I’ll see your $12 million dollars, and raise you another $1.5 million
On October 9, attorneys for ITFederal and its principal Truc “Curt” Tran filed a $13.5 million countersuit in response to the Front Royal-Warren County Economic Development Authority’s $21.3 million dollar civil litigation in which Tran and his company are named as two defendants liable for the return of over half of the EDA assets being sought for recovery.
Tran claims “substantial damages and reputational harm” to him and his company “from wrongful and deceitful acts that the Warren EDA – through its former Executive Director, Jennifer McDonald – committed against them”.
Tran also seeks a declaratory judgment that the $10 million dollar bank loan he and ITFederal received through the EDA “is a validly authorized transaction by the EDA” and “is not in default”. Tran notes in his countersuit that he is current on his monthly loan payments of $42,160 on a 30-year payback term beginning in January 2016.
Tran’s civil litigation counter attack on the EDA came five days after the EDA filed an amended complaint, adding detail of alleged fraudulent representations made by and/or on behalf of Tran/ITFederal in enabling his acquisition of the single largest amount of EDA assets being sought for recovery in its embezzlement and financial fraud scandal.
Those assets include the balance of the $10 million bank loan achieved by the EDA on Tran’s behalf in early 2016 and related vendor (minimum of $392,249) and direct payments (minimum of $1.43 million) to the company adding at least another $1.82 million dollars to the ITFederal portion of the EDA lawsuit.
So in claiming he was the one defrauded by the EDA and its former executive director, Tran has upped the EDA ante of about $12 million dollars filed against him by $1.5 million dollars – talk about high stakes gambling.
The amended EDA complaint cites Tran as in default on the $10 million dollar EDA/First Bank & Trust loan despite past admitted renegotiations on its terms.
“To date, ITFederal has not satisfied the Construction Targets for either the $2 Million Deed of Trust or the $10 Million ITFederal Borrower Note,” the Amended EDA complaint states, citing the absence of an occupancy permit at this point.
“On information and belief, little to no proceeds of the ITFederal loan have been applied to the ITFederal Project. On information and belief, Defendant Tran has converted a substantial portion of the proceeds of the ITFederal loan to his personal benefit.”
The EDA’s Amended Complaint notes that on October 4, the day it was filed, “the Warren EDA provided notice of default to ITFederal as required by both the $2 Million Promissory Note and the $10 Million ITFederal Borrower Note,” and adds that it believes ITFederal “cannot cure the default within the time allotted by the $10 Million ITFederal Borrower Note.”
As one can see, the amended EDA litigation and Tran’s countersuit paint distinctly contrasting portraits of what the dueling litigations contend happened in Tran’s acquisition of the estimated $12 million dollars in EDA assets.
The Tran/ITFederal Countersuit contends, “The Warren EDA – through Ms. McDonald, who had apparent, actual and/or implied authority to act on its behalf – materially misled Mr. Tran and ITFederal through both affirmative misrepresentations and concealment.”
However the EDA’s Amended Complaint repeatedly references actions by “Defendant Tran and Defendant McDonald” alleged to have been made in concert, falsely presenting Tran, his company and its potential to the EDA Board of Directors and Town and County officials.
“Defendant Tran and Defendant McDonald represented to the Town, the County and the Warren EDA multiple times that (a) Defendant Tran was a high-net worth individual, (b) he did not need any financial assistance from the Town, 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) Defendant Tran had the endorsement and support of the U.S. Congressional Representative Robert Goodlatte (Rep. Goodlatte) in connection with the ITFederal Project,” the amended EDA lawsuit asserts.
That is followed by eight more paragraphs alleging coordinated efforts by Tran and McDonald to misrepresent the financial and business potential of ITFederal and its CEO to local officials. Among those allegations was that Tran didn’t need the $10 million dollar loan but would accept it at the behest of Rep. Goodlatte, who it has been represented by EDA officials wanted the loan to help attract further redevelopment clients to the Avtex Brownfield site in his Sixth Congressional District; that Tran would actually pay the $10 million loan back in 60 to 90 days; and that federal EB-5 Visa Program financing was coming to the project.
