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A Project of The Annenberg Public Policy Center

More (Mostly Accurate) Virginia Attacks

Virginia Democrat Terry McAuliffe’s latest ad says Republican Ken Cuccinelli “twists the facts” by saying McAuliffe made millions from a company that went bankrupt, leaving thousands of workers unemployed and with worthless pension funds.

But we find the Cuccinelli ad to be mostly accurate, with exceptions.

The Cuccinelli ad started running Sept. 4, featuring three former employees of Global Crossing, a fiber-optic company whose stock soared in the heyday of the dot-com bubble of the late 1990s before it sought bankruptcy protection in early 2002. One woman is shown saying, “I lost all my severance, lost all the money in my 401(k) [retirement plan],” while another is shown saying she “got walked out” and “my career was over.” The narrator says, “Yet political insider and investor Terry McAuliffe cashed in, walking away with millions.”

And, indeed, it’s true that McAuliffe by his own admission cleared an $8 million profit, while, according to a 2004 New York Times account, “[a]bout 12,000 people … lost their jobs and their pensions” as a result of the bankruptcy.

In this ad, we find fault only with a graphic that suggests McAuliffe made even more millions than he says; McAuliffe’s figure was confirmed by a reporter who reviewed trading records. We also object to the ad’s groundless speculation that McAuliffe “probably had some insider knowledge,” which could be taken as a suggestion of illegal insider trading. In fact, McAuliffe was never a company officer or director, and the Justice Department cleared the company’s founder and chairman, Gary Winnick, of criminal liability in 2002.

McAuliffe’s campaign charged Cuccinelli “twists the facts” in an ad that started running Sept 6.

That ad states that McAuliffe had no official management role in Global Crossing, and that he owned only a tiny fraction of its stock. That’s all true — as far as it goes.

But that’s not evidence that the Cuccinelli ad misrepresented or twisted anything. In fact, the narrator called McAuliffe a “political insider and investor,” not a company officer. And the fact is that McAuliffe, a golfing buddy of President Clinton, worked as a consultant to Winnick, who allowed McAuliffe to buy stock at insider prices before the company went public. McAuliffe eventually turned a $100,000 investment into $8.1 million in profit.

(The McAuliffe ad also says Cuccinelli is waging a “war on abortion” and opposes it “even in cases of rape and incest.” The “war on abortion” phrase is accurately quoted from a newspaper editorial, and as a state legislator, Cuccinelli once described himself as “the most aggressive pro-life leader in the Virginia Senate.” Cuccinelli really does oppose exceptions for rape and incest. His spokeswoman, Anna Nix, confirmed to us that he would allow abortion only if the life of the mother is in danger.)

Employees ‘Tricked’?

The Cuccinelli ad instantly became controversial when the liberal muckraking journal Mother Jones reported Sept. 5 that laid-off workers of the company were “tricked” into appearing in the ad. “Two of the three employees tell Mother Jones that they were never told their words would be used in a political attack ad appearing in a state some 400 miles away,” the magazine reported.

The Cuccinelli campaign disputes that, however. According to a statement from Chris LaCivita, the campaign’s chief strategist, “The campaign made it clear to all parties concerned that this would be used on television, in ads, in a political campaign, this year. They signed releases. No one had to speak to us — all participants did so freely and with that knowledge.”

We can’t resolve these conflicting statements, and we can’t know whether those who appear in the ad were fully aware of how their words would be used in a Republican attack ad. But for purposes of assessing the ad’s factual accuracy, it doesn’t matter. Neither of the two who spoke to Mother Jones said she had been quoted inaccurately or out of context.

So what are the facts?

In 1997, according to the New York Times, McAuliffe was hired as a consultant to Global Crossing’s founder, Winnick — a former bond salesman who once worked for 1980s disgraced junk-bond king Michael Milken. McAuliffe operated from an office in Washington, D.C., that belonged to Winnick’s California-based Pacific Capital Group.

“Gary likes the action,” McAuliffe told Times reporter Jeff Gerth. “He wanted a stable of people around him with great contacts” to “help him work on deals.” That arrangement ended a year later when McAuliffe “produced no deals,” the Times said. But meanwhile Winnick had allowed McAuliffe to invest in a new venture, Global Crossing Holdings. “McAuliffe says his initial $100,000 investment grew to be worth about $18 million, and he made millions more trading Global’s stock and options after it went public,” the Times reported.

$18 Million vs. $8.1 Million

That $18 million figure has been repeated in later press accounts, and the Cuccinelli ad cites one of them while showing a quote on screen saying “made a profit of $18 million.” But that’s not the amount McAuliffe actually pocketed.

