High School Football

Justice’s debt, built on trust, is now a billion-dollar personal risk

In 2017, when legendary Virginia banker Worth Carter died at age 79, West Virginia Gov. Jim Justice mourned the loss of a longtime, trusted financial partner and spoke at Carter’s funeral.

“We grew together,” Justice said. “I knew I could count on him, and always did.”

The chain of community banks that Worth Carter Founded, Martinsville-based Carter Bank & Trust, had been a key to the growth of Justice’s own business empire. Justice has described a relationship built on trust, inspiring deals that could be sealed with a handshake.

But that funeral marked a turn of events that sent Justice’s businesses deeper and deeper into perilous financial territory. The personal relationship is now a high-stakes and acrimonious parting of the ways.

Gov. Jim Justice

Justice, whose status as West Virginia’s only billionaire was downgraded over the recent troubles, continues his role as the state’s governor. But in the background lurks financial drama that has drawn the attention of the business world.

On the line for the governor is a billion dollars in personal liability.

This month, Justice and his businesses sued Worth Carter’s old community bank chain, seeking to hold it accountable for $421 million in damages. Far from trust, Justice contends new leaders at the bank instituted more and more restrictions, tightening cash flow for the family businesses.

“Carter Bank is no longer a ‘lifetime financial partner,’ as it proclaims and as it had acted prior to Worth Carter’s death but a determined, self-proclaimed adversary,” wrote lawyers for multiple businesses owned by the governor and his family.

Justice acknowledges $368 million of outstanding loans with Carter Bank, millions in debt accompanied by the risk of personal guarantees.

That’s on top of a second, bigger financial crisis. When the relationship with Carter Bank started turning sour, the Justice companies partnered with a different financial suitor. That was Greensill Capital, an international financial services firm that went bankrupt this spring.

“We were just trying to pay Carter Bank off, and lo and behold it’s just almost the straw that broke the camel’s back,” Governor Justice said during a state news briefing this month.

Greensill packaged the loans and sold them to investment funds managed by the financial services company Credit Suisse.

Credit Suisse is now pressing to recover lost investments and has named Justice’s Bluestone Resources as one of three major borrowers from the Greensill funds. That original loan amount was $850 million, and the current debt is $700 million.

Justice acknowledged personally guaranteeing those loans as well. He and his companies have a separate lawsuit against Greensill, contending they were snookered into taking on all that debt.

Together, the lawsuits are a financial nightmare that has developed from what once was rock-solid financial trust.

“You know, Worth Carter died a few years back. He was a great, great man with honor beyond belief and we did a lot, a lot, a lot of business together. I’m sure along the way it was tremendously helpful to the bank. It was tremendously helpful to our businesses. We did exactly what you’re supposed to do,” Justice said.

“We did everything from the standpoint of doing the right stuff with the bank, and Worth Carter was a prince of a man. And since his death, it’s been chaos at the bank.”

Worth Carter

Worth Carter

Worth Carter was widely regarded as a brilliant man, a mathematical genius. He had worked as a cashier at Safeway stores while putting himself through college, went to work as a bank examiner for the Federal Reserve Bank of Richmond and then became an executive at Piedmont Trust Bank in Martinsville, Va.

His drive led him to First National Bank in Rocky Mount in 1974 with eight employees and $1.2 million in assets. He kept on opening branches in rural Virginia and North Carolina until he led 10 community banks with 950 employees and $4.5 billion in assets, all bearing his name Carter Bank & Trust.

Bruce Whitehurst, president and chief executive officer of the Virginia Bankers Association, told the Martinsville Bulletin when Carter died that even though banking had changed dramatically his friend had carried on “in the traditional way” – with customers being able to walk into their local bank branch and have all of their needs handled there.

Loans from Carter Bank kept Liberty University in Lynchburg, Va., afloat during hard times, recalled its former president, Jerry Falwell Jr., who spoke along with Justice at Carter’s funeral.