Tran attorneys are sure to point out that those “Defendant Tran and Defendant McDonald represented” assertions most often continue to elaborate “through Defendant McDonald”.
As Royal Examiner observed as the ITFederal scenario was developing from our launch in October 2016 through 2018, the elusive Tran generally let the EDA executive director take the point in responding to questions from municipal officials or the press about his project at the EDA controlled Brownfield site.
Tran’s Countersuit filing asserts that McDonald forged his signature at least twice to give the impression he was the “secret investor” in the Criminal Justice Training Academy Project; and at least one other time to indicate his involvement “related to real estate deals in which he had no involvement”.
The suit also alleges McDonald “falsely misrepresenting” that the EDA had received a State grant for the ITFederal construction project at the Avtex site; and that McDonald misled Tran about the environmental suitability of the Royal Phoenix Business Park site at the former Avtex Superfund site to the point of telling him the soil was “so clean you could eat off it.”
“These fraudulent actions have unnecessarily entangled Mr. Tran and ITFederal in this matter, resulting in the Warren EDA frivolously suing this respectable businessman and his company where they are victims of the Warren EDA’s and its Executive Director’s wrongdoing,” the Tran Countersuit states.
However Tran was singing a different tune to the press during an on-site visit December 20, 2018. During a lengthy EDA board closed session after which it was announced McDonald had resigned by email earlier that day, Tran was asked about the possibility McDonald might be terminated or asked to resign following the closed session.
“I heard about this and it’s blowing my mind. Oh that would be sad. She’s done so much for this area of the county and the town to redevelop, and even me – I was just about to move on and she,” Tran hesitated before adding of the prospect of a turnover at the top of the EDA, “So, so, we have to go do this with the next guy’s ideas or something?”
How things have changed in the wake of several “next guy’s” ideas – one civil suit filing in which Tran and his company have been cited as liable for around $12 million dollars in restitution to the EDA and McDonald somewhere considerably over $3 million; not to mention 28 felony financial criminal indictments against the former EDA executive director Tran once put so much faith into to present his development plans to local officials.
EDA moves on legal representation, loan accounts – addresses indictments
At the Front Royal-Warren County Economic Development Authority monthly meeting on Friday, September 27, a four-person quorum, plus one (Greg Harold) by phone connection for a portion of the meeting, dealt with some financial housekeeping and a decision on interim legal representation.
On the latter front, counsel from Sands-Anderson, which already represents the EDA as bond counsel and in its civil litigation seeking recovery of $17.6 million-plus in allegedly embezzled or misdirected assets, was announced to serve as the Authority’s general counsel for the time being.
And following a closed session, on a motion by Jorie Martin, seconded by Tom Patteson, Sands-Anderson was also named as the EDA’s Point of Contact in negotiations with First Bank & Trust regarding the EDA Line Of Credit (LOC). The vote was 4-0.
The EDA is exploring separate legal representation in the long run as Warren County also searches for a permanent replacement for departed County Attorney Dan Whitten.
The County’s Interim Attorney Jason Ham of the Litten & Sipe law firm has declined the traditional dual County-EDA attorney’s role due to potential of conflicts of interest regarding the EDA financial fraud situation.
And on the EDA legal front, recently-appointed EDA Board Chairman Ed Daley read a statement addressing the September 24 misdemeanor criminal bookings of several current and past EDA board members. Those members, including currently seated Tom Patteson, Mark Baker and Gray Blanton, along with past members Greg Drescher, Ron Llewellyn, William Biggs and Bruce Drummond, were booked along with all five sitting county supervisors, the county administrator and county-EDA attorney on misfeasance and nonfeasance charges alleging an absence of due diligent oversight of former EDA Executive Director Jennifer McDonald during the first four months of the Cherry Bekaert EDA financial fraud investigation (see below linked story).
