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Mississippi Taxpayers on the Hook for Millions in Electric Car Company Bankruptcy

May 10, 2018

A politically connected Mississippi based electric car company filed for bankruptcy in the face of lawsuits from the State of Mississippi among others.

GreenTech Automotive appeared to be a company with a bright future.

Its leadership included, Terry McAuliffe, who would soon be elected governor of Virginia, and Anthony “Tony” Rodham, brother of the then-Secretary of State Hillary Clinton and brother-in-law of former President Bill Clinton. Together, the high-powered duo raised more than $141 million from Chinese investors between 2009 and 2013, promising them an investment opportunity in environmentally friendly electric cars that would also bring much-needed jobs to an impoverished Mississippi county. The duo was also able to leverage tax abatements and investments from the State of Mississippi for the company.

As part of the company’s pitch to its Chinese investors, they were to receive coveted EB-5 visas, under which foreign nationals are granted permanent residency in the United States if they invest $500,000 to $1 million in a project or business that creates jobs in the United States. The Chinese money enabled the startup to break ground in 2012.

By January 2017, the company shut down its production line, and in February 2018 GreenTech filed for Chapter 11 bankruptcy. The plan to produce inexpensive, sub-compact electric cars at the GreenTech plant never really got off the ground. Production delays and growing questions about the viability of the company’s business plan plagued its operation. GreenTech was supposed to provide 350 jobs, but Mississippi officials determined the plant never employed more than 143 people.

Lawsuits Filed

Until recently, McAuliffe and Rodham were facing a $17 million fraud lawsuit filed in a federal district court in Virginia by a group of 32 Chinese investors who claimed they were swindled out of about $560,000 apiece as a result of misrepresentations made by the pair.

The investors called GreenTech a “scam perpetrated by savvy and politically connected operatives and businessmen” to exploit Chinese investors hoping to come to the U.S.

“Plaintiffs now face the prospect of having to uproot their families once again, with the expense and stress of deportation to China looming before them,” the lawsuit said.

On March 30, Federal Judge Claude Hilton dismissed the claims against McAuliffe and Rodham saying the plaintiffs failed to sufficiently articulate valid legal claims against them. Hilton gave the plaintiffs 20 days to file an amended lawsuit if they wish.

In addition, Mississippi’s auditor says the firm owes the state $6.4 million for failing to keep its promise to get a $5 million financing package from the state. Attorney General Jim Hood filed a lawsuit against GreenTech in February seeking about $3 million in damages, plus forfeiture of the land the factory was sitting on in Tunica County. GreenTech acknowledged in its bankruptcy filing, it owes $4.8 million to Mississippi and Tunica County, both of which offered economic incentives to get the firm to locate its manufacturing facility there.

Also noted in its bankruptcy filing, 12 investors had won $7.5 million judgment against GreenTech.

Security Concerns

Greentech faced difficulties from the outset.

Originally, McAuliffe pushed to have GreenTech build its manufacturing plant in Virginia. During his unsuccessful run for Governor in 2009, McAuliffe told voters the company would create 1,500 jobs in the state.

Concerned GreenTech’s backers were abusing the EB-5 visa program, Virginia regulators refused to approve the project, whereupon the operation was moved to Mississippi. McAuliffe quietly resigned from the company in December 2012.

In an August 2013 confirmation hearing for Alejandro Mayorkas, then a nominee to be Deputy Secretary of Homeland Security who at the time was Director of U.S. Citizenship and Immigration Services, Sen. Chuck Grassley (R-IA), chairman of the Senate Judiciary Committee, also raised national security concerns about GreenTech’s use of the EB-5 visa program. Both the Securities and Exchange Commission and the Department of Homeland Security launched investigations of the company, but no charges were filed against McAuliffe or Rodham.

‘Corporate Ethical Tomfoolery’

Jordan McGillis, a policy analyst with the Institute for Energy Research, says the GreenTech saga is a scandal states should learn from.

 “The GreenTech Automotive saga has revealed a tangled web of corporate ethical tomfoolery – that’s one side of this problem,” said McGillis. “The other side is Mississippi committed $5 million in taxpayer money to the company.

“If not for the backing of political bigwigs like Terry McAuliffe, Bill Clinton, and Haley Barbour – all of whom were present at the company’s 2012 kickoff party – would the state have made such a risky bet?,” McGillis asks. “Hopefully, Mississippi and other states will take this as a lesson to not tip the scales in the direction of politically favored companies and technologies going forward.”

Timothy Benson, a policy analyst with the Heartland Institute, says Mississippi officials allowed themselves to be duped.

“The chance to be seen as bringing much-needed jobs to the Delta, and ‘green’ jobs no less, had them viewing GreenTech through rose-colored glasses and, as a result, Mississippi taxpayers have been bilked out of $5 million,” Benson said. “Rarely do plans to lure companies with financial aid packages work out as anticipated for the state and municipalities providing them. Edmund Burke once wrote ‘example is the school of mankind, and they will learn at no other.’”

Bonner R. Cohen, Ph. D., (bcohen@nationalcenter.org) is a senior fellow at the National Center for Public Policy Research. 
Author
Bonner R. Cohen is a senior fellow with the National Center for Public Policy Research, a position he has held since 2002.
bcohen@nationalcenter.org

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