Sunday, June 30, 2019

A Bad Deal All Around

By Lisa Black


Fort Myers Federal Courthouse
            Six weeks ago, a 68 year old mother of one was sentenced to ten years in prison, one year for each of ten counts of fraud, money laundering and conspiracy. Her name is Kay Gow, an intelligent woman with a doctorate in business education and the author of textbooks. Her husband Richard had committed suicide after the guilty verdicts were handed down, abandoning her to face the sentencing alone. They had been married for over forty years. 

          And the county surrounding Fort Myers, Florida, is still out its 4.7 million dollars.


Singapore
After the Gows retired from a land development business in Virginia and moved to Florida, they, as so many do, chafed at the inactivity. Their restlessness took them to Singapore, where they adopted a daughter and became interested in herbal supplements not available in the U.S. This led them to found HerbalSciences Group (though the research division in Singapore eventually failed) and then proposed a new company, VR labs, which they said would provide 208 jobs to Fort Myers area residents. In 2011 the county, still reeling from the housing bust and the worldwide economic crisis, gave them a grant worth five million dollars to build and equip a health drink bottling plant. The county had made such grants to other companies such as Algenol Biofuels and Gartner, Inc., with good returns. But this time no one noticed how the Gows had never run a food or bottling concern before, nor had anyone on board with such experience. (Perhaps the fact that they were incorporated in Delaware, the fake company paperwork capital of the country, should have been a red flag. Nothing against the state, it’s just super-easy to incorporate there.)

The shuttered VR Labs building
            Contractors got to work on the plant. The Gows hired John Williams Jr. to set up the bottling system within the plant; a legit company created the bottling system, which Williams and the Gows simply copied onto their own letterhead with a doubled price--half to pay for the equipment, and half into Gow accounts for personal things like $46K for designer clothes and $11K to spend New Year’s weekend at DisneyWorld. And mortgage payments on their $1.8 million home. And the BMW. And the Mercedes. (Williams’ attorney says that Williams had been a true believer who lost a great deal of his own money. He got 2.5 years.)

VR was supposed to have 40 jobs up and running and $9 million added by VR or other investors by the end of 2013. That didn’t happen. The walls of the plant went up with legitimate, impressive scientists in the loop to create the supplements, but contractors soon noticed that they hadn’t been paid. For anything.

The contractors went to a county commissioner, who alerted the feds.

Fort Myers Beach
Fraud is the gift that keeps on giving: Innocent investors lost money; contractors had to lay employees off to absorb their losses. The county’s Economic Development Office was audited to determine its role in this debacle; then four employees who cooperated with that audit were fired. (They sued the county and won settlements totaling $.75 million.)

This is not an isolated incident. Later this summer I’ll be writing more about such state-county-city deals, but economists have long been pointing out that incentives and tax breaks to create or retain jobs is not usually cost-effective. The most egregious example is Wisconsin giving Foxconn $4.5 billion to create ‘up to’ 13,000 jobs. A year and a half later, there are about 122, and Foxconn has changed the focus of the plant from manufacturing to research. Yes, they had to forfeit some tax breaks and yes, it’s relatively early days yet, but no one disputes that Wisconsin paid way too much for what has to be, in the long run, too little.

When it comes to job creation, Thorough Vetting + Realistic Expectations = Good Deal.

Do you have any examples of bad deals in your area? Lay them on me!

14 comments:

  1. Wow. 4.7 million bucks gone! Is there any way the county gets to recover that? Sale of the building? Or are they just out the money, because the building is so specialized to the fraudulent company?

    Sadly, this isn't anything unusual. Lots of this type of fraud in California, especially around the Silocon Valley where all the rich investors are just looking to sink in their money. (Theranos, the tech blood-test company comes to mind as the latest.)

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  2. Other examples of states giving big tax breaks to encourage businesses to locate there and create jobs? How about (fairly rich) Hollywood studios who rake in tons of breaks to shoot scenes in certain southern states? Of course, I can see why they'd want to get some of their business OUT of California with the highest tax rates ever! Thanks for a modt interesting and thoughtful post, Lisa!

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  3. I meant to sign the previous post here -- Karna Small Bodman

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  4. OMG. This isn't a state subsidized situation, but I found it fascinating. Years ago, there was a couple in Evergreen, whose children went to school with my kids. Darin Asay and his wife, Wendy Almanza, bought prescription drugs at very discounted prices per government deals, to sell to nursing homes and other institutions. Instead, they resold them to pharmaceutical wholesalers and made more than $100 million in profits. Once the profits rolled in, they bought a 13,500 sq ft home in Soda Creek (let me tell you, it was beautiful inside, with a private theater that had a gold-leafed entrance). Still in their thirties, with four kids, they had a Beechcraft jet with a professional pilot (who never got paid), a Lamborghini Diablo, etc. The feds seized $4.6 million in cash. but somewhere there's a lot unaccounted for. Almanza was sentenced to 2.75 years and Asay to 6.5 years for mail fraud--never mind all the recalled drugs resold into the population across the states from NY to CA. The four kids were sent to live with relatives, but I know the youngest daughter (my daughter's friend) was traumatized.

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    1. That especially seems like it wouldn’t have been that hard for the government to keep track of where those drugs went.... people never seem to realize that ‘the government ‘ is nowhere near as all-powerful as we think it is.

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  5. About 10 yrs ago, in Josephine County (actually GP proper), a farmer sold a lot of property on the north end of town. To apparently, a developer. A geological evaluation of the land is required for any building. This area is located on a slope, mind you. The geological survey of land/soil showed decomposed granite, perhaps the worst next to sand to build on. The commissioners waived it and said it was OK. The developers hired construction outfits and paid the lowest bidder to build with eyes wide shut. They did. And despite the outcry of dangerous building, not long afterward, a good rain helped the 10,000 sq. foot homes slide partly down the hill. Corruption and putting people in harm's way for tax revenue. How do I know this? From a construction foreman/owner who refused to be liable for this. And... he was right.

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    1. Wow!! It always amazes that things like that can happen...and yet they do. And continue to happen.

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  6. What a fascinating and dreadfully classic story, Lisa. I love the way you lay it all out ... the suspense, the details, the suckers, and the sucker-punchers. It's horrifying and utterly riveting at the same time. Amazing what a lack of conscience can accomplish! Argh!

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    1. Thank you! I had to write about it—this story has been on the front page of our local paper for years.

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  7. Reminds me of Theranos too. How that company hoodwinked Walgreens is beyond me.

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  8. Years ago our accountant suckered many of his clients into a deal where he supposedly bought some kind telephone company. We weren't his clients at the time. No one paid much attention until he starting getting investors (his clients) to buy an airplane from Boeing. The idea was that the investors would own it and lease it to an airline for big returns. I was actually in the room when he called my husband to crow that he was in Seattle and that the deal was going through. Great! Only one problem. There was no airplane. He'll been in prison for the rest of his life. He ruined many people's lives. Thank goodness we didn't lose nearly as much as some people.

    But I want to mention one other scammer who comes to mind. Our president. Who routinely stiffs contractors, but has done shady deals through Deutsche Bank, which is on the ropes. No prison for him.

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    1. Once I began to research scams and frauds, it is simply amazing how many there are!

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