A Raleigh businessman is suing a consortium of interests, one of them linked to publicly funded Golden LEAF for allegedly conspiring to keep him from building an ethanol plant in Beaufort County. His accusations include racketeering, extortion, corruption, and conspiracy, which reach “the highest levels of state government.”
The action was filed Feb. 10 in Wake County Superior Court by William Horton, president of The DFI Group, a real estate and commercial development company that has sought to build an ethanol plant in North Carolina for more than 20 years.
Horton alleges that a coalition of eastern North Carolina farmers and economic development officials used their political connections to state Senate President Pro Tempore Marc Basnight to pressure Horton to give up his business plans and site options for building the plant. In interviews with Carolina Journal before filing the suit, Horton said the North Carolina Grain Growers’ Cooperative, North Carolina’s Northeast Partnership, and a group named Ricky Wright & Associates wanted to participate in, and then ultmately take over, his $75 million ethanol project.
Golden LEAF (Long-term Economic Advancement Foundation) was created by the state Oct. 22, 1999 to distribute half of its share of the 1998 tobacco settlement.
Horton’s quest for ethanol
A native of eastern North Carolina, Horton started DFI in 1978. In addition to its real-estate interests, DFI has focused on developing an ethanol industry in the eastern part of the state. Producing fuel-grade ethanol involves a distillation process using corn, sweet potatoes, or other vegetable sources. The ethanol would be used as a fuel additive to unleaded gasoline to produce a fuel that burns cleaner and reduces carbon monoxide emissions.
In the early 1980s Horton planned to build an ethanol plant in Johnston County. The project failed after the General Assembly terminated an ethanol fuel-tax exemption. Horton said he lost more than $5 million on the project.
Horton did not give up. In March 2000 with Gov. Jim Hunt, DFI announced plans to build three ethanol plants in eastern North Carolina. “DFI Group’s plans will revitalize the economy and farm community of rural Eastern North Carolina and could have long-term impact on the region’s economic outlook,” Hunt told The News & Observer of Raleigh at the time.
Martin County project
Horton’s first ethanol pursuit, subsequent to his announcement with Hunt, was for a site near Williamston. Early in 2000 he entered preliminary discussions about his project with officials from the Martin County Economic Development Corporation.
Stan Crowe, chairman of MCEDC, and Jim Ward, its executive director, steered Horton to Rick Watson, president of North Carolina’s Northeast Partnership, one of the state’s seven regional economic development organizations. Horton said among the issues discussed with Crowe, Ward, and Watson were road and infrastructure improvements to the site of the proposed plant. Martin County did not have the funds for the work, Horton said, but the taxpayer-subsidized Northeast Partnership did.
But then, Horton said, the economic developers wanted to give DFI some incentives for locating in Martin County. Horton declined the incentives.
“We proposed to go to Martin County with no tax incentives,” Horton said. “We wanted to be an asset to the community, not a detriment.”
Horton said the officials told him that they never had an outside business come to the area without asking for something. He said Watson explained to him that he gets paid for each industry brought to the county, if the incentives were a draw.
“[Watson] made no bones about it,” Horton said. “The only thing was, we were just not interested.”
DFI’s criteria for an appropriate ethanol plant site was based on the feasibility of getting natural gas transported to its plants. Horton first planned a project with SCANA Corporation, an energy company based in Columbia, S.C., in which the companies agreed to evaluate the possibility of an interstate natural-gas pipeline to DFI’s three proposed ethanol plants in Greene, Onslow, and Martin counties. At the time of Hunt’s announcement, officials from SCANA expressed enthusiasm about providing natural-gas service to DFI’s plants and other potential customers in eastern North Carolina.
However, in 1998 North Carolina voters approved $200 million in bonds to extend natural-gas pipelines to rural areas of the state. The following year, 14 eastern North Carolina counties formed the nonprofit Albemarle-Pamlico Economic Development Corporation (APEC), whose intent was to get natural-gas service extended to their communities. APEC teamed with Carolina Power & Light on the pipeline project, and created a new organization, Eastern North Carolina Natural Gas.
At about the same time the DFI-SCANA project was under consideration, Eastern NCNG sought bond money from the North Carolina Utilities Commission for its pipeline.
At a hearing before the commission on April 12, 2000, Eastern NCNG made a plea to receive $186 million — nearly all the money available from the bond referendum — for its eastern North Carolina pipeline project. The group had the backing of Basnight.
