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SCRA Extends Tentacles into High Finance

 

The S.C. Research Authority likes to play up its reputation for applying research to commercial uses. That, even though it often acts as a general contractor, winning projects and then bringing in subcontractors and other partners to handle work.

The Research Authority isn’t content with being just a state-created and state-controlled technology and real estate entity, however.

High finance would also appear to be one of its growing areas of concentration, even though South Carolina has an abundance of banks and other lenders. At least, that’s what one could gather from the agency’s most recent gathering of trustees.

At SCRA’s April 21 board meeting, trustees agreed to lend up to $425,000 to a pair of companies still in the early stages of development.

Trustees approved a $150,000 bridge loan to an entity called IT-oLogy, which is a consortium of companies, including some of the largest in the nation such as Bank of America, IBM and SCANA.

SCRA also OK’d a bridge loan of up to $275,000 to Proterra, the electric bus manufacturer in the Upstate that was blindsided recently when a major investor pleaded guilty to fraud.

Representatives for IT-oLogy and Proterra did not return inquiries from The Nerve for this story. SCRA Chief Executive Bill Mahoney also did not respond to calls seeking more information.

State Sen. Tom Davis, R-Beaufort, said SCRA wasn’t set up to hand out loans.

"We don't want government agencies getting into the business of lending money," he said. "It puts taxpayer money at risk, and is beyond the proper role of government."

Former SCRA Chairman Bill Masters said the Research Authority was not only not designed to lend money, it could well be violating the state constitution, depending on how the loans are repaid.

Masters said he believes the loans made by SCRA are "convertible," meaning SCRA can allow the borrowers to repay them with interest or instead covert the amount into stock in the companies.

Under the South Carolina constitution, state agencies are prohibited from owning stock in companies, which is why SCRA affiliate SC Launch was set up, Masters said.

"There’s no doubt SCRA shouldn’t be doing this. They’re crossing boundaries they shouldn’t be," he said. "Under the state constitution SC Launch should be doing this."

High Finance, Low Accountability

A bridge loan is interim financing that tides a business over until the next stage of financing kicks in.

Mahoney said during the board meeting that the loan to IT-oLogy would help the entity "cover timing shortfalls."

The loan would be for 90 days at 13 percent interest and would be secured by IT-oLogy’s receivables, he said.

Mahoney said during the board meeting that SCRA might be able to split the loan because both SCRA and IT-oLogy use the same banker, Susan Amick of Wells Fargo.

IT-oLogy, located in opulent digs in the Wilbur Smith Building across from the State House in Columbia, was set up by BlueCross, IBM and the University of South Carolina as a collaboration to grow information technology talent and nurture IT management expertise.

Since its inception in late 2008, a number of other companies and universities have joined the consortium.

IT-oLogy occupies parts of two floors and its space has been described as a "state-of-the-art facility," which includes an IBM System Z mainframe, computer labs for hands-on and distance learning, integrated audiovisual equipment, a 200-seat theater, space for software development and open-source development labs.

Its self-described mission is to entice kids to go into the information technology field.

According to a 2009 press release put out by the consortium, the entity was originally to be housed in Innovista’s Horizon II building.

However, Horizon II never got off the ground because the private aspect of Innovista’s "public-private" partnership died on the vine. The two publicly financed buildings haven’t been completed, although some $135 million in taxpayer dollars have gone into the project.

Regarding Proterra, SCRA trustees agreed to provide up to $275,000, broken up into two rounds. It’s believed the interest rate would be 15 percent and the length of the loans would be 45 days.

Proterra said last month it had signed a term sheet for $30 million in new investment, and it anticipates money beginning to arrive in a little more than a month.

Company officials have been waiting on approval from a receiver in the federal case of an earlier Proterra investor who had pleaded guilty to fraud, according to the Greenville News.

Court documents allege Francisco Illarramendi, a former adviser to Venezuela’s national oil company, was trying to produce gains that would conceal earlier fraudulent activity as part of a huge Ponzi scheme.

Illarramendi pleaded guilty last month to two counts of wire fraud and one count each of securities fraud, investment adviser fraud and conspiracy to obstruct justice, according to court documents, the News reported.

Not the First Time

The loans to IT-oLogy and Proterra aren’t the first time SCRA has played the role of banker.

Mahoney said during the most recent board meeting that the agency previously provided portable power-generating company Trulite with a bridge loan "a couple of years ago," though he provided no details.

SCRA is a key player in South Carolina’s state-driven "knowledge economy" development plan, laid out in a July 2008 press conference that featured S.C. House Speaker Bobby Harrell, R-Charleston, other legislative leaders and business executives.

SCRA has come under increasing scrutiny over the past couple of years for an alleged lack of openness and accountability.

Masters, the former chairman, was appointed by former Gov. Mark Sanford in 2009 to make the agency more transparent, but was met with resistance from executives and many other board members.

He resigned as chairman in March, citing in a letter to Gov. Nikki Haley several troubling allegations, including:

  • That the Research Authority is run mostly for the benefit of top management;
  • It manipulates government contracts and data to pass audits; and
  • Board trustees are allowed to have input into issues and decisions from which they benefit without having to disclose their affiliations.

Masters has also questioned the veracity of data provided by SCRA top management to board trustees, high management salaries and whether the agency funds jobs that go to other states.

Last month’s meeting was the first under new SCRA Chairman Marco Cavazzoni, vice president and general manager of final assembly and delivery for Boeing South Carolina.

Cavazzoni and Mt. Pleasant resident Paul Meeks were appointed to the board by Haley, replacing Masters and Albert J. Baciocco Jr.

Cavazzoni’s first meeting as chairman would appear to have violated South Carolina’s open-meeting laws, though in fairness to the new appointee, it was Mahoney who led the session.

During the two-plus hours that the Research Authority’s board was gathered, approximately 80 percent of the time was spent in executive session, meaning it was closed to the public and media.

SCRA officials also failed to provide sufficient detail regarding the closed-door session, a violation of the S.C. Freedom of Information Act.

Executives failed to state with specificity what was going to be done in either of the two executive sessions.

In addition, the board failed to spell out the substance of what took place in the executive sessions, another violation of the state’s open-meeting law.

SCRA officials have attempted to style the agency as a stand-alone entity, one that operates beyond state assistance, but that’s not entirely true.

It was started in 1983 with $500,000 and 1,400 acres of land, and has received additional land grants since then.

In addition, SC Launch gets funding from the state’s Industry Partners Fund. Donations to the fund are good for a 100 percent, dollar-for-dollar credit against state taxes.

SC Launch reached its $6 million maximum funding level through the Industry Partners Fund earlier this month, Mahoney said during the board meeting.

Reach Dietrich at (803) 779-5022 ext 110 or at kevin@thenerve.org


 

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