Indiana Gov. Mike Pence has ordered an independent review of a state development agency contractor that has invested taxpayer money with companies run by its own chairman and his son.
Pence's action follows a newpaper investigation of Elevate Ventures, which the Indiana Economic Development Corp. first hired in 2011 to invest money into promising startup companies. The Indianapolis Star found that Elevate Ventures has directed $800,000 to a pair of companies connected to Elevate chairman Howard Bates and his son.
The governor wants a broad review of Elevate's investment decisions and business practices, Pence spokeswoman Christy Denault told the Star. She said Pence expected the highest ethical standards from the development agency and its contractors.
Elevate Ventures runs the Indiana Angel Network Fund, which uses federal money to spur small business development.
Bates remains chairman of Elevate and is also CEO of a startup, Smarter Remarketer. In November, Smarter Remarketer received nearly $500,000 from the Elevate-run Indiana Angel Network Fund. MaxTradeIn, a company run by Bates' son Justin, received $300,000 from the same fund a few months later.
Howard and Justin Bates said that the investments followed the federal guidelines governing the public money.
"No person connected with Smarter Remarketer or MaxTradeIn failed to satisfy the objective conflicts of interest thresholds for investment and controls established by these regulations," they said.
The governor's office didn't immediately say who would conduct the review of Elevate Ventures.
"The IEDC will present the findings of the independent review to the governor and the IEDC Directors in the near future," Denault said.
The U.S. Treasury Department has notified the state agency that it would perform an audit of Indiana's handling of the federal program that Elevate used to make the investments.
Stephen Hourigan, Elevate's CEO, said he believed the company's decisions would be cleared.
"We are confident that nothing related to these particular investment transactions violated any portion" of the federal guidelines, Hourigan said.
Elevate's contract with the state began in 2011, during Gov. Mitch Daniels' tenure. Under the contract, Elevate is paid a base fee of $125,000 per month. According to invoices, the state has paid Elevate more than $4.3 million.
The state distributed more than $29.3 million to companies during the two-year period ending June 30, 2011, according to annual reports. Under Elevate, which took over in April 2011, the state has steered around $19.9 million toward various companies to date, according to David Clark, a venture partner at Elevate.
Clark said Elevate followed its own internal conflict-of-interest policies by ensuring that Bates wasn't involved in the investment decisions involving Smarter Remarketer and MaxTradeIn.
"As we went through the process, he was not allowed to talk to anyone at Elevate about the deal," Clark said.