“These counties both need and deserve some certainty,” Basnight told the Utilities Commission in a statement read by his former general counsel, Norma Mills, as reported by The News & Observer of Raleigh. “I’m asking you to consider the application as an entire package,” Basnight said. Mills is a director for Eastern NCNG.
But some commission members initially were uncomfortable with the size of the request, because other areas of the state also had requested money.
The seven-member Utilities Commission consists entirely of Democrats, including R. V. Owens, Jr., whose son, R. V. Owens, III, is on the boards of APEC, and until recently, Golden LEAF (Long-term Economic Advancement Foundation). R. V. Owens III is Basnight’s nephew and confidante, and is a prolific fund-raiser for Democrats.
According to an article in the March 2002 newsletter of the North Carolina Citizens for Business and Industry, “Owens (III) was born into a family with powerful political connections.” The article also said Owens “has been the one person in his part of the state…whom many Democratic politicians have hungered for support from.”
R. V. Owens, Jr. recused himself from the vote in which the Utilities Commission awarded $38.7 million in bonds to Eastern NCNG for the pipeline’s first phase in six northeast counties. However, Horton said Watson told him R. V. Owens, Jr. promoted the Eastern NCNG/APEC project with the Utilities Commission.
A report in The News & Observer of Raleigh said, “$4.5 million of that had been intended for economic development activities that have little to do with the proposed pipeline system.”
Meanwhile, DFI’s efforts to link a SCANA pipeline to its proposed ethanol plants repeatedly faced obstacles. The two parties broke off their agreement when DFI was unable to get its three plants off the ground, SCANA spokesman Robin Montgomery said, because it left the company without a significant end user for its natural gas. Horton said he was unaware of the efforts of Eastern NCNG for its own pipeline when he started working with SCANA.
Horton said SCANA officials told him they backed off because of pressure from CP&L in North Carolina. CP&L was collaborating with APEC on the Eastern NCNG competing pipeline project, which was backed by Basnight. Horton said Watson had told him to “stay under the radar screen” on his project with SCANA, and that DFI would not get environmental permits from the state until the Utilities Commission approved bond money for the pipeline.
On June 7, 2001, the commission ordered $149.6 million of the natural-gas bond funds, in addition to the previous year’s $38.7 million, to go to the remaining phases of Eastern NCNG’s pipeline project. The remaining $12 million of the total $200 million in bond money was awarded to projects elsewhere in the state.
Horton’s Plan ‘B’
After the arrangement with SCANA failed, but maintaining hopes for the Martin County project, Horton began to turn his attention to an additional site on Radio Island, in Morehead City’s harbor.
This plan was driven by the possibility of getting liquefied natural gas delivered to the Radio Island site, and gas barged to the Martin County plant on the Roanoke River. DFI reached an agreement with El Paso Merchant Energy Corp. of Houston to transport liquefied natural gas.
But plans for the Radio Island project didn’t get very far. Citizens of Carteret County, especially in Morehead City and the Town of Beaufort, opposed the plant on Radio Island. The group said the project would damage the environment and the local tourist industry. DFI abandoned the Radio Island idea in February 2001.
But later in February the State Ports Authority granted El Paso an option to lease land on Radio Island for a natural-gas terminal. The facility would store up to 3.5 billion cubic feet of liquefied natural gas, and the gas could be piped or shipped throughout eastern North Carolina from there. Eastern NCNG had not been awarded its second phase of state natural-gas bond funds at the time.
Horton said that in hindsight his agreement with El Paso “was the beginning of the demise of our relationship with the Northeast Partnership,” because it posed a threat to the eastern North Carolina pipeline project. APEC and North Carolina’s Northeast Partnership operate together out of offices in Edenton.
Martin County falls through
Maintaining its hopes to barge liquified natural gas up the Roanoke River, DFI pressed on with its effort to build a plant in Martin County. In February 2001 Horton had enough permits approved that DFI “activated mobilization” to start preparing and grading the site for construction, he said.
However, Horton said, he was suddenly summoned to Raleigh to meet with Gov. Mike Easley’s senior assistant for policy and legal affairs, John McArthur. McArthur told Horton that Easley was concerned about the project and that he wanted an environmental impact statement done before DFI proceeded.
Horton said he had been told by state officials that he needed only an environmental assessment, which was less stringent and less expensive than a full impact statement. Horton, who said it had cost him $2 million just to get contractors in place to start construction, told McArthur that various state officials had been “driving it down his throat” that they wanted economic development for the state.
Horton said he asked McArthur why he wasn’t told up front of the need for an impact statement. He said McArthur told him environmentalists might sue without an impact statement.
