This is the second in a series of articles about Terry McAuliffe and Greentech.

by James A. Bacon and Carol J. Bova

Fourteen  years ago, Benjamin Yeung was a Chinese entrepreneur whose companies manufactured and sold minibuses, passenger cars and business vehicles in China. In 2007 he launched a venture with the idea of building small hybrid cars in the United States. What made the plan unusual was the source of financing: Chinese investors willing to invest $500,000 in the U.S. in order to get a green card under a new U.S. initiative, the EB-5 Investor Pilot Program.

Although he needed an interpreter, Yeung was comfortable doing business in the United States. His wife, Rhea, was an American citizen, and he owned a residence in California. According to the account he gave in a court affidavit, he set up a holding company, Hybrid Kinetic Automotive Holdings, Inc. (HK Holdings), and an operating subsidiary, Hybrid Kinetic Automotive Corporation (HKAC).

Yeung said he made wife Rhea the sole shareholder of HK Automotive Holdings. But to run the venture in its start-up phase, he brought on a young Chinese man living in Northern Virginia, Xia0lin “Charlie” Wang. Wang was highly credentialed. He had earned an undergraduate law degree from Xiangtan University, an M.A. degree in development studies from Ohio University, and a degree in international law from Duke University. On his resume, he listed experience as a capital markets partner in the Washington, D.C., office of a prominent New York law firm.

Making himself chairman of the three-director board, Wang appointed Wang and Xi “Jack” Deng, an employee from one of his other companies, as the other two directors.

The goal of the EB-5 Investor Pilot Program was to attract foreign investment into economically disadvantaged regions of the United States. Foreigners willing to invest $500,000 were eligible for permanent residence in the U.S. Many affluent Chinese were eager for U.S. green cards, and Yeung thought he could raise money from them to fund the start-up of what he hoped would grow into a multibillion-dollar electric car enterprise. Yeung would provide the seed money to get the enterprise off the ground, but the main source of financing would come from the EB-5 program.

In Yeung’s telling of the story, Wang was a senior employee, not a business partner. Wang’s duties included identifying and obtaining investors, securing a site location, working with government officials to obtain incentives, and managing day-to-day operations.

An early step in getting the business off the ground was retaining two U.S. consulting firms: the Integrated Solutions Group to undertake an economic study of the project and The Washington Group to lobby for legislation and regulations to expand the EB-5 quotas. Wang also engaged outside companies to  design and build the car prototypes. In all, court documents suggest, Yeung invested approximately $1.6 million in start-up expenses.

Wang’s efforts to find a manufacturing location for cars yielded results in Mississippi, one of the poorest states in the country and one eager to attract foreign investment. In the late summer of 2008 Wang was holding serious discussions with Mississippi Governor Haley Barbour and the Mississippi Development Authority about what incentives the state might offer HK Holdings to build the plant there.

What happened next was subject to a long, complex lawsuit in which Yeung sued Wang and Deng. Yeung claimed that the two directors launched a “coup d’etat” by seizing control of the board and taking control and ownership of the company. In a March 12, 2009, affidavit, he testified, “I was shocked to receive an email from Mr. Wang purporting to notify me on behalf of HK Corporation’s Board that I am not an investor, officer, or director ‘of our corporation.’” He suggested that Wang had been “secretly maneuvering” to seize control of the company and the project since October 2008.

Wang’s testimony in the lawsuit added critical context to the story. In December 2008, he said, he had received a phone call from an official in the Chinese Ministry of Public Security (China’s FBI). The official informed him that there was an arrest warrant against Yeung, and that the Ministry would disapprove of any fund-raising activities in China for any company managed by Yeung. “This was a major problem to HKAC’s efforts to secure funding through the EB-5 Program,” explained Wang, “because if the Chinese government would not approve it, we would not be able to secure that funding.” In effect, Wang argued, his actions in seizing control of the company were justified.

The central issue in the lawsuit was whether Wang was Yeung’s business partner and co-owner of HK Holdings, as Wang maintained, or just an employee, as Yeung insisted.

A handshake deal. The job fell to Judge Michael P. Mills to disentangle the wildly conflicting claims. In a 2009 order, he summarized what he considered to be the genesis of the dispute.

According to the defendants’ version of the facts, the parties have proceeded in the hybrid car project primarily by means of a “handshake” deal whose terms are largely uncertain. This court is informed by counsel for the defendants that this business practice is common in China, where considerations of “honor” and “face” are paramount, and where it can be considered rude to demand that the terms of a contract be put in writing. Unfortunately, this business practice tends to give rise to disputes which elude a quick or easy resolution in a United States courtroom.

The most that this court can say with certainty about the hybrid car project is that 1) it involved an agreement by two men — Benjamin Yeung and Charles Wang — to work together in some capacity and 2) it has broken down in rather spectacular fashion.

