VR Labs scandal duo accused of 'lavish and wasteful' lifestyle — $2000 meals, $900 hotels

The couple accused of conspiring to defraud Lee County of nearly $5 million in economic incentives lived a lavish lifestyle on other people’s money, and tried to foist nearly worthless artwork on a Naples museum, court documents allege.

Accusations concerning the past behavior of VR Labs principals Robert and Kay Gow were revealed in documents filed in their pending felony case in U.S. District Court in Fort Myers.

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The documents include a tax court finding that the Gows treated themselves to $2,000 dinners while staying in $900 per night hotel rooms paid for by a Virginia corporation in which they held a stake.

The Gows and Williams are under indictment and awaiting trial in U.S. District Court in Fort Myers.

Williams has asked for a separate trial, claiming his case would be tainted by the Gows’ past pattern of “bad acts and fraudulent behavior that benefited them both personally and financially.”

Williams’ attorney, Todd Foster of Tampa, claimed in the filing that the “evidentiary spillover” of the Gows’ past behavior, in which Williams was not involved and did not know about, makes it impossible for him to get a fair trial before the same jury.

The assistant United States attorney prosecuting the three defendants argues that Williams has been tied to the Gows for a long time and was involved in many of the acts for which they are charged.

“Williams had been friends with the Gows for over two decades and had invested millions of dollars in Gow-controlled entities including HSG the predecessor of VR Labs,” prosecutor Josephine Thomas wrote in her response.

HSG was the parent company of HerbalScience Singapore, a company the Gows formed to produce a health food product abroad that would be similar to the drink they pledged VR Labs would make with the help of a $5 million Lee County investment.

Also, Foster’s court filing includes a description from FBI files concerning the Gows’ attempt to donate artwork to the Naples Museum of Art, now known as the Baker Museum of Art.

The Gows claimed the Chinese art was worth $400,000 but an appraisal for the museum concluded much of it was “essentially worthless,” Foster’s motion claimed.

The allegations of the Gows’ involvement with the museum were drawn from 300 pages of FBI documents provided to the defense. Federal rules of court procedure require material intended to be used at trial be provided to the opposing side.

Museum founder Myra Janco Daniels confirmed to The News-Press that she had been interviewed by the FBI concerning the Gow’s offer.

In a telephone interview, Daniels said the appraisal was done in order to determine the insurance value of the Gows’ proposed donation. Ultimately, the artwork was not accepted by the museum.

Daniels recalled that the Gows’ offer was inconsistent with the museum’s objective at the time to establish a major collection of American modern art. After the true value of the purported donation became clear, Kay Gow was removed from the museum board of directors.

Acceptance of the donation could have provided a sizeable tax deduction for the Gows.

Dividend or toil

Other material submitted to the federal court in support of Williams’ request includes a 2000 tax court finding that the Gows failed to declare the values of lavish vacations as income on their tax returns.

Trips to Hawaii and Florida, costing $1.3 million, were provided by a company in which Kay Gow had an ownership interest.

Foster culled the allegation from a 2001 decision of theU.S Fourth Circuit Court of Appeal upholding a U.S. Tax Court decision assessing penalties on the Gows’ federal income tax returns filed between 1989 and 1992.

The appeals court upheld the U.S. Tax Court finding that the $1.3 million spent on the Gows’ travels to resorts should be considered a taxable dividend from Williamsburg Vacations Inc.

Kay Gow had been awarded shares of stock in WVI as bonus compensation.

The Fourth Circuit Court of Appeals opinion, quoted but not attached to Williams’ motion, said the Gows spent lavishly on at least seven trips to Florida andHawaii.

Noting that the trips were clustered around the Thanksgiving, Christmas and New Year’s Day holidays, the appellate court agreed with prior decisions by the IRS and the tax court that the trips provided WVI with nothing of business value.

Robert and Kay Gow “were guests in lavish hotels and resorts costing up to $900 per night and … dined in restaurants charging upwards of $2,000 for a single meal,” the court said.

The Gows claimed payment of their expenses by WVI was proper because they were for “research purposes.”

The court found no evidence of actual work during the holiday trips.

“They made no written reports of their research, moreover they offered no explanation of why (a Virginia company) might benefit from their ‘research’ at resorts thousands of miles away,” the full decision said.

Williams’ lawyer also claimed that “thousands of pages of Government discovery” concerning another Gow company. HerbalScience, are evidence that the Gows intended to defraud Lee County in the VR Labs deal.

In 2007, HerbalScience had received investments of $28 million from three venture capital companies, Foster wrote in his argument for a separate trial for Williams. He said the documents indicate that “by early 2010 … almost all of the $28 million investment was gone.”

According to an interview transcript the government provided to the defense, a former chief financial officer of HerbalScience said the Gows were spending a “tremendous amount of [HerbalScience’s] money on travel.”

Foster claims that the Gows “were purportedly wasteful and lavish spenders of HerbalScience money,” and said government interview transcripts include accusations that company funds bought luxury cars for Robert Gow and the couple’s adopted daughter, Jin-Ting Gow, while paying $500,000 in salary to the three Gows.

One of the companies investing in HerbalScience, Weston Presidio, a $3.2 billion Boston venture capital firm, allegedly told the FBI that the Gows “materially misrepresented their level of investment in HerbalScience while soliciting money from Wilson Presidio.

Prosecutors will oppose Williams’ bid for a separate trial.

In urging Judge Sheri Polster Chappell not to sever the trial, prosecutor Thomas argued that Williams’ played a major role in the Dow’s alleged criminal activity.

The Gows “enriched themselves with approximately $1.4 million of the county’s grant money,” Thomas said in her written opposition. “The defendants jointly accomplished this through Williams paying kickbacks to VR Labs.”

The claims against the Gows made on behalf of Williams “not only establishes the Gows’ motive and intent to defraud Lee County, but his own as well,” Thomas said.

A response to Williams’ request for a separate trial is due from the attorney for the Gows today. The Gows’ attorney, John Fitzgibbons of Tampa, has said he expects the couple will be found not guilty.

County seeks repayment

Last May, the county won a $4.7 million judgment against VR Labs LLC and its subsidiary, VR Laboratories Inc. after the Gows failed to hire a lawyer to defend them after three firms quit their case as the litigation progressed.

Last week, the county was authorized to attach property owned by VR Labs, which would allow the Lee County Sheriff’s Office to seize the property to pay the judgment.

The county’s outside law firm is also seeking to force Kay Gow to answer under oath questions about VR Labs.

Gow represented VR Labs at a deposition taken by the county late last year as part of its inquiry into VR Labs’ ability to pay the judgment against it.

She repeatedly asserted her Fifth Amendment right against self-incrimination when asked questions about VR Labs’ operations.

The county claims that a corporation legally cannot plead the Fifth Amendment when speaking on behalf of a business in a civil trial and wants to force her to answer the questions.

Judge John Duryea issued a writ of execution against VR Labs last month, authorizing the sheriff to take company property to pay the debt.

The law firm representing the county in the suit has not initiated proceedings to freeze the Gows’ personal assets pending the outcome of the federal criminal trial.

Florida law requires proof of illegality or fraud to pierce the protections a corporation form of ownership provides to its shareholders.

Judge John Duryea has scheduled a hearing for April 2 on the county’s effort to force Kay Gow to answer questions under oath.

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