Tuesday, May 14, 2013

 

Va. tobacco entrepreneur caught in growing political drama

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Thousands of dollars doled out by Jonnie R. Williams and his company, Star Scientific, to Virginia Gov. Bob McDonnell and Attorney General Ken Cuccinelli have raised eyebrows.

 Tobacco entrepreneur in Virginia political drama: In this Feb. 8 file photo, Virginia Gov. Bob McDonnell, right, gestures as he and Louisiana Gov. Bobby Jindal, left, speak about education reform in Richmond, Va.

RICHMOND, Va. — When Jonnie R. Williams believed he had discovered a way to make tobacco less harmful, the Virginia car salesman turned entrepreneur tried to sell his method to anyone who would listen.

Persistent phone calls to the nation's top cigarette makers often started with the colorful venture capitalist, once dubbed a "super salesman" by a local newspaper, dropping names and promising the world.

"He knew anybody and everybody, and they were all endorsing his idea," said Chris Coggins, who ran the research and development department at Lorillard Tobacco Co. in the mid-1990s. "He very much is a hobnobber. That's his raison d'ĂȘtre, if you like. ... He was a salesman like you wouldn't believe."

Two decades later, revelations of Williams' lavish gifts and his company's generous political donations are at the center of a growing scandal dogging the state's two top Republicans — Gov. Bob McDonnell and Attorney General Ken Cuccinelli.

The FBI is looking into Williams' relationship with McDonnell and his wife, each of whom promoted Williams' company's latest health care breakthrough — an anti-inflammatory supplement — about the same time he paid $15,000 for the catering at their daughter's wedding. Cuccinelli also has come under scrutiny for not reporting that he vacationed at Williams' homes and held stock in the company, Star Scientific Inc.

Meanwhile, Star Scientific is facing a federal securities investigation and three shareholder lawsuits, alleging trumped-up claims for its newest supplement, Anatabloc, which boasts Hall of Fame golfer Fred Couples as an ambassador.

Williams and company officials declined to be interviewed.

In more than 30 years in business, Williams, the son of a retired sailor turned Philip Morris employee, has earned his share of scars and riches.

Early on, Williams established himself as a gifted car and real estate salesman in his hometown of Fredericksburg. By the time he was 24, he drove a gold Mercedes, owned two homes and had started a local optical shop, according to newspaper articles in The Free Lance-Star from the 1970s and '80s.

His optical business collapsed after a fine for fitting contact lenses without a license, leaving tens of thousands of dollars in debts, according to a 1981 article. As the shop's equipment was auctioned off, one person told the paper: "If the auctioneer really wanted to make some money, he'd auction off Jonnie's address and phone number."

He invested in other medical businesses, including Spectra Pharmaceutical Services Inc., a failed Massachusetts company that touted an ointment to possibly cure eye diseases. The Securities and Exchange Commission accused Williams of using research with false claims to promote Spectra's stock.

Williams, without admitting guilt, paid back the alleged ill-gotten profits, plus interest, totaling $295,000.

The three shareholder lawsuits make similar allegations against Star Scientific, saying the company made false or misleading statements regarding clinical trials of its Anatabloc supplements.

"They promoted the product by creating the impression that Johns Hopkins University and the medical facility there had endorsed it," said Thomas Shapiro, a Boston attorney for one of the shareholders.

Still Williams, 57, has had successes, including investments in the maker of laser vision-correction systems that eventually became part of Abbott Laboratories Inc. He has been involved in startup bio-tech companies for more than a decade and owns numerous properties, including a six-bedroom house outside Richmond valued at $2.2 million.

Cuccinelli and some of his staffers stayed at the home in 2010 when they were making the transition into office. According to property records, he also owns two homes at Smith Mountain Lake — one valued at around $2.3 million — that played host to both McDonnell and Cuccinelli.

Before Star began to focus on supplements, Williams was in a race against himself to try to "fix the tobacco industry." He testified in a legal case over his patents that sought to use microwaves to reduce the cancer-causing toxins called tobacco-specific nitrosamines, or TSNAs, that develop during the tobacco-curing process.

To some, Williams was blowing smoke.

"It was all a sales story, and like all good scientists would, I wanted some data. And there never was any. It was 'sign here,' almost," Coggins said, recalling his many conversations with Williams.

By the late 1990s, Star Scientific, formerly known as Star Tobacco and Pharmaceuticals, was selling cigarettes to make money while it tried to license its process to make less harmful ones. The "StarCured" method was at the center of a long-standing patent dispute that ended last year with Reynolds American Inc., the country's second-largest tobacco company, paying Star Scientific $5 million as part of a confidential settlement agreement.

In the early 2000s, Star unsuccessfully test-marketed a cigarette with very low TSNAs under the Advance brand. It also began selling tobacco lozenges.

After years of losses, Star discontinued its cigarette business in 2007 and exited the smokeless-tobacco business at the end of 2012 to focus on dietary supplements, including Antabloc and its CigRx supplement to reduce the urge to smoke. Star said its smokeless-tobacco business had a "negative impact on our ability to interest leading scientific and medical research centers in undertaking clinical research."

Its sales, almost all of which came from Antabloc, grew to $6.2 million in 2012, up from $1.2 million the previous year. Still, it lost $22.9 million last year, compared with a loss of $38 million in 2011.

In November, Star Scientific said Williams and several shareholders were investing $20 million in the business and that he would reduce his salary to $1 per month starting in 2013 until the firm is profitable.

Despite its losses, Star donated more than $255,500 to political campaigns, including those of McDonnell and Cuccinelli. Williams also gave them thousands in personal gifts.

The governor, who signed the catering contract, did not report the payment on state ethics forms because he said he considered it a gift to a family member and therefore exempt from disclosure.

Three days before the wedding, first lady Maureen McDonnell flew to Florida to speak to investors and scientists on behalf of the supplement. Months later, the governor hosted a luncheon at the Executive Mansion to help launch the product. A picture of Bob McDonnell smiling and holding the product was removed from the Anatabloc Facebook page after questions surfaced about their relationship.

McDonnell has said only that Williams and his wife, Celeste, are "close family friends" and that his work on behalf of the company was similar to his promotion of any other Virginia product.

After mounting scrutiny over previously undisclosed gifts from Williams and recently sold stock in Star Scientific, Cuccinelli, a Republican gubernatorial candidate, recused himself from representing the state tax department in a $700,000 tax dispute with the company.

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