$25M in state money goes where? Audits, OIG probes pending
Governor Mike Braun (R) on April 8 signed an executive order that will require increased transparency for non-profit foundations and corporations created to assist state government agencies.
But we discovered that there’s a huuuuuge back story to this EO, which ostensibly resulted from an in-house review prompted by campaign pledges to review Indiana Economic Development Corporation practices.
In fact, there has been a round of deeper probes by the Braun Governor’s Office, in large part prompted by some questions your favorite newsletter posed about IEDC-connected affiliates, most notably Elevate Ventures. That operation bills itself as “the most active venture capital investor in the Great Lakes Region and one of the most active globally” and “one of the most successful public-private partnerships in the United States.”
A preliminary review seems to have uncovered:
- Documentation of deal making involving tens of millions of dollars that could not be produced amidst talk of handshake deals
- Highly compensated Individuals involved with IEDC and its affiliated entities working other jobs on the side, some apparently directly related to their publicly funded or facilitated jobs
- Legally mandated conflict of interest waivers failing to be filed with state ethics entities
- Required post-employment waivers never requested
- Major concerns about business practices raised by top IEDC officials were routinely ignored by staffers who sought to circumvent the chain of command to obtain approval within the Holcomb Administration Governor’s Office
- Questions raised about external legal representation as well as potential conflicts within quasi-state entities under the previous gubernatorial administration
- Entities may have been working in competition with the private market or settling for deals that the private markets eschewed because of high risk and low reward
- Attempted or actual individual enrichment and potential self-dealing by staffers in some of these entities.
The level of concern from the Braun Administration cannot be overstated.
Our questions – and other internal concerns apparently raised during the transition – prompted a series of discussions with current and former staff, officials, and individuals involved, along with a quick dive into a plethora of tangled financial statements.
That initial Braun Governor’s Office review led to top staffers personally devoting much more time than anticipated trying to piece together a timeline; searching for documentation on who had approved what and when; and following a money trail that external counsel for IEDC suggests may have involved significant improper commingling of funds (some of which was conceded by leaders of entities involved), and continued failure of Elevate leaders to comply with requests for account breakdowns and precise accounting for state government dollars.
One key case involves a $25 million chunk that the assorted individuals with knowledge of the transaction believe lacked appropriate guardrails – and have lodged their personal objections with those in a position to take action.
The compensation for just the top eight staffers in Elevate – which was formed with public dollars and is funded to the tune of $6 million annually by IEDC – topped $2 million in 2023, the last year for which information is available from the Internal Revenue Service. This $6 million amount is $1 million more than the preliminary state budget bill annually designates for the Healthy Families Indiana program.
The information we accessed in just a few short weeks determined several state government-affiliated foundations and other related non-profit entities had failed to comply with assorted laws. The Governor’s high-profile transparency initiative is in effect . . . but what you don’t know is that beyond that, all of the questions we raised and internal staff concerns led the Governor to authorize launch of a major multi-pronged investigation this month.
“Hoosiers deserve full and complete transparency,” says Gov. Braun, “and transparency is essential for a healthy state government. Taxpayer dollars must be used judiciously and with accountability, and the outcome of what we do must always be focused on what is best for Hoosiers,” he adds.
When Cabinet officials and staff realized that this was a far more comprehensive task than could be run from the Governor’s Office, they turned to the Office of the Inspector General for investigative support.
However, even OIG was not equipped with the necessary resources to undertake such a venture on the timeline envisioned by 206. Getting to the bottom of this would require a detailed forensic audit of multiple accounts (the cash returns alone from Elevate Ventures investments are stashed in various bank accounts managed by EV as opposed to being returned to the State’s General Fund) as well as extensive interviews and document production and review.
Frozen Accounts, Forensic Auditors and Further Investigations
Because of this, the Governor personally authorized several unprecedented steps: (1) key bank accounts used and tapped by one of the entities involved and its affiliates would be temporarily frozen; (2) an independent national financial services firm would be retained to undertake an in-depth forensic audit of all relevant funds, accounts, investments, loans, programs, financials, and other commitments of any nature; and (3) OIG will receive financial support to bring aboard additional investigative staffers to review everything we outlined above, focusing on a review and validation of historical and present-day activities associated with at least one IEDC-affiliated entity, Elevate Ventures.