“The Front Royal-Warren County EDA, as a committed stakeholder in this community, is fully aware of the misdemeanor charges levied against past and current board members. The EDA recognizes these allegations and will appropriately respond and act accordingly as the necessary due legal process is administered through the Justice System,” Daley began, adding, “The EDA has recently developed and continues to refine a series of operational processes, procedures, and guidelines to ensure that accountability and transparency are at the forefront of our operational goals.
“The EDA has highly functioning committees dealing with financial oversight, asset management, communications, and executive oversight. These committees are fully engaged, routinely convened, and report to both the executive committee and the board at large.
“The EDA will continue to provide and promote economic opportunities for business expansion, retention, and other economic activities to match our strategic plan in order to provide continued positive resources to our community,” the board chairman concluded.
The EDA board also acknowledged its move to hand over direct financial management to the county government and presented a list of bank account balances, loan payment schedules and balances, as well as its current properties list.
A total of $1,697,361.35 was listed in bank account assets.
A current loan accounts total balance of just over $41 million was shown with estimated monthly payments totaling $150,582.54.
The total assessed value of 25 EDA properties was about $32 million (if this reporter’s fingers and TRAC phone calculator were functioning properly in concert).
And don’t forget the EDA civil litigation total being sought for recovery has most recently been discussed at over $21 million; as much as $15 million of which the Town is claiming it is owed in its own suit filed against the EDA.
It was noted that two smaller account balances with United Bank totaling $23,067.85 were being closed due to delays on the projects they were opened to fund. Those projects are the West Main Street connector road ($16,968.64) and Phase Two if the Happy Creek Road improvement project ($6,099.21)
Phase One of the West Main connector had been planned to run through the 30-acre ITFederal property. The initial section of the road accessing the 10,000 square-foot ITFederal building on site is nearing completion. However the future of the remainder of the ITFederal site remains in doubt due to the company’s inclusion as a defendant in the EDA civil litigation. That litigation is seeking recovery of the balance of the $10 million EDA loan to ITFederal on the grounds that it was acquired “under false pretenses” according to former EDA-County Attorney Dan Whitten.
The West Main Street extension is ultimately envisioned as a main thru road in the 147-acre Royal Phoenix Business Park property. It would ultimately connect the West Main Street-Kerfoot Avenue intersection near the skatepark and soccerplex to the south and Kendrick Lane just east of the EDA office complex to the north, essentially serving as a portion of the long-discussed “western bypass”.
See discussion of these and other business on the EDA’s September meeting agenda in this exclusive Royal Examiner video:
See Related Story:
Roles of McDonald, EDA Board & Goodlatte described at EDA hearing
The level of authority given former Front Royal-Warren County Economic Development Authority Executive Director Jennifer McDonald to pursue client contact leads and a consequent lack of oversight from her board of directors was a primary issue in testimony and closing arguments on Friday, May 31.
In fact, some professional tension was palpable between McDonald defense counsel Jay McDannell and lead EDA attorney Cullen Seltzer as they summarized the cases they had presented over 2-1/2 days leading to closing arguments beginning at 12:45 p.m., Friday afternoon. The result of that third and final day of the EDA civil suit motions hearing was previously reported in Royal Examiner, below:
In beginning his rebuttal to the plaintiff attorney’s closing statement McDannell referenced what he termed “vitriolic attacks on my client”. They were attacks he said he had tried not to respond in kind to – “That ends today” he told the court.
And he wasn’t kidding – McDonald’s attorney called the plaintiff case “craven and stupid” adding, “They put the cart before the horse” in an attempt to cover what he called “a failed filing” of the EDA $17.6 million civil action against nine defendants alleged to have engaged with McDonald in a wide, if compartmentalized conspiracy to embezzle or misdirect millions of dollars in EDA assets.
“The largest claim is a breach of contract claim for a contract that has never been breached – and it is against someone else,” McDannell noted of the $10 million loan the EDA secured from United Bank for ITFederal LLC and its CEO Truc “Curt” Tran.
In fact, a significant portion of former EDA board member Ron Llewellyn’s testimony, which was by far the lengthiest of four current or former board members called to testify Friday, addressed the process and rationale in acquiring that loan.