But, Horton said, he suspected that Watson’s claim to be able to impede and delay the permitting process with the Department of Environment and Natural Resources was behind the sudden concern. Still, Horton went forward with an environmental impact statement.
Environmental groups opposed DFI’s barging of liquefied natural gas on the Roanoke River. The groups said the barges would stir up pollutants in sediment on the river bottom and endanger habitats for fish and wildlife. Other barges traversed the Roanoke, but the impact statement determined that DFI should build the plant without barging liquefied natural gas on the river. Horton then considered whether to transport the gas over land, but he later determined that the plan was not economically feasible.
Horton’s suspicions about other forces behind his permit troubles were confirmed, he said, by the two Martin County Economic Development officials with whom he had dealt. He said Crowe and Ward, of the Martin County Economic Development Corporation, told him, “Until you work out the gas ‘thing’ with Basnight, you get zero.” In an interview with The Daily Reflector of Greenville Crowe said, “Based on the challenges DFI has faced in Martin County, I question the likelihood that they will locate here.”
Ward declined to comment when contacted by CJ on the matter.
A new focus and Jim Perry
His vision for an ethanol plant in Martin County thwarted, Horton turned his attention to a site in Beaufort County, which already had a barging facility on the Pamlico River that could accommodate his plans to transport liquefied natural gas. Still, he struggled with the state’s environmental permitting process.
In November 2001, Horton said, a friend whom he hadn’t seen for at least four or five years appeared at DFI’s office in Raleigh. Horton said the friend was Jim Perry, who was mayor of Wake Forest from 1978 to 1982. Horton said Perry told him that he knew Horton was having trouble obtaining state permits and that he could help him build political support for his projects, and help change how Watson felt about DFI.
Over the course of the following year, Perry visited DFI’s office in Raleigh almost daily, Horton said. Horton signed an agreement with Perry to pay him a salary of $4,000 monthly and commission. Perry’s responsibilities were to “facilitate the political advisement team for DFI Group.”
Perry didn’t return phone messages seeking comment. But in an article in The Wake Weekly Feb. 20, Perry said he never received any payments from Horton. The article said Perry continued the consulting work believing there would be a big payoff in the end. Horton told CJ Perry was never paid anything because he didn’t produce any political support that got the project going. Horton also said Perry never asked for any payments.
In 1999 Perry was convicted in South Carolina after pleading guilty to two felony counts for conspiracy to embezzle and receiving stolen goods. Perry was involved in a scheme in which he received about $100,000 from payments on phony invoices to the Sumter, S.C. school district. He is on probation.
A June 16, 1998 article in The News & Observer of Raleigh indicated that Perry has had numerous other legal and financial problems. The story listed several civil judgments and tax liens against him, dating to 1989. The newspaper also noted that Perry “was a prominent fundraiser” as a volunteer for the campaign of U.S. Rep. David Price in 1988.
Stumbling into Beaufort County
The same kind of obstacles that thwarted DFI’s project in Martin County also clouded the company’s site in Beaufort County. But this time, a group of politically connected businessmen attempted to take over his ethanol project altogether, Horton said.
As Horton considered the new site near the town of Aurora, he began having conversations with Tommy Thompson, director of the Beaufort County Economic Development Commission. But movement on the project plodded well into 2002, despite the renewed relationship that Perry struck up with Horton and Perry’s promises of help.
But Horton said he placed a measure of faith in Perry. In November 2001, Horton attended a Basnight fund-raiser at the Wake Forest business of Ricky Wright, an associate and fellow political fund-raiser of Perry’s. Horton contributed $2,000 to Basnight’s campaign. Later in the same day, Horton said Perry told him that Basnight authorized Perry, on DFI’s behalf, to work with Rolf Blizzard, Basnight’s director of special projects and research, to negotiate permits for his plant in Beaufort County.
Grain Growers and Golden LEAF
On a parallel track in early to mid-2002, the North Carolina Grain Growers’ Cooperative was considering its own major project for production of alternative fuels.
The co-op was formed Sept. 29, 1999 by eight members of the board of directors of the North Carolina Soybean Producers Association. Charles S. Davenport of Greenville became vice chairman of the organization.
Golden LEAF was formed three weeks after the co-op. Since that time, Golden LEAF has made three rounds of grants. Through the N.C. Agricultural Foundation, the co-op has received grants in all three years for a total of $1,114,250.
