Lucas to offer refunds from project in wake of investigation

PORTSMOUTH

State Sen. Louise Lucas and her conference project were under state investigation this year during a time when she was asking the City Council for its support.

In a June settlement with the State Corporation Commission, Lucas agreed to offer to refund nearly $2 million with interest that she raised from about 600 private investors for the project. That was supposed to be done within 30 days, but she didn't start notifying investors until last week.

The commission alleges Lucas violated state security laws by failing to register her company with the agency before selling interests in the project to investors, according to documents on the agency's Web site.

Portsmouth Councilwoman Elizabeth Psimas said Monday that she was not aware of the investigation until recently.

The council voted July 22 not to allow Lucas to use up to $50 million in federal enterprise zone bonds for her project. The bonds, which would be backed by a bank and not the city, would allow Lucas to receive lower-cost financing.

"This is completely news to me," Psimas said.

Lucas wants to build a $60 million hotel and conference center in Portsmouth's Victory Village Business Park. The money collected by the Portsmouth Democrat has been mostly from prominent African Americans throughout Hampton Roads.

Lucas said in a recent phone interview that she didn't know she needed to register with the state when she began raising money for the project in 2006.

According to the agency's documents, Lucas neither admitted to nor denied the allegations as part of the June settlement order.

Lucas said she began notifying investors last week through phone calls that they could pick up information about the project, including documentation on the investigation, from her business headquarters in Portsmouth. She did not send the letters out sooner on the advice of one of her attorneys, she said.

According to documents on the commission's Web site:

- Investigators claim Victory Conference Center LLC, the company that Lucas created to run and oversee the conference center, broke the law by offering investments when it was not registered with the commission and by employing Lucas when she had not registered with the commission as an agent.

- As part of the order, Victory Conference Center agreed to inform all investors about the investigation's findings and offer them the opportunity to get their money back, with interest, within 30 days.

- If the investors accepted the offer for the return of their money, they were supposed to receive payment within seven days of receipt of the acceptance.

- Within 90 days, the company was supposed to submit an affidavit to the commission that stated the date each investor received the offer of their money back, the investor's response, and the amount of money that was returned to each investor and when.

According to a letter from Lucas dated Oct. 9, investors have until Nov. 15 to fill out and return paperwork on whether they would like to remain investors or whether they want their money back. The Virginian-Pilot obtained a copy of the letter from an investor.

"Today we are proud to say that our legal house is in order," states the letter, which is signed by Lucas.

Larry K. Palmer Jr. of Midlothian said he wishes he had known about the investigation sooner. Palmer, who owns a cleaning business invested $4,000 in the project with his wife. "I am a little upset and disappointed," he said.

"I expected better from professional people."

But investor Evelyn Hyman of Portsmouth said she continues to strongly support the project because she believes Portsmouth needs it.

"I've been fully informed and the decision is mine," Hyman said.

Lucas said that before information about the investigation was provided to investors, about a dozen had already asked for their money back.

"The money is in escrow," Lucas said. "Everybody who wants to get out, can get out."

Ken Schrad, a spokesman for the commission, would not reveal how the agency learned about Lucas' project or discuss details about the investigation.

Schrad said the commission routinely deals with allegations of violations of the state security laws. Many of those cases result in settlements, he said. If an entity makes a good-faith effort to comply with the terms of a settlement, the commission will work with them, Schrad said.

He described their dealings with Victory Conference Center as "an ongoing matter" that remains under investigation. Victory Conference Center LLC still is not registered with the commission but has a pending application, Schrad said.

Tony Basch, an attorney for Victory Conference Center, said letters weren't sent to investors sooner because he had hoped to get permission from the state by now to raise up to another $3 million for the project.

If they had, the documents would have explained the investigation and that investors could get their money back, he said. They would have also stated that they could invest more in the project.

"The intention was we wanted to be able to give investors a package that made sense together," laying out the story of the investigation but also providing information about the overall offering going forward, Basch said.

But on Sept. 29, Basch said the commission and Victory Conference Center could not reach an agreement on the terms.

Jen McCaffery, (757) 446-2627, jen.mccaffery@pilotonline.com