Date: March 26, 2019
Re: Corruption Allegations Regarding Jeff McKay
I. Executive Summary
Recently uncovered evidence suggests that Fairfax County Board of Supervisors Member Jeff McKay may have violated the bribery of public servants statute, Virginia Code Section 18.2-446, as well as the conflict of interest statute, Virginia Code Section 15.2-852, by failing to disclose that he used his public position for private financial gain.
Specifically, it appears that, on June 21, 2016, Supervisor McKay directed the approval of a rezoning application and later obtained valuable residential property (the Roxann Road Property) from the applicant’s principal (Warren Halle) after the property was funneled through an entity affiliated with Supervisor McKay’s friend (Michael McGhan). It defies credulity to believe that Supervisor McKay did not have an arrangement to purchase the house prior to June 21, 2016, and he failed to disclose that arrangement as required by law.
As set forth in more detail herein, the day before the originally scheduled vote on the re-zoning request, Michael McGhan (or people affiliated with him) created Roxann LLC, the entity that ultimately purchased the Roxann Road Property from Warren Halle’s company and later transferred it to Supervisor McKay. The vote was then delayed for two weeks. The day after the final vote on the re-zoning request, Michael McGhan began the process of obtaining permits in order to build a house on the Roxann Road Property. Efforts were made to hide the identities of the sellers and buyers in the various transactions, and Supervisor McKay never revealed his conflict of interest or potential conflict to the Board before the rezoning vote occurred. The Roxann Road Property was purchased by Supervisor McKay and his wife at a below market rate and was never publicly listed for sale.
In summary, our investigation to date has uncovered the following facts:
1. On August 24, 2015, Kingstowne LLP, a partnership controlled by prominent developer Warren Halle, asked the Fairfax County Board of Supervisors (“Board”) to rezone a valuable piece of property. The property is part of the Kingstowne Town Center Development Project (“Kingstowne”), which Halle and his companies have been developing for the past 30 years.
2. The property that Halle wanted rezoned (“the Kingstowne Property”) is located in the district served by Supervisor Jeff McKay, whose recommendation on zoning requests in his district carries great weight with the full Board.
3. The Kingstowne rezoning request was scheduled for a public hearing and vote on June 7, 2016. On that day, Supervisor McKay moved to defer the public hearing and vote until June 21, 2016. McKay’s recommendation was unanimously approved by the full Board.
4. On June 6, 2016, one day before the deferral of the rezoning application, an entity named Roxann LLC was incorporated in Virginia by an attorney who has incorporated several other entities for McShay Communities. McShay Communities is a high end residential building company owned by Supervisor McKay’s friend, Michael McGhan.
3. At the June 21, 2016 public hearing, Supervisor McKay recommended and voted for the Kingstowne Property rezoning application, which was approved by the full Board. He did not disclose any conflict of interest before recommending and voting on the rezoning.
4. One day after the vote, on June 22, 2016, BC Consultants, a land planning and surveying company, submitted a land disturbance permit application for a vacant lot located at 7016 Roxann Road (“the Roxann Road Property”) in Alexandria, VA. The developer listed on the permit application was McShay at McDonald Estates LLC and the applying owner was listed as McShay at Pohick River LLC. But the Roxann Road Property was not owned by McShay at Pohick River LLC at this time, so this portion of the application was false. The Roxann Road Property was instead owned by Kingstowne Commercial LP, another Halle controlled entity. The lot was one of four parcels owned by Kingstowne Commercial LLP. The land disturbance permit was disapproved on August 5, 2016 and resubmitted on September 22. 2016.
5. A building permit for a new single family dwelling at the Roxann Road Property, with a declared value of $265,000.00, was applied for on September 26, 2016. The applicant was James Mueller, with the same listed address as McShay Communities. An additional contact listed on the application was Roxann LLC. The building permit failed review on three occasions, but all issues raised in the review process were listed as corrected by December 19, 2016.
6. On January 16, 2017, Halle-controlled Kingstowne Commercial LP transferred both the Roxanne Road Property and the property across the street, located at 7015 Roxann Road (“the Roxann II Property”), to Roxann LLC. The names of the seller and buyer to the transaction were withheld from the public record by request. The recorded price for the transfer of both properties was $365,000.00. There is no record of any liens filed against the properties.
8. The building permit for the Roxann Road Property was approved on February 16, 2017. A permit was issued on February 24, 2017.
