by James A. Bacon and Carol J. Bova
In September 2016, the Office of the State Auditor (OSA) of the state of Mississippi began undertaking a review of the contracts signed by the state’s economic development authority. The goal was to see if the corporations benefiting from state incentive money had made good on the capital investment and job creation they had promised. Several companies were targeted for a closer look.
One of those was Greentech Automotive Inc., a Virginia company whose chairman in 2011 when the Memorandum of Understanding was signed was Terry McAuliffe.
GreenTech had announced ambitious plans for a multibillion-dollar business by designing and manufacturing hybrid and electric vehicles. Between 2009 and 2013 the company raised a total of $141.5 million from Chinese investors under the EB-5 program, which gave foreigners a U.S. green card in exchange for a $500,000 investment in the United States. Incentive financing from the state of Mississippi and Tunica County, Miss., amounted to another $6 million. All told, GreenTech raised at least $147.5 million in funding.
Despite a GreenTech commitment to invest $60 million in the manufacturing plant, very few cars ever rolled off the assembly line… assuming there even was an assembly line. The Mississippi auditor’s report could find documentation for only $3.4 million spent on automotive assembly equipment and parts. Further, despite promises to create 350 full-time jobs, the auditors determined that the company had never supported more than 94 active, full-time jobs in Mississippi at a time. GreenTech made only a single $150,000 payment to the state.
Despite having scrimped on manufacturing expenditures, the company listed minimal assets when it filed for bankruptcy in 2017. In a final settlement, agreed to last year, investors and creditors recovered only $6.6 million. Mississippi and Tunica County recovered only $575,000.
What happened to the other $140 million?
After winning the 2013 gubernatorial election, McAuliffe said he would divest his interest in GreenTech and an unrelated venture, Franklin Pellets, and place his family’s assets into a blind trust for his duration as governor, reported the Richmond Times-Dispatch.
“Gov.-elect Terry McAuliffe and his wife, Dorothy McAuliffe, with my assistance, have begun the process of establishing a blind trust for their personal assets and divesting from potential conflicts of interest,” said Thomas Richards, an attorney with the Tax, Trusts and Estates practice group of Arnold Porter LLP.
In a follow-up interview, an Arnold Porter spokeswoman reaffirmed that GreenTech was among the holdings that would be divested. She described McAuliffe then as a “passive investor.” Other than Franklin Pellets, no details about McAuliffe’s holdings were provided.
According to a 2010 State Corporation Commission document*, McAuliffe owned 25% of GreenTech (WM GreenTech Automotive Corp.). A holding company owned by CEO Xiaoling “Charlie” Wang held the other 75% of the shares. It’s a reasonable assumption that McAuliffe sold his shares to Wang — no mention of any other shareholder appears in the public record — although that is not known for certain. More to the point, it is not known what sum he sold his 25% stake for, nor the terms and conditions of the sale.
GreenTech lost so much money, generated so little revenue, and left behind such meager assets that it has few parallels in the annals of Virginia business history. Most companies have something to show for an investment of that size — software code, technology, products, sales, whatever. GreenTech produced almost nothing. Yet McAuliffe walked away with money in his pocket.
GreenTech’s bankruptcy petition claims that the company “exhausted its financial resources” fighting several lawsuits and battling “negative perceptions” from press coverage. But lawyers provided no documentation to support its contention that lawsuits consumed anywhere close to $140 million.
It certainly was not a case of GreenTech spending heavily to build its EV auto manufacturing plant or burning through tens of millions of dollars on payroll. Assuming the company paid its employees what it promised it would, Mississippi payroll would have consumed about $3 million a year at peak levels. (The company also maintained staff in its McLean headquarters, but the number of employees was much smaller.) The other major business-as-usual expense would have been hiring a German engineering firm to design the prototype car. The company did suffer damages in the “tens of millions” of dollars stemming from one of its lawsuits, but even that leaves large sums unaccounted for.
Another possibility is that Wang used millions of dollars in GreenTech capital to purchase McAuliffe’s shares.
There has never been a full accounting of where the money went, so we just don’t know. When Mississippi OSA inspectors attempted an on-site visit to review records, GreenTech denied them access. When the company filed for bankruptcy, it coughed up no earnings statements. Its finances are a mystery.
One thing that is clear is that the level of mismanagement had few parallels. Much of the blame belongs to the CEO, Charlie Wang. But McAuliffe was responsible for the hype, puffery and empty promises that parted Chinese investors from more than $140 million and duped economic development officials in poverty-ridden Mississippi and Tunica County. And as chairman, he shared responsibility for setting the company on its disastrous path to bankruptcy four years after he departed.
If GreenTech were just another busted business in an entrepreneurial U.S. economy that accepts business failure as the price of progress, the question might not be worth answering. But GreenTech wasn’t just another failed business. Its chairman would go on to serve four years as Virginia governor and today is less than a week away from possible re-election.
Virginia voters are entitled to know how much money McAuliffe extracted from the company and a clearer picture of his role in the doomed enterprise. Bacon’s Rebellion cannot answer the first question, but we will endeavor to flesh out his track record as chairman in the days to come.
(Bacon’s Rebellion efforts to contact the McAuliffe campaign were unsuccessful.)
* The ownership shares are documented in “Articles of Share Exchange of WM Greentech Automotive Corp., Capital Wealth Holdings Limited, and Greentech Automotive Inc.” filed with Virginia’s State Corporation Commission. The document laying out the distribution of shares, dated March 18, 2010, was signed by McAuliffe as chairman, Wang as chairman, and Gary Yi Tang as chief operating officer.