claims against the former EDA chief executive, but also 32 felony financial fraud indictments from a Special Grand Jury empanelled to investigate potential illegalities tied to the EDA civil suit.
And now it seems the Aikens Group finds itself on the perimeter of that EDA civil litigation regarding what has been a twisting and often inexplicable, five-year saga surrounding the attempted transfer of the Campbells’ 3.5-acre Royal Lane parcel to a public use.
Also unanimously approved after the Closed Session, on a motion by Jorie Martin, seconded by Blanton, was authorization for Executive Director Doug Parsons to forward Adjusted Journal Entries developed by retired County Finance Director Carolyn Stimmel and Hottel & Willis’s Heather Tweedy to the Yount-Hyde-Barbour accounting firm for use in development of the EDA’s 2018 Audit Report; and on a motion by Harold, seconded by Tom Patteson, acceptance of the Commission Agreement for the sale of the EDA-owned McKay Springs property, subject to receiving the Agency Agreement within 14 days.
Open Session Business
The pending McKay Springs property transfer and a County Planning Commission Public Hearing two days earlier on Wednesday, November 13, were topics discussed During County Administrator Doug Stanley’s Report during the open portion of Friday’s meeting.
That open portion of the meeting was eventful as the full EDA Board received monthly reports and six-month Strategic Priorities Lists from the EDA’s Asset Management, Finance, Communications and Executive Committees; as well as the monthly report on County business; and Executive Director Parsons’ Strategic Priorities List.
Major topics included the status of the Afton Inn as far as the developer resuming work on site; the status of removal of the Earth Right Energy-installed solar panels on the EDA’s Kendrick Lane Office Complex to allow roof repairs to facilitate empty space rental marketing; and the status of resolving payment issues with the Town of Front Royal on the new Police Station across Kendrick Lane.
As part of the Asset Committee Report Jorie Martin told the board that there had been three replies on the solar panel RFP, with one of particular interest. That one was from a non-profit with the expertise to remove the panels, and then market them for resale at no cost to the EDA. Martin added that it was possible the EDA could even see some revenue from the arrangement.
The EDA is abandoning the idea pushed by McDonald to provide sustainable solar power to the EDA Office Complex, ostensibly as an incentive to help attract a high-end commercial client to the county, supposedly Amazon according to one former board member. Issues include a lack of individual unit metering equipment and the fact the Town has sole authority to charge for the provision of power inside the town limits.
During discussion of the Kendrick Lane roof-solar panel situation it was noted that one positive was that the solar panels were not bolted to the roof in any way, and rather are just sitting on the roof on the panel row bases. Executive Director Parsons pointed out that it had been established that the roof damage did not come from the solar panel installation, but was a consequence of “faulty roof work ages back”.
Also during the Asset Committee Report Harold said the committee “was sad to report that the majority of current bad debt and aging receivables is owed by the Town of Front Royal for their municipal projects”. Primary among those projects is the $8 million to $11 million Town Police Station project financed through the EDA.
Interim Town Manager Matt Tederick was present and in response to a question told the EDA that “the Town is in receipt of the invoice that was most recently sent” regarding the police station and that it would be discussed at a coming council work session.
Tederick also said the Town had received an EDA FOIA request and that the Town Finance Director had scanned relevant material which should be forthcoming shortly. The Interim Town Manager said he had discussed with the Town Attorney setting up a conference call for 3 p.m. Monday to discuss Town-EDA issues.
The Town has filed civil litigation against the EDA to collect “as much as $15 million” in assets it believes were misdirected or lost by the Town during McDonald’s executive leadership of the EDA.
Talking to the press after the EDA went into Closed Session Tederick said he believed the referenced FRPD project invoice was for $8.7 million dollars, with assessed interest calculated at 3.5%, which he added, “differs from the agreed-upon terms the Town was originally offered by the EDA.”
Tederick confirmed the Town’s perceived agreed-upon interest rate on the FRPD project involved New Market Tax Credit Program (NMTC) financing, which is believed to calculate at about 1% over the life of the bond payback.
“So it’s all coming to a head and we’re trying to figure out how to best move forward,” Tederick said. Asked if the Town and EDA were trying to make the financing dispute less adversarial, the Interim Mayor replied, “Make it less adversarial, of course. But we have to agree upon what we can agree upon. And what we can’t agree upon we have a judge to determine what the right numbers are.”
As Royal Examiner has previously reported, a council majority decided to gamble on a best case New Market Tax Credit scenario brought forward by McDonald during consideration of a bond issue on a number of Town or County Capital Improvement Projects. That NMTC Program would have offered a seven to nine-year interest free payback term over an estimated 20 or 30 year payback.
However, that gamble was made over the advice of then-Town Manager Joe Waltz, Town Finance Director B. J. Wilson and NMTC Regional Administrator People Inc. representative Brian Phipps.
