Posted on 04/14/2005 6:05:09 AM PDT by TaxRelief
RALEIGH -- A fingerprint technology company promoted by State Senate President Pro Tem Marc Basnight received $307,575 from the state's Tobacco Trust Fund, ostensibly in exchange for relocating significant operations to North Carolina, which the company never fulfilled.
After Privaris, Inc. completed a pilot project for the state Division of Motor Vehicles in 2003, company workers vacated their office space at a publicly funded business incubator in Williamston. Despite its failure to create 10 to 15 new jobs as promised in its contract with the Tobacco Trust, Privaris was paid $132,575 in April 2004.
Sources with direct knowledge of the project say Rick Watson, executive director of the state-subsidized North Carolina's Northeast Partnership, is a private investor in Privaris. Watson worked on obtaining funds for the pilot project despite his personal financial stake in the company, creating an apparent conflict of interest. He pressed for the April 2004 payment to be made.
Documents obtained by Carolina Journal demonstrate that employees of the Tobacco Trust Fund Commission and the Martin County Economic Development Commission, which took over administration of the project from Watson, secured documentation to justify issuing the check. Privaris Vice President Steve McDorman wrote a letter for MCEDC's files that promised to "maintain expense report records…for a period of three years from the end of the project."
Documents show that MCEDC President Stan Crowe was assured by Tobacco Trust administrative assistant Amy Bissette that McDorman's letter would satisfy the state auditor if the grant was examined. McDorman's letter triggered the release of the check from the Tobacco Trust to MCEDC, which then immediately paid Privaris.
The company, formerly known as Transforming Technologies, Inc., was promoted by one of its chief investors and board members, Ernest Knighton of Edenton. Knighton lobbied Basnight's chief assistant, Rolf Blizzard, heavily in 2002 to get the DMV to implement a pilot security project, called the North Carolina Hazardous Materials Carrier Authentication Pilot (HAZCAP), using the company's technology.
Blizzard initiated help for the project at DMV, pressuring former Commissioner Carol Howard and Department of Transportation officials to evaluate the technology and to carry out the pilot.
Blizzard is now a lobbyist for North Carolina Citizens for Business and Industry. Transforming Technologies changed its name to Privaris in October 2002.
Knighton sought Blizzard's help in early 2002. In March, Knighton tried to convince Blizzard that because DMV intended in the future to compare driver's license photos to a database to prevent fraud, they should use fingerprint comparisons also.
Part of the negotiations among the company, Blizzard, and DMV included concern about the company's viability, so Knighton tried to demonstrate that enthusiasm for Transforming Technologies existed from other businesses and public agencies. On March 16, company President Bob McKisson notified Blizzard (also Watson and Knighton) that he was discussing a "major technology and marketing partnership" with giant defense contractor Raytheon.
Meanwhile, the initiation of the pilot project went through a series of fits and starts, with periodic nudges from Blizzard to keep it moving. On April 24 Knighton complained to Blizzard that Howard said a decision on the project was four months away. A week later a meeting was scheduled after Blizzard sent to Howard the company's $2.9 million proposal for the project.
Transforming Technologies officials pressed for attention from the NCDMV.
"We need to keep pushing," Knighton wrote to Blizzard and others May 3. But DOT failed to allocate any funding to DMV for the project.
North Carolina's Northeast Partnership submitted a grant application to the Tobacco Trust, seeking $1.5 million of the total $2.9 million budgeted for the project. Listing Watson as the project director, the Northeast Partnership claimed the project would create 50 new jobs, providing opportunities for former tobacco workers "to be employed at higher-skilled, higher-paying jobs." The application said Transforming Technologies might relocate to the northeast region, "resulting in an investment of $10 million and 200 production jobs."
Basnight was cited as a reference on the application.
"If successful," the application said, "the technology will be implemented on a statewide basis with funding from the N.C. General Assembly and other private and public sources."
As the Tobacco Trust considered the grant request, Knighton continued his campaign to create legitimacy surrounding Transforming Technologies, sending out articles to key decision makers to create a "buzz" about its fingerprint technology.
"We have political friends in Boston and the phone calls will start tomorrow morning," Knighton said after sending a Boston Globe article to William Upchurch, the Tobacco Trust Fund Commission's executive director. "You can see we are right on track and that is why the pilot program is so important."
By Oct. 8, 2002 the Tobacco Trust had awarded the Northeast Partnership $350,000 for HAZCAP. But Northeast Partnership officials perceived that getting the project approved by the Information Resources Management Commission quickly was an obstacle. In order to speed the process, Knighton asked Blizzard to intervene so IRMC Executive Director Woody Yates would schedule a presentation. Officials working in the state's information technology areas arranged for the HAZCAP project to be presented before a committee of the IRMC on Nov. 4.
The DOT presentation implied that the project was not initiated by the agency, but by Basnight's office instead.
