A Kick in the Hindsight

August 3, 2006

By David Martin


An independent investigation prompted by a Pitch article has determined that the Kansas Technology Enterprise Corporation could have conducted a more thorough background review before it invested $500,000 in state money in Kozoru, an Overland Park company.

The Pitch reported that Kozoru founder John Flowers lied about his education when he applied for KTEC funding in 2004 ("A Million Little Pixels," May 4, 2006). Flowers claimed that he held graduate degrees from the University of California-Berkeley and the University of Texas-Austin. The Pitch found no record that Flowers attended either institution.

Flowers made other dubious claims. Kozoru's KTEC application stated that he helped create the original version of 777-FILM. Moviefone founder Russ Leatherman told the Pitch through a spokesman that he'd never heard of Flowers.

On May 4, the day the Pitch story appeared, KTEC announced that it hired the law firm of Gilmore & Bell to assess its investment process. KTEC is a state-owned corporation that spends lottery and racetrack proceeds on economic development.

According to a three-page memorandum released July 24, Gilmore & Bell determined that KTEC followed its procedures. Yet the evaluation faulted the agency for not conducting a more rigorous background check of Flowers. Investigators determined that KTEC staff relied heavily on second-hand information and skipped opportunities to speak with Flowers' references.

"With the benefit of hindsight," the report states, "it appears that this portion of the due diligence process for the Kozoru investment could have been more complete."

Gilmore & Bell did not propose substantial changes to the way KTEC conducts business, prompting KTEC officials to hail it as a validation. "We have and will continue to strive to develop an investment program with high professional standards," President and CEO Tracy Taylor said in a statement.

But KTEC, it turns out, did not want a sweeping investigation. The Gilmore & Bell memo spends two paragraphs describing the limits of the investigation. Most significantly, the lawyers did not evaluate the accuracy of the Pitch article or the information Flowers provided when he received funding.

Kevin Carr, KTEC's chief operating officer, declined to elaborate on the reasons that the evaluation was so narrow in scope. The report, he told the Pitch, speaks for itself.

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