S. Lawrence Davenport, Charles Davenport’s brother, is chairman of the board of directors of Golden LEAF. Lawrence and Charles are president and vice president, respectively, of J. P. Davenport and Son, a Greenville-based agribusiness and farming company. A third Davenport involved in the business, David, is on the board of the Agricultural Foundation. The co-op and the Davenports’ business once shared the same address.
Because of Golden LEAF’s funding, the Agricultural Foundation was able to establish a new position related to the co-op’s activities: “Coordinator of Marketing for Value-Added Products.” That position, filled by Sam Lee, Jr., transferred to the control of the co-op in 2001. In 2002 Lee’s position changed to chief operating officer, and according to the Golden LEAF application, his salary and benefits package swelled to $80,000 a year.
When the state legislature reconvened in May 2002, Basnight and Senate Appropriations leaders pressured Golden LEAF to invest up to $150 million of its money to stimulate the biotechnology sector of North Carolina’s economy (see December 2002 Carolina Journal, “Easley, Basnight Guide Golden LEAF Funds, Papers Show“. Golden LEAF internal communications and meeting minutes showed that state Senate leaders threatened to seize $40 million of Golden LEAF’s funds if the foundation didn’t devise a biotechnology initiative.
Basnight also stated publicly his desire for Golden LEAF to invest in biotechnology, as the Winston-Salem Journal reported June 21. In a subsequent Aug. 25 Carolina Journal article anticipating the fall 2002 campaign, Basnight revealed his motives in pushing the biotechnology initiatives: “The issues that we run on are jobs,” Basnight said, and the newspaper reported “he listed the recruiting incentives and biotechnology proposals as Democratic initiatives.”
When Golden LEAF announced its $85.4 million investment in biotechnology in August 2002, the Grain Grower’s Cooperative scored big: a $10 million investment to help build a soybean processing facility and related biodiesel fuel plant.
Grain Growers’s other goals
But the co-op’s focus wasn’t only on a biodiesel plant. When the co-op was established, the organization was primarily financed by Golden LEAF. In a September 2002 newsletter, co-op Chairman Earl Hendrix wrote, “The Golden LEAF Foundation has been responsible for the majority of our start-up funding; and without this support our Cooperative would not be in a position to move ahead with current projects, particularly two very special projects (Biodiesel and Ethanol) that offer tremendous opportunity for producers and the communities in our state.”
However, a grant application dated Jan. 17, 2001 outlined a three-year plan of the co-op’s requests to Golden LEAF. It listed seven specific goals, but it did not mention a soybean oil-processing facility or a biodiesel production plant. Alternative fuels didn’t appear to be a goal of the co-op until sometime in 2002.
In April 2002, the co-op began to show intense interest in Horton’s ethanol project. Horton and his DFI associates, Thompson , and four co-op farmers met April 16, 2002, in Plymouth, N.C., to discuss a plan for:
- The co-op’s farmers to own 51 percent of the ethanol plant;
- Horton to agree not to build any ethanol plants in competition with theirs;
- Horton to be paid for his past investment in ethanol after the farmers’s plant is built.
Horton said a DFI consultant, Larry Murdoch, told him the only way the ethanol plant would get the support of the Northeast Partnership was if the Grain Growers’s Cooperative took the lead on the project. DFI would stay involved as a minor partner, providing their technical expertise.
According to DFI’s notes, the meeting represented a “feeling out” process in which the farmers seemed to want to know whether Horton would give up his ethanol interests. Horton said his posture was for them to make him an offer. However, neither position was addressed directly, and the groups parted without reaching an agreement.
Shortly afterward Horton received disheartening information. He said Thompson told him that “Basnight doesn’t like you because of the gas situation” and that Horton should “step aside” from his ethanol project. Shortly thereafter, Grain Growers officials informed Horton the co-op was severing its informal relationship with DFI.
Moving in on DFI
The Grain Growers Cooperative appeared to move aggressively to usurp DFI’s technology and interest in the ethanol project.
Before the April meeting Murdoch had shared a portion of DFI’s ethanol-plant feasibility study with leaders of the co-op. Lee, as part of an effort to get financing for the co-op’s ethanol effort, submitted the incomplete feasibility study to CoBank, an agribusiness-focused international bank based in Denver. In a letter to Lee, Robert Poe, CoBank’s business development officer, said the bank couldn’t make a decision on financing the project until a complete feasibility study was provided.
But Lee alarmed members of the co-op and their associates when he shared Poe’s response with them via e-mail.
