Wednesday, October 13, 2010

MORE taxpayer dollars funneled to Rick Perry campaign donors. Surprised?---NOT

Perry donor's start-up firm got $4.5M without regional board's OK


The Dallas Morning News
Copyright 2010

Gov. Rick Perry approved a $4.5 million award from the state's technology fund to a company founded by a major campaign donor despite the company's failure to win the endorsement of a regional screening board, The Dallas Morning News has learned.

The money was awarded in August to Convergen Lifesciences Inc., founded by Perry contributor David G. Nance. Convergen was allowed to bypass a key part of the Texas Emerging Technology Fund's extensive process for vetting applications, and to proceed for approval to a statewide advisory board appointed by Perry.

A spokeswoman for Perry said Tuesday that the money was properly awarded to Convergen because the law establishing the tech fund allows applicants to appeal decisions by regional reviewers.

However, the law makes no mention of such appeals.

The chairman of the regional board in Houston, one of the state's largest, told The News he had never heard of an appeals process. Walter Ulrich, also a former member of the tech fund's statewide advisory committee, said approval by regional boards is mandatory.

"It cannot go to the state without our board's approval," he said. "I've never seen that happen."

Walt Trybula, a nanotechnology expert at Texas State University who reviews tech fund applications for the Austin regional board, said the ability to appeal would undermine the process.

"If you've got a way to go around a review committee," he said, "why do you have a review committee?"

And the chairman of the state House committee that oversees the tech fund said the "extraordinary" process that awarded the money to Nance's firm shows that reforms are needed. "This is the most troubling case that I've seen come through" on the fund, said Rep. Mark Strama, D-Austin.

Taxpayer dollars

The tech fund, which invests taxpayers' dollars in promising start-up firms, is administered by the governor's office. The legislature created it in 2005 at Perry's direction. So far, $173 million has been given to 120 companies, with an additional $161 million going to universities.

The fund is a pillar of the economic development program that Perry routinely cites as one of the proudest accomplishments of his nine years as governor. He is running for re-election against Democrat Bill White.

The News reported this month that more than $16 million in tech fund awards have gone to companies whose investors or officers were large campaign donors to Perry. Nance has contributed $80,000 to Perry since 2000, according to Texas Ethics Commission records.

Nance's ties to the governor go beyond campaign contributions. He has taken Perry hunting. Perry's son, Griffin, owned stock in Nance's former biotech company.

Nance, whom the governor has appointed three times to technology commissions, did not respond to telephone calls seeking comment.

Months after his previous biotech company declared bankruptcy, he launched Convergen, which proposes to develop gene-based therapies for lung cancer.

Perry has said repeatedly that tech fund money to Nance's companies – an additional $2 million has been awarded to a nonprofit firm co-founded by Nance – had nothing to do with friendships or contributions.

In addition, Perry and his supporters have said that the tech fund's extensive application process keeps political influences out of awards. Applicants must pass through one of seven regional boards, and then receive approval by the 17-member statewide advisory committee.

After that, Perry must approve the award. The lieutenant governor and House speaker also must OK it.

Neither Lt. Gov. David Dewhurst nor House Speaker Joe Straus would agree to be interviewed about the award to Convergen.

Perry spokeswoman Katherine Cesinger confirmed to The News that Convergen did not receive a favorable recommendation from the regional board in Austin. The application failed to win approval in October 2009, Cesinger wrote in an e-mail, because of "conflicting legal opinions related to an intellectual property matter."

Matt Winkler, who has reviewed life science proposals for the Austin regional board, said he considered Convergen's application as a member of a panel that decided against giving Nance's company a favorable recommendation. "His company did not seem terribly exceptional," he said.

An Austin entrepreneur, Walter Kalmans, said his drug company made a pitch for a tech fund award at the same time as Nance and was not able to proceed beyond the regional level.

At no point, Kalmans said, was he told he could apply directly to the 17-member statewide advisory committee. "I didn't realize an appeal process was possible," he said.

Cesinger said that Nance made his appeal by contacting Alan Kirchhoff, who was then the tech fund's director. Kirchhoff, who is now a private consultant, could not be reached for comment.

Convergen's application came before a subcommittee of the statewide advisory panel. Cesinger said this was allowed by the state law establishing the tech fund. She did not cite a specific section, and the law does not delineate such procedures.

The governor's office said it does not maintain a list of tech fund applicants who have been turned down by regional boards.

'Best deals'

The statewide advisory committee's vice chairman, Bob Pearson, said he saw nothing improper about Convergen being permitted to appeal its failure to win approval.

"We want to make sure we see the best deals, period," he said. "That's it. That's our only criteria. If someone really believes passionately about a deal, there is nothing wrong with [the committee] seeing it."

But he added, "You should not think you can get turned down, and you can just come and show up [at the state committee]. It's not like that. That would be chaos."

Pearson formerly was on the board at Introgen Therapeutics Inc., a pharmaceutical company where Nance was chief executive officer. Introgen declared bankruptcy in 2008.

Because of his prior relationship with Nance, Pearson said he recused himself from the committee's review of Convergen.

He said he has not seen a rule that permits the appeal of a regional board's decision. Pearson said it was an accepted practice but could not recall a case other than Nance's.

Pearson said committee members were aware of legal questions concerning Convergen's intellectual property. Aside from those issues, the Austin regional board told the statewide committee it liked Convergen, he said. "The committee was quite bullish on the company," he said.

Strama, the Austin lawmaker who is chairman of the House Technology, Economic Development and Workforce Committee, became aware of the Convergen application when he was reviewing it for the House speaker.

He said his concerns centered on what he was told were conflicting legal opinions about whether Convergen's intellectual property was protected. He said he was told he could not see the opinions because of attorney-client privilege.

Whether a company has properly protected its intellectual property, or creations, is a critical element of any application because it affects the investment's value.

Pearson said the judge hearing Introgen's bankruptcy ruled sometime after the advisory committee made its recommendation for funding that Convergen had clear title to some of the patents owned previously by Introgen. Cesinger also cited the court order.

Online records show multiple sales of Introgen assets, including patents, authorized by a bankruptcy court judge between August and December 2009. Some assets were claimed as property of a company owned by Rodney Varner, a longtime Nance attorney who was the registered agent for Convergen.

Strama said he was unaware of any court ruling on Convergen's intellectual property rights. He said no one ever cited anything but the dueling legal opinions.

He also disputed a contention by Cesinger that he ultimately recommended to the House speaker that the award to Convergen be approved.

"I just don't know whether the company should have received the grant or not," he said.

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