9. Roxann LLC then built an upscale residential house on the Roxann Road Property. The house passed inspection on November 9, 2017.
10. On November 14, 2017, the Roxann Road Property was transferred from Roxann LLC to Supervisor McKay and his wife Crystal for a recorded price of $850,000.00. The names of the seller and buyer to the transaction were withheld from the public record by request. That same day, the McKays obtained a deed of trust on the property in the amount of $582,515.00. The property was never listed in MLS. The assessed tax value of the property was $853,000.00. Given its size and location, the property was purchased at a below market price.
11. McGhan lives in a house on the Roxann II Property.
At a minimum, Supervisor McKay should provide a detailed explanation for the above series of actions.
There are also additional facts that should be ascertained and can probably only be developed through the vehicle of a grand jury subpoena for documents and testimony. Several important questions remain, among them:
1. What if any documents were executed by Supervisor McKay, Michael McGhan, Warren Halle and/or entities controlled by them between June 6 and June 21, 2016?
2. Was $365,000.00 actually paid for the Roxann Road Property and the Roxann II Property when they were transferred from Kingstowne Commercial LP to Roxann LLC on January 16, 2017? If so, who made the payments and/or provided the funds used?
3. How much money, if any, did Supervisor McKay and his wife pay in total for the Roxann Road Property? If money was paid, where did it come from?
4. What were the financial arrangements between the McKays and Michael McGhan with respect to the Roxann Road Property?
As detailed more fully below, these allegations do find support in the publicly available records, and Supervisor McKay may have acted illegally, unethically, or improperly, but it is too early to say definitively whether that is so. However, further investigation is unquestionably warranted.
II. Detailed Factual and Historical Background
A. Key Players
• Jeff McKay: the Supervisor for the Lee District of Fairfax County, VA.
• Warren Halle: a prominent developer developing the Kingstowne Town Center. Owns the Halle and Kingstowne family of companies, which includes the Halle Companies; Halle Enterprises, Inc.; Kingstowne Commercial LP; and Kingstowne Associates LP.
• Michael McGhan: a residential developer and a personal friend of McKay. Owns the McShay Communities family of companies, which includes McShay Communities, McShay at McDonald Estates LLC, McShay at Pohick River LLC, and McShay at Madison Lane LLC.
• Glenn Silver: a real estate attorney who has represented McShay Communities for years and the apparent sole member of Roxann LLC.
• Roxann LLC: A shell LLC with the apparent sole purpose of facilitating the Roxann Property transaction described below.
B. The Roxann Property Transaction
Kingstowne is a large planned community and town center located in Fairfax County, Virginia, owned by Halle and first developed in 1985. Over the next 30 years, Halle faced significant financial constraints and opposition in developing Kingstowne. Residents opposed development plans that would lead to increased traffic, resulting in the Fairfax County Planning Commission, on occasion, denying Halle’s plans for more profitable developments. Prior to 2007, the Board had approved Halle’s plan to develop two office buildings.
In January 2007, Jeff McKay, then the Chief of Staff to Supervisor T. Dana Kauffman, announced his intention to run for a seat on the Board as the designated successor of Kauffman, who was retiring.
In 2007, Halle sought to modify the proposed development from two office buildings to four. On October 15, 2007, the Board was scheduled to consider Halle’s modified proposal. However, the hearing was deferred due to a late-filed conflict of interest form by another Supervisor.
On November 3, 2007, the Washington Post reported that McKay had received $35,000 in campaign contributions over the prior six months by entities associated with Warren Halle. Of those contributions, $15,000 had been donated within four days of the date that the Board deferred the vote on Kingstowne. In November 2007, McKay was elected to the Board to represent Lee District.
On January 28, 2008, the Board considered Halle’s modified Kingstowne proposal. As a result of the deferral, McKay had been seated and participated in the vote. During the hearing, McKay disclosed that he had received campaign contributions in excess of $100 from a company owned by Burkhart and nine companies owned by Halle. McKay moved for approval of the project, which was approved.
As of 2015, demand for office space was not materializing as expected, and Halle had yet to find any tenant interest in the proposed office buildings. As a result, construction had not begun on any of the office buildings. On August 24, 2015, Kingstowne LP applied to change the plan for Kingstowne from the four previously-approved office buildings to residential developments.