“I believe it is highly inadvisable to provide the DFI feasibility study to anyone,” wrote Paul Darby, executive director of the Southern States Cooperative Foundation, to Lee in an e-mail message July 3, 2002. “Unfortunately, CoBank has it. More importantly, the co-op shared it after sending the letter to Bill (Horton) indicating that it was severing the relationship with DFI.”
“This is problematic at best, and at worst, potentially crippling to the cooperative, should Bill decide to pursue legal action. I would recommend a communication with CoBank asking them to return the document to you asap, and I would get rid of every single copy immediately, including those held by board members. It simply cannot be used ever again in any form,” Darby wrote.
Realizing the vulnerability of the Grain Growers Cooperative, Lee alerted Thompson and some co-op leaders two days later.
“I encourage you to file away or dispose of any written documents and refrain from referencing or discussing the Ethanol project utilizing any material that has any DFI flavor,” Lee wrote. “I will contact Robert Poe and request he return the Financial we gave him and dispose of his message referencing the study or project. Failure to do (so) could have serious legal implications to [Grain Growers’ Cooperative] and our future efforts.”
One of the members of the group committed a serious blunder: A copy of the entire e-mail exchange was accidentally sent to DFI, which alerted Horton to the scheme. Co-op officials didn’t find out that DFI possessed their e-mails until late fall.
Interest in biodiesel, too
The co-op officials’ interest in ethanol was equaled by their desire to build a biodiesel fuel production plant, which would use oil extracted from soybeans at a nearby processing facility. The projects would be paired, developed, and built by the co-op, potentially in Johnston County. Golden LEAF officials were still determined to keep the co-op flush with cash. The co-op’s budget on its Golden LEAF application included $75,000 for an ethanol feasibility study, contingent on exercising a land-purchase option.
Apparently under duress from threats by the legislature, Golden LEAF’s board considered biotechnology initiatives on June 20, with the biodiesel project an apparent late-agenda addition. Documents provided by Golden LEAF said board Chairman Lawrence Davenport, along with fellow board member Rick Holder, were “leading on this item.” Handwritten notes on another Golden LEAF document labeled the biodiesel project “a priority,” with Davenport’s and Holder’s names next to it.
An agenda of a meeting of the Golden LEAF Working Group for the biotechnology initiatives July 9 showed that Lee presented the co-op’s plans for a biodiesel project. The same day, the foundation’s larger committee authorized a $10 million investment in the biodiesel project. The co-op made no formal application to Golden LEAF for the funding, and Grain Growers was granted the money even though the co-op had no business plan or feasibility study.
A Sampson County businessman planning his own biodiesel plant was suspicious of the timing of the co-op’s project (See February 2003 Carolina Journal, “Golden LEAF Director, Brother Linked to $10 Million Grant“. Charles Jackson sought a $215,000 grant through the North Carolina Agricultural Foundation from Golden LEAF, but he was turned down, even though he had land, a building, permits, a business plan, a feasibility study, and a substantial amount of his own money to invest in it. As the only North Carolina representative on the National Biodiesel Board, Jackson said he asked Davenport why he wasn’t consulted on the project. Davenport suggested that the businessman work with the co-op, Jackson said.
Jackson said he submitted documentation of his proposal to the Agricultural Foundation in early June, when Lee was in the midst of his transition to the co-op. Lee also serves on the Agricultural Foundation board. So does David Davenport. Jackson said he is worried that his proprietary technology property was used to help the co-op’s efforts.
Golden LEAF announced its $85.4 million biotechnology investment initiative Aug. 14, 2002, which included the $10 million for the co-op’s biodiesel project.
As the summer progressed, Horton still held out hope for his ethanol project and maintained his association with Perry. Horton said Perry’s questions about the plant gradually became less about permits, and more about organizational structure.
The reasons for the change in tone became obvious, Horton said, when Perry and an associate, Ricky Wright, told him that he would not be able to get Horton’s project off the ground because of Horton’s perceived obstruction of the Eastern NCNG pipeline. Horton said they told him they were forming a “shell” company that would be able to obtain permits for an ethanol plant in Beaufort County. Horton later learned that the company was Ricky Wright & Associates. The new company would work with the Northeast Partnership in an effort to get Golden LEAF funding for the ethanol plant, and use DFI for technical support, because Wright knew nothing about ethanol. Horton said he thought that Wright was helping him at the time because he wanted to get the project going.
Wright owns a motor shop in Wake Forest and is a prolific fund-raiser for mostly Democratic candidates. Wright, his wife, daughter, and son-in-law contributed a total of at least $15,000 to Dennis Wicker and Easley in the 2000 Democratic gubernatorial primary and general election.
