Correction to This Article
The article about the business background of Virginia gubernatorial candidate Terence R. McAuliffe incorrectly said that McAuliffe described himself as a huckster in his autobiography. McAuliffe described himself as a hustler in the book.
McAuliffe's Background Could Prove A Liability
Va. Foes Capitalize On History of Mixing Politics and Business

By Amy Gardner
Washington Post Staff Writer
Sunday, May 3, 2009

Terry McAuliffe has a simple message for Virginia: Elect him governor this year and he will bring jobs, because he has more business experience than anyone else in the race.

Yet McAuliffe's business pedigree is not so simple. He is a dealmaker who made millions from investments. And many of his biggest deals came in partnership with prominent donors and politicians, creating a portrait over the years of a Washington insider who got rich as he rose to power within the Democratic Party.

McAuliffe is, at his core, a salesman -- and even called himself a "huckster" in his autobiography. In his bid for governor this year, McAuliffe is selling the idea that his uncanny knack for making money can bring prosperity to all Virginia. But at a time when public mistrust of millionaires and politicians is high, that strategy could backfire.

"People are somewhat skeptical at the moment of certain kinds of business dealings," said Robert D. Holsworth, a political scientist and author of the blog Virginia Tomorrow. "There is a populist resentment that's directed at both government and business simultaneously. I don't know how that's going to play out."

McAuliffe faces Brian Moran and R. Creigh Deeds in the June 9 Democratic primary; the winner will face Republican Robert F. McDonnell in the fall.

On the campaign trail, McAuliffe has repeatedly used local businesses as the backdrop for his political rallies. He tells audiences that he has been a one-man engine for job creation for decades.

Wearing a hard hat recently while touring a trash incinerator that converts waste to energy, McAuliffe sloshed through trash ooze in hiking boots. "I love landfills!" he declared, machine-gunning his tour guide with questions and barraging his staff with ideas to jot down. "Oh, wow!" he gasped while looking at a four-story mountain of trash.

Such hands-on displays, along with an endless stream of exuberant one-liners ("I started my first business at 14!"), reveal a showman and salesman.

But they belie the complexity of a business career built mostly on intricate land deals and dot-com investments, often with wealthy political donors -- and sometimes with no jobs to show for it.

Forming Partnerships

After graduating from Georgetown Law, McAuliffe has been forming partnerships, raising capital and investing in business ventures. He has earned millions as a banker, real estate developer, home builder, hotel owner, Internet venture capitalist and credit-card marketer.

For McAuliffe, politics and business have always been intertwined.

He was Richard Gephardt's national finance chairman and later gave Gephardt a loan from the bank he led, Federal City National Bank. He worked with then-House Whip Tony Coelho on the Democratic Congressional Campaign Committee in the 1980s and later worked with him at a Washington real estate brokerage, the Boland Group.

One of McAuliffe's most lucrative deals, earning him $8 million, was a $100,000 investment in Global Crossing Holdings in the 1990s. The company's chief, Gary Winnick, later became a contributor for whom McAuliffe secured a golf date with President Bill Clinton.

McAuliffe made $16 million developing a shopping center in Florida after persuading a top labor leader he knew through the Democratic Party to invest $40 million from the union's pension fund.

He made $1.2 million helping Telergy, an Internet startup firm from his home town, Syracuse, N.Y., secure a $40 million investment from Winnick, the Global Crossing chief.

Telergy paid McAuliffe the referral fee, he recalled, after its executives invited him to serve on the board to help forge contacts with national politicians.

By the end of Clinton's second term, McAuliffe was the president's top fundraiser, well known for working with Clinton to arrange perks for party donors -- and doing business with some of those same donors.

One of those was Carl Lindner, who headed Chiquita Brands International and the insurance company American Financial Group. Although Lindner is known for supporting Republican causes, McAuliffe said he introduced him to Clinton and encouraged him to donate.

About the same time, McAuliffe was also partnering with Lindner in the purchase of American Heritage Homes, a home-building company in central Florida.

McAuliffe said he finds nothing controversial about his mixture of politics and business. "I've done business with people I've met in politics, who I went to law school with, who I grew up with," he said. "Who do you do business with? People you meet in life."

Defending His Deals

A long history of media coverage portraying McAuliffe as someone who traded his political influence for favorable business deals misses a fundamental point, he says: The deals stood on their own merits.

He calls American Heritage Homes one of his proudest success stories, a company he took from the brink of failure to building more than 800 houses a year and employing thousands of workers in the construction trades.

The deal also earned millions for him and Lindner when they sold the company to a national home-builder.

