By RON AIKEN
UPDATE: The SCRA today, Feb. 25, announced that CEO Bill Mahoney will be “leaving SCRA to return to the private sector after 11 years of service.” The release did not say what position Mahoney was leaving to take or announce a successor, only that the “Board of Trustees’ Executive Committee is working closely with SCRA’s Management Team to effect the transition.” Yesterday, The Nerve contacted SCRA spokesperson Micki MacNaughton and she confirmed Mahoney’s employment status and said there were no plans she knew of for him to resign.
Other sources The Nerve contacted for this story included USC President Harris Pastides, a member of SCRA’s board of trustees executive committee, and former Gov. Jim Hodges, a member of the SCRA’s Strategic Advisory Group. Neither mentioned Mahoney’s leaving or plans to leave when asked. Pastides declined to comment for this story, saying he was “not in the loop on SCRA matters.”
Agency makes, spends millions out of state
The South Carolina Research Authority has had more than a billion dollars in revenue since 2010, has amassed $65 million in net assets and has $6 million in real estate holdings across the state – not bad for a state agency that operates tax-free as a public charity with a mandate to serve the citizens of South Carolina.
With so much money to spend, how much does the SCRA spend and where does it go? Primarily out of state, according to former employees and financial records obtained by The Nerve. What’s more, critics charge SCRA’s top leadership with a lack of will when it comes to returning that money to the taxpayers, as its enabling legislation establishes.
They say rather than return money from its loaded coffers to help fund broad, statewide initiatives, the SCRA works for itself, hoarding cash – $41 million in unrestricted cash in FY 2015-16 – and engaging in questionable accounting tactics that raise questions of whether and how well the agency serves the public whose money created it.
‘THERE’S SOMETHING GOING ON OVER THERE’
Before being appointed to the board by former Gov. Mark Sanford, Bill Masters built the largest kayak company in the world, holds the first patent in 3-D printing, and is a former chairman of the Charlotte Federal Reserve Bank Board.
“When Mark put me in charge, he said ‘There’s something going on over there (at SCRA), go in and fix it,'” Masters said. “And I tried to. I found accounting practices that weren’t quite kosher. Like the land next to the (USC football) stadium was donated to SCRA at a really low rate, and we took it in as income when we should have taken it in an asset. That’s not proper accounting.
“That was the day when (SCRA CEO) Bill Mahoney and I went at it. I said ‘You’re not reporting that money correctly,’ and we went toe to toe and our noses were about two inches apart. His nose was two inches from mine and he threatened to sue me personally.”
An SCRA employee in the room at the time the incident occurred and who asked not to be identified said it took everyone by surprise.
“It was incredibly tense,” the source said. “It was a full room. I’ve never seen anything like that at a professional board meeting.”
Masters said following the incident his access to financial information was limited.
“After that I was not allowed to talk to our CFO alone,” Masters said. “Mahoney commanded another director and the CFO (Julia Martin) that if I requested info, (Martin) had to tell Mahoney and then he had to be there. So of course I kept digging trying to find out where money was.”
The money was in SCRA and its spinoff company ATI, as The Nerve reported earlier this month. With operating expenses of $435 milion in FY 2015-16, according to financial documents obtained through a Freedom of Information Act request, SCRA’s consortium management business and the percentage it takes from those deals has built up a massive nest egg of $65 million since the agency began in 1983 with $500,000 of taxpayer money.
Not counting the SC Launch program begun in 2006 that raises its own funds independently through tax donations it distributes to start-ups, the vast amounts of SCRA money – $1.5 billion in revenues since 2010 and counting – start out of state, pass through SCRA, which takes its 1- to 2-percent fee, then go right back out to places like Washington, D.C, Pennsylvania and Ohio to defense contractors and related industries.
“Ninety percent of the money does not stay in South Carolina,” Masters said. “It simply flows through, going in one door and out the other.
“SCRA takes its cut, keeps it and that’s it. The state thinks this money is coming into South Carolina. It’s not, and we need to come clean with the people of South Carolina. I told Bill (Mahoney) that. The taxpayers are at risk when SCRA manages a big consortium contract because they’re on the hook for it, but they don’t see the reward.”
‘DARKEST TIME OF MY LIFE’
It was precisely that lack of financial accountability to South Carolina that led to the creation of SC Launch in the first place, said Masters, whose first role with SCRA was as director of SC Launch from 2006-2007. With recurring funds of $6 million, SC Launch funds technology-based startups across South Carolina with a focus toward commercializing university research.
It began with $12 million taken from SCRA coffers but now is entirely funded through donations treated as dollar-for-dollar tax credits thanks to the passage by the state legislature of the Industry Partners Act of 2006.
“SC Launch started when Gov. Sanford was going around state government looking at who had money because he was determined to put it back in coffers of the state,” said Masters. “He found a tremendous amount of money in SCRA, and to get him off their back they created SC Launch. It was given $12 million of SCRA money to start it up, with the thinking on the part of leadership that ‘if we give you $12 million, you won’t make us get too deep in the rest of our money.’
“Twelve million is nothing when you have hundreds of millions of dollars at stake, and they got the legislature to give them a way to raise that going forward.”
Masters alleges that $6 million doesn’t go just to South Carolina start-ups, either, but gets divvied up into different pots.
“Two million goes to overhead of the SCRA, $2 million gets back-channeled to the universities, and another $2 million goes to the start-ups. That’s how the game gets played.”
Confronted with more ethical dilemmas than he cares to recount and a hostile relationship with Mahoney, Masters resigned from the SCRA board in 2011, having served as chairman since 2009.
“Just to give you an idea of the work environment, (Mahoney) would do stuff like send me the pre-agenda with notes, then walk into the board meeting and have changed everything without telling me,” Masters said. “I’d have no idea what was going on and have incorrect information and look like an idiot because he’d given other people the updated briefings. That was a common trick.
“It was the worst, darkest period of my life. I left because it became an ethical problem for me to work there, and when I left I said I would never come back under any circumstances.”
Now retired and active teaching executive forums to entrepreneurs, Masters said his regrets are that SCRA hasn’t become what it could have.
“I wanted SC Launch and the SCRA to be a star that led South Carolina into the future of technology,” Masters said. “We could have done it and with high integrity, but (Mahoney and I) didn’t toe the same line.”
Mahoney has not responded to repeated interview requests from The Nerve.
Reach Aiken at firstname.lastname@example.org or call him at 803-254-4411. Follow him on Twitter @RonAiken and @TheNerveSC.