McDonnell denies talking to Star CEO Williams about taxes

Gov. Bob McDonnell says he and a businessman who gave him and his family more than $160,000 in gifts never discussed the state tax problems of the businessman’s company.

“Absolutely never,” McDonnell said Friday, during a visit to Salem to announce a series of grants to school boards for a new teacher incentive pay program.

Star Scientific has been battling a state tax bill since 2002, and the total at dispute has now grown to $1.8 million.

McDonnell said he was unaware of the dispute until earlier this year, after reading news reports that Attorney General Ken Cuccinelli’s hadn’t disclosed his ownership of shares in the company. Cuccinelli bought some of the shares after Star sued the state in July 2011, seeking to overturn its tax bill.

McDonnell said he had never discussed the matter with Jonnie Williams or with the state Tax Department, either during his term as governor or in the previous four years while he served as attorney general. McDonnell has repaid with interest the $120,000 that Williams lent McDonnell’s wife and a company the governor owns with his sister. He and his family are returning all the gifts Williams gave.

Cuccinelli has said Williams did talk to him about his company’s state tax problems, saying Williams “groused about the taxes.”

Williams’ complaint came before Star filed the lawsuit, and Cuccinelli said he did nothing but listen to the executive’s concern.

The lawsuit languished for nearly two years in Mecklenburg County Circuit Court after a brief from the Office of the Attorney General said Star’s claim that its tax assessment was erroneous was “a legal opinion to which no response is required.”

Cuccinelli turned the matter over to private attorneys after correcting his disclosure forms this spring to report his stockholding. He has since sold all his shares in the company. Cuccinelli also received more than $18,000 in gifts from Williams but has not returned them or offered to pay Williams for them.

Star, meanwhile, said Friday that it does not expect to be prosecuted as the result of a pending federal investigation into its private sales of stock and other securities dealings.

In a filing with the U.S. Securities and Exchange Commission, the company said it and its board have responded to subpoenas for documents and that it is cooperating fully with the investigation.

The company said it believes it has substantially resolved all of the issues federal prosecutors are reviewing.

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