“His willingness to loan to Liberty when the big banks all said no was key to Liberty stabilizing its finances and growing to become one of the most successful and prosperous universities in the nation,” Falwell told American Banker in 2017, a few years prior to his resignation from Liberty.

“Countless businesses would not exist across Virginia and North Carolina but for the genius of Worth Carter in recognizing the solid business plans and the good character of many folks who didn’t fit the mold imposed by big banks.”

Jim Justice met Carter in 2001, with the banker courting a business relationship.

“Governor Justice and Worth Carter met in 2001. As Worth Carter sought to expand his banking businesses, he actively pursued a commercial lending relationship with Governor Justice and his growing agricultural, mining and hospitality operations,” according to the lawsuit by the Justice companies.

The partnership was launched with a single real estate loan of $4.5 million. By the end of 2011, the financial relationship had grown to more than $170 million in 20-year loans to the Justice businesses.

“Sometimes he would tell them the lending was approved and shake hands,” the lawsuit states. “Money would then be advanced and the ‘details’ (lien documentation, loan documentation) would be handled days or weeks later.”

Big moves and unwelcome change

Over the course of the relationship, Justice made a couple of major financial moves.

Justice sold the family’s coal operations, broadly called Bluestone, to the Russian company Mechel in May 2009 for $568 million and then bought the company back in 2015 for $5 million.

And to much acclaim, Justice’s family purchased the iconic Greenbrier Resort out of bankruptcy in 2009. Worth Carter held the first shovel at the end of a line of dignitaries when ground was broken for a new casino at the resort.

In the middle of all that, according to Justice’s lawsuit, Worth Carter approached the Justices about lending even more money so the companies could stay afloat. By the end of 2015, just as Justice was buying back the coal properties, Carter Bank had loaned more than $400 million to the Justice companies in anticipation of a coal industry rebound.

That debt grew to $775 million by 2016.

Justice has said the money was necessary because the properties deteriorated on Mechel’s watch.

“We took over and we’ve been building them back,” Justice said at a briefing this month.

By the time Worth Carter died, the Justice companies had paid that down to $740 million and had transitioned to using Carter Bank as a near-exclusive financing provider.

Transition at the bank coincided with Justice’s first few months in office as West Virginia’s governor.

Justice was inaugurated Jan. 16, 2017, while the state was facing a financial crisis but he gave no hint that his own would even be a possibility.  “I want absolutely nothing, nothing,” he said at his inaugural address. “I don’t want a thing for me or my family in any way. All I want is goodness for this incredible state and its incredible people.”

By the end of that month, Jan. 30, 2017, Justice issued a letter to state employees saying he was pursuing a blind trust for his many businesses, but describing his holdings his as too complicated to move quickly.

There was no mention that personal guarantees might be at odds with a blind trust.

“Being Governor is a full-time responsibility,” Justice wrote. “I want to put all of my assets in a blind trust, however, the process has been slowed down by the multitude of financial institutions that work with my family’s companies.”

And just a few months after that, April 7, 2017, the single most important connection with those financial institutions, Worth Carter, died. His death came a day before the finale of Justice’s first regular legislative session when, as the clock ticked on April 8, the governor dramatically announced a possible state budget deal that turned out to be a mirage.

Following Carter’s death, according to the Justice lawsuit, the relationship with the bank bearing his name deteriorated. New management became more restrictive and accelerated outstanding debt, according to the lawsuit.

“This hostility came despite what was then an over 15-year mutually beneficial relationship during which the Justice Entities had consistently and timely serviced all debt owed to Carter Bank,” the Justice lawsuit states.

Carter Bank describes the same longstanding relationship, but expresses the change in terms of its fiduciary duty.

“Various Justice Entities have been customers of Carter Bank for many years,” Carter Bank wrote in response to the lawsuit.

“Beginning approximately five years ago, Carter Bank began to reduce its credit exposure to the Justice Entities and repeatedly informed the Justice Entities of the bank’s goal of reducing its credit exposure to the Justice Entities.”

