A BLADE INVESTIGATION

Millions of dollars lost in Ohio’s pursuit of jobs

State often unaware of loan, grant recipients’ failings

Buckeye Silicon’s chief executive officer, Harrison Choi, at the company’s mostly empty facility in South Toledo, denies that his firm has engaged in any wrongdoing.

THE BLADE/KATIE RAUSCH
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First of three parts

A stillness fills the air at Buckeye Silicon’s headquarters.

The machinery in the company’s nearly empty South Toledo warehouse is dormant. The offices that line the back of the building are vacant, and a calendar strewn across a desk is dated November, 2011.

The firm’s two employees rarely can be found at the facility, and a for-sale sign is planted in the front lawn.

There are few signs of life in the 33,000-square-foot building other than ratty bird nests that poke through the warehouse ceiling and droppings that have fallen onto a piece of equipment.

Three years after it received almost $3 million from the state of Ohio, Buckeye Silicon has failed to launch. The company never produced the 50 metric tons of polysilicon a year it touted while courting the state and has not created the nine jobs it promised.

Although state officials said they vetted Buckeye Silicon and its executives, they failed to find that the firm’s parent company is registered to a mailbox in Las Vegas — something a Blade reporter uncovered with a 15-minute Internet search and a phone call.

Today, Buckeye Silicon’s parent company is nothing more than an empty warehouse in California.

A Blade investigation of Ohio’s taxpayer-funded job-creation efforts discovered that businesses did not create thousands of jobs that state documents said they did. The probe also revealed that Ohio development officials awarded tens of millions of dollars to companies they knew little about. Much of that money is now lost.

A review of loans and grants awarded from July, 2007, to June, 2012, shows multiple instances in which state officials were unaware of problems at companies or with their executives. The issues span the administrations of former Gov. Ted Strickland, a Democrat, and Gov. John Kasich, a Republican.

Among the findings of the investigation:

■ Buckeye Silicon is one of more than a dozen examples of a breakdown in the vetting, oversight, and management of loans and grants awarded to companies.

■ The state routinely invests in businesses that have financial problems and legal troubles. It also awarded loans and grants to companies whose executives were hefty political donors or were connected to top politicians in Columbus.

■ About 50 percent of the companies that received grants to create jobs failed to live up to their state job commitments. Those businesses were paid $45.5 million, which is half the grant funding the state awarded to spark job growth.

■ Many state records detailing job creation related to grant funding contained inaccuracies, which skewed the total number of jobs created by 25,000.

■ In total, 25 percent of the firms that received loans issued during the five-year period needed more time to complete projects, couldn’t make payments on time, or closed. Those 51 loans represent $79.2 million, or about one-third, of the $235.8 million that was paid to companies.

The Blade obtained public records and internal financial documents of state-funded companies, spoke with current and former employees at those firms, and pulled court documents to report this series.

A spokesman for Mr. Strickland said he was not available for comment, and Mr. Kasich did not comment.

David Goodman, director of the Ohio Development Services Agency — the state entity responsible for monitoring Ohio’s loans, grants, and tax credits — said his office overhauled how it awards and tracks taxpayer funding in fall, 2012. But The Blade found that many of the procedures that caused the state to overlook the financial problems of businesses remain in place.

“We’ve made significant strides,” said Mr. Goodman, who added that the state is more aggressive in recouping investments that sour. “I would say we’re never going to be completely there, but I definitely think we make better investments than we ever have.”

Buckeye Silicon’s chief executive officer, Harrison Choi, at the company’s mostly empty facility in South Toledo, denies that his firm has engaged in any wrongdoing.

In the shadows

Today, many of the procedures that resulted in governmental lapses are now being performed out of the public’s view.

At the behest of Governor Kasich, the Ohio Department of Development was eliminated and morphed into the downsized Ohio Development Services Agency in September, 2012. Criticism of the Department of Development was a staple of Mr. Kasich’s gubernatorial campaign in 2010.

The new agency — per the Republican-backed legislation that created it — contracts some of its services from JobsOhio, a nonprofit that was created by the state, seeded with taxpayer money, and shielded by law from public scrutiny.

JobsOhio now vets and collects information about companies that request state assistance. The information JobsOhio amasses is reviewed by the Development Services Agency. Neither entity would comment on whether that information is a public record.

Unlike the Development Services Agency, JobsOhio is not required to disclose the details of its activities to the state auditor or the General Assembly.

JobsOhio, whose work is largely conducted behind a veil, provided The Blade with a statement about its practices but would not go into detail about its procedures.

“For state programs, JobsOhio works together with [the Development Services Agency] throughout the project; this includes project vetting by JobsOhio’s managing directors and project managers and project reviews with [the agency’s] leadership,” part of the statement read.

When deals go bad, the state has a difficult time collecting the taxpayer funding that was given to companies, Ohio Attorney General Mike DeWine said. Severely troubled firms typically have no money or assets to pursue.

Since fiscal year 2009, state development officials have asked the attorney general’s office to collect $47.5 million in bad loans and grants. The attorney general’s office collected $2.6 million during that period as of Oct. 16. The collections, which include accounts sent to the attorney general before 2009, can go on for years.

