The Missouri Department of Economic Development’s Business and Community Services Division was stung in a state audit for its handling of the Mamtek development plan in Moberly.
State Auditor Tom Schweich this week released the findings, which rated the division’s performance as fair, the second-worst out of four ratings given by the auditor’s office.
Citing gaps in due diligence, the audit was particularly critical of the failed Mamtek project, a $39 million investment plan involving public financing that never materialized in the north central Missouri town of roughly 14,000.
According to a news release from the auditor’s office, DED officials downplayed the agency’s role in the controversial Mamtek project, which called for construction of a manufacturing plant and the employment of 600 to produce an artificial sweetener. Schweich’s audit and information uncovered by legislative hearings and news reports showed otherwise, the release said.
“Due diligence and consistent oversight continue to be challenges for the Missouri Department of Economic Development,” Schweich said in the release. “Following the problems at Mamtek, BCS did implement improvements to its due diligence process; however, as the audit indicates, further improvements are necessary.”
Schweich said the BCS prepared a proposal – accepted by Mamtek in May 2010 – under which the company would be eligible for some $17.6 million in state incentives. Two months later, the BCS allocated $28 million in recovery zone tax-exempt bond authority to the city of Moberly, and the Industrial Development Authority of Moberly issued $39 million in revenue bonds to finance a sucralose manufacturing plant for California-based startup Mamtek U.S. Inc.
The project quickly fell apart when neither Mamtek nor the city of Moberly could make an August 2011 payment on the bonds the development authority had guaranteed. The company filed bankruptcy in January, the audit said, and now the unfinished facility, unused equipment and commercial real estate is
scheduled for auction by Heritage Global Partners on Oct. 24.
Mamtek U.S. chairman and CEO Bruce Cole has since been charged with securities fraud related to the sale of Moberly’s municipal bonds. Cole was arrested in Orange County, Calif., on Sept. 18 and is being held in the county jail, according to the Orange County sheriff's department.
“The failure of the $39 million investment in Moberly was a tragedy for that community,” Missouri Attorney General Chris Koster said in a separate news release. Koster and Randolph County Prosecuting Attorney Mike Fusselman are prosecuting Cole. “We have alleged that Mr. Cole deceived the city and the investors about the project and unlawfully profited from the investment by taking at least $700,000 from the bond money for his own personal use.”
Koster’s charges also allege that in securing financing, Cole misrepresented or failed to disclose certain facts, such as the use of hazardous materials, that would affect an investor’s assessment of the viability of the Moberly plant.
Other state audit findings:
- Tax credits issued across multiple programs between fiscal years 2000 and 2011 exceeded $134 million; the audit suggests developers “stacked” tax credits without generating additional economic activity and could have received up to $3.27 in federal and state tax credits for every $1 of project costs.
- The state could have saved $68 million in tax credits issued, if certain federal cost containment features were in place.
- The DED paid $150,000 – more than half of which was allocated to the BCS division – to cover about 160 flights for staff of the governor's office; BCS employees were only represented on 54 of the 121 flights the auditor reviewed.
Joplin Tri-State Business Journal Editor Carole Liston contributed to this report.