This probe would include the failure of staff at IEDC and the affiliated entities to file what the new OIG believes should have been docketed with that office over the years (the immediate past IEDC leader, former secretary of commerce David Rosenberg, had been the only such official to approach the OIG and the State Ethics Commission for any formal advice since 2010, seeking approval for the handling of his end-of-administration job-search framework). Material never filed by assorted individuals that the Governor’s Office and OIG believe should have been routinely brought before the State Ethics Commission for review include conflict of interest statements, post-employment waiver requests, and gift reports.
OIG believes that IEDC and its affiliated funded entities are subject to routine provisions of state ethics laws, and we’ve heard talk that since our inquiries were made early this month, OIG has been referred one particular significant matter, but state law bars that office from even acknowledging that a request for investigation has been lodged.
We also believe that any thorough state investigation will ultimately be extended to encompass a review of other IEDC-affiliated partners and entities.
The irony: The Governor has mandated that funding for the investigative and third-party accounting support will come from IEDC accounts.
In addition, of course, as you know from the public tip of the iceberg, the Governor issued his executive order targeting for review the Indiana Economic Development Foundation, the entity created by the Daniels Administration to help fund various IEDC initiatives that could not be funded with state dollars (including purchases of event tickets and entertainment expenses), or for which officials decided the optics would be better if non-tax dollars were used, including gubernatorial and family travel on trade missions.
Not much attention was devoted to its activities during the Pence Administration, but the foundation’s work continued through the Holcomb Administration – on steroids, some would argue. The past eight years saw the foundation fund much more extensive and expensive overseas travel and trade missions (and some heads are still shaking over the staff roster and itinerary for post-election 2024 travel).
The foundation was established and private contributions solicited, with a long-held belief that major regulated utilities were responsible for much of the largesse (the state’s “big five” investor-owned utilities have long been identified publicly by the foundation as contributors, but with no price tags attached), and no ability for the public to determine whether any of those who were helping fund the IEDC foundation were receiving benefits – direct or indirect – from IEDC itself.
Indeed, the Battery Innovation Center, one of IEDC’s own affiliated “industry partners” is actually detailed on the IEDC website as a source of entrepreneur support, and it contributed a five-figure amount to the Indiana Economic Development Foundation in recent years even as it benefited from IEDC largesse. For many years, media organizations have expressed serious frustration over not being able to obtain more complete records of donors and donations.
We believe that this will soon change given Governor Braun’s statement accompanying his executive order that “If organizations like the Indiana Economic Development Foundation were created to assist state agencies with public business, then Hoosiers need full transparency into how these non-profits operate, who funds them, and what they do with the money.”
All government-affiliated non-profits are required to file an annual Form 990 with the Internal Revenue Service that describes their sources of funding, how much they brought in, the breakdown between programs and administrative expenses, and a look at management salaries and board member stipends.
The Governor’s newly imposed requirement will impact many non-profit foundations that have been created over the years to supplement state agencies, including the Healthy Hoosiers Foundation, Indiana Blind Children’s Foundation, Indiana Deaf Children Foundation, Indiana Destination Development Foundation, Indiana Lewis & Clark Foundation, Indiana State Library Foundation, Indiana State Museum Foundation, and Indiana War Memorials Foundation, and more.
Missing Financial Reports
While the Indiana Economic Development Foundation managed to receive an exemption from the IRS from future filings of their annual Form 990 in 2012, state-affiliated foundations are also required to file annual reports with the State Budget Committee . . . which this particular foundation had failed to do since 2019. The gubernatorial executive order directs all state-affiliated foundations to comply with mandated reporting requirements – including filing any previously missed reports from the past 10 years – no later than December 31, 2025. These forms and reports must be clearly posted on the relevant agency’s website for Hoosiers to read for themselves.
As of Friday, April 18, IEDF remedied this reporting lapse, finally providing its missing annual audited financial statements to BudCom – required documentation only produced after the remediation mandate was clearly set forth in the gubernatorial executive order.
