A state-funded economic developer gained ownership in a business that he was recruiting and then secured state grants for the same company, according to the business’ founder and documents obtained by Carolina Journal.

In 1998, David Russell of Chesapeake, Va., ventured to North Carolina seeking capital, subsidies, and a place to manufacture electronic devices that he invented. His company, named Transforming Technologies, was later renamed Privaris. (See video exerpts of CJ’s interview with Russell below.)

Russell eventually met Northeast Commission CEO Rick Watson at the commission office in Edenton. The commission is a 16-county regional economic organization funded by the state. The governor, speaker of the House, and leader of the state Senate appoint the commission’s 19 board members.

“Early on I felt good about Watson. He had me so assured, so comfortable — a big brother feel. I even stayed at his place,” Russell told Carolina Journal last week.

Russell said he eventually realized that Watson wanted something in exchange for his assistance. Over several months he and Watson discussed various ownership scenarios, and Watson prepared agreements to reflect each.

Russell provided CJ with a copy of one of the agreements. That agreement called for Russell to provide Watson with “at least 25,000 shares, but not more than 50,000 shares,” in “exchange for services rendered.” (Click here to see the document.)

Russell eventually signed an agreement transferring some of his stock shares to Watson. He said that Watson did not provide him with a copy of the final signed document because “at the time, Watson said his copier was broken.”

“I gave Watson what he wanted after a lot of soul searching, thinking it was the cost of doing business,” Russell said.

Watson convinced Edenton resident Ernest Knighton to invest in Transforming Technologies, and in January 2001 Knighton provided $500,000, Russell said. In exchange, Knighton became the company’s dominant shareholder. The company headquarters are now located in Charlottesville, Va., and Knighton is on the board of directors. (See previous CJ stories for more details about Privaris.)

Russell said that Knighton and Watson forced him off the board of directors in May 2002. Russell said he was retained as a consultant to Privaris, but due to a contract dispute Privaris and he recently severed all ties.

Watson obtained state funds

After securing an ownership position in Transforming Technologies, Watson played a key role in delivering state funds to the company. One product being developed by Transforming Technologies was a security device that relied on fingerprint technology.

Knighton lobbied State Senate President Pro Tem Marc Basnight’s chief assistant, Rolf Blizzard, heavily in 2002 to get the N.C. Department of Transportation’s Division of Motor Vehicles to implement a pilot security project using the company’s technology.

The pilot project was named the North Carolina Hazardous Materials Carrier Authentication Pilot (HAZCAP). Blizzard initiated help for the project at DMV, pressuring former Commissioner Carol Howard and Department of Transportation officials to evaluate the technology and to carry out the pilot.

Listing Watson as the project director, North Carolina’s Northeast Partnership, a commission subsidiary, submitted a grant application to the state’s Tobacco Trust Fund, seeking $1.5 million of the total $2.9 million budgeted for the project.

The application claimed the project would create 50 new jobs, providing opportunities for former tobacco workers “to be employed at higher-skilled, higher-paying jobs.” The application said Transforming Technologies might relocate to the northeast region, “resulting in an investment of $10 million and 200 production jobs.”

In October 2002 the Tobacco Trust awarded the Northeast Partnership $350,000 for HAZCAP. Transforming Technologies leased some office space in Martin County. The following month Watson transferred the Tobacco Trust grant from his oversight to the Martin County Economic Development Corporation. The company leased office space at a publicly funded business incubator facility in Williamston and eventually stationed a few employees there.

The Tobacco Trust issued a $175,000 check in January 2003 to MCEDC, which then promptly paid the same amount to Privaris.


After Privaris completed the pilot project the company workers vacated the Williamston office space. Despite its failure to create 10 to 15 new jobs as promised in its contract with the Tobacco Trust, Privaris sought the remaining $175,000. Due to poor documentation of the project’s expenses Tobacco Trust officials reduced the final payment to $132,575 and paid it to MCEDC in April 2004.

Watson’s growing troubles

The Northeast Commission terminated Watson in 2006 after the State Auditor released a scathing report on the commission’s operations and Watson’s conflicts of interest. Watson’s board had permitted him to work for Randy Parton’s Roanoke Rapids theater project while simultaneously continuing his work as CEO of the commission.

Earlier this year Watson received a subpoena to appear in front of a federal grand jury. The exact nature of the federal inquiry is not known, but, since Parton has also received a subpoena, the federal probe might involve the theater project.

But Watson’s subpoena might also be related to a federal investigation of Agri-Ethanol Products. AEP attempted to build an ethanol production facility in Beaufort County, near Aurora. Former state environmental official Boyce A. Hudson pleaded guilty in May to extortion and money laundering in connection with his efforts to help AEP obtain environmental permits. Last month he was sentenced to 40 months in prison. The project appears to be dead, and federal prosecutors could charge others.

A federal subpoena to the N.C. Department of Environment and Natural Resources sought documents relating to communications with Watson and others. Watson was involved in helping AEP locate the facility in Beaufort County, and his commission applied for state grants on behalf of the company.

In 2003 CJ first wrote about corruption allegations involving efforts to launch an ethanol production facility in eastern North Carolina. Raleigh businessman William Horton alleged that Watson and others conspired to keep him from building an ethanol plant in Beaufort County. AEP was formed after Horton made his allegations, and the company ended up controlling the same site where Horton had planned to build his plant.

Watson has hired Raleigh criminal defense attorney Wade Smith. Grand jury hearings are not public, and CJ has been unable to determine if either Parton or Watson has testified.

Smith told CJ last week that he could not comment on Russell’s allegations and that he had advised Watson to refrain from making public statements.

Don Carrington is executive editor of Carolina Journal.