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Lawmakers urge conflict of interest protections in venture capital plan [Milwaukee Journal Sentinel]
[December 11, 2012]

Lawmakers urge conflict of interest protections in venture capital plan [Milwaukee Journal Sentinel]

(Milwaukee Journal Sentinel (WI) Via Acquire Media NewsEdge) Dec. 12--MADISON -- A venture capital proposal seeking tens of millions in state taxpayer dollars should rule out political conflicts of interest such as the potential conflict raised in a similar, but smaller state program, a group of lawmakers on both sides of the proposal said.

Sen. Tim Cullen (D-Janesville) and other legislators were reacting to a Journal Sentinel report on Sunday that financier Stephen Einhorn and his wife donated $25,000 to Gov. Scott Walker a month before Einhorn's Milwaukee firm won a contract to manage $1 million of taxpayer money, potentially triggering federal "pay-to-play" conflict of interest rules.

Einhorn's Capital Midwest and two other companies won awards late last year from the Wisconsin Housing and Economic Development Authority under a limited $7 million program funded with federal money, and Einhorn has lobbied lawmakers as they and Walker consider a much larger program of up to $200 million over several years funded with state money.

Cullen, a venture capital supporter who held a hearing on a state initiative in the fall, said it would be a "no-brainer" to require firms participating in a future program to have a policy on conflicts of interest and political donations. Some firms already do.

"My number one requirement is that there be a firewall from politics," Cullen said of the proposal. An official for the Wisconsin Economic Development Corp., a different state agency taking the lead on the larger venture capital proposal, said it's looking at the question.

"We are reviewing the issue and will make sure anything in proposed early stage capital legislation and fund management is consistent with the law," said Ryan Murray, chief operating officer for the WEDC.

In the meantime, Cullen said he hoped that lawmakers writing the venture capital legislation would keep their distance from Einhorn, who with his son, Daniel, has registered with the state to lobby on the bill.

Einhorn also hired an experienced contract lobbyist, Eric Petersen, from August 2011 to June. Cullen said Einhorn sought a private meeting with him, but he asked Einhorn to testify at a public hearing on the issue instead.

"We should put the legislation together without Stephen Einhorn's input," Cullen said. "He's around all the time on this issue while he claims he's not interesting in participating in the (future) program." Tracey Mendrek, a spokeswoman at Einhorn's Chicago public relations firm, said the best way to avoid conflicts of interest was to hire an independent fund of funds manager.

"We favor any reasonable conflict of interest policy within that legislation," Mendrek said in a statement.

Under his agreement with WHEDA, Einhorn is supposed to invest $333,000 -- one-third of the $1 million -- by Dec. 31.

However, a WHEDA official said the agency is now holding off on releasing the money to Capital Midwest until the firm resolves questions about whether it triggered a U.S. Securities and Exchange Commission rule prohibiting fund managers from receiving compensation from a government entity within two years after making a donation to a government official who can influence that agency.

Walker appoints WHEDA's executive director and a majority of its board.

Einhorn has said his contract complies with the SEC rule, and he and WHEDA officials have said the contract award was free from political influence.

Sen. Glenn Grothman (R-West Bend), a frequent critic of venture capital programs who sits on the WHEDA board, called the Journal Sentinel report "very interesting" and said he would look into it further.

Supporters of venture capital legislation say it's badly needed to boost business start-ups and job creation in Wisconsin. But Assembly and Senate Republicans failed to agree on a bill last session. Supporters of the legislation want to give it a better chance next year by having it included in Walker's budget proposal, a move that lawmakers of both parties, including Cullen and Grothman, have said could make it difficult to change a flawed proposal.

Sen. Peter Barca of Kenosha and Rep. Chris Larson of Milwaukee, the Democratic leaders of the Senate and Assembly, said a venture capital bill would need to prohibit contracts from being awarded to big campaign contributors.

To do that, Barca said, lawmakers should consider passing an SEC style rule at the state level.

___ (c)2012 the Milwaukee Journal Sentinel Visit the Milwaukee Journal Sentinel at Distributed by MCT Information Services

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