But, as we told you up front, all of this is less than the mere tip of the proverbial iceberg.
In its preliminary review of IEDC, those charged by the Governor to learn more about the deal structures, decision making processes, individuals and entities involved – both internal and external – and key guardrails discovered that much of the information they sought was not publicly available, and that internal material was either non-existent or not provided.
The most egregious claims uncovered by the preliminary probe seem to center on Elevate Ventures, Inc., the Indiana-based nonprofit corporation spun out of the Indiana Economic Development Corporation circa 2011, late in the Daniels Administration (under which IEDC and the associated foundation were formed).
You may know of Elevate from a 2014 flap investigated by the Indianapolis Star, which explained to its readers back then, “The chief executive of a private nonprofit is resigning, two months after an audit showed the nonprofit funneled hundreds of thousands of dollars to a startup business run by its chairman.”
Here’s the background you need on Elevate and how it operates.
Elevate Ventures entered into a three-year professional services agreement (PSA) with IEDC in 2023. EV was intended to provide investment and portfolio management services to IEDC, which had been loaning funds from the 21st Century Research & Technology Fund to make these investments. The agreement under which that relationship operates is a public record.
High Cost, Low Performance . . . Difficult to Terminate
Total remuneration under the PSA was capped at $19,566,226.18 – slightly in excess of $6.5 million annually – to be billed in monthly increments of $541,667.
An early version of the proposed agreement authorized termination of the deal for cause. Factors cited would include Elevate’s failure to perform the services to IEDC’s reasonable satisfaction, and its failure to comply with professional, technical and ethical standards and guidelines. Those restrictive clauses were not, however, part of the signed agreement.
The final signed PSA stipulated that “cause” be defined less expansively, and only included Elevate’s failure to perform the services in accordance with applicable federal, state, and local laws, ordinances, rules, and regulations and intentional or grossly negligent acts or omissions that would violate the PSA’s confidentiality provisions.
Clauses related to the right of IEDC to seek replacement of Elevate staff working under the agreement were also deleted before the final agreement was signed.
IEDC was granted access to all relevant records related to costs for three years after the final payment made under the PSA – which, in theory, should help facilitate the new round of investigations. Elevate sought to limit previously negotiated IEDC participation in board meetings on an invitation-only basis. IEDC officials instead insisted that the longstanding current policy not be tweaked, and were ultimately granted the ability to have a representative serve as a non-voting observer at each board meeting.
In a period of fewer than 15 years, the State has provided about $184 million to Elevate for investment – paying fees of some $54.6 million to Elevate to provide management services related to those investments.
At one point early last year, IEDC calculated that Elevate was receiving (they pointedly did not use the term “earning”) a management fee of as much as 7.51% on an assumed $136 million in assets under management (AUM). This was not only an above-market rate amount, but one well north of the 2.0% fee that industry pros have shared with us as standard . . . and which IEDC officials themselves suggested should have been what Elevate charged. Elevate claims a higher AUM which would have lowered the fee as a percentage, but IEDC officials consciously opted to strip out some of the exited capital and write-off amounts in their internal calculations of the fee they were subject to.
Federal money – from the State Small Business Credit Initiative (SSBCI) – has been entrusted to Elevate Ventures as well. Since 2022, we’ve determine that Elevate has received $23 million of a possible $70 million earmarked for investment in Indiana startup companies. We are unclear at the time of publication if this federal money has been invested in companies and what, if any, management fee is paid to Elevate for administration.
Missing, Incomplete Financials
While debate was ensuing over the appropriate range of compensation for Elevate’s management services to IEDC – and IEDC staff were finding themselves effectively stonewalled in obtaining critical financial data – the very performance of those fiduciary services was called into question by IEDC’s outside counsel circa last October.
When lawyers for IEDC started asking questions about loans the corporation made to Elevate and the designation of proceeds, they were unable to obtain a complete picture from Elevate despite “all that compilation and understanding was assumed to be under the fiduciary services provided by Elevate.”
