Gift-gate: Star Scientific, Jonnie Williams & a governor in hot water.

By Peter Galuszka

Their expressions say it all. Making their entrance at a recent midday celebration of Virginia wine at the Executive Mansion, Gov. Robert F. McDonnell and his wife, Maureen, appear as dark as a glass of burgundy.

Greeting their guests, the first couple toasts a special vintage to commemorate the 200th anniversary of the governor’s house, but they can’t shake the tension. For months, the McDonnells and their children have endured a series of tawdry disclosures of gifts: cash, a lush wedding meal for one McDonnell daughter and a $10,000 wedding gift to another, Oscar de la Renta clothing, a Louis Vuitton handbag, rides in a $190,000 Ferrari, a Rolex watch, Final Four basketball tickets, private jet trips and other items. The latest disclosures are loans totaling $120,000 to Maureen McDonnell and a real estate partnership owned by the governor and his sister.

All of this came from Jonnie R. Williams Sr., the 58-year-old founder and chief executive of Star Scientific, an obscure and struggling Henrico County company. Though the gifts legally aren’t required to be disclosed— because of Virginia’s lax laws— the possibility of a quid pro quo has resulted in an investigation by the Richmond commonwealth’s attorney. The FBI also is investigating Star Scientific’s securities trading since 2006 and McDonnell’s relationship with Williams.

The worst-case scenario is that McDonnell could be indicted or forced to resign. At the least, his reputation as a wholesome, can-do Republican moderate with presidential timber has taken a terrible drubbing.

The man in the spotlight is defined now by the man in the shadows. The close relationship between McDonnell and Williams raises many disturbing questions about why the McDonnells would risk so much politically for a rich but relative small fry like Williams.

The barrel-chested, silver-tongued salesman from Spotsylvania County is often described by those who know him as extraordinarily bright and generous. His largesse has been much in evidence with his intimate friends— the McDonnell family and Attorney General Ken Cuccinelli, who once held–– but didn’t fully disclose–– in Star Scientific. Cuccinelli, the Republican candidate for governor, has been forced to recuse himself in several legal cases because of his links to Williams.

Williams, who declines to be interviewed for this story, seems a bundle of contradictions. An outsider from humble beginnings who loves the good life, Williams has played Pied Piper to the powerful, mesmerizing them with his entrepreneurial ideas.

"Jonnie is a genius,” says Patrick McSweeney, an influential Richmond lawyer and Republican Party operative, who was a director of one of Williams’ companies a decade ago. “He has an uncanny ability to see a central path to a solution that other highly trained people have missed.”

With a two-year business school degree and an uncommon talent for wooing potential investors, Williams has started businesses as wide-ranging as an eyeglass shop in the late 1970s, laser eye surgery technology, and the manufacture of cigarettes with fewer cancer-causing nitrosamines. Now out of the tobacco business, Williams is pitching Star’s Anatabloc, a tobacco-based dietary supplement and skin cream he says helps with inflammation and a host of other ailments.

Along the way, he’s surrounded himself with bright, talented people says Samuel P. Sears Jr., a Boston lawyer, who was once president of Star Tobacco and Pharmaceuticals, a Williams company. “He’d set up the companies but he wouldn’t operate them. He did the introductions.”

Yet Williams’ record is marred by a number of flops and probes. Williams has run afoul of regulators, consumers, and shareholders. As a young businessman, he had scrapes when his strip mall eyeglass shop went out of business. During the 1980s, the U.S. Securities and Exchange Commission prosecuted Williams for hiring a newsletter analyst to write research reports plugging a stock whose price he was trying to pump up.

“He’s basically a promoter,” says his former co-defendant Victor Kashner, a Sarasota, Florida, banker who ended up being suspended from trading for three months in the late 1980s by the SEC for his role in the bogus stock-report incident. Williams settled the case for $295,000 without admitting guilt. Kashner also paid a fine without admitting guilt.

The current controversy involves three lawsuits by shareholders claiming Star didn’t keep them abreast of federal subpoenas the company received early this year for financial data going back to 2006. One of the suits also alleges Star misled investors by falsely suggesting the famed Johns Hopkins University School of Medicine had officially vetted its research.

Meanwhile, the firm has lost a whopping $231.5 million during the past 10 years, according to securities filings with the SEC. “They’re running out of money,” says Adam Feuerstein, a biotech company analyst who writes critically about Star at TheStreet.com and broke the story regarding Star’s claims about the Johns Hopkins research.