A nine-year board member prior to his resignation effective March 23, Llewellyn told the court that the ITFederal project “was considerably different than any other project we ever worked on … We were all excited about the first Brownfield site project,” Llewellyn noted of the first commercial client drawn to a planned 147-acre business park on the former 467-acre Avtex federal Superfund site in the Town of Front Royal.
Llewellyn testified he had concerns about the project early on due to an inability to find any substantive information about the company and its alleged $140-million or so in annual federal government contracts online. However, he noted that the EDA’s executive director always assured him she had verified the validity of the information about ITFederal and its government contracts.
“Did you ask how she verified it?” McDannell pressed Llewellyn on cross examination.
“No, not precisely,” Llewellyn admitted.
“Maybe because it was brought to us by the congressman due diligence wasn’t done. I couldn’t find anything online but Jennifer always had an explanation, I thought was through the congressman,” Llewellyn said.
“So it got credibility from Congressman Goodlatte – what would you say the impact of that was?” McDonald’s attorney asked.
“More than it should have,” Llewellyn testified about three-and-a-half to four years down the road from then U.S. Congressman Robert Goodlatte’s championing of ITFederal in 2014-2015 as a $40-million investor who would bring 600-plus high-paying tech jobs to this community.
In fact, Llewellyn recalled a conversation with Goodlatte at the October 2015 ITFederal ribbon-cutting here launching the idea of a $10 million loan to Tran’s company. Llewellyn said he, McDonald, then-EDA Board members Patty Wines, who was board chair, and Jim Eastham who was in banking professionally, were in the group with whom Goodlatte first broached the ITFederal loan idea.
Llewellyn testified that McDonald reported back that when first offered the loan, Tran had balked. However, the EDA decided to continue pursuing the loan after Goodlatte explained he wanted to be able to promote the Avtex Brownfield site “to other prospects by saying, ‘We not only got you this nice piece of land but financing for your project too’.
“So Jennifer went back to Tran and explained that Goodlatte said it needed to be done anyway (whether he needed it or not), and he says, ‘Okay’,” Llewellyn said of the process he recalled achieving the ITFederal bank loan.
What Llewellyn didn’t explain, and wasn’t really asked to at this hearing level, was why the EDA board would agree to extend a 30-year payback on a $10-million loan to Tran that the EDA has a 7-year balloon payment due to First Bank & Trust of Abington on. For you non-bankers out there, on the surface, those conflicting schedules mean the EDA must pay the loan back to the bank in full after seven years, while Tran has another 23 years to pay the balance on the $10 million back to the EDA. Talk about economic development working for YOU!
However, EDA Attorney Dan Whitten explained to Royal Examiner that the EDA has the option of renegotiating the monthly amount of Tran’s payback; and will likely attempt to refinance its loan payment to First Bank & Trust after those seven years. So if things go well the EDA may be able to continue to have Tran’s payments cover the cost of a refinanced bank loan. Whitten said the discrepancy likely occurred because the EDA-Tran terms were signed in September 2015 when the Town bridge loan was made to the EDA, and the EDA-First Bank & Trust terms were signed three months later when the bank loan was realized in December 2015.
And on the bright side, as Town Councilman Eugene Tewalt likes local media to stress, the Town of Front Royal DID get its twice-extended to three-months $10-million “bridge loan” to the EDA and Tran back in full when the loan through First Bank & Trust of Abingdon was accomplished. However as we also recall, the Town did lose out on two months of interest totaling around $8,000 because the term of the “bridge loan” was supposed to be a month and the bridge loan arrangement only included one month’s payment equal to what the Town had been collecting in monthly interest on those $10-million dollars in an investment account.
But back to the civil litigation hearing’s closing arguments of May 31, 2019: citing EDA “board failings of oversight” McDannell told the court of his clients’ culpability, “Her actions are attributable to them – not that she did everything right, but did she misunderstand the authority her board had given her?” McDannell asked rhetorically with a clear indication of his thoughts on an answer.