“Sometimes, these deals are cut and they shouldn’t have been cut,” Mr. DeWine, a Republican, told The Blade.

A for-sale sign stands outside Buckeye Silicon in South Toledo, which received more than $3 million in state loans and is now in default on them.

Coming to Ohio

Buckeye Silicon set up shop in Ohio because of the cash the state offered. Harrison Choi, the company’s chief executive officer, said the state was generous when the firm was rounding up funding.

“We surveyed many different states that offered good packages for the renewable companies,” Mr. Choi said in an interview with The Blade.

Buckeye Silicon’s executives said their Toledo facility was capable of producing high-grade polysilicon for use in solar panels. Polysilicon is one of the key ingredients used to generate electricity in solar panels.

The state was eager to land a deal with Buckeye Silicon even though red flags were raised in the document that urged state officials to fund the firm:

“Much will depend upon the success of Buckeye’s technology. If the technology is successful in the marketplace, there should not be any concerns regarding this loan. If the technology is not successful then the lender should have concerns. The historical financials are not sufficient to make a determinations of the strength of the loan.”

And there was another concern:

“The big concern on the projections ... is the expectation that sales will increase dramatically from FY 2010 [$5,000,000 in sales] to FY 2011’s expected $45,000,000. This seems aggressive. We requested from the company a response, but never heard anything by the time of the printing of this report.”

Despite these issues, Ohio development officials recommended that Buckeye Silicon receive a $1.3 million loan — money the state is unlikely to ever see again.

The Ohio Air Quality Development Authority granted the firm an additional $1.4 million loan in October, 2010, the same month Buckeye Silicon received its Ohio development loan.

Mr. Strickland was in a heated race with Mr. Kasich to keep his job as the state’s top official when Buckeye Silicon received its funding. Job creation was a top issue during the 2010 gubernatorial race.

The state also was in competition with California to lure Buckeye Silicon’s business, state records show.

Competition among states to attract or retain businesses that generate jobs is an ever-present concern, Mr. Goodman said.

“We have to compete with other states,” he said. “We have no choice in the matter if we want to help create an environment in the state of Ohio that is going to create jobs and economic opportunity for Ohioans.

“We have to do this.”

Issues elsewhere

Since it received state funding, Buckeye Silicon has been accused of fraud in a lawsuit filed by the Ohio Air Quality Development Authority.

The company’s founder, Mark Wu, also is under investigation by Hong Kong-based Mascotte Holdings Ltd., an international investment firm, for executing a dubious $150 million deal. The transaction involved the sale of polysilicon technology that’s similar to the machinery at Buckeye Silicon’s South Toledo plant.

The Development Services Agency placed Buckeye Silicon’s loan in default this month. To date, the firm has repaid the agency $33,044 of the $1.3 million it borrowed. Its last payment to the state was in February.

The firm also was asked to leave the University of Toledo’s Research Technology Complex in summer, 2011, because it had fallen behind $15,824 in rent. The university was slated to give Buckeye Silicon $400,000 but passed because the firm couldn’t prove its technology was capable of mass production.

“I look at this loan and I keep wondering, ‘Is this somebody who just stole money from the state?’ ” said Jeff Jacobson, vice chairman of Ohio’s air authority. “I really can’t see that they did anything.”

Mr. Wu, who is Buckeye Silicon’s chairman and the inventor of its technology, did not return repeated calls from The Blade. He resides in California.

Mr. Choi said he was unaware that Mr. Wu was under investigation by Mascotte and denied any financial wrongdoing by Buckeye Silicon. In a follow-up interview, Mr. Choi said he spoke with Mr. Wu about the investigation and maintained that Buckeye Silicon’s executives are innocent of any wrongdoing.

“We didn’t come here to intentionally bribe anybody, to make a fraud to any people in Toledo, Ohio,” he said. “There is no reason for us to come here unless we are determined to build our own business.”

Mascotte, however, is investigating Mr. Wu for just that.

In an August letter to its shareholders filed with the Hong Kong Stock Exchange, Mascotte stated it received information that suggests Mr. Wu “faked” the test results of polysilicon equipment the company purchased. The letter also states that Mr. Wu admitted to tampering with the equipment and resigned when he was confronted by the company.

State documents point to this technology as one of the reasons Ohio invested in Buckeye Silicon and said it was “proven at a new plant built in Taiwan.”

Lyn Tolan, deputy director of policy and communications for Ohio’s Development Services Agency, said she couldn’t determine whether state officials ever met with Mr. Wu because of turnover at the state development department. It’s unclear if Mr. Wu ever met with the state, records show.

Ms. Tolan refused to comment on whether the state was aware of Mascotte’s investigation of Buckeye Silicon’s chairman. The Development Services Agency placed Buckeye Silicon’s loan in default four days after The Blade asked it about the investigation.

If Buckeye Silicon or its executives do not repay the $1.26 million balance of the loan by Nov. 8, the attorney general will begin collection proceedings against the firm.