"Several months ago the [DOT] was approached by the office of a state senator and encouraged to review some new technology…," the DOT Chief Information Officer E.D. Walker said. "Over the last several months, my IT staff and the [DMV commissioner] and her staff have met with the staff of this legislator and of Transforming Technologies to consider the potential of this new technology."
According to a state employee who worked on the project, DOT's information technology leadership was not enthusiastic about adopting the project. The employee said the agency's technology people wanted to wait for federal regulations regarding drivers' license security to be announced before pursuing fingerprint or any other technology.
"They didn't want to look like a fool if it wasn't something the federal government wanted to do," the state employee said. The employee added that Blizzard exerted pressure on DOT to devote resources to HAZCAP.
But Howard, believed the fingerprint technology held promise.
"I was certainly in favor of it and worked hard on it," Howard said.
She admitted there was pressure from Basnight's office, but said that if she didn't think the technology was worth investigating, she would have told Blizzard so.
"We knew that there was big interest in it from Basnight's office," Howard said, adding that for a while she had daily conversations with Blizzard about HAZCAP.
After she left DMV, Howard said she worked for Privaris/Transforming Technologies for a few months as a consultant.
In mid-November 2002, Watson and the Northeast Partnership transferred the Tobacco Trust grant from their oversight to the Martin County Economic Development Corporation. In a letter to the Tobacco Trust, Watson cited Privaris's location at the MCEDC-run Northeast TeleCenter in Williamston as the reason for turning over control of the grant's administration.
"The Northeast Partnership would have been a middleman in the process and to save time, the Northeast Partnership has requested that the [Tobacco Trust] cut out the middleman and grant the money directly to the [MCEDC]...," read the minutes from a Tobacco Trust Commission meeting.
But Watson and the Northeast Partnership continued to be involved in the administration and development of the HAZCAP project despite what the paperwork said. According to correspondence, the Partnership helped MCEDC review the grant contract and made recommendations for changes.
According to the contract drawn up by the Northeast Partnership, the HAZCAP project would "create 10-15 jobs initially…and provide a capital investment of over $10 million." The contract called for MCEDC to monitor results, to be measured by the numbers of jobs created and by capital investment.
Another parallel contract to the Tobacco Trust Grant was signed between the MCEDC, NCDMV, and Privaris, Inc. -- formerly Transforming Technologies. The "memorandum of agreement" among the three entities required Privaris to meet "the established time schedules and milestones as identified in the…Scope of Work." With the agreements all in place, the Tobacco Trust issued a $175,000 check to MCEDC on Jan. 21, which then promptly paid the same amount to Privaris.
A Feb. 24, 2003 Microsoft PowerPoint presentation obtained by CJ, in which Privaris sought a working arrangement with security giant ADT Security Services, showed the company was in an aggressive fund-raising mode. The presentation said the company had raised $4.4 million in private funding through February 2003, and had raised $2.3 million in the previous three months alone. The document also implied that it was using the grant money from the Tobacco Trust to leverage even more interest in Privaris, citing the HAZCAP project as its largest client to date.
Privaris appeared to move into the TeleCenter just in time for MCEDC to leverage their presence request for more funding from public resources. In a letter to Upchurch of the Tobacco Trust, Crowe said "funding is crucial" for expansion of the TeleCenter because "there are several clients that are waiting for…improvements to be completed so they can move from the incubator office space into a larger area."
In a letter to Crowe four days later supporting the TeleCenter expansion, Watson wrote that "it is truly amazing the the TeleCenter is now fully occupied and you have a great need for expansion space for companies currently operating there."
Between July 25 and July 30, three TeleCenter tenants--InterAct Public Safety Systems, DataLink Telecom, and Privaris--wrote similarly worded letters to Crowe stating their intentions to grow their businesses, conditional upon expansion of space.
Privaris President Barry Johnson wrote a letter of support for the renovations, saying that Privaris "has been in operations at the NC TeleCenter…since February, 2003," in contradiction to an earlier McDorman e-mail that said the project began in April and that employees moved into the facility in June.
"During our tenure at the TeleCenter we have enjoyed great success and are now faced with expansion opportunities," Johnson wrote. "We would very much like to remain in the Williamston area but to do so requires securing adequate space for our continued operations."
Documents showed no evidence that Privaris developed new business during the month in the TeleCenter, or that the HAZCAP project had even begun in earnest yet.
The letters of intent from three companies helped the TeleCenter garner another $200,000 grant from the Tobacco Trust for expansion. MCEDC was also awarded $250,000 from Golden LEAF, the state's administration agency for half its tobacco settlement funds, for the TeleCenter expansion.
Upchurch said he had visited the TeleCenter, although it was not clear when.
"The office building appeared to be very well-populated," he told CJ. "There was a considerable amount of space that needed further renovation."
