A state venture-capital program has suspended new investments on Long Island while officials review whether a local participant violated conflict-of-interest rules, documents show.
The subject of the review is Canrock Ventures of Brookville, a 4-year-old venture-capital firm chosen by the state to invest Innovate NY program funds in Nassau and Suffolk counties.
The suspension means nearly $4 million targeted for local technology startups has been frozen since late last year, said two officials who requested anonymity because they weren't authorized to discuss the matter. More than three-quarters of the money comes from the federal Treasury.
While Innovate NY has been dormant on Long Island, $5.9 million from the $45 million fund went to 25 startups elsewhere in the state during the January-April period, according to the most recent available data.
Funding freeze lamented
The exclusion of Long Island has heightened concerns of some business leaders about the dearth of venture capital and its impact on the region's economic future.
"There are a lot of small startups out there, and early-stage financing is very important," said Lawrence Waldman, an adviser at EisnerAmper accountants and treasurer of the Long Island Association, the region's largest business group. "If that doesn't happen, the Island doesn't have that growth of businesses" in the technology sector.
The freeze was in response to a U.S. Treasury review of Canrock, the firm selected by New York State in 2012 to invest $5.7 million in Innovate NY funds here.
The Treasury's examination focuses on whether Canrock violated federal conflict-of-interest rules by investing taxpayer dollars in computer software companies in which it has sizable stakes.
$2 million at issue
Canrock has put nearly $2 million of Innovate NY funds into five startups where it is either the largest shareholder or owns a significant stake. Four of them were co-founded by Mark Fasciano, a Canrock partner, according to the companies' websites and Fasciano. He is also chairman of the board of directors of three of the companies.
In addition, four of the startups are housed in a Canrock-run business incubator at LIU Post. Each tenant pays a monthly fee to Canrock, a portion of which goes toward the salaries of Fasciano and another Canrock partner, Fasciano said in a January interview. He said the startups likely used some federal money to pay the fee.
Fasciano, 46, of Port Washington, did not respond yesterday to an email message seeking comment for this story.
In January, Fasciano denied there were any conflicts of interest in Canrock's Innovate NY investments. He said New York officials knew about his dual roles as a Canrock partner and board chairman of three of the companies.
Roles reported earlier
Fasciano's role in founding four of the startups and Canrock's investment in each was spelled out in Canrock's Innovate NY application, according to a redacted copy obtained under the state Freedom of Information Law.
Other documents show the chief executive of each startup certified that there were no conflicts in the Innovate NY investment received from Canrock.
Empire State Development, which oversees the Innovate NY program, said last night that Canrock's application "did not provide enough information to evaluate future potential conflicts."
State officials also said Canrock failed to convene a required committee to discuss conflicts.
"The bottom line is that Canrock did not meet the terms of its contract with ESD," said agency spokesman Jason Conwall.
The review by the U.S. Treasury Department's Office of Inspector General began after Newsday asked the department questions last November about one of Canrock's federally funded investments. Last week, a spokesman for the inspector general said the audit would be issued by Oct. 15.
Empire State Development began a separate review late last year after initially telling a shareholder in one of the tech startups that Canrock had complied with conflict-of-interest regulations.
Canrock and state officials have discussed Canrock's returning the $2 million to the state. An Empire State Development official who requested anonymity said, "We've proposed potential solutions to Canrock, including paying us back."