The state’s Tobacco Trust Fund Commission closed its file last week on a fingerprint security business that it funded, even though little or no new information was provided in a revised final report about a project the company conducted for the N.C. Division of Motor Vehicles.
Privaris, Inc. received $307,575 from the commission through a grant to the Martin County Economic Development Corporation, ostensibly in exchange for starting business in Williamston with 10 to 15 employees, which the company never fulfilled. Privaris was to be paid for determining whether its technology could help DMV enhance the security of drivers’ licensing for transporters of hazardous cargo.
Karen Long, a lawyer in the state Department of Justice who reviews legal documents for the commission, told Tobacco Trust officials in February that the development corporation’s final report on the DMV’s Hazardous Material Carrier Authentication Pilot project was “pretty thin.” She said a candid and detailed discussion of technical problems, and of which goals were met and unmet, was 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.”
Fairfax, Va.-based Privaris pulled out of the development corporation-run Northeast TeleCenter in Williamston by December 2003. The company never hired more than three employees for the project, but despite its failure to fulfill the jobs requirement, the commission paid the development corporation $132,575 in April 2004.
An agreement between the Tobacco Trust and the development corporation stipulated that if any conditions of the agreement were breached, the corporation must repay to the commission “the full amount of sums awarded” and any interest accrued on the money.
The grant called for the project’s funds to be paid in increments, with $175,000 issued to the development corporation 14 days after the agreement was signed. The remaining money was to be paid periodically as requested by the development corporation, which had to certify that the work required under the agreement was actually performed. The corporation was also to “include documentation of the amounts for which (the development corporation) requests reimbursement.” Upon conclusion of the project, a final report on HAZCAP was to “include a detailed final financial report of the use of grant funds by category, showing all expenditures during the entire term of this agreement….”
But the final report, received by the commission May 20, 2005 after the earlier version delivered Jan. 28 was deemed unsatisfactory by Long, did not include any financial data, except that “$42,425 was not needed and will be released back to the Commission.” Other documents obtained by Carolina Journal showed that no receipts or invoices were provided to justify the development corporation’s or Privaris’s expenditures, other than numbers shown on a spreadsheet. Ten months of rent from the development corporation’s Telecenter to Privaris accounted for $10,575 of the money.
Upchurch told CJ that the financial information “has already been received in previous reports.”
As for the failure to create 10 to 15 jobs, development corporation officials said “because funding has not been provided for implementation of subsequent pilot programs, the job creation and investment objectives for this project were not able to be met.” However, the contract between the corporation and the commission did not predicate those jobs on whether further funding for the program would be forthcoming. The 10 to 15 jobs were to be created “initially,” and if the project grew, 200 jobs and a “capital investment of more than $10 million” were expected to materialize.
The earlier version of the final report submitted by the development corporation in January 2005 said the HAZCAP project “was highly successful and met the needs of NCDMV in demonstrating the capacity of (the)…program.” That version was not sufficient, according to Long and the commission.
Long did not respond to phone messages or an e-mail inquiring about the final report. William Upchurch, executive director of the Tobacco Trust Fund Commission, told CJ in an e-mail, “Martin County EDC needed to provide a final response from their perspective before we could accept the report.” The Tobacco Trust did not seek repayment of its money from the development corporation, Upchurch said.
Although Privaris fell short on its job creation, the development corporation tried to leverage the company’s brief activity at the TeleCenter into a request for more funding from public resources. In a letter to Upchurch, development corporation Chairman Stan 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.”
Between July 25 and July 30, 2003, Privaris was one of three TeleCenter tenants that wrote similarly worded letters to Crowe stating their intentions to expand 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,” even though the project began in April and 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 begun in earnest.
The letters of intent from three companies helped the TeleCenter garner an additional $200,000 grant from the Tobacco Trust for expansion. The development corporation was also awarded $250,000 from Golden LEAF, the state’s administration agency for half its tobacco settlement funds, for the TeleCenter expansion. None of those funds have been paid yet, however.
North Carolina’s Northeast Partnership had originally applied for the Tobacco Trust grant and was awarded the money in October 2002. Rick Watson, executive director of the partnership, requested that the Tobacco Trust transfer responsibility for the grant in November 2002 to the development corporation.
Sources with direct knowledge of the project who requested anonymity say Watson is a private investor in Privaris. Watson sought to obtain funds for the pilot project despite his personal financial stake in the company, creating an apparent conflict of interest. He pressed for the Tobacco Trust’s April 2004 payment to be made to the development corporation, which in turn paid Privaris.
According to a report in the April 21, 2005 Washington (N.C.) Daily News, Watson would not confirm or deny that he was an investor or “silent partner” in Privaris.
“I am not accustomed [to] investing in companies in which there is a conflict of interest,” he told the newspaper.
However, Ernie Pearson, Watson’s lawyer, told the Daily News, “I don’t find it to be a conflict of interest at all for staff or members of a board of a nonprofit to invest in companies considering investing in the northeast region or locating there.”
Privaris, formerly known as Transforming Technologies, Inc., was originally promoted by one of its chief investors and board members, Ernest Knighton of Edenton. Knighton lobbied Senate President Pro Tem Marc Basnight’s chief assistant, Rolf Blizzard, heavily in 2002 to get the Division of Motor Vehicles to implement the security project using the company’s technology.
Knighton’s wife, Anne Marie, is the town manager of Edenton. He is described on Privaris’s website as “a successful North Carolina-based technology venture developer, investor, and management advisor.”
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.
Knighton is one of four members of Privaris’s board of directors, according to the company website. Asked by a CJ reporter whether Watson was an investor in Privaris, Knighton said he did not know.
Paul Chesser is associate editor of Carolina Journal. Contact him at [email protected].