Wright also is one of three members on the state Alcoholic Beverage Commission. The panel is one of the state agencies that would have to issue a permit for the construction of an ethanol plant. Wright did not disclose his interest in negotiating the ethanol deal on a required economic interest disclosure statement nor did he file any economic statement in 2002, as required by law.
On Sept. 9 the Grain Growers Cooperative signed a letter of intent with North Carolina’s Northeast Partnership, led by Watson, to work together on their plans for an ethanol plant. Horton said Perry told him the co-op was expecting another $10 million grant from Golden LEAF for the ethanol project before the end of the year.
Later in September, the outlook for Horton’s project turned more bleak. Horton said Perry reiterated that Horton had a bad reputation with Watson, who was now also working with Wright, because Horton pursued a natural-gas supplier that complicated the Eastern NCNG pipeline project. According to Perry, Watson said that Horton would never build a plant “Down East” and that Horton should turn his project over to others involved.
The effort to push DFI off the ethanol project reached new heights on Oct. 14. Wright had begun to woo a DFI associate, Robin Fleming, because Fleming’s wealthy father-in-law expressed interest in investing in DFI’s ethanol project. Horton said the father-in-law’s banker, Kenneth Reece of Bank of America, warned his client not to invest in DFI’s project because politicians in eastern North Carolina would not allow it to proceed. Wright hoped to get Fleming’s father-in-law to invest in his project.
Perry, Wright, and Fleming met with Rolf Blizzard, Basnight’s director of special projects, at the Legislative Building to find out how they could get funding for an ethanol plant in Beaufort or Martin counties. According to Fleming’s notes from the meeting, Blizzard told the three that money was available as long as the project was not connected to DFI Group or Horton, because Horton didn’t want to “play the game.” The notes also said Blizzard mentioned he would see to it that DFI Group would have trouble getting permits. Blizzard told them to contact Watson to get funds for their project. If Wright and Fleming didn’t get the appropriate answers from Watson, Blizzard said, he would “jerk his chain.” A meeting was set up the following day, Oct. 15, with Watson and Vann Rogerson of the Northeast Partnership.
The next day Watson told the group there was plenty of money to build the ethanol plants in eastern North Carolina and that his group would like to do the project in Beaufort County first. According to Fleming’s notes from the meeting, Blizzard told Wright that Basnight said the plant in Beaufort County should be first.
Watson said that now that they knew which county would get the first plant they would go to each county to extract as much funding as they could — playing them against each other — knowing that in the end Beaufort would be first, Fleming’s notes say. According to Fleming’s notes, Watson also said that with his contacts he thought they could get a $75 million plant financed at a 90 percent loan, using the real estate as equity with no guarantors. Watson said he could get funds for the project within 60 days, mentioning Bank of America, RBC Centura, and an insurance company, Fleming’s notes show.
Watson also said, the notes show, that DFI would never have gotten permits for an ethanol project because Watson would have seen to it that DFI would be strung out continually trying to get the permits. The permits were for barging in Martin County and for air quality in Beaufort County.
The suddenly formed partnership between Wright’s and Watson’s groups, fused by Blizzard and Basnight (according to Fleming’s notes), would nudge the Grain Growers’ Cooperative aside because of the co-op’s legal vulnerability stemming from DFI’s feasibility study. And the relationships with Thompson, Lee, and farmers in the co-op would be handled, according to Watson.
Wright said his group of investors, which included Perry and Fleming, would get the funds, build the plants, and buy out DFI, according to the meeting notes. Watson and Rogerson made negative comments about Horton and said they were glad they didn’t have to work with him.
On Oct. 25, Grain Growers Cooperative, the Northeast Partnership, and the newly formed Ricky Wright & Associates agreed to a “memorandum of understanding.” The memo stipulated that the co-op would “release its position” in the development of the ethanol project to Ricky Wright & Associates, although they would still theoretically cooperate and work together. The agreement also released the Northeast Partnership from its Letter of Intent, dated Sept. 9, to assist the Grain Growers Cooperative with its project — fulfilling Watson’s claim that those relationships would be handled.
Now the biggest obstacle to the deal was to get Horton to give up the rights to his proprietary technology for the ethanol plant and his option on the Beaufort County site by buying him out.
Perry details the plan
Perry returned to DFI on Oct. 30 to begin negotiating a plan with Horton to turn over his interest to Wright’s group. Fleming was still aligned with DFI.
In their conversation, Perry fully explained the agreement between the Grain Growers’ Cooperative, the Northeast Partnership, and Ricky Wright & Associates, and a proposal for DFI, multiple sources say.
