Saturday, October 30, 2010

"It looks very suspicious...and the fact you have state officials involved ... it just becomes this very incestuous set of transactions."

Perry donor's daughter got $70,000 to promote governor's technology fund


The Dallas Morning News
Copyright 2010

A company run by the daughter of a big-money donor and former adviser to Gov. Rick Perry was paid nearly $70,000 to promote the governor's Emerging Technology Fund, The Dallas Morning News has learned.

Perry spokeswoman Katherine Cesinger confirmed that Verve Public Relations Inc. of California was paid to do promotional work for TexasOne. The nonprofit program, affiliated with the governor's economic development office, was created to entice companies to move to Texas.

Verve is operated by Christiane "CJ" Nance, the 33-year-old daughter of David G. Nance, an entrepreneur and Perry donor whose company received a $4.5 million tech fund award in August. David Nance is a former member of the Perry-appointed advisory committee that recommends awards from the tech fund.

Verve's work included producing videos that promoted tech fund recipients. It was covered by a $100,000 donation from a company run by David Nance, the governor's office said. "No tax dollars were used for the project," Cesinger said.

It is not clear who directed the hiring of Verve. CJ Nance – described in an online résumé as an advertising graduate of SMU – did not respond to several requests for additional information. No one from TexasOne would respond to questions from The News.

It does not appear that any laws were violated. But a nonprofit tax expert told The News that such directed transactions can have serious consequences with the IRS.

"It's highly unusual, and it looks very suspicious," said James P. Joseph, an adviser to the IRS who heads the tax-exempt practice at Arnold & Porter LLP in Washington D.C.

If a donor contributes money to be used as an "earmarked grant to pay your child, that's the definition of an insider transaction," Joseph said. Nance could also face questions from the IRS if he claimed the donation on his tax return, he said.

"It's a real minefield," Joseph said. "And the fact you have state officials involved ... it just becomes this very incestuous set of transactions."

Perry, a Republican, is seeking a record third full term in next week's gubernatorial election against Democrat Bill White.

The governor's spokeswoman said the donation that covered CJ Nance's work came from Developtech Resources Corp. of Austin. David Nance is Developtech's president and chief executive officer, according to U.S. Securities and Exchange Commission filings.

"David Nance made this contribution for the sole purpose of covering costs associated with Verve's promotional materials for the Texas Emerging Technology Fund," Cesinger wrote in an e-mail to the paper.

Since 2000, Nance has contributed $80,000 to the Perry campaign. Developtech also donated $50,000 to the Republican Governors Association while Perry was the group's chairman in 2008. The company contributed another $50,000 to the association in the year before Perry was elected chairman.

The News reported on Oct. 13 that Convergen Lifesciences Inc., a biotech company owned by David Nance, received its $4.5 million tech fund award despite failing to obtain the necessary recommendation from a regional screening board. Perry recently said he's had a close personal relationship with David Nance for 15 years.

But the governor has denied that the award to Convergen violated procedural rules or was the result of favoritism. Convergen was approved for a tech fund award, he said, because it showed promise toward finding a cure for cancer.

In all, more than $16 million in tech fund awards have gone to startup companies whose officers or investors were large Perry donors, The News found. Perry's office administers the tech fund, but awards must also be approved by the speaker of the House and the lieutenant governor.

The revelation that Nance's daughter was paid for work related to the tech fund underscores the need for reform, said a lawmaker who heads the fund's legislative oversight committee.

"This just reinforces my comment that the ETF needs to be put under different management with more transparency, more accountability and better monitoring," said Rep. Mark Strama, D-Austin, chairman of the House technology committee.

According to business records filed with the Texas secretary of state, Verve began doing business in Texas in February 2007. The company incorporated in California in 2009 and no longer has a charter in Texas.

Verve's website lists a business address in Santa Monica that is the same as an apartment listed to CJ Nance, who describes herself in online postings as a public relations professional, fashion blogger and event planner.

The company's portfolio, listed on its website, includes six recipients of tech fund awards made in 2006 while David Nance was on its advisory committee. He was appointed in August 2005 and replaced in February 2007.

Cesinger declined to answer questions from The News about who paid CJ Nance. She did not respond to a request for records associated with the $68,917 payment to Verve.

TexasOne was started by Perry in 2003, under the auspices of the nonprofit Texas Economic Development Corp., to lure out-of-state businesses. Staff members from the governor's office do work for, and have received pay from, TexasOne.

Perry's chief of staff, Ray Sullivan, and the director of his economic development division, Aaron Demerson, are ex-officio directors of TexasOne. Other directors, all appointed by Perry, include some of his largest campaign donors.

David Nance's now-bankrupt pharmaceutical company, Introgen Therapeutics Inc., pledged to donate $150,000 to TexasOne. Bankruptcy court filings list a $50,000 claim owed to the governor's economic development corporation.

David Spencer, a former chairman of the Emerging Technology Fund advisory committee, is quoted on the Verve website as saying, "CJ is a sharp cookie," and praising the company for "showcasing the ETF's diverse portfolio of high-tech companies to our legislators and international investors."

T.J. Wainerdi, an executive of one tech fund recipient, told The News that the young woman who interviewed him for a video went by "CJ." He said he remembered her because of the similarity to his own name.

"She was out of California. She was a blond girl," said Wainerdi. His Houston firm, Carbon Nanotechnologies Inc., received $975,000 for research on fuel cell technology that could power the next generation of portable and wireless electronic devices.

Other tech fund recipients featured in TexasOne videos said the interviews were arranged by the governor's office.

"Obviously, somebody had found her in the governor's office, and they contracted with her to use her," said Ruben G. Zamorano, president of Diabetica Solutions Inc., a San Antonio-based biotech company

Diabetica Solutions, formerly known as Xilas Medical, was awarded $1 million from the tech fund in 2006 to help commercialize a device designed to detect conditions in diabetics that can lead to amputation.;;

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