A state-funded contractor's political campaign contributions and the investment of state tax dollars in firms outside of Maryland came in for sharp criticism in a state audit report released yesterday.
The contractor, MSBDFA Management Group (MMG), manages state small-business loan programs for disadvantaged, minority-owned firms under a $1 million-a-year contract with the Department of Business and Economic Development (DBED). MMG Ventures, a sister company, runs a separate venture capital fund.
MMG President Stanley W. Tucker was reportedly out of the office yesterday and could not be reached for comment, but DBED disputed many of the findings in its written response to the legislative audit.
Many of the problems cited by the auditors were outlined in previous reports in The Sun. Among them, auditors said MMG "appears to have violated state election law" by
making more political contributions than allowed during a four-year election cycle. A violation would be a misdemeanor offense.
Auditors said MMG contributed $21,000 to candidates for state pTC and local offices between February 1995 and May 1998 -- just over twice the $10,000 allowable limit on corporate contributions to such individuals.
Auditors said the matter was referred to State Prosecutor Stephen Montanarelli's office for investigation. "We're in the process of making an inquiry," Montanarelli said yesterday. "I can't tell you how long it's going to take."
In an interview in August, Tucker acknowledged that MMG had contributed more than allowed, but said it was "an honest mistake." He said he had thought the limit on corporate contributions was $10,000 per year, not for a four-year election cycle.
Robert F. Dashiell, MMG's attorney, said he immediately informed the Baltimore state's attorney after he was made aware of the violation in June, explaining it was a mistake and outlining steps the company was taking to correct it.
Dashiell said the state's attorney decided to refer the matter to Montanarelli's office and that he has heard little further about it since then.
Dashiell said the company has written to candidates asking that they refund contributions that exceeded the limits. He also said MMG has adopted a new policy to "refrain from making any [corporate] political contributions" to state and local political candidates in the future.
While acknowledging that it is legal for MMG to make campaign contributions, auditors noted the company gets all of its funding from the state. It recommended DBED amend the contract to prohibit the company from using that money to make campaign contributions.
The out-of-state investments by MMG Ventures also drew fire from auditors.
The state put up $9.75 million to fund the private investment company in 1996. But as of late September, only $3.7 million had been put to work, and more than half of that -- $2.25 million -- had gone to two companies in California and Texas.
"The use of state economic development funds in this manner is contrary to [DBED's] mission to foster economic development in Maryland," auditors wrote. They recommended DBED get a commitment from the company to invest in Maryland-based firms.
In its response, DBED said that, when the venture capital fund was created, it was fully disclosed to legislators that the company's investments could not be restricted solely to Maryland companies.
MMG Ventures could not have been licensed by the U.S. Small Business Administration to take part in a program that provides federal funds for venture capital firms if such a restriction were imposed by the state, DBED officials said.
While MMG Ventures has not yet started drawing funds under the program, federal officials announced recently that they would make $7 million available to the company in the next five years.
Several legislators said in September that they were upset about MMG Ventures using state tax dollars to invest in businesses in other states, such as those the company made in a California firm that owns a network of Spanish-language radio stations and in a food processing business near Dallas.
Tucker has said he invested in the out-of-state companies because they promised a good return on the investment, which would help keep the fund healthy. He also said it would help the company build a track record so it could start drawing federal funds.
The audit report, which also raises other questions about the performance of Tucker's business and the amount it is paid by the state, is to be discussed at a meeting of the Joint Legislative Audit Committee Tuesday.
Pub Date: 12/19/98