Perry told Horton that the consortium’s plan was for the co-op to put all efforts in the ethanol project behind Ricky Wright & Associates, assisted by the Northeast Partnership — which, according to Perry, really meant Blizzard, Basnight’s nephew R.V. Owens III, and Basnight himself, multiple sources say.
“Everyone knows they are the head of the Northeast Partners,” Perry said, according to multiple sources.
Perry told Horton they would go to the banks and ask what they required in order to obtain a loan for the ethanol project. According to multiple sources, Perry said that when he meets with bank officials, “they know that I am there to speak for Marc Basnight. When I go talk to someone, they know I have talked to Marc Basnight and Rolf Blizzard.”
Perry also referred to the $10 million that the co-op had received from Golden LEAF for biodiesel and said he thought that if they didn’t build the biodiesel plant in Johnston County, they would invest in the ethanol project. Perry said Golden LEAF might give an additional $10 million to the Grain Growers Cooperative for the ethanol project. Perry said that, regardless, the group would have at least a $10 million investment in the project to show the bank.
Then Perry outlined the groups’ plans to reward political favors by shifting money around, Horton said. On one level, after bank financing was obtained, the Grain Growers Cooperative would transfer $10 million to Ricky Wright & Associates, Horton said. Wright then would pay DFI $5 million to buy out its interest in the ethanol project, Horton said. As a condition of the agreement, DFI would agree to pay R.V. Owens III’s fund or shell company $1 million, identifying it as “consultant fees,” Horton said.
Perry described another scenario in which the groups would receive kickbacks from willing contractors who would be awarded work on the construction projects, Horton said. For example, Wright would be invoiced $1.5 million for work on which the contractor wanted only $1.2 million. Horton said Perry told him the contractor would “kick back” $300,000 to Owens’s desired location. According to Horton, Perry said Owens would secure all permits and down payments for work.
Also in the conversation, Perry told Horton about bad feelings that Owens and investors had for him. He said that Owens blamed Horton for almost costing his group its gas bond money and that none of them had any faith in Horton. Perry also reiterated Watson’s vow that DFI would never get an air-quality permit for DFI’s plant in Beaufort County, Horton said.
But Perry also said Watson emphasized the importance of compensating DFI for the takeover over DFI’s ethanol project. The compensation was meant to dissuade Horton from publicizing his dealings with the groups, Horton said.
In another conversation on Nov. 12, 2002, Perry told Horton that his partners wanted him to sign a memorandum of understanding — a “gag order” — to “take the fear out of Rick Watson,” because those involved in the deal were concerned about the evidence DFI had. According to multiple sources, Perry said the co-op had turned the ethanol project over to Wright & Associates. “They (the co-op) ain’t callin’ no shots,” Perry said.
By then Perry knew enough about DFI and its plans, Horton said, that the business was vulnerable if its lenders rescinded their loans to DFI. Horton said he was threatened that if he didn’t relent and sign an agreement with them, Wright and the other groups involved in the project would force him out of business and pursue the ethanol project on their own.
According to The Wake Weekly, Perry and Wright recalled a different version of events. Perry claimed that last fall Horton decided Perry and Wright should buy out DFI’s interest in the ethanol project, and the two asked Horton to quote them a price. Perry said Horton provided a document listing DFI’s investment in the project to date, which showed Horton wanted slightly less than $5 million, the newspaper reported.
Wright said he consulted with a Kansas City firm, which said the value of what Horton was offering “was worth $250,000 to $300,000 at best,” reported The Wake Weekly. Wright said he offered Horton $3 million. When asked why he offered such a large sum for a project valued at 10 percent of the $3 million, Wright told the newspaper he didn’t know and couldn’t explain his sudden burst of generousity, except that he was trying to help someone with financial difficulty.
Pressure to sign
On Christmas Eve, 2002, Horton said, he and Fleming met with Murdoch, Perry, and Wright, and was presented a draft version of an agreement for the development and production of ethanol, in which DFI would sell its proprietary technology and site interests for the project to Ricky Wright & Associates. They couldn’t include terms that required financial kickbacks to Owens, because Wright and his associates were concerned about media scrutiny of Grain Growers’ relationship with Golden LEAF, Horton said.
The document stipulated that in exchange for transfer of the ethanol interest, DFI would be paid a total of $3 million in three equal increments, the last to be paid after the second year of the plant’s operation. The document included a “non-compete” clause and stipulated that Horton “agree not to discuss DFI’s current interest and activities or the subject matter of this letter of intent with anyone.”
