Phila. gets little return on minority business investments
On paper it seemed pretty simple. The state gave a newly created venture capital fund $1.5 million to invest in small minority businesses in Philadelphia. Those businesses would share their profits with the fund and the money could be used to invest in more businesses.
On paper it seemed pretty simple.
The state gave a newly created venture capital fund $1.5 million to invest in small minority businesses in Philadelphia. Those businesses would share their profits with the fund and the money could be used to invest in more businesses.
But 20 years and several lawsuits later, taxpayers lost on their bet. Of $1.25 million invested in 14 businesses between 2004 and 2006, the city recovered only $225,000. Nine of the businesses paid nothing back.
The administrator of the fund, Minority Venture Partners (MVP), blamed the losses on bad economic conditions. But those who have tried to collect the money blame a lack of oversight.
"It was poorly run," said Sylvie Gallier Howard, city Commerce Department chief of staff who has been working to dissolve what is left of MVP. "It's unfortunate."
Philadelphia Commercial Development Corporation (PCDC), the quasi-government agency that helped create MVP, settled with the last of the businesses- Z&Z Distributors - on March 29. The Nicetown business, which stands out on Germantown Avenue with its tall black-and-gold building, will pay back $80,000 of $250,000 it received from the venture fund in 2004 as part of the agreement that also had recipients repaying the original investment amount.
Z&Z is at least still in business. Several others are shuttered and the owners of two went to prison over other financial deals.
"These were businesses that weren't very sophisticated," city Inspector General Amy Kurland said.
Kurland was the first to flag problems with MVP and PCDC.
The development corporation was in charge of several business lending programs with a focus on commercial and small businesses. Now-City Councilman Curtis Jones Jr. was CEO and president of PCDC in 1993 when he created Minority Venture Partners as a vehicle for state grant funds targeted at minority business development.
MVP received a $1.5 million grant from the state's Minority Business Development Authority and $500,000 from PNC Bank. The goal was to raise millions more from other banks and corporations.
But after 11 years of not getting any additional funds, Jones decided it was time to use the money they did have.
"Firms were given an injection of capital," Jones said, adding that the investments were considered high risk. "They wound up hitting a bump in the economy."
Jones left PCDC in 2007 when he ran for City Council.
He said Friday that, looking back, he thinks PCDC should have provided more "technical assistance" to the businesses MVP was investing in.
He said venture-capital investments all have a high risk of failure.
"That's why it's capitalism," Jones said. "This was a high-risk portion of that and it's evident by the high rate of failure."
He said, though, that MVP was just one of 10 other programs within PCDC. He called PCDC's entire portfolio a "massive success."
Shortly after becoming inspector general in 2008, Kurland looked into why the MVP loans weren't being paid back. She suspected fraud and referred the case to federal prosecutors. Prosecutors charged one borrower, Mikel Jones (no relation to Curtis Jones). He was later acquitted of the MVP charge.
In 2009, following Kurland's investigation, then-Mayor Michael Nutter ordered that PCDC be shut down, therefore also shutting down MVP.
PCDC's board of directors tried to go after the money that was owed on behalf of MVP. By then, some of the businesses had failed, others claimed they never knew the money was considered a loan.
The board took three businesses to court for breach of contract to recoup some of the money. They were:
Maven Inc., a marketing and lobbying firm run by Melonease Shaw, a longtime friend of State Rep. Dwight Evans' and a political donor, which received $90,000. Maven got the money from MVP in 2006 to expand the business. The city settled on $40,000.
Z&Z Distributors, a wholesale supplier of snack goods owned by Zakariyyah Abdur-Rahman, received $250,000 from MVP, the most of any of the businesses. The city settled with him last month to collect $80,000.
Fryar Development, a real estate firm owned by former NFL wide receiver Irving Fryar, received $60,000 from MVP. The city filed a judgment against Fryar but the city is in a long list of institutions waiting to be paid. Fryar was convicted to five years in prison in 2015 for a $1.2 million mortgage scheme devised by his broker.
In 2011 federal prosecutors went after Mikel Jones, an attorney who received $150,000 from MVP to expand his law practice in Philadelphia. During the term of his MVP agreement, Jones paid back $20,000.
Prosecutors accused Jones of using the MVP money, as well as other investment money, for personal expenses. A jury acquitted him of misusing the MVP money but convicted Jones of defrauding a New York venture capital firm.
Then there were the businesses that collectively received hundreds of thousands of dollars yet never paid back a dime.
Among them were Brian's Seafood, a small business with two locations in North Philadelphia that received $50,000. Last week, both of the locations looked empty and lacked any signs indicating they were a business.
MVP also made a $50,000 investment in Pennsylvania Shuttle Transportation LLC, a business that is based out of a home in the Northeast section of the city. That business never received a business license with the city, according to city records.
"Our intent was to collect as much as we possibly could," Howard said. But she added that the PCDC board, of which she is a member, had to consider the cost of litigation and how realistic it was to get money back from businesses that had failed years ago.
Aqil Sabur, who administered MVP's funds after Curtis Jones Jr. left, said in an interview Friday that he unsuccessfully tried to collect the money owed from the failed businesses.
Sabur rejected the notion that the program was mismanaged.
"The program was a victim of economic conditions that existed at the time," he said.
In the end, PCDC recovered about a fifth of what MVP had invested. That money was turned over to Philadelphia Industrial Development Corporation, another quasi-government agency that offers capital to minority businesses, very similar to what MVP was supposed to do. "There will be no repeats of MVP ever again," Howard said.