- Associated Press - Friday, August 8, 2014

RICHMOND, Va. (AP) - A wealthy businessman who showered former Virginia Gov. Bob McDonnell and his wife with thousands of dollars in gifts and loans made a major error in judgment, one of his associates said Friday.

Paul Perito, a former executive with dietary supplements maker Star Scientific Inc., testified in the public corruption trial of Bob and Maureen McDonnell that he would have stopped Jonnie Williams’ gift-giving had he known about it at the time.

“Clearly he was involved in conduct that was egregiously bad,” Perito said.

He said Williams, the former Star Scientific CEO, called him to come clean after being first interviewed by federal and state investigators.

“He was crushed,” Perito said. “He was sobbing. It was a very emotional conversation.”

Perito, a Harvard-educated lawyer whose resume includes stints as a Manhattan federal prosecutor and as a white-collar criminal defense attorney, said his first question was whether Williams dipped into corporate funds. Williams said he used his own money in his effort to buy the McDonnells’ influence, although he might have sought reimbursement for some minor items.

The McDonnells are charged in a 14-count indictment with accepting more than $165,000 in gifts and loans from Williams in exchange for promoting his products, primarily the tobacco-derived anti-inflammatory Anatabloc.

Despite his outrage over the gifts, Perito said he embraced the idea of Williams cultivating a relationship with the McDonnells in an effort to gain credibility for Anatabloc and secure public university research through a grant from a state tobacco commission. He initially thought getting cozy with the McDonnells was a bad idea because the politics might overshadow the science, Perito said, but he eventually concluded that the association would have a positive “halo effect.”

But there were times when he had to rein Williams in. For example, Williams once called him about appointing Maureen McDonnell to Star’s corporate board. The then-first lady had asked for the appointment because she had read in regulatory filings that it paid well, Perito said.

“I thought it was one of the worst ideas I ever heard,” Perito said, citing “a thicket of potential conflicts” and McDonnell’s lack of qualifications.

Williams delivered the news to the first lady and called Perito back to report her reaction.

“He said she was really pissed,” Perito said.

Perito also said he was “astounded” when he received a document showing that Williams had made job overtures to Maureen McDonnell’s chief of staff, Mary-Shea Sutherland. He said there was nothing Sutherland could do to help the company, and he suggested Williams tell the first lady that her top aide was job hunting.

Perito testified about the Aug. 30, 2011, event at the governor’s mansion to publicly launch Anatabloc - one of the favors prosecutors say the McDonnells did for Williams in exchange for the gifts and loans. Bob McDonnell arrived late for the event and gave some brief remarks.

“It gave a type of gravitas to the event,” Perito said.

He said the quest to get a state medical school to apply for tobacco commission funding for studies - step one in the long-range plan to get Anatabloc approved as a drug - was stymied when University of Virginia officials participating in a conference call with company representatives seemed unprepared and disinterested. He said Williams was “furious” that the McDonnells’ support did not pave any inroads.

Williams previously testified under immunity that he lavished gifts on the McDonnells only to get their help and gain credibility for his company and Anatabloc.

Before Perito took the stand, Bob McDonnell’s former deputy chief of staff and deputy counsel testified that at one point there was concern among the governor’s staff that Maureen McDonnell might have been hoarding gifts and stowing them in closets in the Executive Mansion. Matt Conrad said staffers were worried that some of the gifts might have actually been intended for the governor, who was required to report them on an annual financial disclosure form.

Stockbroker John Piscitelli also testified that Maureen McDonnell bought Star Scientific stock in 2011, directed him to sell it before the end of the year to avoid reporting requirements, then bought it back again in January. The next year, she transferred shares to her five children to avoid reporting, he said.

Piscitelli also said the McDonnells inquired whether Star Scientific could transfer shares into a separate account that they could borrow against. He said he made the arrangements but the transfer never happened.

Williams testified previously that he had discussed the transfer with Bob McDonnell, but after they determined there was no way to keep it secret he wrote a $50,000 check to a McDonnell family real estate enterprise instead.

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