* Michael McMahon, Governor Carcieri’s economic development director, says he wants to leave no possible ethical issue unexamined.
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PROVIDENCE – At least some of the top state economic development official’s private business dealings do not amount to a conflict of interest, the Ethics Commission decided yesterday.
The commission issued an advisory opinion to Michael McMahon, the executive director of the state Economic Development Corporation, saying his interest in a Boston venture capital firm, RockPort Capital Partners, and its relationships with other venture capital firms won’t cause ethical problems when he deals with economic development legislation.
McMahon, who says he wants to leave no possible ethical issue unexamined, has another request for an advisory opinion pending before the commission. He wouldn’t say yesterday what that issue is.
McMahon had asked the commission whether it was proper for him to take an active role in shaping legislation now before the General Assembly, and dealing with the business interests behind it, given his own private business interests.
The bills would let venture capital firms create business entities called “certified capital companies,” or CAPCOs, with the permission of McMahon’s agency, the Economic Development Corporation.
Insurance companies would invest money in a certified capital company. In return, they could get $100 million in tax breaks over 10 years if they invested $100 million under the supervision of the Economic Development Corporation.
McMahon said yesterday that he doesn’t even like the idea of certified capital companies.
He said the business interests pushing the idea have indeed identified a real problem in Rhode Island, a shortage of investment funds available to companies in their earliest stages.
But McMahon said that the CAPCO approach “is a very expensive, very inefficient way to solve that problem. I am opposed to CAPCO as it is presently proposed.”
A venture capital firm called Reservoir Capital has a $5-million investment in RockPort, McMahon’s company, which manages about $100 million that is primarily invested in new companies, ethics officials have said. Reservoir, in turn, invests in at least one company that is backing CAPCO legislation.
If the CAPCO legislation passed, a company linked to Reservoir might apply to McMahon’s agency, the Economic Development Corporation, for certification to do business in Rhode Island. That gives Reservoir what the commission staff called “an indirect financial interest” in the passage of the legislation.
But based on the information McMahon gave the commission staff, the ethics panel voted unanimously that the chance of McMahon benefiting financially from his actions as a public official “is too remote and in some instances too hypothetical” to violate the state Code of Ethics.
McMahon was one of RockPort’s founders, and had an active management role as a partner in RockPort, “monitoring deals,” serving on its investment committee, receiving a salary and having a stake in the company, he said in his letter to the commission.
But he said that as of Dec. 31, when he took his state job in the Carcieri administration, he “ceased having any active management role” in RockPort. He said he reduced his limited partner’s commitment from $450,000 to $250,000, reduced his share in the profits, and kept his general partner’s investment at $50,000.
McMahon said he is trying to raise every possible ethical question about his role himself, and bring it before the Ethics Commission, to make it clear that he is operating properly.
“I don’t want anyone ever to say, ‘McMahon used state resources to further his financial interests,’ ” he said.
Venture capital companies raise money from big investors, such as insurance companies, and invest it in promising small companies, hoping to profit when they succeed and grow. They usually invest in companies that are riskier than established companies that are already publicly traded, and expect bigger profits because of the risks they take.
