Candidate led high-risk securities firm

Former Gov. Jim Gilmore, who was criticized for his handling of state finances, was chairman of a Bear Stearns subsidiary set up to market some of its highest-risk securities tied to the home mortgage industry meltdown.

One money manager said Gilmore's involvement in Everquest Financial Ltd. reflected his "naivete" in finance. Gilmore, a Republican, is now running for U.S. Senate.

Two troubled hedge funds managed by Bear Stearns owned a 60 percent share of Everquest when it was created in 2006. Everquest withdrew its bid for an initial public offering last June amid criticism of the hedge funds — which saw the mortgages underlying the bonds in some of their holdings fall sharply in value because of increased mortgage defaults.

The pullout of the IPO was one of the first casualties of the slumping housing market. In December, Time magazine rated the aborted IPO as No. 2 on its list of 2007's Top 10 Worst Business Deals.

There is no suggestion that any of Gilmore's actions were illegal or improper. Such a close association through last June with credit markets dependent on the declining home loan industry through last summer, however, reflects a "naivete" about finance, money manager Axel Merk said.

"If he wanted to have a political career, I probably would have found a way out of it," said Merk, who owns his own investment firm in Palo Alto, Calif.

"It only shows naivete if you didn't fully understand what this was about," Merk said. "But he is not the only naive person who got fooled by thinking that this is something reasonable to do."

Gilmore remains chairman of Everquest, a private corporation whose CEO, Michael J. Levitt, said generated about $100 million in revenue for about a dozen shareholders last year. The Bear Stearns-managed hedge funds no longer own a majority share of the company.

Gilmore said Tuesday there was no way to predict the subprime home loan industry crisis and its effect on financial markets when he joined Everquest's board in November 2006.

By the time Everquest dropped its plans for a public stock offering, Gilmore said, Everquest grasped the potential for disaster and responded appropriately.

"There's nothing naive about this. To the extent that all of this went down, it was in the portfolio, but it's not the only thing that was in the portfolio, and we've weathered the storm pretty well so far," Gilmore said.

Democrats and even some Republicans criticized Gilmore in 2001, during the final year of his term as governor, for his handling of state finances as a weak economy began eating away at government revenues.

By 2003, Gilmore's Democratic successor, Mark Warner, set the revenue shortfall at $6 billion, and the following year, Warner pushed a $1.4 billion-per-year tax increase through a Republican legislature.

Gilmore is in a contentious battle with Del. Robert G. Marshall, the General Assembly's foremost abortion and gay-rights foe, for the GOP nomination to succeed retiring Sen. John W. Warner.

The Republican nominee in November will face former Gov. Mark Warner, who is unchallenged for the Democratic nomination and unrelated to John Warner.