However in the plaintiff’s closing statement delivered first, Seltzer pointed to the testimony of the four former and current EDA board members heard that day. They were asked in to testify about Defense Exhibit 8 offered the previous day to illustrate board approval of a McDonald purchase of up to $2.5 million for potential use as an industrial cattle farm operation by a Tran company, Front Royal Farms LLC. Testimony indicated the planned Tran operation would produce beef to be sold in the Far East, particularly to Vietnam, Tran’s native country.
Former EDA Treasurer William Biggs, current Vice-Chairman Bruce Drummond, current Front Royal Vice-Mayor William Sealock, and Llewellyn all testified that they had not previously seen the Closed Session, Confidential Resolution authorizing McDonald to spend up to $2.5 million on a property for the cattle ranch land purchase on Trans’ behalf. That was the defense exhibit EDA Attorney Dan Whitten described during his Thursday testimony as a “fabricated document” produced by McDonald.
All four past and present EDA board members said Friday that while it appeared their signatures were on the document, they had not previously seen that particular resolution. They also verified Whitten’s testimony of the previous day that such a resolution would not be signed in closed session or likely be marked “Confidential” as it was.
The quartet of EDA board members also expressed varying degrees of knowledge or a lack thereof about EDA board discussion of Tran’s prospective Front Royal Farms operation. However, all agreed whatever discussion had occurred was far from the authorization of millions of EDA dollars to be committed to the purchase of land for such an endeavor.
Previous hearing testimony indicated that those parcels referred to as “the Buck Mountain properties” were sold back to the original owner William Vaught Jr. a month or so after purchased by McDonald real estate company DaBoyz LLC at a $600,000 loss.
“Even after she left (the EDA) she continued to conceal against those board members we heard from today. She betrayed that trust in the most pernicious ways,” Seltzer told the court in summarizing his case for attachment of $3.17 million of McDonald or her real estate companies’ assets.
Of Defense Exhibit 8, the EDA attorney called it “unbelievable, bare-faced contempt”, not only of her former board members but of the court in its attempt to render a judgment on the freezing or releasing of McDonald assets related to the civil litigation.
“She has attempted to deceive the court – I’ve never seen anything like that in a courtroom,” Seltzer said of the introduction of an apparently fraudulent document in support of a defense motion not to enjoin defendant assets.
The Sands-Anderson attorney made it clear he was not implicating his legal adversary in that deception – “He has been used by his client to perpetuate shocking deceit,” Seltzer told the court.
However, McDannell disputed that assessment, noting his client’s agreement to withdraw the document and her voluntary assertion that two properties under her control were being held in a “constructive trust” for the EDA.
He also pointed out to the court that his client had not tried to convert her real estate assets into cash and flee prior to facing the civil and criminal charges now hanging over her head, those latter charges leaving her incarcerated as a flight risk.
As reported in our above-linked initial story of the court ruling, Judge Athey took a middle ground in attaching some McDonald cash and real estate assets and not others, on the latter front leaving those co-owned with other family members alone, and on the former leaving her funds to pay for her defense against the felony criminal charges she faces.
See Related Story:
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?
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?!?
Tran credited McDonald with saving ITFederal project – but what was saved?
Contacted by phone on April 20, ITFederal principal Truc “Curt” Tran said he was limited in what he could say about his plans for his 30-acre parcel at the Royal Phoenix Business Park in Front Royal.
“On the advice of my attorney, no comment,” Tran said in reply to a question about how being named a defendant in EDA civil litigation filed March 26 might impact his plans as the first commercial tenant recruited to the former Avtex Superfund site.
However Tran did reply briefly when asked if he would continue to attempt to market the nearly completed, one story, 10,000 square-foot Phase One building as a rental space despite reports he no longer plans to re-locate his ITFederal tech company here from Northern Virginia.
“When did I say that?” Tran replied, seeming to focus on the ITFederal aspect of the question. Told it has been a general topic of conversation since both Royal Examiner and the Northern Virginia Daily reported an altered ITFederal plan on March 14, Tran added, “There is so much misquote and rumor.”
