Stroll into Baton Rouge talking airily of economic development and some state official will probably walk up and hand you a check. Say you’re in high tech, and out will come a pen to add a few zeroes.
Maybe it doesn’t work quite like that, but Louisiana is so sold on the idea that the route to prosperity lies through subsidies to private companies that the annual tab now exceeds a billion dollars. Debate over the wisdom of this policy will no doubt rage forever, but there will inevitably be many occasions on which the taxpayer is taken for a ride. For a particularly blatant example, we need look no further than Qyntessa Biologics.
In February 2008, this newspaper reported that Qyntessa, “one of the centerpiece tenants” at LSU’s Emerging Technology Center in Baton Rouge, would “produce experimental biological agents” there, while operating initially with state grants. As its business developed, the center’s director, Arthur Cooper, said the need for subsidies would diminish and in three to five years Qyntessa would be self-sufficient.
Scientific breakthroughs were heralded; Qyntessa, its chief operating officer Deborah Wilson said, would focus on proteins, plasmids, stem cells and viral vectors. The company “hoped to be operational by fall 2009” after establishing “stringent manufacturing controls.”
Alas, financial controls were less stringent, and it soon turned out that large chunks of the taxpayers’ investment were securing not a glittering scientific future, but an opulent lifestyle for Qyntessa’s owner Steve Moye.
Qyntessa’s contract, signed in 2005, was with a subsidiary of LSU’s Research and Technology Foundation. One of the foundation’s board of directors must have been particularly in favor of hiring Qyntessa; Moye had been a member since 2002.
By the time the Advocate article appeared, however, suspicions had evidently been aroused. Three weeks later, Moye was off the board, and when the Qyntessa contract expired in June 2008, it was not renewed. By that time, LSU had paid Qyntessa $4,810,000 from grants provided by the Louisiana Department of Economic Development.
LSU then requested an audit, but Qyntessa refused to play ball, which is generally a sign that someone’s hand is stuck in the cookie jar. When the foundation sued in November 2008 to force compliance, Qyntessa countered that it was not obliged to submit to an audit because its contract had expired. An audit was, in any case, superfluous, according to Qyntessa, because all its invoices had been approved by Cooper, who is also the foundation’s executive director.
When those arguments cut no ice in the district or appeals courts, it did not take long for auditors to establish the reasons for Qyntessa’s reticence. Moye’s salary over the life of the contract was almost $1 million, and Qyntessa paid several hundred thousand more on his behalf to tailors, jewelers, interior decorators and manufacturers of home entertainment centers. Those expenditures, plus profits retained by Qyntessa, accounted for $2,900,000 of the $4,810,000 kicked in by taxpayers.
The foundation sued, alleging it had been “fraudulently enticed” into its contract with Qyntessa and asking that it be rescinded. The case involved no factual disputes; Qyntessa merely argued that it was entitled to make a profit and had not been contractually obliged to reveal the size of it. The trial court, however, ruled that Moye had a duty to disclose “all material facts” to the foundation and that his failure to do so constituted fraud. The court ordered the contract rescinded.
Undeterred by experience, Qyntessa went back to the court of appeal, arguing again that it was not required to reveal Moye’s salary or profits. The appeals court disagreed, finding that, as a member of the foundation’s board and “the sole member of Qyntessa,” he had a clear fiduciary duty, and was not entitled to take “unjust advantage” through “suppression of the truth.”
The judges observed that, while the contract might have allowed Moye a “reasonable salary,” for him to snatch 60 percent of the entire budget was a bit thick. Had the foundation known that would happen, the Qyntessa contract would never have been signed.
Still, the state stands to recoup at least some of its money when the courts award damages and legal fees. No doubt many of our investments in economic development have been even more disastrous than this one.
James Gill’s email address is email@example.com.