On March 30, 2016, the Department of Planning and Zoning staff issued a report recommending approval of the application, conditioned on acceptance of certain immaterial modifications. On April 26, 2016, the Planning Commission recommended approval of the modified project to the Board. The Board’s public hearing was scheduled for June 7, 2016.
On June 6, 2016, one day before the planned vote, Roxann LLC was incorporated in Virginia by Glenn Silver, an attorney. Glenn Silver has registered certain other entities owned by McShay Communities and appeared on behalf of McShay Communities in Les Project Holdings, LLC v. McShay Communities, Inc., C.A. No. 1:18-cv-1279 (E.D. Va. 2018). McShay Communities is a residential building corporation in Northern Virginia, and its owner, Michael McGhan, is a personal friend of McKay.
At the hearing on June 7, 2016, McKay moved to defer the public hearing on the new Kingstowne plan until June 21, 2016. The deferral was unanimously approved.
On June 21, 2016, the Board held the public hearing on the modified Kingstowne proposal. No members of the public appeared. The Chair asked whether any Supervisors had disclosures to make and stated that she had received campaign contributions in excess of $100 from Halle. McKay did not disclose any conflicts or contributions from Halle. The Chair noted that Kingstowne was in McKay’s district and requested that he tell the Supervisors “what action he would have [them] take.” McKay moved to approve, and voted for the modified Kingstowne proposal, and the other Supervisors unanimously agreed.
On June 22, 2016—one day after the vote—BC Consultants submitted an application for a land disturbance permit for a vacant lot located at the Roxann Road Property. The Roxann Road Property and the lot across the street, the Roxann II Property, were two of four parcels subdivided from the Kingstowne property in 2008.
The developer on the permit applications for the Roxann Property was McShay at McDonald Estates LLC, and the applying owner was McShay at Pohick River LLC. The permit was disapproved on August 5, 2016, and resubmitted on September 22, 2016.
A permit for a new single family dwelling at the Roxann Property with a declared valuation of $265,000 was processed on September 26, 2016. The applicant was James Mueller, with the same listed address as McShay Communities, and the additional contacts on the application were Roxann LLC and McShay at Madison Lane, Inc. The building permit failed review on three occasions, but all of the issues raised in the review were resolved by December 19, 2016.
On January 16, 2017, the Roxann Property, as well as the Roxann II Property, were transferred from Kingstowne Commercial LP to Roxann LLC. The recorded price of the transfer was $365,000. The names of the parties to the transaction were withheld from the public record by request. Kingstowne Commercial LP is registered at Halle’s business address. Marco A. Lopez, Esq., prepared the deed from Kingstowne Commercial LP to Roxanne LLC. There is no record of any liens filed against the properties.
The building permit was reviewed for the fourth time on February 16, 2017, and approved. The building permit was issued on February 24, 2017. A house was built on the property during 2017. The property passed inspection on November 9, 2017.
On November 14, 2017, the Roxann Property was transferred from Roxann LLC to Jeff and Crystal McKay for a recorded price of $850,000. Marco Lopez also prepared this deed, which was signed by Glenn Silver as managing member and authorized agent of Roxann LLC. The property was never listed in MLS. The assessed tax value of the property was $853,000, and given the size and location of the house, the property was purchased at a below market price. The names of the parties to the transaction were withheld from the public record by request. That same day, the McKays obtained a deed of trust on the property in the amount of $582,515. Marco Lopez notarized the Deed of Trust. There do not appear to be any lien satisfactions for the land acquisition or construction on the title report.
The public record reflects some inconsistency about the date that the McKays obtained the Roxann Property. A report by LexisNexis shows that the property is owned by Crystal McKay and provides the recording date for the sale as January 17, 2017.
The title report for the Roxann II Property reflects that it is still owned by Roxann LLC. There are no liens on the property. The residential property tax assessment for the Roxann II Property is still billed to Roxann LLC.
C. Campaign Contributions
McKay appears to accept up to two-thirds of his campaign donations from real estate, construction, and development interests. Collectively, the largest donors are Halle and Halle’s firms, whose contributions totaled around $62,000. Approximately $50,000 of those contributions being placed during McKay’s initial run for office in 2007. He has also accepted around $4,000 in contributions from McShay Communities and Timely Properties, also owned by McGhan. McKay has received around $73,000 in contributions from other development firms not associated with Halle.