And while this paper’s source was protected Daily reporter Josh Gully cited Tran himself as the source of the information in a March 12 phone conversation. Pressed about his current plan for the property Tran returned to his attorney-instructed “no comment”.
But when this reporter and Gully encountered Tran in the EDA parking lot during a December 20, 2018, EDA Board of Directors closed session he was upbeat about the Front Royal project.
“You know every project on a brown field (environmental remediation site) has issues, okay, so we were very hesitant but here we are. So the building is going up, the road is coming in, business is coming in. And so I just met the governor on Monday (Dec. 16) and I try to tell him about the project out here – local, state, federal we all work together – we sing ‘Gumbaya’ and we make it happen because this is a beautiful piece of land and we try to market it,” Tran said.
“The EDA has been very supportive – we’ve had some glitch, some challenge, like the road issue – that was a mistake,” Trans said of a dispute with the Town over drainage issues tied to construction of the West Main Street connector road through the Royal Phoenix Business Park property.
We asked Tran if he was aware that EDA Executive Director Jennifer McDonald was under closed session board scrutiny for the second time within a week during that day’s EDA meeting. Tran replied, “I heard about this and it’s blowing my mind.”
Told there were suspicions McDonald might be terminated or asked to resign when the meeting re-adjourned to open session, Tran said, “Oh that would be sad. She’s done so much for this area of the county and the town to redevelop, and even me – I was just about to move on and she,” Tran hesitated before adding of the prospect of a turnover at the top of the EDA, “So, so we have to go do this with the next guy’s ideas or something?”
As Tran punctuated his question with a glance southward what he saw was a 30-acre property he acquired for one dollar from the EDA in a stated effort to jump start commercial redevelopment at the former Superfund site that from 1941 to 1989 housed a synthetic fibers manufacturing plant that though three ownerships was this community’s largest employer.
It is a property 3-1/2 years down the road from an October 2015 ribbon cutting with a one-story, 10,000 square-foot building nearing completion out of three buildings promised to total 67,000 s.f. and house hundreds of new jobs. As early as a June 2015 press release, Sixth District Congressman Robert Goodlatte lauded the coming of ITFederal as a $40-million investment in this community that would create 600-plus jobs, primarily high paying tech jobs brought here by ITFederal’s relocation from Northern Virginia.
Recently acquired FOIA material also indicates that it was Goodlatte that pushed the Town of Front Royal and the EDA toward facilitating a $10-million loan to ITFederal eventually accomplished through First Bank and Trust with the 147-acre Royal Phoenix Business Park property used as collateral.
”When we did the EDA to ITFederal closing in mid-September, things got a little confused because of Curt Tran’s changing of things and the added $10,000,000 loan that Congressman Goodlatte asked for,” then EDA and County Attorney Blair Mitchell wrote McDonald and a TLC Settlements staffer named “Lucy” on November 19, 2015.
Mitchell referenced bank questions about how the loan would be secured. “Was the 410 million (apparent typo for $10 million) just unsecured because we expect Curt to repay it from his other investor and financing?” Mitchell’s email concludes.
Due to delays in achieving the bank loan the Town of Front Royal gave ITFederal a $10-million “bridge” loan through the EDA to facilitate the project until the bank loan was agreed upon.
Despite Goodlatte’s promotion of ITFederal as an economic development opportunity for this community and his involvement in securing a $10-million loan now being sought for recovery as part of the $17.6-million EDA civil suit, on December 20 Tran downplayed Goodlatte’s involvement in bringing him to Front Royal and Warren County.
“And so initially it’s not Congressman Goodlatte – a lot of people think Congressman Goodlatte got me out here – in fact it was Frank Wolf,” Tran said of the former 10th District Congressman. Warren County was redistricted out of Wolf’s 10th and into Goodlatte’s 6th District in a 2012 Republican-led redrawing of the commonwealth’s legislative map.
