Thursday, October 16, 2008

"I didn't even know we had contracts with the state of Texas."

Police camera maker is profitable for politicians

Oct. 16, 2008

Associated Press
Copyright 2008

AUSTIN, Texas — WatchGuard Video, which provides patrol car cameras to state and local police forces across the nation, points with pride to the lawmakers who helped the company grow from a tiny technology startup into a government contracting powerhouse.

And at least two of the lawmakers turned a profit in the process — after the state police began ordering millions of dollars worth of equipment and expanding far outside Texas, interviews and state records show.

Two Texas legislators who made early investments in the booming company said they'd done nothing wrong and never pulled strings on behalf of WatchGuard. But their actions might violate the state constitution and disclosure rules established by the Texas Ethics Commission.

A former Texas legislator and part-time city judge are also investors, the company says.

Government watchdogs say it's an ethical minefield for state lawmakers to have interests in companies with major state contracts.

"When the state representatives are involved it appears like they're greasing the skids with the contract," said Texas ethics watchdog Fred Lewis, who has urged the Legislature to tighten conflict-of-interest laws. "I'm not saying that's what happened, but that's what it looks like."

The state constitution prohibits lawmakers from benefiting "directly or indirectly" from a state contract authorized by the Legislature they serve in, but it doesn't say what happens to lawmakers who violate the provision.

The company president, Robert Vanman, called WatchGuard "squeaky clean" and said he resented any suggestion that the contractor had engaged in any "shady" dealings. The company has deals to sell patrol car video systems to at least a dozen state law enforcement agencies — and hundreds of local ones, according to company literature and state records.

If WatchGuard is an industry leader, Vanman said, it's because of its products, not because of political influence.

But WatchGuard's own Web site touted the company's politically connected shareholders in the first place. A published company profile boasts that WatchGuard, based in the Dallas suburb of Plano, is "privately funded and closely held by an influential shareholder group that includes three state representatives, a judge, and a number of distinguished entrepreneurs."

It doesn't name the politician-investors on the Web site, but Vanman did. They are Reps. Ken Paxton, R-McKinney, Byron Cook, R-Corsicana and former Rep. Bob Griggs, a Dallas-area Republican. WatchGuard's vice president of operations, Dennis Pirkle, is a part-time city judge and jail magistrate, according to company literature.

Cook and Paxton made early investments in WatchGuard Video and Cook sat on the company's board. Founded in 2002, the company grew just as the industry was undergoing a transformation: Digital technology began to replace older-generation analog systems and cameras were quickly becoming a must-have tool for police vehicles across the nation.

But it was the Texas Department of Public Safety contract in late 2006 that gave WatchGuard its biggest financial boost. Eventually the entire fleet of trooper vehicles in Texas will use WatchGuard camera systems, bringing the company $10 million, Vanman said. WatchGuard also landed a smaller contract for the Texas Parks and Wildlife Department this year.

Both Paxton and Cook voted for the appropriations bills that provided the funds used to purchase the WatchGuard systems, records show.

Paxton and Cook have previously disclosed ownership in Enforcement Video, L.P., (more recently known as Enforcement Video, LLC), the registered company name for WatchGuard Video. But records show Paxton did not disclose his ownership in WatchGuard on his 2008 Personal Financial Statement filed with the Texas Ethics Commission.

Last month, California picked WatchGuard to provide $5.3 million worth of patrol car video systems, but the contract is on hold while two competitors dispute the award, officials said. Illinois, Virginia, North Carolina and several other states also have ordered WatchGuard for state patrol cars, the company says.

WatchGuard is best known for producing in-car systems that record video directly onto DVDs that can be viewed on standard DVD players.

In April, WatchGuard said its net earnings increased 250 percent from the previous year after sales doubled two years in a row. About three months later, just as the company's revenues were blossoming, Paxton and Cook sold a piece of the company for an undisclosed profit, officials said.

Just how big a role the legislator-investors played in WatchGuard before they cashed out much of their stake this summer — or how much they earned from the partial sell-off — isn't clear. Cook and Paxton, who still own a small share of the company, both described themselves as minor, passive investors with zero impact on the direction of the company.

"I didn't even know we had contracts with the state of Texas," Paxton said.

However, CEO Vanman said Paxton was a personal friend and original investor whose ownership was "not insignificant." And Vanman said that Cook, until a few months ago, was "very active on our board" and had been one of the company's largest investors, ranking third or fourth among about 30 individuals.

"Our shareholders . . . certainly do have an impact on the direction and culture of the company," Vanman said.

Lawmakers must list any company board positions with the ethics commission. Cook acknowledged he did not disclose any WatchGuard board positions, but he said he had served only on an informal company "advisory board" that met just once and didn't qualify as a decision-making board of directors.

He also downplayed the size of the Texas contract, saying $10 million was "like a flea on an elephant" in a Texas budget that numbers in the tens of billions of dollars annually.

But Jennifer Peebles of Texas Watchdog, a non-partisan group that promotes government transparency and curbs on conflicts of interest, said $10 million means a lot to "one little company in Plano, Texas." She also said lawmakers should be required by law to disclose whether any of the businesses they invest in have state contracts.

Paxton said he would happily correct any disclosure failures, but he balked at Peebles' idea of requiring lawmakers to list any business interests that might intersect with government contracting work.

"I don't see why it would help taxpayers to know that," Paxton said. "I don't have time to spend tracking every investment I make ... that's the whole point of being a passive investor."


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