Mark Fasciano, managing director of Canrock Ventures, at Thought Box...

Mark Fasciano, managing director of Canrock Ventures, at Thought Box 1 in Hicksville on Dec. 6, 2012. Credit: Barry Sloan

New York State officials say Canrock Ventures, a venture capital firm in Brookville, failed to notify them of potential conflicts of interest when it invested taxpayer money in local technology startups.

An official with Empire State Development, the state's primary business-aid agency, said under the terms of a written agreement with the state, Canrock should have convened a “valuation committee" to review its proposed investments of federal funds in four computer software startups.

The four businesses were co-founded by a Canrock partner, and the venture firm holds sizable stakes in them. The official requested anonymity.

Mark Fasciano, the Canrock partner, said Tuesday that he disclosed all of Canrock's holdings and his roles in the companies to the state at the start of the investment process.


In 2012, New York State selected Canrock to receive $5.7 million to be invested in startups on Long Island and in New York City as part of the new Innovate NY Fund. Innovate NY had been established a year earlier to steer $45 million -- more than three-quarters from the federal Treasury -- to promising New York tech businesses.

Fasciano, of Port Washington, is chairman of the board of directors of three of the companies that received Innovate NY funds.

All four of the companies are housed in Canrock's business incubator at LIU Post, where they pay a monthly fee for services -- a portion of which goes toward the salaries of Fasciano and another Canrock partner. The startups likely used some federal money to pay the fee, Fasciano said in January.

Canrock's 2013 contract with New York State, obtained by Newsday under the state Freedom of Information Law, stipulates that conflicts of interest are to be weighed by a valuation committee.

The Empire State Development official said the committee is composed of two state representatives and a Canrock representative, and can only be convened by the venture firm, not New York State.

“They [Canrock] have to disclose potential conflicts of interest to the valuation committee," the official said last month. “They did not meet that requirement."


Fasciano disputed that claim. “Not only was [Empire State Development] informed of these prior investments [by Canrock in the software companies] at the time the investments were made, but this was one of the reasons why the state said they chose to include us on the Innovate NY program, and provision was made in the agreement with ESD to permit such co-investments," he said Tuesday.

Valuation committees were also included in the state contracts of six other venture firms investing Innovate NY money. None of the six called valuation committee meetings to handle conflicts of interest “because no conflicts had arisen," an Empire State Development spokesman said.

Some experts questioned whether the valuation committees were effective.

David Reiss, a law professor and research director for Brooklyn Law School's Center for Urban Business Entrepreneurship, said, “a self-reporting system," such as the valuation committees, would only deter fraud if the probability of getting caught is high and the consequences are grave.

“The likelihood of getting caught here sounds pretty low," he said.


The Empire State Development spokesman said Tuesday the committees were “not the only means of alerting ESD to potential conflicts of interest in Innovate NY investments."

ESD also requires written certifications that no conflicts exist, which, documents show, Canrock filed.

The state agency suspended Canrock late last year from making new investments while a review of its Innovate NY investments is conducted.

The U.S. Treasury Department's Office of the Inspector General is expected to release an audit of New York's Innovate NY Fund this month. The review began after Newsday asked Treasury officials last November about one of the tech startups in which Canrock invested Innovate NY money.


New York State created the Innovate NY Fund in 2011 to invest in technology startups through venture capital firms in the state.


$35M from federal State Small Business Credit Initiative

$10M from Goldman Sachs investment bank


Canrock Ventures, Brookville

Cayuga Ventures, Ithaca

Excell Partners, Rochester

ff Venture Capital, Manhattan

Golden Seeds, Manhattan

SCP Incubators/Z80 Labs, Buffalo

Stonehenge Growth Capital, Manhattan

Source: Empire State Development

Latest Videos

Newsday LogoCovering LI news as it happensDigital AccessOnly 25¢for 5 months