Eleven individuals who donated directly or indirectly (through their companies) to McKay or Kauffman were appointed to positions in support of the Board or Fairfax County government business development. These eleven individuals donated a total of $19,550 to McKay. Almost all of these donors had ongoing or planned real estate development projects in Fairfax County, which often required approval by the Board of Supervisors.
These circumstances are very concerning and strongly suggestive of a quid pro quo or other connection between McKay’s actions and the purchase of the Roxann Property and warrant further investigation. A quid pro quo may violate the Virginia bribery of public servants statute, Virginia Code Section 18.2-446, and may be prosecuted under several federal laws criminalizing public corruption: (1) program bribery, 18 U.S.C. § 666; (2) the Hobbs Act, 18 U.S.C. § 1951; and (3) honest services fraud, 18 U.S.C. § 1346. It should be noted that it is irrelevant for purposes of each of these statutes that McKay was only one of several votes or that the rezoning may have been approved regardless of his recommendation. Additionally, if a financial relationship existed prior to June 21, 2016, McKay’s failure to disclose the arrangement would violate Virginia Code Section 15.2-852.
First, it appears the applicant had faced unexpected resident opposition and financial constraints during the development of Kingstowne. After finding no tenant interest over a seven-year period for the already-approved office buildings, the applicant modified the project to more profitable residential developments. As the Supervisor for the district where Kingstowne was located, McKay had de facto plenary authority over Halle’s modifications to Kingstowne. The Chair’s comment for McKay to tell the Supervisors “what action he would have [them] take” and the subsequent unanimous vote reflected McKay’s authority.
Second, the events in the Kingstowne vote and the property development are so close it defies credulity that they would not be related:
• After April 26, 2016: The Board is scheduled to vote on Kingstowne on June 7, 2016.
• June 6, 2016: McShay Communities forms Roxann LLC.
• June 7, 2016: McKay moves to defer the Board’s vote on Kingstowne.
• June 21, 2016: The Board votes on Kingstowne. McKay moves for the Board to vote in favor.
• June 22, 2016: McShay Communities initiates the permit process for the Roxann Property.
• December 19, 2016: McShay Communities resolves the issues in the permit process for the Roxann Property.
• January 17, 2017: The Roxann Property and the Roxann II Property are transferred from Kingstowne Commercial to McShay Communities, through the vehicle of Roxann LLC. There is no record of any liens filed against the property.
• November 9, 2017: The Roxann Property passes inspection.
• November 14, 2017: The Roxann Property is transferred to McKay.
Third, it appears that the parties used extraordinary efforts to hide the transactions from the public. Roxann LLC has no apparent function other than as the temporary owner of the Roxann Property and the Roxann II Property. Notably, although some corporate entities affiliated with McShay Communities listed their registered agent address as McShay Communities’ office, Roxann LLC listed its registered agent address as McShay Communities’ attorney’s address. The party names in both of the property transfers—Kingstowne Commercial LP to Roxann LLC and Roxann LLC to McKay—were withheld from the public record by request, even though Virginia law requires that deeds be recorded and indexed by the name of all of the parties identified in the instrument. Va. Code Ann. §§ 17.1-223, -249. Additionally, as stated earlier, it appears that McShay Communities constructed the house on the property without publicly recording any liens on it. The question should be asked if McGhan may have received the residence at the Roxann II Property for a below-market value in exchange for his involvement.
A. Program Bribery
This conduct may constitute a violation of the program bribery statute, which prohibits corruptly accepting or agreeing to accept anything of value with the intent to be influenced in connection with a government transaction over $5,000, where the government entity receives over $10,000 in annual federal funding. 18 U.S.C. § 666(1)(B). The public official accepting the bribe must be an agent of the government entity. Id. The government need not prove that the federal funds are implicated in the bribery scheme. Sabri v. United States, 541 U.S. 600 (2004).
A Supervisor is an agent of Fairfax County, which likely receives over $10,000 in federal funds each year, and both Kingstowne and the Roxann Property are valued over $5,000. A Supervisor agreeing to accept the Roxann Property in exchange for being influenced in connection with the Kingstowne vote would constitute program bribery.
B. Hobbs Act
This alleged conduct may also constitute a violation of the Hobbs Act, which makes it a crime to obtain property from another with that person’s consent under color of official right in a manner that affects interstate commerce. 18 U.S.C. § 1951. To prove extortion under the “under color of official right” prong of the Hobbs Act, “[t]he Government need only show that a public official has obtained a payment to which he was not entitled, knowing that the payment was made in return for official acts.” Evans v. United States, 504 U.S. 255, 268 (1992). The public official need not actually make a direct demand for a bribe or otherwise state the quid pro quo in express terms, “for otherwise the law's effect could be frustrated by knowing winks and nods.” Evans v. United States, 504 U.S. 255, 274 (1992).
