Maryland's technology development arm created a three-member advisory committee to provide investment advice for a state venture fund without creating adequate polices to prevent conflicts of interest, and the firms of two members of the committee received more than $21 million through the Maryland Venture Fund, according to a state audit released Friday.
The report on the Maryland Technology Development Corporation covers a period from January 2015 to April 2018. TEDCO was created in 1998 by the state to commercialize technology developed at Maryland universities, the private sector and federal laboratories.
"Our review disclosed that two of the three committee members were associated with venture firms that received approximately $21.3 million in funding through the MVF, according to TEDCO's records," the report by the Office of Legislative Audits said.
The audit noted that TEDCO had not established any policies or procedures governing this committee.
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"Specifically, committee members were not required to be independent, or file financial disclosure statements with the State Ethics Commission, as is required of TEDCO investment employees," the audit said. "Furthermore, TEDCO had not established a formal conflict of interest policy for the majority of the MVF's investment initiatives and programs and had no procedure to review Financial Disclosure Statements that were filed by its investment employees.
In a response included in the audit, TEDCO said its board of directors created a committee of TEDCO board directors in December to provide investment oversight. The panel will provide advice and consult with TEDCO in connection with the administration of investment programs. TEDCO also said all three members will file yearly financial disclosure statements with the State Ethics Commission and meet quarterly with TEDCO to review investments. TEDCO also said the committee will replace the Maryland Venture Fund Authority, which is now defunct.
"We met after the first round with our auditors, we met with them face-to-face, and they gave us pretty good assurances that what we were doing would satisfy the audit," said George Davis, who became TEDCO's CEO at the end of 2017.
The audit does not mention the names of the committee members or the firms. TEDCO is governed by a 15-member board of directors, which includes the Secretary of the Department of Commerce.
Auditors also found that TEDCO had not adopted regulations for direct equity investments through the venture fund as required by law, and documentation was lacking to support how certain investments promoted economic development in the state. Auditors did a test of 10 direct investments related to seven companies for a total of about $8.5 million made from May 2016 to January 2018. The audit found that six of those investments, relating to four of the seven companies for a total of $4.7 million, were not in Maryland at the time of the investment or didn't remain in Maryland after the investment, as required.
TEDCO responded in the audit that it drafted regulations for direct equity investments through the fund, and it anticipates finalizing those recommendations in April.