The agreement represented the interests of North Carolina’s Northeast Partnership, the Grain Growers’ Cooperative, Ricky Wright & Associates, and the Beaufort County Economic Development Commission for the location of the ethanol plant in Beaufort County.
Horton refused to sign the document. Shortly afterward, without explanation, Branch Banking and Trust foreclosed on two loans to Horton, Horton said. The bank demanded immediate payment on deeds of trust to his Raleigh office building and on a property he owns in Greensboro, Horton said. Similarly, Horton said, Bank of America and RBC Centura halted his ability to further use lines of credit they had with him. Horton said he thinks the banks acted in response to political pressure.
On Jan. 16, 2003, Horton noted a phone call he received from an engineer who had consulted with DFI on its ethanol project for two years. The engineer told Horton he had been contacted by another engineering group that was hired by Wright for the ethanol project.
The engineer said he was told that DFI had rejected the $3 million offer and that Wright’s group was moving to put its project at another Beaufort County site, five miles from the location DFI owned the rights for. The engineer said the real strategy was to wait for DFI’s option on its preferred property to expire, and then Wright would move his project there.
Wright has told Carolina Journal that he is no longer seeking funding from Golden LEAF, the Grain Growers Cooperative, or any other government agency.
Horton’s civil suit
A motion presented to Judge Howard Manning on Feb. 10 says Horton and DFI “have, upon information and belief, credible evidence which forms the basis of the complaint to be filed.” It describes a “complex and intricate conspiracy involving extortion, corruption, and racketeering by public and private individuals reaching the highest levels of State government.”
After hearing the motion, Manning signed an order allowing depositions of some defendants to proceed prior to filing the actual complaint. But first, Manning ruled that a lawyer for Watson and the Northeast Partnership could depose Horton in order to gain more information about the substance of the forthcoming lawsuit.
A statement of purpose of action filed with the court claims that the defendants are guilty of “the illegal and improper use of the judicial process to obtain ‘foreclosures’ on deeds of trust executed by Horton’s company. He also alleges the defendants are involved in a conspiracy to obtain property through force or violence; to obstruct commerce through wrongful force; to commit fraud; and with interference with a contract. Horton also charges them with intentionally asserting and registering fraudulent claims and the intentional infliction of emotional distress.
Watson said that Horton’s charges are frivolous and that Horton is desperate to save his business.
“I know he’s grasping for straws,” Watson said, “and we may have to take actions ourselves just to set the record straight.”
Included on the list of defendants of the pending lawsuit are: Sam N. Lee, Jr., CEO of The North Carolina Grain Growers’ Cooperative; Rick Watson and Vann R. Rogerson, employees of North Carolina’s Northeast Partnership; Thomas R. Wright of Ricky Wright & Associates; two officials of Branch Banking and Trust Company; James A. Perry, Jr. of Wake Forest; and Paul Darby of Southern States Cooperative Foundation.
Basnight’s spokesman, Amy Fulk, said the senator “is unaware of the events being alleged.”
“Our office, as always, stands ready to discuss any idea that could help jump-start our rural economy,” Fulk said in a statement. “It is Sen. Basnight’s staff, and nobody else, who represents the senator in those efforts.”
Fulk said Horton visited Basnight’s office and met with Blizzard when Horton was attempting to get the Martin County project moving.
“Mr. Horton and his company made several trips to our office and kept us advised of the status of their (Martin County) project,” Fulk said. “We encouraged their continuous efforts on bringing the project about; however, we in no way supported anything that would damage the environment, such as barge traffic on the Roanoke River.”
Horton said that he has never visited Basnight’s office, and that he has never met Blizzard. He said the only visit he knew of by a DFI representative was Robin Fleming’s meeting with Blizzard, Wright, and Perry on Oct. 14, 2002 — after the Martin County project was abandoned and the focus was Beaufort County.
Homage to Basnight
A Jan. 27, 2003 e-mail message from Thompson invited dozens of Beaufort County businessmen to attend a reception for Basnight on Jan. 29 in Raleigh. He urged members of the county economic development commission’s “Committee of 100” to turn out and “show the flag” for Beaufort County. In the message Thompson announced “a very prosperous development company is moving forward on the ethanol plant.”
“As you are all aware,” Thompson wrote, “Senator Basnight has never before represented all of Beaufort County and has already proven to be an extremely important player in economic development.”
Carrington is associate publisher of Carolina Journal. Chesser is associate editor of Carolina Journal.