Fairfield County Buying Building for TV Maker; Company President Mired in Federal Suits

October 7, 2013

Investigative Reports

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Element FlyerFor more than a month, state and local officials have been largely silent about taxpayer-backed incentives offered to a television manufacturer – led by a man accused in federal lawsuits of receiving millions in bonuses generated through a massive Ponzi scheme – to locate a plant in Fairfield County.

The Nerve in August first reported about the secrecy surrounding the Element Electronics plant, dubbed “Project Palmetto,” which is scheduled to open in December. Records obtained by The Nerve since then show that the state and Fairfield County have offered a generous incentives package to the relatively young, Minnesota-based company.

Those records, obtained from the S.C. Department of Commerce through the state Freedom of Information Act, reveal that:

  • Fairfield County is buying the former Perry Ellis distribution center in Winnsboro for Element Electronics, largely with a $1.3 million grant through the state Coordinating Council for Economic Development, a secretive panel – as The Nerve has previously reported – made up of the heads or board chairs of 11 state agencies, including Commerce, involved in economic development.
  • The county is kicking in another $600,000 toward the $2 million purchase of the approximately 312,000-square-foot-building on U.S. 321 Bypass North, which has been vacant since 2008. In announcing the project on Aug. 22, state and local officials described the project as a $7.5 million investment, but what they didn’t tell the public then is that at least $1.9 million, or 25 percent, of that amount is publicly funded.
  • The county will hold the title to the building and can, though it is not required to, lease the property to Element Electronics.The terms of the lease were not revealed in the documents provided to The Nerve. At the end of a three-year “maintenance period,” the county would be allowed to transfer the building title to the company, even if all of the promised 500 full-time jobs were not maintained during the period.
  • The estimated total public cost of the project over a 15-year period is nearly $14.8 million, according to a cost-benefit analysis, including nearly $9 million in projected corporate job tax credits and $1 million in training through “special schools” – typically the readySC program run by the S.C. Technical College System.
  • The cost-benefit analysis doesn’t include substantial property tax savings the company likely will receive through a 30-year, fee-in-lieu-of-taxes (FILOT) agreement with the county covering machinery and equipment, according to a summary sheet of the project.
  • SCE&G and the Fairfield Electric Cooperative each has committed $100,000 toward the project, according to another document submitted for the state grant.

The grant application was submitted on July 22 by Milton Pope, Fairfield County’s interim administrator. Pope, a former longtime Richland County administrator, has previously declined to discuss details of the incentives; efforts Friday by The Nerve to reach him were unsuccessful.

As has been its longstanding practice with The Nerve, Commerce heavily redacted Element Electronics documents requested under the Freedom of Information Act, citing an often-used exemption involving “confidential proprietary information.”

The agency, for example, relied on the exemption in withholding what it described as a 12-page company business plan. It also blacked out seemingly less-sensitive information, such as a basic breakdown of the land, construction and equipment costs; and the average hourly wage for the promised 500 full-time jobs, which, according to the state incentives agreement, would have to be created within five years.

The Nerve previously reported that the average hourly wage was projected to be $12.50. Based on a 40-hour week, the average yearly pay for those workers would be $1,000 less than the annual per-capita personal income in Fairfield County in 2011, and about $7,400 less than the state’s per-capita income for that year, according to the figures from the U.S. Bureau of Economic Analysis.

The August unemployment rate in the small, rural county was 9.6 percent; the overall state rate was 8.1 percent, the state Department of Employment and Workforce reported.

Commerce also redacted the names and titles of any Element Electronics officials listed in documents requested under the Freedom of Information Act. The Nerve in August revealed that company president Michael O’Shaughnessy previously led several companies owned by Thomas Petters of Minnesota, including the Polaroid Corp., during the time federal authorities said Petters was operating one of the largest scams in U.S. history.

Petters in 2010 was sentenced to 50 years in federal prison after he was convicted by a jury of wire and mail fraud, money laundering and conspiracy charges in what authorities described as a 14-year, $3.7 billion Ponzi scheme. O’Shaughnessy faced no criminal charges in the case, but ongoing federal lawsuits against him allege that he improperly received nearly $9.4 million in bonuses and fees that were funded by defrauded investors.

The Ponzi scheme, which involved several other co-defendants who pleaded guilty, involved luring investors into lending Petters money to purportedly buy electronic goods for resale at a high profit to big-box retailers, including Costco and Sam’s Club, according to federal officials. But the purchases never occurred, though investors were fooled otherwise through numerous fake purchase orders and bank statements; and investors were paid with other investors’ money, officials said.

O’Shaughnessy in court papers denied the allegations against him and is seeking to dismiss separate lawsuits in Minnesota’s federal district and bankruptcy courts. Another bankruptcy suit against O’Shaughnessy was dismissed in August, records show.

Element Electronics was registered in Minnesota in 2009; O’Shaughnessy was listed then as its CEO, according to Minnesota Secretary of State records reviewed by The Nerve.

A Detroit Free Press story in January 2012 reported that Element Electronics sold Chinese-made televisions to big-box stores, including Wal-Mart and Target; and that the company was planning to return TV manufacturing to America through a partnership with another firm, Lotus International, to produce large, flat-screen televisions at a Canton, Mich., plant. That operation, which was scheduled to start in March 2012, was expected to involve 100 workers.

The Nerve has previously reported about South Carolina companies that closed after receiving taxpayer-backed incentives. Included in that group was Mack Trucks, which operated in Fairfield County from 1987 to 2002, employing about 1,500 workers at its peak. The truck assembler received at least $17 million in state and local tax breaks; land; and improvements to roads, sewers and rail lines, according to media reports at the time.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org. Follow him on Twitter @thenerve_rick. Follow The Nerve on Facebook and Twitter @thenervesc.