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.
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!