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U.S. audit: Venture funds ‘generally complied’ with rules

Howard Zemsky, president and CEO of Empire State

Howard Zemsky, president and CEO of Empire State Development and commissioner of the state Department of Economic Development, speaks in Albany on Dec. 8, 2016. Credit: AP / Hans Pennink

Six venture capital funds picked by New York to invest federal funds in tech startups statewide through its Innovate NY program “generally complied” with federal standards, the U.S. Treasury Department found after an audit lasting three and a half years.

In a 14-page audit released Tuesday, the Department’s Office of Inspector General said of the eight venture firms that New York selected to invest the funds, six met standards laid out under the State Small Business Credit Initiative, a $1.5 billion Treasury program authorized by the Small Business Jobs Act of 2010.

The goal of the Innovate NY program is to promote job growth, innovation and entrepreneurship. The venture investors were chosen by Empire State Development, the primary business-aid agency for the state.

“We agree with the Office of Inspector General’s finding that the Innovate NY Fund meets the program requirements of the U.S. Department of Treasury’s State Small Business Credit Initiative,” Madeline Belloff, an Empire State Development representative said in a statement. “We are proud of what we have accomplished and look forward to the continued success of the program.”

The six venture firms invested about $18.1 million in 58 companies in the state between Dec. 4, 2012, and Dec. 10, 2014.

The remaining two venture capital firms include a firm that made investments after December 2014, excluding it from the audit, and a Long Island-based firm.

Brookville-based venture capital firm Canrock Ventures was the subject of a separate audit released in January. According to the inspector general’s audit, the firm “recklessly misused” money from the federal investment program by investing $1.6 million in taxpayer dollars in four Island technology companies in which the firm had sizable stakes. Treasury found no problems with Canrock’s investment in a fifth startup, based in Manhattan.

Canrock’s co-founder and managing partner Mark Fasciano has denied the firm violated conflict-of-interest rules and said that state officials knew how the firm operated but took no steps to stop the investments.

The audit of the six firms began in December 2013.

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