“Those duties were not checked until last year (2023) when we started asking these questions,” attorneys for IEDC informed the entity’s executive team in 2024. “At that time, we found out that one of two things happened: (1) Elevate never performed those functions outlined in their PSAs and loan agreements; or (2) Elevate stopped doing those functions when Elevate’s management changed in 2022. We have tried to engage them many times on coalescing an understanding of the outstanding liabilities owed to the State – at times, even with buy-in from their team – but those requests have always been met with the explicit assertion that they never intended to pay the loans back and accusations that we were only making those requests to intentionally stifle their attempts to stand up the Growth Fund.”
As best as can be determined to date, about $52.5 million in cash returns have been generated by Elevate’s investments, with a current portfolio value of $138.7 million and $15.9 million in retained earnings. No returns appear to have been distributed back to the State; the legal trigger for such distributions is the repayment of the loans. Approximately $10.4 million of these returns have been invested in new companies . . . and there are some questions about how those investments are chosen and the nature of any guardrails around such deals, particularly after the litany of 2014 problems with the old EV management team.
On top of this, additional fees amounting to approximately $16 million have been provided to Elevate for other miscellaneous programs and events, including its extensively (and expensively) sponsored $499 per person RALLY confab, which it bills as a “global cross-sector innovation conference where visionary leaders, investors, entrepreneurs, educators, and stakeholders unite to transform breakthrough ideas into world-changing realities.”
Peyton Manning keynoted RALLY’s debut affair at the Indiana Convention Center, and A-Rod – Alex Rodriguez – participated last year. Olympic skier Molly Bloom is slated to highlight this September’s event, where she plans to detail her story “of resilience and reinvention” and transformation from world-class athlete to high-stakes poker mastermind.
Public Money for Private Ventures, Double-dip Compensation?
RALLY is a separate for-profit organization with a substantial amount of its funding derived from state dollars – some $2.75 million over the Fiscal Year 2023 – 2024 biennium (the last year for which we were able to find records), as best as we can ascertain.
The PSA governing Elevate’s use of state funding was amended in the waning hours of the Holcomb Administration, and – in part – specifically grants Elevate additional latitude to fund RALLY and other assorted private ventures.
RALLY also boasts big-buck sponsors, its own discrete RALLY Access Fund, a $5 million pitch competition, and multi-million cash awards. Compensation paid to any RALLY employees and vendors – including any individuals simultaneously employed by Elevate – is exempt from public disclosure, much to the frustration of the new governor’s team.
RALLY’s structure and pass-through financing presents additional questions and problems that those seeking to examine the finances and interconnections have yet to crack.
Yet this seems to pale in comparison to the tens and hundreds of millions of dollars handled by Elevate with what several current and former professionals within IEDC characterize as minimal accountability and oversight – and what they and the Governor’s Office also seem to consider to have been a callous disregard for adherence to protocol.
Particular concern was expressed over a clause IEDC had added to the PSA that specifically states that EV “shall not directly or indirectly circumvent its obligations to IEDC.”
Much of this focuses on Elevate’s leader, Christopher Day, whose $450,000 annual salary (at last glance; IEDC officials believe that it is higher now and fails to capture his other related income sources) was a sensitive issue for IEDC leaders. While 100% of his salary is State money – paid by Elevate via funds from IEDC – he’s not technically a state employee because of the layer of insulation.
Day’s salary level would seem to place him at the top of the “ordinary” state payroll – not including university officials, including coaches, administrators, and hospital chiefs – ahead of even state mental institution medical directors, who have largely led state salary rosters in recent years and decades.
IEDC administrators became particularly troubled when they realized some key organizational changes in 2024 could raise Day’s compensation to between $750,000 and $1 million per year under some interesting timing considerations and documentation that those reviewing the situation for the Governor’s Office have been unable to locate. A post-election modification to the PSA does, however, cap compensation for Elevate employees at 75% of private market compensation benchmarks based on third-party studies to be commissioned quadrennially by Elevate itself.
They were also concerned about the prospect that Day could be individually and personally in charge of a new quasi-state fund from which he could personally profit from the deployment of State and State-related dollars without assuming any individual risk. Any liability would devolve back on these state-adjacent entities, in contrast to industry best practices.
