A Middlebury company that received more than $500,000 in economic development loans from the state is on the verge of bankruptcy. Workers haven’t been paid in weeks, and the Vermont Department of Labor is investigating the company.
eCorp English was lured from France to Vermont by generous loans and investments from the Vermont Economic Development Authority (VEDA), the Vermont Seed Capital Fund and other quasi-public funding sources. The company, which provides English language training for global companies, brought 35 new jobs to Middlebury and promised to add 100 more by 2013.
Gov. Peter Shumlin cut the ribbon himself at the company’s grand opening last March and hailed it as the type of business that would ensure “our kids and our neighbors have a bright economic future in this state.”
But, as reported by the Addison County Independent last week, eCorp is now on life support, and officials are scrambling to explain what went wrong.
“It has taken a long time for them to get their product launched,” VEDA CEO Jo Bradley tells Fair Game. “Obviously we wouldn’t have made the loan if we thought this was going to happen.”
VEDA approved loans totaling $275,000 to the firm in October 2010. When eCorp lost out on $5 million in venture capital it had banked on receiving last summer, VEDA stepped in with another $250,000 as a “bridge loan” to keep the company afloat. Most of that money has been spent, Bradley says, and now eCorp is asking VEDA to wait a year before collecting any payments on the loan.
On top of that, the Vermont Seed Capital Fund, a $5 million pot of public money for investment in start-up companies, made a $200,000 equity investment in eCorp. Fund manager David Bradbury says eCorp looked like a solid investment that had successfully sold its language training products in France and Malta, but found itself in a “classic cash-flow crunch.” Bradbury says he’s “very concerned” about the situation — both for the fund’s investment and for eCorp employees.
Still, he says, “The patient still has a heartbeat, so I’m not ready to do an autopsy yet.”
In the meantime, eCorp’s employees aren’t getting paid — and five recently quit for that reason. Company founder, director and CEO Deborah Schwarz concedes payroll is two weeks overdue. But Vermont Labor Commissioner Annie Noonan says her office has been receiving calls for months from employees who haven’t received compensation.
State Sen. Tim Ashe (D/P-Chittenden), vice-chair of the Senate Committee on Economic Development, Housing and General Affairs, says he’s also heard from numerous disgruntled eCorp employees and vendors who haven’t been paid for services rendered.
Noonan confirms the DOL is investigating possible wage and hour law violations based on complaints from a half dozen current and former employees and expects to have some answers in the next few weeks.
“If the wages are not paid, we will bring enforcement action against the company,” Noonan says.
Schwarz explains that eCorp’s move to Vermont coincided with development of a new language training platform meant to expand eCorp’s global reach and grow the business. The business plan relied on $5 million in venture capital that didn’t come through, delaying launch of the new system and causing the cash-flow problems.
That new platform recently launched in China and is ready for prime time, Schwarz says, but it will be three to six months more before eCorp is cash-flow positive. In the meantime, eCorp has laid off two full-time managers and five part-time employees.
Short term, Schwarz and her two fellow directors have pledged to put $600,000 of their own money into the company if creditors agree to defer loan payments for one year.
“The three directors have approximately four times the amount of money in the investment as the state. So if it’s a boondoggle, then we’re the ones who are going to suffer the most,” Schwarz says. “The thing to do is for everyone to stay calm and supportive. Give us the time to stay and succeed.
“One way or another,” she promises, “this situation ends this week.” Translation: Either creditors will accept the company’s new terms or eCorp English will close.
By all accounts, loan defaults of the eCorp variety are relatively rare for the state. VEDA’s loan loss rate is just 1 percent — out of $160 million in total assets. Bradbury says the Seed Capital Fund has invested in nine firms since launching in May 2010, and adds, “We haven’t had one go belly up, but this one is of grave concern.”
Meanwhile, workers pointed out to Ashe that the company is still advertising job openings even though it can’t make payroll. One such job posting, for a software engineer, was still on the company website Tuesday, promising applicants “competitive salary,” “full benefits package,” “a top-notch emerging company culture” and “an environment in which developers can thrive and grow.”
Schwarz admits that characterization of the work environment was perhaps too cheerful and plans to tone it down.
Ashe argues that when the state makes bad investments, it undermines the integrity of economic development programs and ties up money that could be better invested in broadband, scholarships or other priorities. To remedy that, he is considering legislation that would require internal control audits for such lending programs.
“We need to make sure we’re not creating situations where the state is playing a role in allowing employees to get screwed over,” Ashe says.
(Disclosure: Tim Ashe is the domestic partner of Seven Days publisher and coeditor Paula Routly).