Citing a Forbes magazine article listing him as the “third wealthiest entrepreneur in China” in 2001. Yeung presented himself to the court as a successful businessman. A page on the HKAC corporate website credited him with transforming the Shenyan Jinbei Passenger Vehicle Manufacture, Corp. into a profitable company.

In turn, lawyers representing Wang and Deng suggested there was a less reputable side to Yeung. They submitted an article from the South China Morning Post highlighting a $300,000 donation made by Hybrid Kinetic Automobile Holdings to former president Bill Clinton in exchange for a speaking engagement — three days after his wife Hillary Rodham Clinton was nominated as U.S. Secretary of State. The article also claimed that Yeung had “fled the mainland” for unspecified “economic crimes.”

Judge Mills faulted Yeung for his failure to cooperate fully with the court, his reluctance to submit documentation, and the “dodginess” of his testimony. In addition, the judge noted, “Yeung has a predilection for operating behind a bewildering maze of corporate entities of uncertain ownership and purpose, a practice which has made deciphering the particulars of this lawsuit extremely difficult.”

By contrast, Mills was impressed by the “degree of planning and preparation which [Wang and Deng] had made in advancing the project.” He also cited evidence that Yeung and Wang had discussed giving Wang a 10% share of the company. Most conclusive was the testimony of a disinterested third party, Los Angeles attorney Kimble C. Cannon, who described how Wang had approached him in 2006 — a year before Hybrid Kinetic was founded — with the idea for raising investment capital through the EB-5 quota program. When Yeung entered the picture later, he and Wang confirmed to Cannon that Wang would hold a 10% share of the company. However, the judge could find no evidence that a transfer of that 10% ownership share was ever consummated.

While Mills found Yeung uncooperative and “lacking” in credibility, he was bothered by the fact that Wang had issued HKAC shares in his own name while continuing to take funding from Yeung. Even assuming that Wang genuinely believed that he owned a share of the project, the judge wrote, “this court has serious concerns regarding the manner in which defendants chose to carry out their decision to operate HKAC with Yeung. … It would have been far preferable for defendants to have sought a court order authorizing them to operate HKAC on their own behalf.”

Mills never issued a final ruling, however, because in July 2009, Yeung and Wang settled their differences. Details were not made public, but according to news reports, both men declared they had plans to move the project forward. Confusingly, Yeung would do business under the banner of Hybrid Kinetic Automotive Holdings while Wang would take the name Hybrid Kinetic Automotive Corp.

In the end, Wang’s enterprise was the one that would get traction. Wang would be the one who managed to raise millions of dollars from Chinese investors, while Yeung would drop out of the picture. Such an outcome was not surprising. After all, Wang was the one who had built the key business relationships with Mississippi government officials, with the German engineers designing the prototype, and, perhaps most importantly, two U.S. business partners with high-level business connections.

One was Anthony “Tony” Rodham, the younger brother of Hillary Rodham Clinton, who would serve as Secretary of State under the Obama administration between 2009 and 2013. He would run the critical EB-5 fund-raising operation.

The other was Terry McAuliffe, a Clinton family intimate and key cog in the Clinton political machine who excelled at fund-raising, public relations and salesmanship. He would become chairman of the enterprise set up to manufacture and distribute the hybrid cars, a company called GreenTech.

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4 responses to “A Handshake Deal Gone Bad”

  1. Dick Hall-Sizemore Avatar
    Dick Hall-Sizemore

    This is sort of interesting, but how is it relevant to Virginia public policy?

    1. The post tells the history of the company before McAuliffe got involved. It tells us a lot about how Charlie Wang did business. If you’re inclined to defend McAuliffe, it provides evidence that his business partner Wang was not the most trustworthy person. In weighing the business disaster to follow, it’s relevant background. As I noted in the first article, any fair accounting would put some blame for the fiasco on Wang.

    2. Or Yeung.

  2. I think it is evidence of the grift and graft around government at all levels. Here we have Clinton grift. Bagman McAwful and an earlier, less horrible version of Hunter, but, seriously, other than being related to Hillary, what were Tony Rodham’s positive attributes? And $140 million goes POOF!
    And it is not just federal. Why do States have these development authorities? And get in bidding wars to bring in”jobs?” Wanna bet the numbers ever work out as projected? Does ANYONE honestly believe Richmond will be enriched on the South side by Casino One (or whatever it is called)? Let’s encourage another vice besides weed in our “marginalized” communities and SHAZAM! – everybody is making money! Just like that! I’ve seen this play before…6th Streets Marketplace, Main Street Station… I was too young to understand the Coliseum and destruction of 2 Street…
    I think development authority should be business climate. Richmond needs to lower BPOL taxes and won’t. So between schools and BPOL why wouldn’t a business arbitrage in a county? And VA rewrote its corporate law, and did a good job, wishing to be Delaware, but without putting in the Corporate type court structure and comparable tax structure, guess what? Delaware remained the venue of choice. More freedom, less dictatorial government is the answer in general.

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