Here’s the background on that.
In 2021, IEDC’s Entrepreneurship Committee approved allocating $25 million from the returns generated from Elevate’s state initiatives to form a new, for-profit growth state venture capital fund, Elevate Ventures Growth Fund I, L.P., a Delaware limited partnership, as part of a $75 million overall initiative to invest in Indiana businesses.
This was part of an initiative by IEDC leadership to grow the Growth Fund, but the venture took some time getting off the ground due to some internal staffing issues at Elevate, disagreement about structure, and problems discovered with historical financial records.
Elevate brought to the table with Holcomb Administration staff a version of the fund that had been denied by IEDC leadership in 2022. That framework was described to us by someone involved in the process as what EV wanted to do, but one in which IEDC was not interested in engaging because of a myriad of issues. “There’s a right way to do this,” Elevate was reportedly told, and if they didn’t want to adhere to that format, they were welcome to go their own way and start their own separate fund not seeded with State capital.
Then-secretary of commerce David Rosenberg reinserted IEDC into the process, but given the hubris he was faced with outside his organization, was unable to move Elevate towards a structure that he believed served to protect the State’s interests.
Work proceeded slowly in 2023 toward renegotiation of the professional services agreement between IEDC and Elevate that removed some duties and tied the PSA to the for-profit fund. That amended agreement also ultimately authorized Elevate to spend its $6 million annual largesse more freely – including on RALLY overhead.
Tens of Millions in Personal Gain?
Elevate’s Day returned to IEDC with the same ownership structure as part of a new proposal on sharing fees.
“Not even going to debate it,” Secretary Rosenberg told his team, making it clear to Day that he could go to Holcomb Administration chief of staff Earl Goode and even “some of the governor candidates” competing in the May primary . . . but that Rosenberg would refuse to even present that framework to the IEDC board, much less endorse it.
Rosenberg expressed his frustration in writing to other top IEDC executives in March 2024 that the private individual ownership structure brought by Day to IEDC, “where individuals will receive $30-$40M personally” was untenable, and that he instead wanted all of the profits to flow to Elevate. What was unclear, however, was how – or even if – those concerns were conveyed to Day.
However, just one month after the filing deadline for the May primary election, discussions related to the high-dollar fund engaged again in earnest. Recall that in that 2024 primary, the most recent president of IEDC, Indianapolis developer Brad Chambers (R), had been a GOP candidate for governor, with the tacit, but not public backing of then-Gov. Eric Holcomb (R), who had appointed him. Chambers was unsuccessful despite spending a record sum of personal funds for an Indiana governor’s race, in no small part because Braun and his other opponents spent a considerable amount of campaign capital focusing on big-dollar, high-profile IEDC economic development deals undertaken with few guardrails or accountability.
In May, shortly after former IEDC chief Chambers lost the primary to then-U.S. Sen. Braun, action picked up in the Holcomb Governor’s Office. Indeed, the new administration uncovered evidence that Holcomb’s staff directed IEDC to make the deal happen. A May 23 release from Gov. Holcomb’s office touted “a new $100M fund focused on cross sector innovation driven growth stage companies with a $500M total addressable market (TAM) or greater. The fund will be anchored by a $25M commitment from the returns achieved by Elevate Ventures investments and Elevate plans to raise an additional $75M through the private market to continue fueling Indiana’s venture capital. The new growth fund will be called the Elevate Ventures Growth fund.”
Gov. Holcomb himself was quoted in the release saying “This new $100M fund anchored by a $25M initial investment from Elevate Ventures will provide even more opportunities to invest and grow innovative businesses at the later stages of their development.” The language about a $25 million investment from Elevate generated some strong internal pushback from IEDC, with top officials noting the language came from Elevate’s Christopher Day, and was both “insidious” and “factually incorrect.” Elevate’s 2024 annual report lists as a key focus for 2025 the “$150M Growth State Fund Launch” (note the 50% increase over the Holcomb-announced figure), billed as “The first-ever growth fund located in the state of Indiana.”
