How the State of Maryland is Losing Millions of Tax Dollars on Bad Investments

(by Jackie Callow)
Maryland Venture Fund report shows 90 percent of invested tax dollars lost 
Almost $7 million invested in now defunct companies

Governor Martin O’Malley’s Maryland Venture Fund is failing on O’Malley’s promises to invest in Maryland through his InvestMaryland plan to the sum of almost $15 million in wasted tax dollars, with the 2016 annual report painting a picture of waste and gross negligence.

Of the InvestMaryland funding provided by the state, one-third is invested in “highly innovative” Maryland businesses perceived to thrive in the state by the Maryland Venture Fund (MVF). Of the 34 businesses that have been invested in since 2012, none have fully realized their investment, despite $16,217,388 being invested over five years. Only 6 have made any return on the State’s investments in any capacity.

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Additionally, according to the Maryland Technology Development Corporation’s yearly report on the MVF, the 2016 fair market value of the investments is less than the 2011-2016 program investments by $2,204,195. Of the over $16 million invested, only $1,312,459 has been returned.

Not a single investment has been fully returned since the program kicked off, leaving the state of Maryland out $14,904,924 over five years.

In some cases, the companies let MVF know when they folded. A $350,000 investment from a 2011-2013 investment in Plasmonix was lost when Plasmonix dissolved in 2016, notifying TEDCO and MVF in a memo.

Not only is the fair market value on the investments millions shy, 12 of the 34 companies are valued at $0. The total investment Maryland made in now-failed companies is $6,969,994.

Some Maryland state legislators took an active role in assisting companies in acquiring the state dollars, including Delegate (now-Senator) Brian Feldman who vouched for CytImmune Services, Inc., a company creating clinical medicines. the MVF invested $600,000 into CytImmune without any return on investment over 4 years.

The company and its CEO were located in Feldman’s district before folding. Feldman did not indicate the location in his letter, but did tout that MVF’s leadership on investing in the company led to another $800,000 in additional investments.

Feldman’s letter says CytImmune’s CEO, Dr. Larry Tamarkin, has lined up another $2 million in investments and pleas to Maryland Technology Development Corporation (TEDCO) President and CEO Robert Rosenbaum to allow another round of investments.

The letter was dated June 2, 2015. CytImmune received $100,000 in 2016 in addition to a $200,000 MVF investment in 2014. The company now has no market value as of 2016.

In addition to failed investment CytImmune, Feldman also corresponded with 20/20 Gene Systems, Delegate Brooke Lierman and Senator Gail H. Bates corresponded with Pathsensors, Inc., and Senator Nancy J. King corresponded with 20/20 Gene Systems, Inc. The listed legislators disclosed they vouched for $1.4 million in failed tax dollar investment.

Other legislators did not respond as to how and whether they provided input on MVF investments. MVF head Phillip Jung said in an email there was no document or policies in place to provide selection criteria of how MVF should invest the funds.

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With no policies in place, follow up and research on potential companies to invest in is thin. Frank Dickson, former venture partner at MVF, said they received information on the companies invested in via phone or email. Dickson said MVF did due diligence about employee verification by “reporting the job numbers” and also said there was no criteria for MVF to follow on guiding them on investments.

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6th Street, Inc. was $40,000 behind on taxes in Maryland when the state poured $500,000 into the company now valued at $0.

Zenoss, a multi-state IT company, received an investment of $148,789 in 2013, was tens of thousands behind in taxes to the State of California. Zenoss currently has a market value of $148,789 – coincidentally the same amount Maryland invested.