News Column

McDonnell corruption trial: Broker says Maureen McDonnell dumped stock to avoid disclosure

August 9, 2014

By Travis Fain Tfain@dailypress.Com, Daily Press (Newport News, Va.)

Aug. 09--RICHMOND -- Virginia first lady Maureen McDonnell twice moved Star Scientific stock out of her account at year's end, the McDonnell family broker said Friday, skirting state reporting requirements for public officials as she and her husband took gifts and loans from Star's CEO.

She also asked to be placed on Star's corporate board, according to the company's former board chairman. That would have allowed her to draw a small pay check.

Friday was the 10th day in Bob and Maureen McDonnell's federal corruption trial, which is expected to last at least three weeks more. The prosecution is slogging through its half of the case, and jurors heard Friday about Maureen McDonnell's stock deals and from one of Star Scientific CEO Jonnie R. Williams Sr.'s closest partners.

The McDonnells are accussed of taking Williams' money and swapping it for their support of Star Scientific's lead product: Anatabloc. They say they were just promoting a Virginia-based business, as the governor should.

U.S. District Court Judge James R. Spencer wrapped trial proceedings up a bit early Friday afternoon, telling jurors, "I don't know about you, but I'm really thanking God it's Friday."

John Piscitelli, a McDonnell family friend and the couple's broker, testified for most of Friday afternoon, saying Maureen McDonnell bought more than $30,000 worth of Star Scientific shares in 2011.

The stock was risky. Star was bringing the dietary supplement called Anatabloc to market, but didn't have the clinical trials lined up that it takes market such a product as a drug.

Drugs are typically more profitable than supplements, and that's something Williams, now the U.S. government's star witness against the McDonnells, wanted the governor's help with.

Maureen McDonnell told Piscitelli to dump the stock near the end of the year to avoid reporting requirements, he testified Friday. Assistant U.S. Attorney Michael Dry had to push for this admission, making Piscitelli review what he told a federal grand jury last year.

She lost roughly half her investment in the sale, but bought the stock back in January. Sometimes people do this for tax purposes -- taking a loss at year's end, then buying the stock back weeks later. But that's not what the first lady asked to do, Piscitelli said.

She was looking for ways to keep the stock, but not have it in her name, Piscitelli said. When that failed, she told him to sell, and sell before year's end. The governor, and other state officials, must disclose family stock holdings of $10,000 or more every January.

In December 2012, Maureen McDonnell told Piscitelli to split most of the Star stock out of her account and into new accounts in the names of the couple's five children, Piscitelli said. Again, she wanted it done by the end of the year, he said.

Earlier that year, Piscitelli had a conference call with both McDonnells, he testified. They said they needed to borrow money and wanted him to determine whether Star Scientific could transfer stock into an account, then have Piscitelli's firm lend money against it.

The McDonnell defense repeatedly noted that Piscitelli had no way of knowing whether the governor knew about Maureen McDonnell's stock moves. The prosecution reminded Piscitelli that the governor began this call by thanking him for "helping Maureen."

Williams testified earlier in this case that he proposed the stock loan to avoid giving the McDonnell's cash, as he had already done once. In the end the plan was abandoned, and Williams simply wrote the McDonnells another check, he said.

Dry asked Piscitelli if he was relieved the deal didn't go through.

"Relieved is a good word, yes," he replied.

Friday also brought testimony from Paul Perito, Star Scientific's former board chairman. Perito answered the prosecution's questions quickly and in detail, providing potentially damaging testimony. But the former federal prosecutor had trouble with questions from the McDonnell defense team, and cracks appeared in his story.

Perito told prosecutors that he knew that the governor didn't control the state universities Star Scientific wanted to study Anatabloc, or the state tobacco commission that the company hoped would fund the project.

But "even though he doesn't control it, he could directly impact it," Perito testified. And the first couple could give Anatabloc "gravitas" as Star pitched doctors to recommend the product to their patients.

The plan seemed to be going well, he said. After an August 2011 product launch at the mansion, Williams was "on cloud nine," Perito testified.

Then Williams approached Perito about adding Maureen McDonnell to the company board -- something he said she suggested after reviewing corporate documents and seeing what the company paid. Company filings indicate that board members made $4,500 a meeting.

"I thought it was one of the worst ideas I had ever heard," Perito testified.

Perito also testified about the day Williams called to tell him investigators were asking questions. That, Perito said, was when he learned Williams had been writing the first family five-figure checks.

"He told me that he had written some checks to the governor," said Perito. "He told me that he had made some purchases. I just stopped him. I was breathless."

"(Williams) was sobbing," Perito said.

In addition to being a former prosecutor and a Nixon-era White House appointee, Perito is a long-time white collar defense attorney. Henry Asbill, one of Bob McDonnell's lead attorneys, said Friday that Perito has represented Williams, who was once fined by the Securities and Exchange Commission for exagerating the effects of a product unrelated to this case.

Williams and Perito are both named in at least one pending lawsuit against Star Scientific, brought by investors who say they were lied to about the company's prospects.

Perito told Asbill he couldn't say how much money he and Williams made off Star Scientific without reviewing corporate filings. Asbill suggested that Perito and Williams never intended to put Anatabloc through the FDA approval process it would have taken to market the product as a drug, inferring that they only wanted to pump up the stock price.

Perito denied this. He and Williams have both said they wanted Virginia universities to do the needed research, but they ran into bureacratic red tape, and the project petered out.

Dr. John Clore, a Virginia Commonwealth University researcher involved in the project, testified earlier this week that it was Star Scientific that dropped the ball. Clore said he was interested in doing the study, but couldn't get the detailed answers he needed from the company.

Perito also acknowledged Friday that what he knows about Williams' dealings with the McDonnells comes largely from Williams himself, and that Williams kept many things hidden before the federal investigation became public.

And when Asbill asked Perito whether he knew that the FBI asked Leo Tonkin -- a former Star board member and Perito's long-time friend -- to wear a wire and record Perito, Perito seemed surprised.

"No," he said.

Perito also was asked about a Star Scientific press release he approved in 2013, after news of the McDonnell investigation broke. Star said it hadn't sought or received any special treatment from the governor.

"I was not uncomfortable with the statement at that time," Perito said.

Daily Press reporter Dave Ress contributed to this story. Fain can be reached by phone at 757-525-1759.

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