Warning signs

The signs of trouble were there, but Ohio didn’t see them.

Records at the California Secretary of State’s Office show eight companies were registered to the address of Buckeye Silicon’s parent company, Sphere Renewable Energy Corp., in Arcadia, Calif. At least three of those businesses, two of which were registered to Mr. Wu, were suspended by California’s Franchise Tax Board for not filing tax returns.

The suspensions occurred in September, 2007, and March, 2008 — more than a year before Buckeye Silicon received $2.7 million in loans from Ohio. The suspensions are not mentioned in state documents.

Ohio officials told The Blade they weren’t aware of the suspensions.

As part of the procedure for vetting loan applicants, the state relies on outside legal counsel to search for tax liens and pending court cases. That search does not include liens on related businesses or other firms that were owned or operated by an applicant’s executives.

Liens that have been paid and settled court cases also are not included in that information, a review of state documents found.

“Applicants are also specifically asked about pending criminal and civil liabilities,” Ms. Tolan said.

A search by The Blade of municipal, county, state, and federal court records revealed that Ohio awarded funding to companies that were connected to sizable lawsuits. Some of the cases were brought against the firms, their executives, or related business entities.

■ In one instance, the state knew about a lawsuit against Nilesen Gokay, head of Innova Inc., a laser technology company. The legal proceedings are mentioned in the company’s loan agreement. However, the document doesn’t mention that Ms. Gokay had a $110,982 lien related to the lawsuit filed against her in 2006.

Ms. Gokay signed a financial guarantee to back her firm’s $875,000 state loan in June, 2009. Innova, which closed, defaulted on its loan. State officials are trying to collect the money that was lent to the firm.

■ The Blade also found that the state awarded funds to companies owned by Cleveland businessman C. David Snyder when his firms owed taxes to the Internal Revenue Service, other states, and Ohio.

Mr. Snyder’s firm, Attevo Inc., an information technology company, received $1.1 million from the state development department in February, 2009. The Cleveland company did not pay its 2008 taxes in the United Kingdom, court records show. Although the firm missed a tax payment to the IRS the same year it received the loan, another business owned by Mr. Snyder received $2.4 million in state incentives from 2010 to 2012. Attevo’s state loan contract requires the firm to pay its taxes on time.

In an email to The Blade, Ms. Tolan wrote that the state now checks with the Ohio Department of Taxation before awarding grants and loans “when appropriate.”

The agency typically does not check with the IRS, Department of Labor, or the Bureau of Workers’ Compensation prior to disbursing funds to businesses that promise to create jobs.

“People will commit fraud. People will lie to you. People will give you documents that look real and they might not be. That happens,” Mr. Goodman said. “We try to make sure that we have the protections in place.”

Legal action

In its lawsuit against Buckeye Silicon, the Ohio Air Quality Development Authority states that the company “failed to provide evidence that its polysilicon manufacturing equipment actually produces polysilicon.”

The suit also states the proceeds of the air authority’s $1.4 million loan were largely spent to buy equipment from one of Buckeye Silicon’s sister companies in South Korea. The $1.3 million loaned from the former Department of Development also was spent on equipment from South Korea.

The suit states the firm paid one of its owners $100,000 from state funds, which “was disguised as broker’s fee,” and the company had no income on its profit-and-loss statements for 2011 and 2012.

“When questioned about the transaction, Buckeye Silicon’s CEO claimed to know little about the purpose of the fee but later admitted that the money went directly to defendant Wu,” the air authority lawsuit states.

Mr. Choi said the $100,000 fee was paid to R&J Development LLC, which he said conducts real estate business. He said he didn’t know detailed information about R&J or its location.

The Blade discovered that R&J is registered to the same Las Vegas mailbox as Buckeye Silicon’s parent company. It also found that R&J is tied to the same empty warehouse in Arcadia, Calif., that the parent company lists as its address.

“It just started to smell really bad. It was already smelling really bad, and I was almost panicked as to our position,” Mr. Jacobson said of the air authority’s investment in Buckeye Silicon.

Much to his chagrin, Mr. Jacobson said the air authority received push back from state development officials before placing Buckeye Silicon’s loan in default. He said employees at the former Department of Development didn’t seem concerned about Buckeye Silicon and acted as if nothing were wrong.

“We just kept getting this thrown back at us that development wasn’t where we were,” he said. “It was like Charlie Brown and the football: We thought we were getting there and we weren’t.”

The air authority voted in September, 2012, to place Buckeye Silicon’s loan in default — a year before the Development Services Agency took any action against the firm.

Mr. Goodman, who started as the head of the Development Services Agency in March, said he hasn’t spoken with the air authority and wasn’t made aware of any push back its officials received while trying to collect Buckeye Silicon’s loan funds. The agency takes its fiduciary responsibility to the taxpayers seriously, he said.

“If they perceive something as pressure, there is not a whole lot I can do about it other than to say I’m not interested in the result — I’m interested in the process and making sure it’s appropriate and legal,” Mr. Goodman said.

Kris Turner can be reached at: kturner@theblade.com or 419-724-6103.