Crowe, who requested $350,000 in Tobacco Trust funds for the TeleCenter expansion, claimed in the grant application that the project "will result in the creation of approximately 250 jobs and $3 million in new capital investment."
InterAct, Privaris, and DataLink have all moved out of the TeleCenter, and none of the Tobacco Trust money has been paid out for the expansion.
Privaris submitted a report on the completion of its work on the HAZCAP project on Nov. 24. The company also sought the remaining grant money from the Tobacco Trust, which MCEDC would have had to request.
On Sept. 30, 2003, Wayne Hurder of the NCDMV Driver License Section had approved "payment of the balance of the agreed upon funds" for the HAZCAP project, to be shown on a "forthcoming invoice."
But confusion surrounds the invoice. Records show that MCEDC billed the Tobacco Trust on Dec. 11 for the grant's full remaining $175,000, based on a July 30, 2003 invoice from Privaris to MCEDC for the same amount. Both invoices were faxed to the Tobacco Trust on Dec. 23.
The same day, after faxing the invoices from his store in Williamston, Crowe e-mailed Tobacco Trust administrative assistant Amy Bissette. She had told Crowe that supporting documentation, as well as a financial request form, would be required in order to issue the second $175,000. Crowe indicated that Watson was pressing him about the money.
"I sent fax copies to you today after numerous telephone calls from Rick Watson following up on the (invoices)," Crowe wrote to Bissette. "I am copying Rick on this e-mail so that he can be kept informed."
Then Crowe appeared to want help from Bissette to justify the HAZCAP project expenses.
"In references to [your] request for invoices to support the expenditures," Crowe wrote, "what would be acceptable for the direct labor line item?"
On Jan. 21, 2004, Crowe and Watson met with Upchurch to discuss "a list of items (Tobacco Trust) needed to finalize" the HAZCAP grant.
A spreadsheet submitted by Privaris to MCEDC, and subsequently from Crowe to the Tobacco Trust, showed the company billed for $9,608 in travel expenses for various employees and $8,225 for rental of space at the TeleCenter.
Also, the company charged $125 per hour for its program managers and $120 per hour for its hardware and software engineers. Total labor costs for the project amounted to $339,840, and Privaris claimed the total HAZCAP project cost $357,673. No detailed receipts or invoices were provided to support the travel expenses.
"If the documents meet your needs," Crowe wrote to Upchurch and Bissette on Jan. 28, 2004, "I will submit them with the signed request form this afternoon. If the documents do not meet your needs, please clarify the documentation that will be acceptable."
Apparently the documentation was not acceptable. By December 2003 Privaris had departed the TeleCenter, failing to ever fulfill the contractual agreement with the Tobacco Trust to create 10 to 15 new jobs, despite all its stated intentions and the grants for the TeleCenter's expansion. Still, the company and the MCEDC sought the full remaining $175,000 from the Tobacco Trust grant until January 2004.
But by March 16, Privaris had revised its expenses from $357,673 to $308,134. Travel expenses were lowered to $7,558 and labor costs were reduced to $290,000 through a change in the number of hours worked, while maintaining the billable hour rate from the previous spreadsheet. However, two more months' worth of TeleCenter rent were added, bringing the total lease costs to $10,575.
Crowe requested a reduced amount of $132,575 from the Tobacco Trust on March 26. Upchurch authorized a check on April 5 to MCEDC, which immediately paid the same amount to Privaris.
"The second check covered expenses incurred between Jan. 7, 2003 and Dec. 31, 2003," Upchurch told CJ. "During that time, the work was performed and three jobs were supported in North Carolina."
Sometime late last year Privaris moved its headquarters from Charlottesville, Va., to Fairfax, Va. Even though the company is now even farther away from North Carolina, the Tobacco Trust still does not consider the HAZCAP project closed.
Neither does Karen Long, the lawyer in the state Department of Justice who reviews legal documents for the Tobacco Trust. On Feb. 2, 2005 she told Bissette and Upchurch that the MCEDC's final report on HAZCAP was "pretty thin." She said a candid and detailed discussion of technical problems, and of which goals were met and unmet, were needed in the report.
"The numbers listed 10 to 15 jobs initially," Long wrote. "That didn't happen and I think a more thorough explanation of why needs to be included."
No one from the public agencies involved in the project, except for Upchurch, would answer questions from CJ about the HAZCAP project or about Privaris.
Those agencies include the state Department of Transportation, the Northeast Partnership, MCEDC, and Basnight's office. Blizzard and Privaris officials did not return messages left by CJ either.
Upchurch says the MCEDC still has not filed an adequate final report on Privaris, and as of this writing he was still waiting for one.
"We have every expectation that we will be able to negotiate a satisfactory final report," he said.
North Kakkilakkivs Pingvs.
This will never be reported in the News and Observer.
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