The bank’s statement to shareholders continued, alluding to a battle over what the Justices owe.

“Banks have an obligation to their shareholders and the financial system to collect in full all amounts that are due and owing to them. Carter Bank is no different from any other bank in this regard. As with all its customers, Carter Bank expects to be repaid by the Justice Entities all amounts due and owing in full in a timely manner as agreed-upon in the various loan documents existing between the parties.

“Carter Bank believes that it is fully secured on all loans it has outstanding to the Justice Entities. All those loans are also backed by personal guarantees from James C. Justice, II and his wife, Cathy Justice. A number of them are also backed by personal guarantees from James C. Justice, III, Mr. Justice’s son.”

New lender arrives, complications grow

As the relationship with Carter Banks went south, a new lender came on the scene.

Roland Hartley-Urquhart

That was Greensill Financial Services. In contrast to Carter Bank’s homegrown presence, Greensill was an international financial services company based in the United Kingdom, focusing on supply chain financing that links buyers and sellers with the financial institution in the middle.

Greensill’s relationship with Justice started about May 2018. The business was personified by Roland Hartley-Urquhart, vice chairman at Greensill who took credit for inventing modern supply-chain finance.

Jay Justice

He was introduced to the Justice businesses by a mutual acquaintance — never named — and first met in White Sulphur Springs, home of The Greenbrier, with the governor and James Justice III, known as Jay, the chief executive of the coal operations.

From that introduction through this past February, when the relationship burst, Jay Justice spoke on the telephone or in person with Hartley-Urquhart two or three times a week, according to the Justice lawsuit.

Bluestone entered two financing programs offered by Greensill. One, a smaller amount of  $70 million was at the core of Greensill’s business model, the supply-chain financing. Greensill would facilitate quick payments for the coal Bluestone could provide to the buyers on the other side of the arrangement.

The far larger amount, $780 million, was through a far different “receivables purchase program.” That worked by establishing credit against “receivables that have not yet been generated by Bluestone” from “prospective buyers” which included “entities that were not and might not ever become customers of Bluestone.”

So this was based not on Bluestone’s ability to deliver and collect, “but rather based on Bluestone’s long-term business prospects” that might or might not exist. The loans were rolling over as they matured.

Despite that magic financing, Justice’s lawsuit characterized the initial relationship with Roland Hartley-Urquhart and Greensill by using very similar language to how Worth Carter was described. At first, the financial arrangements were “supported by a relationship of mutual trust.”

Personal risk

June 26, 2018, a Tuesday, was an extraordinarily busy and momentous day.

That day Governor Justice called the Legislature into special session to consider impeachment of members of the state Supreme Court. The same day, Justice announced on social media that he was meeting with President Trump, a political ally, to “discuss the ‘Trump-Justice Coal Plan,” which envisioned a federal mandate on coal reserves to protect the power grid in case of catastrophe.

“More WV prosperity on the way!” the governor’s account tweeted. The proposal never came to fruition.

Finally on June 26, with that boost of confidence about coal, the governor and first lady Cathy Justice, along with Jay, executed personal guarantees on the Greensill loans that were fueling their coal business. The Justices say they were under the impression that the loans wouldn’t come due until well into the future, 2023 at the earliest.

Now the Justices say they were misled to enter those personal guarantees, believing they would provide the capital necessary to restructure and restart mining operations.

“Plaintiffs only signed the personal guarantee because of the understanding between the parties that the Enterprise financing was a long-term financing,” according to the Justice lawsuit.

“Had plaintiffs known that the Enterprise Financing was a short-term financing, effectively callable at will, Plaintiffs would never have agreed on signing the personal guarantees.”

That wasn’t the end of the financial adventures, though.

Greensill also entered an agreement in 2019 for the right to an ownership stake up to 10 percent in Bluestone, valued at about $100 million elsewhere in the lawsuit.

