Star Scientific tells investors it does not expect to face prosecution

Melina Mara/The Washington Post - Gov. Robert F. McDonnell speaks to constituents after delivering the keynote speech at a VA Adopts kickoff event on July 30 in Fairfax.

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Star Scientific, the dietary supplement maker whose chief executive is at the center of federal and state investigations into Virginia Gov. Robert F. McDonnell (R), told investors Friday that the company will not face prosecution in any matters being probed by the U.S. Attorney’s Office.

The company had informed investors in March that it was the subject of a federal investigation into its securities transactions dating to 2006.

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Timeline: Star Scientific and Gov. McDonnell
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Timeline: Star Scientific and Gov. McDonnell

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In the new filing, the company indicated it has been cooperating with the U.S. Attorney’s Office and as a result has been told it will face no charges in the securities investigation or any other matter.

The assurance will be welcome news for the company, which produces a nutritional supplement called Anatabloc that the company says has anti-inflammatory properties.

The company’s stock price took a hit after it reported the securities investigation and failed to recover during months of intense media coverage of chief executive Jonnie R. Williams Sr.’s relationship with McDonnell and his wife Maureen.

The company’s ability to secure assurances that it will not face prosecution, however, could be a worrisome sign for McDonnell, suggesting that prosecutors have found the cooperation helpful in building a possible case against the governor.

McDonnell has not been charged, and prosecutors must determine whether they have the evidence to proceed against him as they investigate whether the governor agreed to take state actions to assist Williams in exchange for luxury gifts and money Williams provided to McDonnell’s family.

The news drew the first public rebuke of Williams, 58, from the governor’s camp since scrutiny of McDonnell’s interactions with the executive began with the publication of a Washington Post story in March outlining their relationship.

“Apparently, the U.S. government has given Star Scientific a free pass for unspecified misdeeds in return for the testimony of Jonnie Williams,” said Rich Galen, a spokesman for McDonnell’s legal team. “Gov. Bob McDonnell has had an 37-year unblemished record of military and civilian government service. Jonnie Williams has been in trouble with government entities since the earliest days of his business career.”

Galen also noted that a report recently prepared by an attorney appointed to represent the governor indicated that neither Star Scientific nor Williams received state funds, contracts or board appointments from McDonnell’s administration.

“The only quid pro quo that has been proven in this case is between the U.S. government and Jonnie Williams,” he said.

Jerry Kilgore, a lawyer for Williams, declined to comment. A spokesman for the U.S. Attorney’s Office declined to comment on Star’s filing or the allegations of the governor’s spokesman.

At 24, Williams was profiled as the “super salesman” owner of an eyeglass shop in a 1979 article by his hometown newspaper, the Fredericksburg Free Lance-Star. By 1981, the newspaper reported that he had been fined for fitting contact lenses without a license and had left town, trailing a series of debts.

In 1988, his business ventures were the subject of a lengthy Boston Globe article. He came under investigation by the Securities and Exchange Commission over allegations that a wrinkle cream company he was involved with had relied on faulty research to boost its stock price. He paid a settlement in 1993 without admitting guilt.

Kilgore has said that Williams has also led a number of successful businesses, including a company that made equipment used in laser eye surgery.

In a news release, the company said: “Based on the results of the company’s internal investigation, the cooperation with the United States Attorney’s Office, and discussions and communications between the company’s outside counsel and the United States Attorney’s Office, the company does not believe it will be prosecuted for any of the matters that the United States Attorney’s Office has been investigating.”

The release did not refer specifically to McDonnell, and a company spokeswoman declined to elaborate.

Williams provided McDonnell’s family with luxury gifts and money, including $120,000 to the governor’s wife and a small company he owns with his sister that the governor has said were loans. McDonnell recently apologized for breaching citizens’ trust and announced he had repaid Williams $124,000 for the loans, plus interest.

Star and Williams are now cooperating with the U.S. Attorney’s Office in a fast-paced corruption investigation targeting McDonnell, two people familiar with the matter have said.

The company has turned over corporate records and provided access to its executives. It has also provided prosecutors with some findings of its own internal probe of the matter, which the company informed investors Friday was substantially concluded in June.

Williams has also turned over personal financial records to investigators and has sat for a series of interviews in which he described his interactions with McDonnell and his family.

The gifts and loans came as McDonnell and wife Maureen took a series of steps that were helpful to the company, including allowing it to hold a luncheon marking the launch of Anatabloc at the governor’s mansion.

 
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