In one deal, McAuliffe and the fund officials created a partnership to buy a large block of commercial real estate in Florida. McAuliffe put up $100 for the purchase, while the pension fund put up $39 million. Yet McAuliffe got a 50-percent interest in the deal; he eventually walked away with $2.45 million from his original $100 investment. In another instance, the pension fund loaned McAuliffe more than $6 million for a real-estate development, only to find that McAuliffe was unable to make payments for nearly five years. In the end, the pension fund lost some of its money, McAuliffe moved on to his next deal, and fund officials found themselves facing the Labor Department's questions.

A SWEET, SWEET DEAL

The lawsuit that details McAuliffe's dealings with the electrical workers' pension fund is Herman v. Moore, filed in May 1999. The title refers to Jack Moore, a friend of McAuliffe's who ran the pension fund (Herman was Alexis Herman, the Secretary of Labor when the suit was filed). McAuliffe and Moore met when they were both supporters of Democratic Rep. Richard Gephardt's 1988 presidential campaign. At the time, Moore was a long-time electrical workers' union official who had virtually unchallenged authority to choose where to invest the pension fund's $6 billion store of capital.

According to Herman v. Moore, on November 19, 1990, the fund entered into a partnership with a firm called American Capitol Management Company, which was owned by McAuliffe and his wife, Dorothy. The purpose of the partnership, according to the suit, was "to acquire, hold, improve, lease, operate, and sell a shopping center and various apartment complexes located in central Florida."

The suit continues:

In 1991, the limited partnership acquired the Woodlands Square Shopping center and five apartment complexes through $39 million in capital contributions from the fund. American Capitol Management Company made one capital contribution of $100....At the outset, each partner held a 50-percent interest in the limited partnership. If the limited partnership's properties sold at a profit, American Capitol Management Company and the fund would share in the gains according to their percentage partnership interests.

The next year, according to the suit, McAuliffe proposed another venture for the partnership: the purchase of a parcel of land near the apartment complexes which could be divided up into more than 500 single-family lots. Instead of another lopsided buying arrangement, the fund came up with the idea of lending McAuliffe up to $10 million to buy the property, which was known as Country Run. As collateral, McAuliffe put up the Country Run land itself, plus his 50-percent interest in the apartment/shopping center venture.

But not long after the Country Run loan was finalized, McAuliffe got out of the apartment/shopping-center deal. According to the lawsuit, in June 1992 the pension fund paid McAuliffe $450,000 for a portion of his 50-percent share. Then, in August 1993, the fund paid McAuliffe $2,000,000 for most of the rest of his share for a total return of $2.45 million on that original $100 stake. It was an unusually generous deal for the fund's officers to give McAuliffe especially since it meant that McAuliffe no longer had the property which he had put up as collateral for the Country Run loan.

In the years that followed, the Country Run project went nowhere; according to the lawsuit, by the end of 1996, lot sales to homebuilders were less than half the number that had been predicted. The pension fund's loan to McAuliffe, according to the suit, "was in default continuously from December 1992 until October 1997." In 1997, McAuliffe found another partner and bought out the loan. In the end, Labor Department investigators found, the pension fund got a relatively meager return on its money significantly less than it would have earned in a more conservative investment.

"The fund lost money as a result of the [Country Run] loan in 1992 and the purchases of additional partnership interests from American Capitol Management Company [the buyout of McAuliffe] in 1992 and 1993," says the lawsuit. "In addition, if the fund had not made these investments, it would have had the money it invested in Country Run and the additional partnership purchases available to invest in prudent investments that would have earned a greater return."

On October 16, 2001, Jack Moore and another official named in the suit agreed to pay six-figure penalties for their role in the McAuliffe ventures, and the electrical workers union was forced to reimburse the pension fund for its officers' failure to act "with the care, skill, prudence, and diligence...that a prudent person acting in a like capacity and familiar with such matters would use." McAuliffe was not charged with any wrongdoing; his $2.45 million payday, while a violation of common-sense norms of business propriety, did not break any laws.

HE'S NOT PRESIDENT

McAuliffe's real-estate deals have attracted relatively little attention in the press. Last October's consent agreement that ended the Labor Department lawsuit, coming after the terrorist attacks of September and just before the collapse of Enron, received almost no coverage. But the details of McAuliffe's business career may take on new importance now that he has become one of the president's chief critics on the issue of business ethics.

A Democratic-party spokeswoman dismisses suggestions that McAuliffe's record might damage his credibility. "First of all, Terry McAuliffe isn't president of the United States," says the DNC's Jennifer Palmieiri. "He doesn't have the responsibility or the ability to restore confidence in the markets." Second, Palmieiri says, "We're holding Bush to Bush's standard the standard he has laid out for corporate CEOs. He should follow that example. He has not been upfront with what his own situation was." Finally, Palmieiri says, the business records of Bush's Democratic critics are far less important than the fact that they support the Sarbanes corporate reform bill. "Whatever their business dealings are, and whatever they have done in the private sector," Palmieiri says, "they still want to support the most responsible reforms available."

Nevertheless, McAuliffe's business career might attract increased scrutiny should he continue his high-profile criticism of the president's business history. Already there have been mentions of McAuliffe's extraordinarily well-timed investment in the now-bankrupt Global Crossing, in which McAuliffe invested $100,000 and made $18 million. There has also been talk about the six-figure profit McAuliffe made for helping Prudential Insurance Company win a government contract. And there has been talk about McAuliffe's role in a politically connected Washington bank in the 1980s and early 1990s.

As McAuliffe himself has said, every day, more questions arise. (Source: National Review, July 16, 2002; "McAuliffe's Shady Business Past")