Due to uncertainties with the NMTC Program’s future, as well as municipal competition for limited regional funds controlled by People Inc, Waltz, Wilson and Phipps all recommended to Council that a bank-offered, locked-in 2.65% interest rate over a 30-year payback term was the best bet because its favorable interest rate was locked in and the money was not subject to being lost in a municipal competition for funding.
It was also later established that the FRPD headquarters project didn’t qualify for the NMTC program because it was a capital improvement project that did not create jobs, a primary goal of that federal and state overseen program.
“Here comes the judge,” as comedian Flip Wilson used to say.
Watch the entire open session EDA Special Meeting, with the above-referenced discussions and reports, among others of high interest in the exclusive Royal Examiner video:
Earth Right Energy countersues EDA for $20 million in damages
According to a November 7 filing with the Warren County Circuit Court Clerk’s Office Earth Right Energy (ERE) has joined in countersuing the Front Royal-Warren County Economic Development Authority for damages it claims the company incurred as a result of cancellation of a contract it asserts was validly put in place during the tenure of former EDA Executive Director Jennifer McDonald.
As previously reported attorneys for EDA civil defendant ITFederal and its principal Truc “Curt” Tran filed $13.5 million countersuit against the EDA on October 9. The EDA is seeking recovery of as much as $12 million in EDA assets from Tran and ITFederal.
Along with Tran and his company, Earth Right Energy and its principal Donald Poe and Managing Partner Justin Appleton were among defendants named in both the original EDA civil litigation of March 26 and the Amended EDA civil complaint of October 4.
The EDA is seeking recovery of a total of $21.3 million from what has climbed to a total of 15 defendants alleged to have been involved in, or beneficiaries of fraudulent financial schemes surrounding the former EDA executive director. McDonald is now facing 32 criminal felony financial fraud indictments related to the EDA civil litigation and the County and EDA-contracted Cherry Bekaert public accounting investigation of EDA finances at the base of that litigation. Poe is scheduled for a three-day trial January 22 to 24 on three criminal felony charges – two “obtaining money by false pretenses” and one “perjury” – related to the EDA litigation.
The Amended EDA complaint states that ERE, Poe, Appleton “and others, entered into multiple agreements with Defendant McDonald purporting to oblige the Warren EDA to pay for solar installation at Warren County Public Schools, even though Defendant Poe knew, that the Warren County Public Schools did not approve of any agreement to purchase and install solar power equipment from Defendant Earth Right Energy for any Warren County Public School properties.”
While that $27.3 million dollar solar contract for the schools was never acted upon the EDA civil suit cites payments authorized by McDonald to ERE “without permission or authorization by the Warren EDA” totaling $1,279,888. The EDA litigation notes an August 27, 2018 reimbursement payment made by ERE at McDonald’s request to the EDA of $334,851, reducing the total sought for recovery from ERE to “at least $945,037”.
However in its countersuit, ERE attorneys allege that the public schools solar contract was legitimately negotiated and confirmed at some levels in a mid-August 2018 phone conversation witnessed by “Earth Right’s representatives and Mrs. Michelle Henry”. Henry is also facing criminal charges and civil liability in the EDA case.
“Earth Right extended a formal offer in August in the form of an unexecuted written agreement memorializing the terms of the offer.
“In mid-August (2018), representatives from Earth Right, met in person with Jennifer McDonald, then the Executive Director of the EDA, to inquire as to (1) whether the EDA had approved and agreed to the terms in the Offer, and (2) whether the Warren County School Board was amenable to being a third-party beneficiary of the agreement and would endeavor to aid Earth Right and EDA in fulfilling the terms of therein.
“Jennifer McDonald, as Executive Director and in the presence of Earth Right’s representatives and Ms. Michelle Henry, telephoned Mr. Greg Drescher, then Chairman of both the EDA and the Warren County Public School Board (writer’s note: actually Drescher was superintendent of schools, not a member of the School Board).
“Mr. Drescher confirmed to Jennifer McDonald during the above-mentioned telephone conversation that the EDA had approved the agreement and that the Warren County School Board would endeavor to take whatever reasonable steps the EDA and Earth Right needed to have solar installed on the Roofs of the schools subject to the agreement,” four consecutive paragraphs of the ERE counterclaim contend, adding that “on September 4, 2018, Jennifer McDonald … on behalf of the EDA, formally executed the agreement with Earth Right …”
Of the agreement the ERE Counterclaim states, “The intent of EDA and Earth Right though not written was to secure third-party grants and other sources of funding such that the EDA either did not have to make any capital outlays required by the School Solar Agreements or such that the EDA would be recoop all monies paid (grammar in context).”
As a consequence of what it claims was a legitimately enacted contract, Earth Right Energy asks the court for a judgment of $20 million in damages; court costs; “and any other relief deemed just and appropriate.”
And so the legal wheels continue to spin around EDA civil and criminal litigation now estimated to have generated between 700,000 and a million pages of related materials being accumulated by the Warren County Circuit Court Clerk’s Office.