As the Times story makes clear, $18 million is what his Global Crossing holdings were “worth” at the time — which was 1999, when the stock price was still riding high. At best, it was a fleeting, paper profit. But McAuliffe held onto a lot of his shares until the stock became nearly worthless.

McAuliffe has said he cleared $8 million, which is still a fortune but less than half the figure the ad cites. That $8 million figure is backed up by Associated Press reporter Bob Lewis, who was given access to trading records when this same issue arose in McAuliffe’s unsuccessful bid to win his party’s Virginia gubernatorial nomination in 2009:

Associated Press, May 27, 2009: His [McAuliffe’s] return was $8.1 million, mostly on the sale of 176,017 shares in 1999, the year Global Crossing stock peaked beyond $60 a share.

He could have made much more — closer to the $18 million in some published reports — had he sold all of his shares in 1999. Stock transaction records he provided to the AP show his last shares were sold in January 2002, after the company’s stock had plunged to 14 cents per share. And, as McAuliffe notes, he was never a board member or officer of the company.

Global Crossing sought Chapter 11 bankruptcy protection in January 2002, prompting congressional hearings over how Winnick managed to salvage hundreds of millions of dollars for himself while thousands were laid off and other investors saw their stakes become worthless. In 2004, Winnick put up $55 million to settle a collection of lawsuits against him and other company officials filed by investors and former employees who lost billions.

‘Insider Knowledge’ vs. ‘Insider Trading’

We also find that the ad might lead some viewers to conclude wrongly that McAuliffe may have engaged in something criminal, a serious charge for which there is no evidence. A former employee identified as Gary Baron is shown saying, “Probably had some insider knowledge. … Told a lot of lies to make money for themselves.” Shortly after, the narrator says, “That’s the real Terry McAuliffe.”

We think this could be heard by some viewers as a claim that McAuliffe was somehow involved in illegal insider trading, when in fact there’s no evidence that he did and strong evidence that he didn’t.

For one thing, McAuliffe was never a corporate insider, privy to the sort of nonpublic information covered by the law. And those who were corporate insiders were never charged with illegally trading on information not available to the public.

Furthermore, the AP account establishes that McAuliffe made his big score in 1999, long before the company’s troubles began to become obvious to insiders. It wasn’t until early June 2001 that company lawyers closed the window on all insider stock sales, citing the company’s deteriorating finances, according to a lengthy New York Times story published three years later, based on court records and congressional testimony. And the AP says McAuliffe held onto his last shares for another year, selling them at 14 cents a share in January 2002. That’s hardly the pattern of somebody acting on inside information.

However, the ad uses the term “insider knowledge” and not “insider trading.” At another point the narrator accurately calls McAuliffe a “political insider and investor,” and the narrator never describes him as a corporate insider or corporate officer. So we don’t criticize this ad for being intentionally misleading. Rather, we note that it’s open to misinterpretation.

McAuliffe’s Counterattack

As for McAuliffe’s response ad, only the first part is devoted to rebuttal. It quickly turns to making counter-accusations, which we also find to be substantially accurate.

At the outset, the narrator states that “Terry McAuliffe had no role in running the company,” while an on-screen graphic quotes an AP story as saying “was never a board member or officer of the company.” That’s from the May 27, 2009, AP story we quoted earlier.

The narrator goes on to say that McAuliffe “owned only one-fourteen-hundredth of the company’s stock,” while an on-screen graphic cites a company filing with the Securities and Exchange Commission from 1998. And the 1/1,400 fraction may or may not be perfectly accurate, but it’s close. The McAuliffe campaign’s support for the ad fails to provide specific figures about the number of shares McAuliffe owned. However, Forbes magazine put the total value of all Global Crossing stock at $20 billion in April 1999, the same year McAuliffe’s holdings were valued by the New York Times at $18 million.

The last portion of the McAuliffe ad changes the subject, and attacks Cuccinelli on wholly unrelated matters. The narrator says Cuccinelli is “pursuing an extreme agenda, interfering in our personal lives.” To support that, an on-screen graphic quotes a 2010 editorial from the Newport News, Va., Daily Press, saying Cuccinelli is pursuing “an agenda that’s ideological, personal and focused on social issues.” We find the narrator’s statement is clearly opinion, and the quote from the editorial is accurate.

The narrator goes on to say Cuccinelli is “waging war on abortion, even in cases of rape and incest.” An on-screen graphic cites — accurately — a Washington Post editorial from Sept. 20, 2012, referring to “Mr. Cuccinelli’s war on abortion,” including his action as Virginia’s attorney general that the Post said “could force most of the commonwealth’s 20 or so abortion clinics to close.”