Despite such missteps, Williams manages to keep strong and long-lasting relationships with business associates whose educational and career accomplishments far surpass his. “He’s not intimidated by them and they respect him,” Sears says.

The board chairman and president of Star Scientific, for example, is Paul L. Perito, 75, a graduate of Harvard Law School, a former federal prosecutor and official in the Nixon White House in the early 1970s. A Star board member is Christopher C. Chapman Jr., 60, a graduate of Georgetown University medical school, who’s been a senior researcher at drug giants Quintiles/BRI and Regeneron Pharmaceuticals. Style was unable to reach Perito for comment, and Chapman declined comment on the advice of his lawyers, he says: “We’re not supposed to talk about the case.”

Another close associate is Richard Sharp, long regarded as one of the brightest minds in the Richmond business scene. Sharp helped drive the growth of mass retailer Circuit City and founded the highly successful CarMax. He was appointed to Star’s board in early 2011. He has since left the board. Sharp is suffering from the early stages of Alzheimer’s disease, and he and his family are aggressively raising funds for Alzheimer's research through the Stay Sharp Fund. According to a blog kept by Sharp's daughters, www.staysharpfund.org, the businessman had been taking the supplement with hopes that it would relieve the symptoms of his condition, but stopped in 2012 after suffering side effects including weight loss and experiencing no improvements. Operative Patrick McSweeney and his wife, however, take it regularly. “It’s really good for your health,” he says.
 
It had better be. Star’s survival depends upon on its revenues. Although sales for the product are picking up, the company lost $8.2 million in this year’s first quarter in a long string of profit-negative quarters. Star may run out of cash by early 2014 unless more revenues start flowing, according to its 2012 annual corporate filings. “Our future prospects, therefore, are dependent on the expanded distribution and consumer acceptance of our dietary supplement products and cosmetic products,” it states in its 2012 annual securities filings.

Williams wasn’t the largest contributor to McDonnell’s campaigns. From 2008 to 2013, Star and Williams donated $145,000 to McDonnell and his political groups, not including the gifts, according to the Virginia Public Access Project. But McDonnell has received much more money from coal giant Consol ($357,010), cigarette maker Altria ($287,465) and utility Dominion ($256,291), among other large corporations and wealthy individuals. Companies such as these have a lot more to gain from contacts in the governor’s office than does Star, which deals more with federal rather than state regulators.

While declining to give any details about Williams’ largesse, McDonnell repeatedly has said he’s done nothing to help Williams nor has he used his state powers to promote him or his company. The governor is reported, however, to have helped set up a meeting for Williams with a top state health and human services policy official in August 2011. Two weeks later, Maureen McDonnell asked Williams for a $6,500 Rolex, which she gave to her husband. McDonnell has declined comment about the watch and has hired Washington lawyer and troubleshooter Earnest T. Flood, who advised former President Bill Clinton on his impeachment hearings.

After a recent radio interview at WRVA-AM 1140 for his “Ask the Governor” show, McDonnell told this reporter he met Williams “five or six years ago. He’s a donor for me and my PACs [political action committees]. My wife and I are friends with him, and his wife and we’ve had dinner. He’s also the CEO of a publicly-held company in Virginia so of course I know him. I try to know the heads of all public companies in the state.”

Williams’ chief conduit into the governor’s inner circles appears to be McDonnell’s wife. A former cheerleader for the Washington Redskins football team, Maureen McDonnell knows about marketing. She’s a health enthusiast who ran a small business selling creams and other ointments for 13 years. On May 23, 2011, the Washington Post reports, Williams wrote a $50,000 check to her, described as a loan. The purpose is unclear. The governor and his sister later received $70,000 in loans from Williams to help with faltering beachfront properties they own in a corporation called MoBo Real Estate Partners, according to the Post.
 
Williams, the son of a former sailor who became a Philip Morris worker, grew up in rural Spotsylvania County. As a young man, he wanted to get rich— fast— by tapping his remarkable brain and ability to persuade people to buy what he was selling. His only formal education is a two-year business degree from Johnson and Wales University in Providence, R.I., according to Bloomberg News.