Even as plans were being laid for this new fund, Elevate was touting the $18.96 million in capital it had committed during 2024 leveraged with $86.6 million in capital committed by sources outside of Elevate for 103 commitments . . . which it notes came at the rate of one deal made every 2.5 business days.
Lawyers Raise More Questions
Meanwhile, the increasingly strained relationship between IEDC and Elevate resulted in IEDC engaging outside counsel from Bose McKinney & Evans LLP in June 2024 to negotiate the deal with Elevate pushed by the Holcomb team.
Before that was accomplished, IEDC officials and external counsel fretted over funding for the Indiana 21st Century Research and Technology Fund (21 Fund) – a key financial resource for Hoosier startup and scaleup firms – which is intended by law to be a non-reverting source of continuing economic development capital “being diverted to two nonprofits that have no statutory guardrails,” and calling this “highly suspect and troubling.”
One top official even told colleagues, “I can’t imagine Senate fiscal (staff), the AG, or a well-informed Governor’s team being ok with the idea of IEDC turning perpetual funding it has received through appropriation for a specific set of statutory purposes into unencumbered funds of its 501(c)(3) Foundation and/or a single private company, which, on its own, doesn’t fit th[e] statutory framework.”
Even earlier, the Holcomb Administration IEDC leaders had quietly expressed concern about whether Elevate was even equipped to assume this new fund responsibility, suggesting that IEDC had internal capacity to handle it on its own, even without private investors.
One year ago, during early spring 2024, IEDC top staffers had internally questioned Elevate’s track record, noting that they had “historically (and currently) struggled to get actual data on financials, investments, valuations, write-offs, and returns.” They believed that over the past 13 years Elevate’s financial returns “have nearly broken even” . . . and “Based on current management’s feedback alone, Elevate Ventures is not prepared to share information in a structured way with what they are already doing … and is likely not worthy of investing private dollars.”
“[Elevate Ventures]… likely not worthy of investing private dollars.”
They then posed the question: “Are we comfortable opening the books for other investors to run due diligence on Elevate’s investment track record?”
IEDC leadership was being told by one of its own that “Full due diligence needs to be done on Elevate if it’s included and every single person associated with the GP if it is formed. Because if this is not being competitively bid, all of this process will likely constitute public records.”
They bandied about the comfort level in IEDC contracting with individuals tied to Elevate who could not be replaced. “Are we comfortable with them having two fully funded and fully paid jobs at the same time?” That was a key question, given that there were no related ethics filings for the Elevate personnel.
The discussion proceeded to address Christopher Day personally and question why the general partners had to be individuals rather than Elevate itself, with the IEDC players noting “it seems preferable that the institution own the operations related to investing state money as opposed to individual men.”
While Elevate Ventures Growth Fund I GP, LLC, a Delaware limited liability company, will formally be the General Partner – and not Day and others he would choose – Day ended up as one of the four members of the management company’s “Key Persons” team, all of whom are Elevate or Growth Fund personnel according to the private placement memorandum, the legal Rosetta Stone that informed potential investors of the legal structure of the fund, its partners, managers, objectives and risks (this document, effectively a prospectus, was tightly held among those involved, and proved to be one of the most difficult pieces of the puzzle for us to obtain).
Indeed, as required by federal law, the private placement memorandum specifically outlines the potential conflicts of interest with the management company, its personnel, and Elevate. Day, Phil Lodato, and Matt Tyner are listed as full-time Elevate employees who continue to hold officer roles into the foreseeable future and possess the authority to make investment decisions over the state funds Elevate manages.
Although personnel of the Management Company shall devote such portion of their time during normal business hours to the management and operation of the Fund as may be necessary to effectively manage the Fund’s business, the Management Company and its personnel are entitled to, and do, engage in other business activities and are not prohibited from engaging in activities that are or may be competitive with the activities of the Fund. Specifically, Christopher Day, Phil Lodato, and Matt Tyner are all currently full-time employees of Elevate, hold officer roles within Elevate, and intend to continue in such roles for the foreseeable future. In these roles, the aforementioned individuals have the authority to make investment decisions for the Indiana 21st Century Research and Technology Fund (the “21 Fund”) and other funds managed by Elevate (the “Prior Funds”). Therefore, it is highly likely that the Management Company and its personnel will experience conflicts of interest with respect to the allocation of management time, services and functions among the Fund and other activities, such as activities involving the Prior Funds. While the Management Company intends to develop an investment allocation policy that will be designed to treat all Management Company-sponsored funds fairly and equitably over time, the allocation of investment opportunities between the Fund and the Prior Funds could operate to the disadvantage of the Fund.