Similarly, he said, the partnership with the union pension fund provides one of his proudest examples of job creation.

McAuliffe formed the partnership in the early 1990s with the pension fund of the International Brotherhood of Electrical Workers to develop a commercial property and apartments in central Florida. The deal began with McAuliffe's relationship with Jack Moore, treasurer of the union's political action committee, who oversaw donations of close to $2.5 million to Democrats in 1996. McAuliffe asked Moore to invest.

The pension fund put up virtually all the money -- about $40 million compared with McAuliffe's $100 -- even though McAuliffe would own a 50 percent share in the partnership. This detail would become a point of contention in a lawsuit filed against the fund trustees by the Department of Labor, which regulates the management of pension funds and which determined that it had not been a good investment for the electrical workers. In 2001, after two years of litigation, the trustees, including Moore, settled in U.S. District Court.

In the end, the pension fund sold its share to McAuliffe and made a profit. McAuliffe unloaded the apartments and then renovated the commercial strip and sold it for $39.7 million, a far greater return for McAuliffe than for the union.

He said that even though his initial investment was tiny, he was the "sweat equity" partner -- the one who found the deal, put it together and managed it for years without making money. And it's not his fault, he said, that the pension managers chose to sell before bigger profits came.

McAuliffe also noted that he transformed a downtrodden shopping center into what is now a vibrant mall. Along the way, the project created hundreds of construction jobs, he said.

Richard Swann of Orlando, McAuliffe's father-in-law and lawyer on several Florida land deals, said he has never met a smarter businessman with a more uncanny sense for when to invest. In 2000, McAuliffe sold his stake in the home-building company because he predicted that the real estate bubble would soon burst, Swann said. More recently, McAuliffe put much of his portfolio in municipal bonds (most of them in Virginia, public records show), because of his sense that stocks were heading down.

"He's very prescient and just has a good sense and a good instinct as to value and a sense of timing," Swann said.

Making a Fortune

At a recent debate, one of McAuliffe's opponents, Moran, took a swipe by criticizing investors in Global Crossing who "walked away with millions, leaving their employees up the pole without pensions."

It was an early attempt to portray McAuliffe's business career as a liability. And the portrait could resonate because McAuliffe has made a fortune investing -- sometimes in companies that went bust, laid off thousands and drained investors' and employees' savings.

Already, some view McAuliffe's energy and sales pitch with skepticism.

"He seems to me like a guy with [attention deficit disorder] who's overdosed on caffeine," said Katherine Clark, a past chairman of the Northern Virginia Technology Council and co-founder of a Reston technology company. "He's a bit fiery. He's a lot of things. I think that people . . . might think he's a slick-talking sales guy."

McAuliffe's tendency to exaggerate his successes adds to that perception. Describing the apartments he purchased with the union fund, McAuliffe said he "went through every apartment myself, like 1,600 of them, to make sure the toilets worked" -- but then added: "Well, I didn't go through 1,600. But I went through every property exhaustively. Sure I did! I owned them!"

McAuliffe then claimed that his home-building company built 1,300 homes at its peak, but an adviser later clarified that the figure was closer to 800. And at a candidates' forum in December, in response to Moran's claim to be the only candidate who had run a business and raised a family in Virginia, McAuliffe boasted of launching five businesses in Virginia.

It turned out that all five are investment partnerships, with no employees, registered to his home address in McLean.

In the end, what voters think of McAuliffe's history of mixing business with politics may prove less important than whether he presents the best vision to pull Virginia out of the recession, said Holsworth, the political scientist.

That's probably why McAuliffe is embracing that history on the campaign trail, rather than running away from it. In front of business leaders in Northern Virginia, McAuliffe practically shouted to the room that his political relationships would only enhance his ability to attract jobs.

"I'm going to call Barack Obama every day!" he yelled, to laughter and a few rolling eyes.

And just imagine, McAuliffe said at a recent forum on Virginia's film industry at George Mason University, if he practiced in the governor's office the same art of the deal that made him rich.

After listening to Ron Newcomb, a young independent filmmaker from Woodbridge, describe the challenges of attracting investors to Virginia, McAuliffe didn't hesitate.

"When I'm governor, I'll be pitching for you. How's that?" he said.

Newcomb liked what he heard.

But will voters feel the same? Somewhere between the rolling eyes and the admiration for McAuliffe's success lies the answer.

Staff researcher Meg Smith and staff writers Debbie Cenziper and Sandhya Somashekhar contributed to this report.

View all comments that have been posted about this article.

© 2009 The Washington Post Company