In his 20s, he sold cars at a local Ford dealership in Fredericksburg, where he often was spotted tooling around town in a Mercedes-Benz 450L. He seemed the hero protagonist from a modern-day Horatio Alger novel and was featured in a Fredericksburg Free Lance-Star newspaper article headlined, “Super Salesman.” He was quoted as saying, “Money can be fun— spending it is most definitely fun— but it’s not the most important thing to me.”

After selling cars he entered the eyeglasses business. His firm, Colonial Opticians, a strip mall eyeglass store, eventually went bust. Lenders were stuck with thousands of dollars in unpaid loans. Some employees found that their paychecks bounced. One who asked not to be identified told the Free Lance-Star in a 1981 article: “Jonnie could sell a snowball to an Eskimo. But when it came to backing up what he was selling, now that was another story.”

Still a lover of the finer things, Williams owns multiple houses. His main residence is an estate once owned by noted Ohio industrialist Henry Figgie. Figgie moved his empire from Cleveland briefly to Richmond and built Virginia Commons before business turned sour in the 1980s. His conglomerates later went bust.

The Manakin-Sabot home at 1 Starwood Lane in Goochland County covers 28 acres in the middle of the venerable Hermitage Country Club, which features one of Richmond’s premier golf courses. The property faces a fairway and includes a swimming pool, tennis court and baseball diamond. It’s worth about $2 million. Cuccinelli and some of his aides stayed temporarily at Williams’ Goochland home when they were moving into the attorney general’s office in 2010. “Jonnie met Ken when Ken was in the General Assembly,” McSweeney says. “He is very fond of him.”

Williams also owns two homes on Smith Mountain Lake, including one on a peninsula with a boathouse and a commanding view of the water. Similar to the Goochland property, the gray, clapboard-sided building is part of a well-groomed golf community called the Water’s Edge. McDonnell and his family have vacationed at his lakefront property, and Cuccinelli celebrated Thanksgiving there.

An experienced pilot, Williams also earned enough money years ago to buy his own corporate jet, a Bombardier aircraft, according to Bloomberg News. The plane is registered to Starwood Aviation, a firm based in Sarasota, near where Williams also owns condominiums in the Florida Gulf Coast town of Bradenton. Williams regularly flies between Florida and Richmond.

The foray into the eyeglass business may have been a debacle, but it sparked his fascination with health and technology, especially with treating disorders of the human eye. During the 1980s, he reached out to medical doctors and technical experts treating eye ailments. It was one of these ventures that landed Williams and Kashner in trouble with the SEC.

But Williams rightly predicted that providing technology for laser surgery to correct near-sightedness would be a booming business. He sold some of his machinery rights to Abbott Laboratories Inc. for a whopping $300 million, says John Faessel, a retired dentist in La Jolla, California, who blogs about investments for seekingalpha.com. “He is very, very, very inventive,” says Faessel, who writes favorably of Williams and is quick to note he receives no money from him.
 
Abbott was Williams’ biggest score. It secured a life of luxury and his reputation as the one who always grabbed the restaurant bill first. The Abbott proceeds also helped Williams’ advance another one of his scientific fascinations— tobacco.

In the early 1990s, he helped found Star Tobacco and Pharmaceuticals with an office in Petersburg and warehouses in southern Virginia. He took some of the profits from the manufacture and sale of tobacco and plowed them into research studying tobacco-specific nitrosamines. So-called TSNAs are toxins that make tobacco smoke carcinogenic and deadly. Williams was among a number of researchers who theorized that if TSNAs could be reduced, cigarette smoke would be safer.

Living in the Richmond area had other benefits, McSweeney says. Apparently, Virginia’s capital is just the right size to contain the right number of sufficiently intelligent people. “He couldn’t live in a population center of less than one million people because he’d need at least six people capable of talking to him,” McSweeney says.

Williams was so determined to reduce TSNAs in the leaf-curing process that he used his kitchen microwave to nuke leaves and then test results, according to McSweeney. At the time, billions of dollars in lawsuits were crashing down upon the big tobacco makers. If smoke could be made safer, the burden would be lifted and the path to making even bigger profits would be cleared.

Williams patented some of his TSNA curing methods, notably one called “Star-Cured.” He initiated a patent battle with Brown & Williamson Tobacco Co. and then with Reynolds American after it bought B&W. “It is a classic story of an upstart company threatening the giants of tobacco and pharmaceuticals,” McSweeney says. “Jonnie was a genius up against some powerful forces.”