But there were other concerns evinced by the IEDC team at One North Capitol.
An Easy $25 Million
The IEDC leadership team then contemplated whether any new investment strategy or vehicle had “to be associated with Elevate Venture at all?” IEDC staffers considered whether the best option might simply be issuing a Request for Proposals and landing “a private market actor to fulfill the role without creating the quagmire of potential conflicts” posed by shifting $25 million into a for-profit entity benefiting, in part, Elevate employees without skin in the game.
“…quagmire of potential conflicts.”
In mid-October, the top IEDC official overseeing entrepreneurship confided to fellow IEDC staffers in an email, “At the moment, I have zero confidence in the accounting practices Elevate has deployed to track these financial transactions and in the reporting they provide on the balances of the various funds we have committed to them.”
“I have zero confidence in the accounting practices Elevate has deployed.”
In mid-November, after the general election in which it was established an IEDC antagonist would become the new governor, IEDC’s Entrepreneurship Committee approved the EV Growth Fund as negotiated, despite new concerns expressed about Elevate’s admitted failure to appropriately follow the accounting requirements laid out in each loan agreement for tracking the principal, interest, and returns/income.
Ultimately, as we mentioned, the current deal was structured such that Growth Fund partners will not be receiving any future “carry” – profit or loss from holding their stake. The general partner – Elevate Ventures Growth Fund I GP, LLC, the Delaware limited liability company – will instead pocket a significant management fee (2.0% annually through the end of the investment period and an allowance of $300,000 for expenses, and then reduced on a sliding scale), and the carry would be directed to the Indiana Economic Development Foundation and Elevate.
The bottom line here, however, is that while the individuals will not directly enrich themselves on profits, they could divide hundreds of thousands of dollars annually in fund management fees. As to the profits, there would effectively be no down-the-road financial benefit for the State benefactor other than indirectly – through the non-profit Elevate potentially adding to its coffers.
The fund’s ultimate aggregate target size, including the $25 million jumpstart in public funds, was in the $150 million to $200 million range.
And even as IEDC officials complained to each other that Day was trying to renegotiate the professional services agreement to afford him more control, and that the new general partner for the deal would not be the non-profit Elevate, but rather the for-profit Elevate Ventures Growth GP, LLC, they fully understood the pressure to quickly close the deal before the change in administrations. The final agreement was consummated under an amended and restated PSA (and side letter coupled with revisions to the investment policy statement) during Thanksgiving week in 2024, with terms requiring validation and reconciliation of returns as a condition precedent for deployment of the $25 million. Validation ensures data is logical and reasonable; reconciliation compares datasets to reveal potential discrepancies.
We can’t determine if those conditions were ultimately satisfied. What we did learn is that the deal was consummated over the objections of some at IEDC who wanted IEDC to be a partner on the Growth Fund. They were instead limited to a new agreement that provided Elevate with the $25 million infusion under permissive terms . . . rather than having that $25 million repaid to IEDC for loans to Elevate that should soon come due.
An “Audit” in Name Only
November was certainly a busy month for IEDC officials attempting to tie things down before additional fund transfers and new arrangements received the proverbial fancy gold ribbon and dollop of red sealing wax. Top financial staffers were provided with a review of Elevate financial statements by Crowe LLP, but as one agency attorney tautologically reminded his colleagues, all it shows is “that the money they show in the accounts is money that has been deposited in the accounts.” Indeed, as another staffer pointed out, Crowe “explicitly states” that “they DO NOT EXPRESS AN OPINION on, nor have they reviewed/audited.”
Counsel lamented at the time, “The actual financial issue here is that we don’t know if this is all the money that should have been deposited in those accounts or not. The audit only verifies what Elevate presented to the auditors matches what’s in their bank accounts and does nothing to answer any questions related to the actual source of the funds involved.”
