Hartford Business Journal

www.HartfordBusiness.com • November 6, 2017 • Hartford Business Journal 15 Deal oversight Kollen said DECD was unaware of Wagner's past legal troubles before the agency seeded CliniFlow with Small Business Express funds and the Bond Commission approved the $3.6 million, raising ques- tions about the state's ability to fully vet companies to which it provides economic incentives. Information on several civil lawsuits in fi led federal court against Wagner and companies he's associated with was avail- able online through the federal court system's PACER database. CliniFlow, however, was not named in a lawsuit until May 2017. DECD, Kollen said, doesn't routinely check to see if com- panies, or their top executives or related fi rms, are named in federal lawsuits, before incentive deals are approved. The agency does check Connecticut state courts. Kollen said CliniFlow provided DECD limited fi nancial information, which isn't unusual for startups. DECD also reviewed CliniFlow's business plan, conducted a basic Google search, and cross-referenced the company with the state Department of Labor and Secretary of the State's offi ce. Kollen also said CliniFlow showed DECD a signed lease to occupy offi ce space on Hartford Hospital's campus, but it's not clear if they ever occupied that space. DECD offi cials also relied on information in CliniFlow's Small Business Express appli- cation. However, information in the applica- tion, which was submitted in November 2016 and bears Wagner's signature, appears to have at least one inaccuracy. One application question asks if the company or its owners have any "outstanding, pending or anticipat- ed" legal issues. The application said "no." "They fi lled out 'no' and they signed it," Kollen said. "That will be a reason to follow up with the company," well before DECD is supposed to audit CliniFlow in Jan. 2018, he said. The larger $3.6 million aid package was allotted from the state's Manufacturing Assistance Act (MAA) program and landed in front of the Bond Commission on Feb. 1. In exchange for the 10- year, 3.25 percent interest loan, CliniFlow promised to create 195 full-time jobs within fi ve years and maintain the jobs for 24 consecutive months. The package was approved by the 10-member Bond Commission by a unani- mous vote. But Kollen said DECD never granted the bond funds because of safeguards the agency built into its MAA contract agreement. CliniFlow had to reach certain milestones in order to obtain the funding. The fi rst $1.6 million would have been granted if CliniFlow signed a land lease with Hartford HealthCare for the parcels on which it wanted to build its facilities. CliniFlow also needed to raise millions more from investors to fund the project. The fi nal $2 million would have been granted once construction of the offi ce build- ing and parking garage started. None of that happened, Kollen said. The deal began to falter around late April, when Kollen said Hartford HealthCare informed him that there was no land lease agreement in place. By August, the state "de-allotted" or pulled the plug on the $3.6 million funding package. Kollen said DECD built the milestones into its Manufacturing Assistance Act off er to protect taxpayer interests. When asked if he or other DECD offi cials thought about changing how it vets fi nanc- ing applicants, he said: "I would say our current due diligence pro- cess is really working the way its supposed to. I don't see an immediate need to change anything specifi cally, but that might change depending on our further investigation of this situation." Revitalization hopes While CliniFlow is a relatively unknown name to Connecticut's general public, the prospect of the company's relocation to Hartford stoked excitement and optimism among city, state and Hartford HealthCare offi cials, which put the project on a "fast- moving timeline," Kollen said. CliniFlow indicated that one of its portfo- lio companies, 3si Systems, was growing fast and had other options in terms of where it could move, Kollen said. The other two companies CliniFlow said it would relocate to Hartford were SpearFysh and Vox MediData. According to descriptions of the compa- nies laid out in federal court documents, all three are involved in medical software and voice-activated and/or voice-command technology that aims to improve healthcare operations or services. The original project plans called for Clini- Flow to lease land occupied by four vacant buildings owned by and near Hartford Hospital: 216-218 and 224 Washington St. as well as 142 and 146 Jeff erson St., according to a project outline obtained by HBJ. Those buildings were going to be demol- ished to pave way for the 70,000-square- foot offi ce building at the corner of Washington and Jeff erson streets and a 300-vehicle parking garage. Around May 2016, Kollen said, offi