Williams ended up pouring millions into legal fees to fight Reynolds. He’d been reassuring shareholders and potential investors that a lawsuit settlement would pump hundreds of millions of dollars into the firm, says Feuerstein, the analyst who tracks biotech stocks for TheStreet.com. Instead, the lawsuit dragged on, and in September, Williams’ company won a measly $5 million settlement.

Meanwhile, Williams tried to keep Star above water by peddling other tobacco-related products such as a low-TSNA cigarette called Advance, tobacco lozenges, smokeless tobacco and a product designed to stop the crave to smoke, trademarked CigRx.

None of them went anywhere financially, but, as always, Williams had another idea. He became fascinated with an alkaloid substance called anatabine commonly found in tobacco and also in other plants such as tomatoes and eggplant. He became intrigued after reading various research reports suggesting anatabine could help cure a variety of diseases including Alzheimer’s, schizophrenia, Parkinson’s disease and multiple sclerosis, among others.

He followed closely the work of Dr. Paul Ladenson, a highly regarded endocrinologist at Johns Hopkins University School of Medicine. In 2004, Ladenson studied flight attendants who had chronic exposure to cigarette smoke while working aboard long-haul airplanes. They seemed to have lower instances of a destructive autoimmune thyroiditis called Hashimoto’s disease that tends to strike women more than men. Another report by the Harvard School of Public Health showed smokers were 73 percent less likely to suffer from Parkinson’s disease. Studies in England, Colorado, and at Minnesota’s Mayo Clinic suggested smoking may ease ulcerative colitis.

The point wasn’t that smoking is beneficial; rather that something in tobacco smoke may have health benefits. Williams believed that agent was anatabine, and he started shedding his other tobacco-related research and products to focus on it. In 2007, he founded Rock Creek Pharmaceuticals as part of Star. In June 2012, the U.S. Patent and Trademark Office issued a patent to Rock Creek. It now operates large-scale commercial production of anatabine.

Much of the product is destined for Anatabloc pills and creams that are sold over the counter through outlets such as GNC health stores. Such products don’t require approval for medical use by the U.S. Food and Drug Administration. They don’t need to meet higher criteria. Marketing claims aren’t held to higher FDA standards. “As a nutritional supplement, you are going to get away with a lot,” Feuerstein says. “Watch the ads on late-night TV. Not one of the claims has been tested by the FDA.”

Williams launched a sales blitz for his Anatabloc product lines. He hired as sales ambassadors PGA golf pro Fred Couples and professional tennis player John Isner. The business blogosphere buzzed and word circulated that the effectiveness of Star’s anatabine had been supported by Johns Hopkins research. In fact, the research in question had been conducted by physician Ladenson, acting independently of the medical school. It was paid for by Star.

Feuerstein exposed the claim in a Jan. 23 story on TheStreet.com titled “Star Scientific’s Made-Up, Misleading Relationship with Johns Hopkins.” Contacted by Style, a Johns Hopkins spokesman says: “Johns Hopkins did not review or approve any Star Scientific clinical study. No Star Scientific clinical studies were conducted at any Johns Hopkins location, and no Johns Hopkins investigators were involved in a Star Scientific clinical study.”

So far, Anatabloc, the product plugged by Maureen McDonnell, seems to have avoided controversy. A bottle of cream sells for about $300 and 300 tablets run about $100. Thomas Gallagher, president of the Richmond Better Business Bureau, says a national search of BBB records shows no reported problems with the product.

The question is whether anatabine can be taken to the next level, if there is one. For that, Star and subsidiary Rock Creek would have to come up with a drug that would be considered for testing by the FDA— a process that could take millions of dollars and many years. Stock analyst Faessel says it’s likely such potential drugs are on their way to clinical trials and FDA review, but the company won’t comment.

Doubters, such as Feuerstein, believe anatabine might well prove to be a “pseudo-science.”

It all could be moot if grand juries bring indictments against the businessman for illegal gift giving to McDonnell or for securities violations. If the governor, too, were indicted, it would be a tragic and history-making ending to what’s been a successful term. And if Williams must mount an expensive legal defense, it will be difficult for him to pull Star out of its deep financial hole. It could be his last big idea.

Peter Galuszka is a freelance writer in Richmond and a contributing editor to Style Weekly magazine, where this article first appeared along with the accompanying photos by Scott Bass.