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Investment questions dog McAuliffe in Va. gov race

Bob Lewis

In a governor's race that's all about jobs, Terry McAuliffe is facing questions about huge profits he made from a company that collapsed two years later, leaving 10,000 people unemployed.

The multimillionaire businessman and former Democratic National Committee chairman, a close friend of Bill and Hillary Rodham Clinton, is pledging to use his business savvy to land more jobs for his state than any of his fellow governors.

But since he entered the race in January, he's been dogged by questions about his investments in telecom giant Global Crossing. He faces two opponents in a June 9 primary.

In 1997, McAuliffe sank $100,000 into the Beverly Hills, Calif.-based startup's bold plan to link North America and Europe with a trans-Atlantic fiber optic cable, a super-fast conduit for voice, video and digital data.

"When I invested in Global Crossing, understand that it was a very risky deal," McAuliffe said in an Associated Press interview about his finances.

His 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.

When Global Crossing filed for bankruptcy protection that year, investors lost $54 billion and 10,000 employees lost jobs. Even after 2008's spectacular Wall Street failures, Global Crossing's bankruptcy still ranks among the largest in U.S. history.

McAuliffe's most bitter primary rival is pounding him on it. State House Democratic Caucus leader Brian J. Moran's only television ad, which debuted last week, accuses McAuliffe of "working insider deals for himself."

Moran maintains the jobs lost at Global Crossing counter McAuliffe's claims that he can generate jobs for Virginia.

"It undermines his reason for running for governor," Moran said in an interview.

The other candidate, state Sen. R. Creigh Deeds, has stayed clear of the issue, declining to comment on McAuliffe's business dealings.

It's also unclear how much voters will care. Interest in the off-off-year primary is low statewide. Gov. Tim Kaine can't run again because Virginia does not allow its governors consecutive terms.

Crystal France, a Democratic Committee member in Martinsville, where the unemployment rate is a state-high 20 percent, says she'll vote for Deeds in the primary. But she says it's because she feels he better understands the needs of rural, down-at-the-heels milling and tobacco regions like hers, not because of McAuliffe's wealth and business deals.

Those were never a factor, "and I can't imagine that it will be for many people," she said.

McAuliffe won't disclose his net worth, citing concern for his children, senior campaign adviser Delacey Skinner said. His portfolio, however, is long, diverse and lucrative, including Internet startups, real estate development, banks and even a well-connected Washington, D.C., steakhouse. He says that business acumen will help with efforts to bring jobs to Virginia.

"I don't want my fair share, I want more than my fair share," he famously bellows at debates and campaign rallies, as much a statement about jobs as it is bringing in every dime of federal stimulus cash he can get his hands on.

In 1990, two years before he moved to Virginia and raised the millions Bill Clinton needed to win the White House, McAuliffe partnered with Jack Moore, a union pension fund trustee and Democratic donor, in a Florida real estate development venture. The pension fund invested $39 million; McAuliffe put up $100.

McAuliffe's total profit, through what he called "sweat equity," ultimately reached $16 million. The pension fund realized a modest profit, but the Labor Department sued the pension trustees, claiming the deal was a bad one for union retirement money. McAuliffe was not a party to the suit.

In other ventures, his intimate ties to the Clinton White House were of obvious commercial appeal. Through McAuliffe, Global Crossing CEO Gary Winnick scored a tee time with the golf-loving president; from Winnick, Clinton got a $1 million pledge toward his presidential library in Arkansas.

Telergy, a promising information-technology firm in McAuliffe's native Syracuse, N.Y., that went bust after the Internet boom, put McAuliffe on its board of directors in 1999. Shortly afterward, Winnick invested $40 million. Telergy paid McAuliffe $1.2 million for his help.

Such windfalls are hard for working stiffs and ordinary investors to fathom, said Bob Glovsky, a financial planner in Boston.

"You've got to be awfully lucky. Or you've got to know people," said Glovsky, the incoming chairman of the Certified Financial Planners Board of Standards.

But it does happen, he said, usually for "angel investors" with cash to invest — and lose — on promising but risky ventures.

That, McAuliffe said, was what he did, especially with Global Crossing.

"The high-tech venture capital seed money, or angel investing, they're the riskiest because you're buying into an idea. There's no company yet," McAuliffe said. "If you can hit one, two or three out of 100, you're lucky."

The Associated Press