cials from Hartford HealthCare invited DECD Commissioner Catherine Smith to meet with Wagner, the hospital and city offi cials to discuss the envisioned project. "I think in general it's fair to say the city A "no trespass" sign surrounds two Washington Street properties owned by Hartford Hospital. HBJ PHOTO | GREG BORDONARO Bart Kollen, Deputy Commissioner, DECD Continued on to next page What is CliniFlow Technologies? According to a June 2016 investor's presentation prepared by CliniFlow Technologies LLC, obtained by the Hartford Business Journal through federal court records, the company described itself as a medical technology investment and development company primarily focused on technologies that improve healthcare provider workfl ow and services. Its founder, David Wagner, is a Trinity College alum who sat on the private school's board of trustees until he resigned his position in June. CliniFlow's three startup companies that were slated to move to Hartford, according to state offi cials, include: 3si Systems LLC - Its technology provides healthcare staff workfl ow lists, alerts and procedural checklists powered by voice-command technology, according to CliniFlow's 2016 investor's presentation. SpearFysh - A conversation management application that allows users to capture, transfer and analyze audio data, according to CliniFlow's 2016 investor's presentation. Vox MediData - Its technology allows electronic health record data to be integrated into medical workfl ows by using voice-activated technology, according to CliniFlow's 2016 investor's presentation. Small Business Express doles out $254M By Greg Bordonaro gbordonaro@HartfordBusiness.com A hallmark of Gov. Dannel P. Malloy's economic development strategy has been to seed businesses with government loans, grants and tax incentives to stir job creation. One of those programs, Small Business Express, was created in 2011 to provide capital (up to $400,000 per deal) to smaller companies in exchange for their commit- ments to retain or create jobs in the state. Through June 30, the state Department of Economic and Community Develop- ment (DECD), which oversees the program, completed over 1,600 Small Business Express deals worth around $254 million in loans and grants, according to a Hartford Business Journal analysis of loan program data. Those companies have committed to create or retain 25,571 jobs in Connecticut, DECD said. But not all those deals have worked out. A total of 55 companies that received a col- lective $9.5 million in loans and grants have gone out of business, HBJ's analysis found. Another 138 companies that received a col- lective $19.6 million in loans and grants have not met their job obligations and have been forced to pay penalties, either in the form of a higher interest rate or loss in grant funding. DECD Deputy Commissioner Bart Kollen said the default rate is relatively tiny when compared to the number of deals that have been brokered. "If you ask banks about their actual default rate on loans, I think our portfolio would look rather positive compared to a lot of commer- cial lenders," he said. Uncertain future While the Small Business Express pro- gram has seen signifi cant activity in recent years, its future is in limbo. As part of the bipartisan state budget deal, lawmakers have cut the program's funds by $5 million this fi scal year and eliminated funding entirely in fi scal 2019, Malloy said. In response to the cuts Malloy, who was lukewarm to lawmakers' $41.3 billion two- year budget deal but signed most of it into law, said he wants to work with the General Assembly in the months ahead to explore alternative options. Deal gone bad One Small Business Express deal that went belly up recently led to criminal charg- es against its recipient, Mohsen Youssef, owner of South Windsor's Amoun Pita and Distribution LLC. Youssef was recently con- victed of cheating the state and various lend- ers out of more than $3 million to fi nance his fraudulent pita bread baking business. Youssef, 27, pleaded guilty in New Haven federal court last month to one count of bank fraud and one count of mail fraud, the Con- necticut U.S. Attorney's Offi ce said. According to investigators, Youssef defrauded various banks, a corporate leasing and vendor fi nance company, and DECD in a scheme to fund equipment purchases for Amoun Pita and other companies he con- trolled. As part of the scheme, Youssef lied about the value of his business assets and other items on applications for loans, credit lines and state grants, prosecutors said. He received $400,000 from DECD's Small Business Express program in 2013, state records show. A DECD spokesman said the agency worked with the FBI on the case and that the agency takes its fi duciary role seri- ously to protect taxpayer interests.

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