For the same reasons discussed above in connection with program bribery, a Supervisor obtaining a house or other such financial benefit in exchange for a favorable official vote may constitute a bribe under color of official right, in violation of the Hobbs Act.
C. Honest Services Fraud
This conduct may also constitute honest services fraud, which is a scheme or artifice to defraud citizens of their intangible right to a public official’s honest services. 18 U.S.C. § 1346. The elements of honest services fraud are (1) that the defendant voluntarily and intentionally devised or participated in a scheme to defraud another out of money; (2) that the defendant did so with the intent to defraud; (3) that it was reasonably foreseeable that interstate mail or wire communications would be used; and (4) that interstate mail or wire communications were in fact used. See United States v. Vinyard, 266 F.3d 320, 326 (4th Cir. 2001). The honest services fraud statute only criminalizes bribes and kickbacks, Skilling v. United States, 561 U.S. 358, 412 (2010), and the bribe or kickback must be in exchange for an “official act,” which is a formal exercise of governmental power in which the government official makes a decision or takes an action on a pending proceeding. McDonnell v. United States, 136 S. Ct. 2355, 2372 (2016).
A Supervisor voting in favor of a development project would constitute an “official act,” and a scheme to provide a public official with a house directly in exchange for a vote would be a bribe that deprives citizens of their intangible right to the honest services of a Supervisor.
IV. Questions to Be Answered
There are a number of outstanding questions that need to be investigated and answered in order to understand whether the conduct described above rises to the level of a crime:
• How did McKay and or McGhan learn that the land for their respective future houses was for sale as it appears the lots were never publicly listed for sale.
• When did they learn the land was for sale.
• Was there a real estate agent involved.
• It appears the McKay house was purchased at a low market price. Did McKay ever disclose this financial benefit.
• Whether the applicant and McKay had an agreement to transfer the Roxann Property to McKay in exchange for McKay’s vote on Kingstowne.
• Why the Kingstowne vote was deferred.
• Whether a contract between McKay, McGhan, Roxann LLC, and or Halle or other proof of sale regarding the Roxann Property was signed during the two-week period of June 6-21, 2016 that the Kingstowne vote was delayed.
• Who paid the real estate taxes between January 16 and November of 2017.
• Why LexisNexis shows that Crystal McKay took title to the land one day after Kingstowne LP transferred it to Roxann LLC, thus showing inconsistent dates for the transfer of the Roxann Property to the McKays.
• Because it appears that there was no lien recorded at the time Halle transferred the Roxann Property to Roxann LLC, how was the purchase price paid.
• Given that there does not appear to have been a lien placed on the property during the construction of the soon to be McKay house, how and by whom was construction funded.
• Given the irregularities of this transaction, how much cash back to the purchaser at closing is noted on the November 2017 McKay HUD-1.
• Was the purchase price paid via a purchase money deed of trust. If so, what were the terms of the loan.
• What was the relationship between the 2008 transfer of the four parcels of land (including the Roxann Property) to Kingstowne Commercial LP and the Board’s 2008 vote.
• Whether McKay communicated with his staff, members of the Planning Commission, or other members of the Board prior to the vote on Kingstowne, and the nature of such communications.
• If it is determined that the actions of McKay are improper, what employees or staff did McKay use to conceal the transaction.
• Why Fairfax County permitted the names of the parties to the transactions to be withheld from the public record.
• Has McKay bestowed any benefit to the McGhan family.
• The nature of McShay Communities’ involvement in and knowledge of the Roxann Property transaction, including McGhan’s use of the Roxann II Property.
• The nature of Glenn Silver’s and Marco Lopez’s involvement in and knowledge of the Roxann Property transaction.
• When the contracts for McShay Communities’ contractors on the Roxann Property were executed, and the scope of work for those contractors.
• The market value of the Roxann Property and why it was not publicly listed for sale.
• Whether other developers’ campaign contributions to McKay resulted in any benefits to those developers.
• Has Halle and or related entities donated to McKay’s current election campaign.
• Have any of the current Fairfax County Board members been made aware of these troubling circumstances and, if so, what actions have they taken.