Terry McAuliffe has promised voters he is committed to transparency, but in the final days of a Virginia governor’s race he leads, the Democrat has steadfastly refused to explain a complicated financial arrangement involving several family trusts and a union-owned insurance and investment company.
For the arrangement, known in real estate parlance as a covenant not to encumber, Mr. McAuliffe — along with two other trustees for family trusts in his wife’s name — asked a bank for a $750,000 letter of credit “for the benefit of” Union Labor Life Insurance Co., or Ullico, the union-owned company that came under a congressional investigation a decade ago for risky investments.
As part of the deal, new liens or sales contracts could not be placed on the family’s home in McLean, Va., without the bank’s permission, according to land records that The Washington Times located in Fairfax County.
The document was signed by Mr. McAuliffe and his wife as owners of their home property that was used in the transaction.
Mr. McAuliffe’s campaign has refused repeated requests to explain why Ullico was involved in the deal.
The arrangement, however, was made not long after Mr. McAuliffe’s activities as a Democratic fundraiser were under scrutiny as part of a larger Clinton-era donation scandal.
It also was made as Mr. McAuliffe, Ullico and its executives invested money in a telecommunications company called Global Crossing. Mr. McAuliffe invested $100,000 of his own money in 1997 in Global Crossing before the stock was offered publicly, and eventually flipped the stock for a multimillion-dollar windfall before the company failed.
An ad by Mr. McAuliffe’s Republican opponent, state Attorney General Kenneth T. Cuccinelli II, accused the Democrat of “cashing in” on the company’s downfall, saying he made a profit of $18 million. The Associated Press placed his return at about $8 million.
Either way, Ullico wasn’t so lucky and lost heavily on its investments in Global Crossing, leading to a wide-ranging congressional investigation into why the union insurer put workers’ funds at risk.
“He made such a huge amount of money in a such a short period of time with a company that was clearly troubled. And then he got out before it went bankrupt and his friends within the labor movement also made a lot of money,” said Ken Boehm, chairman of the National Legal and Policy Center, who has testified to Congress about Ullico and other union pension deals.
In the end, Mr. Boehm said, it was never clear whether Mr. McAuliffe played a role in getting Ullico to invest in Global Crossing.
The covenant between Mr. McAuliffe and Ullico appears to have escaped notice during a 2003 U.S. House investigation into how the company lost so much money in Global Crossing.
The Times was alerted to the document, sitting in a county records office, by a former labor official and prominent Democrat who was familiar with Ullico’s loan arrangement with McAuliffe.
The Times provided a copy of the land filing to a campaign spokesman who acknowledged receiving it, but did not respond to numerous subsequent inquiries.
Mr. McAuliffe’s refusal to address a personal financial arrangement involving a company that later fell under congressional scrutiny flies in the face of his promise at a forum in May to create transparency as Virginia governor, especially when it comes to ethics.
“Transparency is important and, as you know, I’ve also called for an ethics commission when I am elected governor to make sure that we’re taking these thorny issues outside the state government,” Mr. McAuliffe said at the time, specifically criticizing Mr. Cuccinelli and Gov. Bob McDonnell, a Republican, for their lack of transparency involving gifts they received from a wealthy businessman under investigation.
Mr. McAuliffe also has promised to enact a gift ban on elected officials that he would enforce on himself through executive order if the legislature doesn’t act.
Real estate lawyers contacted by The Times described covenants not to encumber as a form of extra security or collateral.
Real estate lawyer Susan Pesner reviewed the document at the request of The Times. She described covenants not to encumber as a general form of extra security or collateral.
“Generally, a covenant not to encumber is given by a property owner in favor of the bank issuing the letter of credit assuring the bank that the title of the property will remain in the same condition as when the bank underwrote its letter of credit,” she said.
In the transaction involving Mr. McAuliffe’s home, the covenant not to encumber makes clear that the family trust entities were somehow obligated to Ullico, but the filing doesn’t shed any light on that transaction, she said.
Whatever the fine print was between Ullico and Mr. McAuliffe, the document provides further evidence of the Democrat’s cozy relationship with organized labor as he appears headed to become the next governor of a right-to-work state that historically has not been favorable to unions.
Mr. McAuliffe has made no secret of his ties to the unions while at the Democratic National Committee. In a 1997 deposition with Senate investigators looking into DNC fundraising, he said, “I dealt with a lot of labor. I was probably one of the most active and visible people on the outside who dealt with labor.”
Mr. McAuliffe’s name surfaced among Republican lawmakers years after Global Crossing’s bankruptcy in 2002. At the time, lawmakers questioned whether Mr. McAuliffe was involved, though he was never an executive at the telecommunications company. Asked whether he thought Mr. McAuliffe played a role in the Ullico stock deal, future House Speaker John A. Boehner, Ohio Republican, told The Hill newspaper in 2003, “I don’t know, but I intend to ask.”
Ullico’s investment strategy at the time was headed by Michael Steed, according to The Hill. He previously worked with Mr. McAuliffe at the DNC. Neither Mr. Steed nor Ullico responded to inquiries from The Times.
In 1997, Mr. McAuliffe went to Mr. Steed at Ullico about real estate deal in Florida, The Wall Street Journal reported years later. The newspaper found that Mr. McAuliffe persuaded Ullico to come through on a $20 million loan to construct a movie theater in a shopping center as part of a development in which he was involved at the time.
The newspaper reported that while Mr. Steed initiated the loan, the loan itself appeared to be a straightforward commercial transaction.
But it’s unclear whether that transaction was tied to the one involving Mr. McAuliffe’s house.
Another land filing in November 1999 noted that the debt secured by the covenant not to encumber had been “fully paid or otherwise discharged.”