“So I was talking to their (Wolf’s) office and they say, ‘Hey Curt, come out here and help because Warren County is a rural area and they need kind of investment support.’ I went out here and the next thing I know they were redistricted, and that’s why Congressman Wolf’s office hand me over to Goodlatte.
“Front Royal, Warren County – they need help developing, so that’s why we start looking at this place. And then there was all kind of challenge with the federal government running the program – that this is not rural (designation)… they have a separate one and the housing; so it’s really messy.
“So then they told me it was rural and is why I went out here… and then it’s NOT… so that was another crazy challenge,” Tran said of discrepancies in how the federal government classified Warren County regarding economic and demographic variables qualifying his project for access to federal program funding sources.
“So we were about to move out of Warren County because it’s hard to get federal grants and support for programs. So then fortunately enough it wound up Jennifer (McDonald) was around to help bridge it and then I think the congressman (Goodlatte).”
That “bridge” appears to have been the $10-million bridge loan from the Town of Front Royal to help the EDA secure the $10-million First Bank and Trust loan. And from information being circulated about the ITFederal project as late as 2017 a $10-million Town “bridge” – since repaid – to a $40-million investment producing 600, largely high-paying jobs doesn’t seem like such a bad idea.
As explained to Royal Examiner by former EDA Executive Director McDonald in a January 2017 interview (See Related Story), Tran’s originally-presented plan for his 30-acre ITFederal site was multi-phased, three-building project including a total of 67,000 square feet of construction in three structures, one of which would include 20,000 s.f. of rental space, 10,000 s.f. on each of two floors; 37,000 s.f. for an ITFederal office building and another 10,000 s.f. for an ITFederal cloud data center.
“As for job creation you can see from the table below what the anticipated ITF jobs will be salary wise and a total of jobs for the entire ITF operation,” McDonald told Royal Examiner in early 2017, noting that delays in the start of the project would result in year one numbers “a little lower” but adding that the below chart were “strictly ITF jobs and not related to the retail component” of the project.
However 27 months later, year one of the ITFederal plan has yet to begin.
|Personnel Plan||Year 1||Year 2||Year 3||Year 4||Year 5|
|NRC Contract Staff||$2,249,724||$5,155,900||$6,233,850||$7,480,550||$8,228,500|
|Other Contracts Staff||$889,000||$1,778,000||$2,667,000||$4,000,500||$6,000,750|
|NRC Subcontractors Staff||$642,779||$1,187,400||$1,781,100||$2,137,300||$2,351,000|
|Other Subcontractors Staff||$254,000||$508,000||$762,000||$1,143,000||$1,714,500|
|Other Government Staff||$0||$225,000||$337,500||$675,000||$1,012,500|
|Commercial Business Staff||$67,500||$525,000||$1,050,000||$2,100,000||$4,200,000|
As for the current status of ITFederal’s promised jump start of economic redevelopment at the former federal Superfund site, it seems there can only be unanswered questions amidst a flurry of attorney-instructed “no comments” from all sides – so much for “Gumbaya” and timely movement on that $40-million, job-creating economic investment in this community with a 2020 deadline for completion.
Was it all a pipe dream from the start, as former Councilwoman Bébhinn Egger warned in 2016-17 from her research into ITFederal, its contract history and possible reliance on EB-5 Visa Program money – a reliance later verified by FOIA’ed communications between Tran and McDonald dated October 24, 2014*.
Or could it be something worse, or more promisingly a project like its site’s name that might rise like a phoenix from the ashes of current civil litigation, criminal investigations, public finger-pointing and municipal scurrying for explanations?
Stay tuned for the next chapter of “As the EDA forensic audit turns.”
*Footnote: In Tran’s October 24, 2014 email to McDonald stating acceptance of an IDA/EDA offer on “Lot 6 of the Royal Phoenix Park” Tran writes, “Once ACRC (Tran’s American Commonwealth Regional Center) has received final approval from USCIS (U.S. Citizenship and Immigration Services), it can immediately start raising the EB-5 investments to provide loan financing to ITFederal to development (sic) the property and to perform work on the $140 million NRC (Nuclear Regulatory Commission) contract.”