And in 2019, aiming to increase capacity and diversify its holdings, Bluestone acquired a coke plant in Birmingham, Ala., as well as the West Virginia metallurgical coal assets of Pinnacle Mining Co.

Of the original $850 million in debt, what remains is $700 million, the amount West Virginia’s governor is now liable for personally.

Now on the hook for it, the governor this month acknowledged conversations with his family about the enormous debt.

“I’ve had to review this with my family. What was going on what the rebuilding of Bluestone. We knew it would take hundreds and hundreds of millions of dollars to rebuild Bluestone,” he said at a briefing.

“We’ll continue to pay our obligations and move forward. But this one is a bad, bad, bad actor that got caught. We didn’t have one earthly clue. It’s terribly unfortunate and something our family will have to deal with.”

Evolving crisis

There were hints that the Greensill arrangement was getting bad, and then it blew up.

In September, 2020, as the covid-19 pandemic continued to dramatically slow the world’s economy, Jay Justice met with Hartley-Urquhart at his home in New York and, according to the lawsuit, received assurances that Greensill would continue to support Bluestone.

“Mr. Hartley-Urquhart promised to not leave plaintiffs ‘holding the bag’ because he believed in the Bluestone business as an asset and believed in the strength of Bluestone’s management,” the lawsuit states.

That changed in November, 2020. As the governor was celebrating a re-election victory in the political world, Greensill began to recognize its own crisis in the financial world. The Justice lawsuit contends the finance company started trying to demand additional fees, moved to secure repayment of already-existing borrowings and demanded accelerated repayment outstanding debt.

On Dec. 1, 2020, a Tuesday when the governor announced positive state revenue figures, another representative of Greensill Capital,  Randolph “Dolph” Habeck met with the Justices in White Sulphur Springs and demanded payment of all obligations by July 2021.

Pressure continued into early 2021.

This past Feb. 9 — the day prior to the governor’s annual State of the State address — the Justices learned for the first time that Greensill Capital was deeply obligated to yet another international financial services company, Credit Suisse, according to the lawsuit.

Hartley-Urquhart “urgently demanded” Bluestone pay off even more debt, this time to funds managed by Credit Suisse.  “JCJ III refused,” the lawsuit states, referring to Jay Justice, “stating that he had no idea of Credit Suisse’s involvement or how any transaction between Bluestone and Greensill Capital implicated Credit Suiss.”

On Feb. 20, a Saturday, Hartley-Urquhart again traveled to White Sulphur Springs to meet with Jay and Jim Justice and demanded Bluestone pay $300 million by the end of the third quarter.

Less than a week later, Feb. 26, Hartley-Urquhart demanded repayment of $850 million by the end of the third quarter.

On March 1, Jay Justice received a phone call again from Hartley-Urquhart. Greensill had collapsed. 

A week later, Greensill filed for bankruptcy, triggering a tsunami of repercussions in the international financial world.

Credit Suisse, which managed investment funds that bought loans bundled by Greensill, is now pressing to recover lost investments and has has named Justice’s Bluestone Resources as one of three major borrowers from the Greensill funds.

The Justice lawsuit says vendors, suppliers, customers, and bonding companies reached out immediately to express serious concern about the impact Greensill Capital’s demise will have on Bluestone’s liquidity and cash flow.

Justice, far from the personal trust he declared for Worth Carter, now describes the companies that loaned his businesses millions of dollars with disdain.

And the governor acts hurt that the multi-million dollar financial deals that used to be sealed with a handshake, with details to follow, are now far more complicated and treacherous.

“The Greensill thing, I keep going back to this. There can’t be a worse actor,” West Virginia’s governor said at a state briefing this month.

“When it really boiled right down to it, we had no clue — no clue in the world. And all of a sudden they walked in out of nowhere and they’re bankrupt in 48 hours. What they’ve done is awful to a lot, a lot, a lot of people. And us having no idea, no idea whatsoever.”

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