As for the “rape and incest” claim, it’s also true. Cuccinelli’s campaign spokeswoman, Anna Nix, told us in an email that he “opposes abortion unless necessary to save the life of the mother.” No other exceptions.

McAuliffe’s Counterattack, Take Two

A second version of the McAuliffe ad started running early on Sept. 10. It drops the “war on abortion” section and replaces it with an attack on Cuccinelli’s acceptance of controversial gifts from the chief executive of a nutritional-supplement maker.

This version is more problematic. The narrator says Cuccinelli “took thousands in gifts from Star Scientific.” And, in fact, Cuccinelli has admitted taking numerous gifts from the company’s CEO, Jonnie R. Williams.

But the ad takes some serious liberties with the facts when the narrator goes on to accuse Cuccinelli of letting Star Scientific get away without paying taxes owed to the state. “Instead of doing his job [as state attorney general] to make them pay their back taxes, the case was delayed, and the company hasn’t paid a penny it owes Virginia.”

It’s true that the Associated Press reported March 22 that Star sued the state’s Department of Taxation in 2011 over its state tax bill, and that there had been no court filings by either the company or the attorney general’s office in more than two years.

However, Star Scientific is disputing that it “owes Virginia” the money in question, and an on-screen graphic misrepresents the newspaper it cites as a source on this very issue. While the narrator says that “the company hasn’t paid a penny it owes Virginia,” viewers see on screen the words (without quote marks) “Star Scientific still owes $1.7 million to Virginia.” The ad cites a Roanoke Times editorial dated April 2, 2013. But what that newspaper editorial actually says is this: “The company could be on the hook for at least $1.7 million in taxes, penalties and interest if it loses the dispute, according to a filing with the Securities and Exchange Commission.”

So Star could end up owing that much, if a judge rules against the company. Or it could owe nothing if a judge rules in its favor.

As the Roanoke Times explained, Star Scientific is suing the state claiming that some tobacco-curing barns it owns should be exempt from the state sales and use tax. The dispute has simmered for over a decade, and it only reached the courts in July 2011. The company is challenging $860,115 in assessments, which have now grown to $1.8 million when including interest and penalties, according to the company’s most recent quarterly report filed in August with the Securities and Exchange Commission.

Furthermore, there’s no evidence that Cuccinelli intervened personally, and his office has said it’s the company that is responsible for the delays in the case, which is now scheduled to go to trial in mid-December, according to the SEC report.

The AP quoted the attorney general’s spokesman, Brian Gottstein, as saying the office has been contacting Star Scientific’s lawyers for months “in an attempt to move the case along, but the attorney has stated he is extremely busy with another significant litigation matter.” Gottstein also told the AP that “the attorney general has not been personally involved in this case.” Cuccinelli says he never discussed the tax case with the company’s CEO.

The Star Scientific tax case has been an embarrassment to Cuccinelli, to be sure. The Roanoke Times and others have called for him to step aside from the case because of the possible conflict of interest.

Indeed, the candidate has been under pressure to return the gifts since July, when the state’s Republican governor, Robert F. McDonnell, announced he would return the far more valuable presents he and his family received from Williams. Cuccinelli announced Sept. 10 — hours after the new McAuliffe ad appeared — that “in recent days” he had arranged to give $18,000 (the value of the gifts he received) to a Richmond-based charity. “I did this to resolve any questions surrounding the matter concerning Star Scientific,” he said in a video message released a few hours after the new McAuliffe ad first appeared.

But the revised McAuliffe ad goes too far in stating so flatly that Cuccinelli has allowed Star to get away with not paying $1.7 million to the state.

A Rare Disagreement

Footnote: Our friend Glenn Kessler, who writes the Washington Post’s “Fact Checker” column, awarded the Cuccinelli ad “three Pinocchios” on Sept. 9. So Kessler essentially finds the ad mostly misleading, while we find it to be mostly accurate. We’re big fans of Kessler’s work, and we disagree so rarely we thought this case worthy of discussion.

Kessler reached his finding because, he wrote, “An ordinary viewer of this ad, having no knowledge of Global Crossing’s history, could easily assume McAuliffe was directly involved in its collapse.” He says that “the ad suggests that McAuliffe was directly responsible for the suffering of these workers, without directly saying so.”

Maybe so, but the ad makes no explicit claim that McAuliffe caused the bankruptcy. As noted earlier, the ad labels him an “investor” and not a company officer or director.

None of the workers in the ad is shown blaming McAuliffe, or even naming him. We see this ad as simply — and mostly accurately — contrasting McAuliffe’s big profit with the workers’ losses. The ad says he was a “political insider” who “cashed in, walking away with millions.” And the fact is he did make millions.

— Brooks Jackson