PAC Man vs. Donkey King
Republican Kurt Wright should have reviewed his own past before lambasting his Democratic opponent for bringing outside money into the Burlington mayor’s race. If he had, Wright might have pulled his political punches.
On January 30, Miro Weinberger hopped a plane to Washington, DC, for a fundraiser headlined by U.S. Sen. Patrick Leahy that was attended by numerous current and former Hill staffers. He returned to Burlington the next day with $8480 for his campaign.
When the Wright campaign learned of the jaunt, it went after Weinberger for bringing outside money and “Washington politics” to a race that should be all about Burlington. Wright pledged that he would not accept any money from outside Vermont and would return donations sent by political action committees, or PACs.
The Wright camp wants to portray Weinberger as a jet-setting political insider who’s letting outside special interests influence an otherwise wholesome Vermont election. And, with Congress’ approval rating at an all-time low of 9 percent — that’s less popular than polygamy, according to one Gallup poll — “Washington” is a four-letter word these days.
There’s one problem with that narrative. Wright, who serves double duty on the Burlington City Council and in the Vermont House of Representatives, has already fed at the outside-money trough.
According to public campaign reports, Wright raised a combined $850 from four out-of-state corporate PACs during his 2010 campaign for state representative. He accepted $200 from each of the following: New York City-based Pfizer PAC; Anheuser-Busch Co. PAC of Whitehouse Station, N.J.; and ENPAC, the corporate PAC for Vermont Yankee owner Entergy, in Jackson, Miss. Wright also accepted $250 from GlaxoSmithKline PAC, which is based in Phoenix, Ariz.
ENPAC and Pfizer also contributed to Wright in 2006. On a campaign finance report for that race, where candidates are supposed to disclose the donor’s address, Wright’s treasurer wrote of Pfizer: “Unknown (not on check). See zip code.”
Apparently Wright won election to a glass House.
Granted, $850 isn’t a lot of money. Nowhere near Weinberger’s $8480 haul from DC. But as a percentage of Wright’s total campaign expenditure in that 2010 House race — around $4000 — it accounts for almost a quarter of the cash. Wright intends to raise $40,000 for his mayoral campaign.
The Weinberger campaign didn’t miss its opportunity. Spokesman Mike Kanarick says that Wright’s “hypocrisy is staggering and offers yet another example of Kurt Wright saying one thing in Burlington and doing the opposite when he thinks no one is watching.”
Wright contends there’s a difference between raising outside money for a mayoral campaign and for a state legislative race — and that the mayor’s race “should not be controlled by out-of-state interests.”
But it’s OK to have state legislators influenced by them?
“I think most legislators take money from those groups,” Wright says of corporate PACs.
Wright also makes the point that he didn’t solicit those out-of-state checks, whereas Weinberger went to DC specifically to fundraise. “I didn’t ask for it, and it had no influence on me whatsoever in any votes that I cast,” Wright says.
What about Weinberger’s DC donors? What could they possibly want from a Mayor Miro? Kanarick says attendees were mostly Vermont expats and people with ties to the state — former Leahy staffers, old friends and family.
That may be true, but at least four of the 39 attendees on a list supplied to Fair Game are also registered lobbyists, according to OpenSecrets.org, three of whom passed through the revolving door from Leahy’s office to K Street. The biggest check — $1000 — came from Michael Berman, president of the Duberstein Group, whose clients include BP, Goldman Sachs, Comcast and Time Warner. The others cut checks for $100 to $250.
Were those lobbyists trying to buy influence in Burlington City Hall? For $250? Not likely. Nor is $200 from Pfizer or Entergy likely to sway Wright on crucial votes.
But, friends or not, Hill staffers and DC lobbyists don’t exactly scream “fresh start.” And it’s hard to claim your current campaign is all about Burlington when your last race benefited from unsolicited corporate checks sent from Mississippi, New Jersey and Phoenix.
Maybe it’s time for some new campaign slogans.
Since Howard Dean appointed him in 1997, Attorney General William Sorrell has cruised to reelection every two years by margins that would make Vladimir Putin envious.
But he’s had a string of high-profile court losses, the most recent of which was the ruling on Vermont Yankee. The buzz in Montpelier is that the seven-term incumbent is vulnerable to a challenger this year.
Who would step up?
One oft-mentioned name is state Sen. Vince Illuzzi (R-Essex/Orleans), the media-adoring Essex County state’s attorney who came to Montpelier the same year Ronald Reagan became president.
Would Vince venture out on that limb?
Asked point blank, Illuzzi throws his head back and laughs, predicting that if he did, everyone would start “sawing the branch off.”
“You’ll have to stay tuned,” Illuzzi says.