Only after an investigation by The Roanoke Times exposed gaping due diligence failures did Virginia’s lead economic development agency institute safeguards to shield state taxpayer money against bad deals, according to a report released Monday by the General Assembly’s watchdog agency.

Starting in July 1995, the Virginia Economic Development Partnership operated for more than 20 years without “a formal due diligence process to protect the state from fraud and loss,” the Joint Legislative Audit and Review Commission wrote in a 132-page report.

That approach changed after the newspaper’s investigation, published Jan. 17, the commission said. Protocols suggested more than four years earlier were enacted and a committee began meeting weekly to vet projects, including a review of companies’ credit ratings and reports, legal histories and financial statements.

None of that happened in the case of Lindenburg Industry, a company owned by Chinese nationals that received $1.4 million in state taxpayer money to start a catalytic converter plant in Appomattox. The factory never opened.

Officials at the partnership recommended approval of the grant largely basing their faith in the project on a website filled with text and photos pulled from the web pages of an unrelated company. The site listed a physical address in Winston-Salem, North Carolina, where, the newspaper found, the company had never been located. The unaffiliated company had issued a cease-and-desist demand over the lifted copy and pictures.

Following the newspaper’s report on the “failure of VEDP staff to validate the legitimacy” of the company, the agency “created formal due diligence procedures,” the commission said.

Research staff at VEDP proposed those steps in September 2011 — the same month Martin Briley was named the agency’s next CEO — but they never were enacted, according to the report.

Briley recommended approval of the grant to Lindenburg and gathered in October 2014 with company representatives and Gov. Terry McAuliffe in Beijing, where, the governor later said, he closed the deal.

Formerly the top economic leader in Prince William County, Briley is one of four state officials with ties to the Lindenburg deal who’ve lost or departed their jobs since spring. He left his post in March. Maurice Jones, the former state secretary of commerce and trade, in September started a high-paying job at a New York-based nonprofit group chaired by a McAuliffe ally. A project manager at the partnership and his boss also are out.

Both the partnership and McAuliffe cited Briley’s departure when asked about the legislative commission’s findings.

“VEDP’s Board of Directors recognized major shortcomings and the need for marked change and improvement and took significant action in March 2016 to replace the President and CEO,” the agency said in an emailed statement. “VEDP’s recent reorganization addresses many of the issues identified in the JLARC report, including new structure, new management and new operational procedures.”

While on a marketing mission to the Pacific Rim, McAuliffe said in a news release Monday that the Joint Legislative Audit and Review Commission report shows “we have a responsibility to strengthen the management and accountability structure at VEDP so that it can meet its full potential as a driver for economic growth.”

The governor credited VEDP with having “taken several steps to increase oversight and accountability leading up to this final report. The VEDP board is also in the process of hiring a new Chief Executive Officer, who I hope will bring a new culture of accountability and strategic oversight to the organization. These are good first steps; however, it is clear that much more needs to be done.”

A phone message left for Briley at his home was not returned.

Over the last 10 years, VEDP has awarded $384 million in grants, demonstrating what the state watchdog described as “mixed performance.”

Almost half of 133 completed projects under the Commonwealth’s Opportunity Fund — a pool of development grant money controlled by the governor and administered by VEDP — did not meet all of their contractual requirements. More than a third missed their jobs targets. Nearly the same share fell short on wages.

Formerly known as the Governor’s Opportunity Fund — as it was called when the Lindenburg package was approved — the program provides the state’s chief executives with photo opportunities and the chance to tout jobs. McAuliffe’s news release responding to the commission report cited economic growth as his “top priority,” reiterating a constant theme from the Executive Mansion and, before that, the campaign trail.

Programs in which companies are reimbursed for capital investments or other costs tied to job creation have fared far better, according to the commission.

Roughly two weeks after closing the deal in Beijing, McAuliffe and the cameras turned out in November 2014 in Appomattox for the Lindenburg announcement. The company collected the Governor’s Opportunity Fund grant in March 2015 following the media event during which McAuliffe handed company CEO Yunshan “Stella” Li a large cardboard check, symbolic of the money to come. Officials approved another $1.17 million from the state tobacco commission for Lindenburg. That payout never came.

Along with Briley, gone from VEDP are Warren Hammer, the project manager on the Lindenburg deal, and his immediate superior, Michael Lehmkuhler, the former vice president of business attraction.

Both officials’ names appear in more than 2,000 pages of VEDP emails obtained by The Roanoke Times as part of its Lindenburg investigation. In addition to trusting the website populated with misleading information, partnership officials neither sought nor reviewed financial statements for Lindenburg, a newly formed Virginia limited liability company.

The company pledged to invest $113 million and hire 349 workers to establish the converter plant in struggling Appomattox. But the project scarcely budged. Finally, as bills piled up, the deal crumbled. The partnership asked for its money back in December 2015 but so far has received nothing.

State police are investigating. A VEDP civil case against Lindenburg’s Charlotte, North Carolina-based site consultant is pending.

Lindenburg purchased the former Thomasville furniture plant in fall 2014, with company officials making the final arrangements on the deal from Beijing at about the same time as the meeting with McAuliffe.

Development Advisors Inc., the company’s site consultant, exercised a lien on the plant, effectively killing the project and leading to the factory being auctioned off in December.

VEDP is seeking the $859,000 the consultant says it’s due under the auction. The agency claims the consultant failed to fulfill the obligations of a performance agreement with Lindenburg. Development Advisors has filed a response challenging the legal validity of VEDP’s claim.

Jeff Sturgeon covers business, banking, transportation and federal court. Phone: (540) 981-3251. Email: Mail: 201 W. Campbell Ave., Roanoke, VA 24011.

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