Like a Bandit: The curious riches of Terry McAuliffe, Democratic honcho

National Review, Sept 16, 2002 by Byron York

On August 10, in a speech before the Democratic National Committee's summer meeting in Las Vegas, party chairman Terry McAuliffe demanded that President Bush make public records of the Securities and Exchange Commission's investigation into his sale of Harken Energy stock more than a decade ago (a probe that found no wrongdoing on Bush's part). "If you have nothing to hide, then release the documents," McAuliffe roared as the crowd cheered. "To paraphrase a Republican hero -- Mr. President, tear down this stonewall!"

The next morning, up early to appear on ABC's This Week program, McAuliffe was asked a question about his extraordinarily profitable relationship with Global Crossing, the bankrupt telecommunications company now under criminal investigation for alleged financial fraud. In 1997, when Global Crossing was still a private firm, its CEO (and former McAuliffe business partner) Gary Winnick gave McAuliffe an opportunity to invest $100,000 in the company. Two years later, McAuliffe sold his interest for a reported $18 million. On This Week, McAuliffe was in no mood to talk about the subject. "Well, first of all, you have no idea if I made one penny, Sam, or not," he told host Sam Donaldson. "Well, tell me," Donaldson responded. "I was merely an investor in a company," McAuliffe answered.

The two appearances, just hours apart, highlight a dilemma McAuliffe is facing more and more frequently these days. He is perhaps the most aggressive and public critic of George W. Bush's record in business -- just a few days before the Las Vegas speech, he urged the president toto "set an example by coming clean on your past business dealings" -- yet he faces continuing questions over his own business affairs. And ththe questions extend far beyond his $18 million windfall.

According to sources on Capitol Hill, the House Energy and Commerce Committee's investigation of corporate wrongdoing -- a probe that began with the collapse of Enron and has since expanded to include Global Crossing and other companies -- has touched on a number of McAuliffe's business dealings. "His name has popped up time and time again in several of our investigations," says a source. For example, National Review has learned that as part of the Global Crossing probe, investigators have looked into the relationship between Global Crossing and a now-bankrupt Syracuse, N.Y., telecom firm called Telergy. McAuliffe, a native of Syracuse who knew some of Telergy's executives, played a key role in bringing the two companies together.

McAuliffe joined Telergy's board of directors in August 1999. The next month, Global Crossing invested $40 million in Telergy. Telergy later reported to the SEC that it paid McAuliffe $1.2 million for "assisting us in raising equity capital." (That was not an insignificant amount; according to the SEC filing, $1.2 million was roughly equal to the combined salaries and bonuses of Telergy's top three officers for that year.) At the same time, September 1999, Telergy and Global Crossing also entered into an arrangement known as an IRU. The acronym stands for "indefeasible right to use" and refers to the practice of capacity swaps, in which telecom firms trade access to one another's transmission lines. Global Crossing would later become notorious for counting capacity swaps, which are essentially barter deals, as revenue, an accounting device that made the company look more prosperous than it was. Now investigators want to find out whether Telergy, with McAuliffe on its board of directors, engaged in similar practices.

The Telergy deal will likely be part of hearings on Global Crossing that the Energy and Commerce Committee is preparing to hold in mid-to- late September. Sources say it is possible McAuliffe will be asked to testify. Should that happen, McAuliffe will find himself under oath, before cameras, facing questioners with considerably more clout than Sam Donaldson. And many of them will want to know just one thing: How did McAuliffe make all that money?

Although it has long been accepted that McAuliffe made $18 million from his Global Crossing investment -- he told the New York Times so in a December 1999 profile -- he now says he didn't really make that much. "The $18 million figure is a figure that the Times created," says Jennifer Palmieri, the DNC press secretary who has discussed the issue with McAuliffe. "He has said he thinks it's closer to half of that." Palmieri says McAuliffe has not previously disputed the $18 million figure because he wants to maintain a zone of privacy around his business dealings and because he realizes that arguing the details will not change the basic story. "He knows that as far as the average American is concerned, making $9 million or making $18 million isn't that much different," Palmieri says. "He obviously did very well." (Others did not. Well after McAuliffe got out, investors with less fortunate timing lost $54 billion in Global Crossing's bankruptcy, and nearly 10,000 employees lost their jobs.)