Wednesday, July 18, 2012

Barack Obama's $2 Billion Taxpayer Paid For Crony Investment Fund

By Nathan Vardi

Despite huge losses, the White House is again betting billions of taxpayer dollars on venture capital deals.

Jonathan Leitersdorf is a wheeler-dealer with Israeli and British passports—and a reputation in New York for living large. He once reportedly spent $30 million building a 177-foot yacht and used to own an 11,000-square-foot Manhattan party loft, which had a memorable cameo in Sex and the City. Jerry Seinfeld got married there, and Chelsea Clinton used it for a birthday bash before Leitersdorf sold it to billionaire Ronald Burkle. But when Leitersdorf needed cash to start a venture capital firm, he turned to a much more pedestrian set of partners for backing: U.S. taxpayers.

Their deep pockets had a lot to do with it. His L Capital Partners set up shop in Manhattan and Tel Aviv, and scored a license as a Small Business Investment Company from the federal government’s Small Business Administration. That designation let Leitersdorf nab more than $96 million in Washington-backed securities and loans, which he deployed between 2004 and 2010 for investments in medical technology and security companies in the northeastern U.S. He and an Israeli bank put up $26.5 million.

The results? A disaster for taxpayers. Like a lot of risky ventures, L Capital failed, and it now owes the SBA most of the money, according to court documents. The feds moved to liquidate L Capital in February, saying the assets had declined in value substantially. Neither Leitersdorf nor the SBA would comment, but in March L Capital did not oppose the SBA’s request to be appointed receiver of the firm.

This was hardly an isolated fiasco. The SBA currently budgets that taxpayers will lose $2.4 billion from the now defunct SBIC Participating Securities Program, which included firms like L Capital and encouraged equitylike investments in early-stage companies. In the last nine quarters the SBA has transferred 12 participating securities SBICs owing $457 million to liquidation and pursued lawsuits against another 13 SBICs for $500 million.

Read the rest here.

(ht Iris Mack)

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