That concern was met with a response from a top IEDC finance official which explained that “not even an audit (let alone a review) will give assurances you are looking for, and it would take an indepth forensic accounting-type engagement (which would be costly and time-consuming).” Key IEDC officials were still so uncertain about the sources of funds that they sought sworn affidavits from Elevate officials about the actual source of the funds involved – “something that would stand legally as their assurance as to the source of funds.”
Money Moved
The Braun gubernatorial office discovered that on January 23, 2025 – without finalizing the required returns and reconciliation process specifically inserted in the deal envisioned by the IEDC negotiating team – Elevate had transferred the $25 million from the returned capital accounts to a holding account.
More specifically, the cash was conveyed to the for-profit 21 Fund Growth Fund LLC blocker corporation account. Blocker corporations are deployed to achieve certain tax benefits by effectively “blocking” taxable income at the corporate level for U.S. federal, state, and local income tax purposes. Any tax liability is paid at the blocker’s corporate level and not passed through to investors.
That seems to have been the last straw for the Braun team, and on top of the Hannah News Service inquiries, led to the gubernatorial executive order. This also, as we’ve now explained, precipitated the more extensive influx of off-budget resources into the Office of the Inspector General (whose budget had been targeted even before the mid-April revenue collection forecast for a cut from the last biennial appropriation in the original House budget bill) to review any potential issues related to the law, as well the procurement of a third-party national accounting practice to undertake a detailed forensic investigation of the convoluted financial trail.
We’re also hearing whispers about IEDC considering the semi-nuclear option: Potentially calling in the loans, which begin to fall due this year.
You’ve already seen the gubernatorial executive order mandating the filing of all missing information to date with federal and state authorities and changes that will be implemented in reporting and accountability moving forward.
Another result you can expect from this experience: Recommendations from the Braun Administration for procedures, amendments, oversight, and other actions to protect State and taxpayer legal and fiduciary interests in Elevate’s organic laws, bylaws, programs, and funds – as well as those of related entities and the ubiquitous “bodies separate corporate and politic” that might share common issues, governance, or problematic practices.
Additional Scrutiny Coming
Among the areas up for review could be additional scrutiny for contracting by IEDC and other quasi-state entities.
The House approved SB 5 by a 91-1 vote on April 8, legislation that would tighten up state agency procurement practices by effectively barring no-bid contracts for all but those “solely entered into for licensed legal counsel” (one Democrat voted against the bill because he believed that exception could offer subterfuge for an agency seeking to shield certain dealings from public view by cloaking them under the guise of work-product or attorney-client privilege). But there were still questions raised on the House floor that the bill sponsor, House Majority Floor Leader Matt Lehman (R), could not answer as they applied to the quasi-state entities.
Rep. Lehman observed that many such quasi-state entity contracts include non-disclosure agreements, so “I think those would be out because of that.” He continued, “The issue we get into … with some of the quasi-governmentals is, where do you stop?” He directed skeptics to the overall principles of additional “integrity and transparency” being promoted by the measure, acknowledging that “we don’t know what we don’t know.”
Knowing some of what you now know after reading this, Rep. Lehman adds, “I think we’re going to have the next 10 months to look at how this works, and I think we’ll probably be back next year with some other things that may need to be addressed.”
And, we can probably assure you, that will be with the full faith and credit of 206.
Finally, you should look forward to a comprehensive analysis of options for how to appropriately and best facilitate and serve Hoosier entrepreneurs as the Braun Administration works to unwrap and extricate the State from what it sees as an awkward and problematic situation that never should have been allowed to develop.
“The Indiana Economic Development Corporation has the important role of growing Hoosier jobs and wages and will do so with a firm commitment to transparency and accountability for taxpayers,” Secretary of Commerce David Adams assures us. “Indiana is a great place to do business and as IEDC increases transparency, more Hoosiers and more businesses will see the opportunities we offer.”
We’re still, however, a deep forensic accounting dive and a lengthy Office of the Inspector General probe away from this being wrapped up.
Stay tuned.