Complete 2012 forensic audit documents - Kansas Bioscience ...

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described Thornton as an effective leader and generally credited him with garnering support for KBA’s mission throughout the state. Even Thornton’s detractors credited him with a large role in the successful pursuit of NBAF. The culture of the office was further impacted for some employees by the reportedly demanding and difficult manner in which Jan Katterhenry managed her direct reports. BKD learned of instances in which Mr. Thornton made the decision to keep information from the BOD that most BOD members indicated in their interviews with BKD they should have been told. Most BOD members learned of the personal relationship between Mr. Thornton and Lindsay Holwick Thornton, who was KBA’s Director of Special Projects, when they received the Thornton’s wedding invitation in December 2010. However, Thornton and Lindsay Holwick Thornton had been involved in a personal relationship since October 2009. Governor Carlin asked KBA’s external legal counsel, Lathrop & Gage, to research applicable nepotism laws and regulations to see if any action needed to be taken because of the relationship. 24 However, the BOD should have been given the necessary information to have made those investigations much earlier in the Thornton’s relationship. A second instance involved Jan Katterhenry being named as a defendant in two 2008 lawsuits against her former employer, Epiq Systems, Inc., 25 related to stock option backdating allegations. Ms. Katterhenry indicated she told Mr. Thornton about the lawsuits as soon as she was notified and inquired if they should tell the BOD. Thornton indicated there was no reason to do so. BOD members interviewed by BKD indicated that this was something they should have been told. As Katterhenry was KBA’s CFO/COO, they would have liked to have had the opportunity to ask questions of her regarding the allegations. Based on the totality of comments shared with BKD by current and former employees and many individuals interacting with KBA from outside the organization, it appears that Mr. Thornton’s leadership style was problematic and overall did not garner the type and level of respect that is necessary for someone leading KBA. Tom Thornton resigned as CEO of KBA on April 13, 2011, as discussed later in this report. Milestones of the Operational Phase The major milestones in the Operational Phase are as follows: • KBA’s significant involvement in the NBAF project commenced – December 2006 • Announcement of NBAF siting in Kansas – December 2008 • Heartland BioVentures (“HBV”) initiated with the formation of the Advisory Board – January 2009 • KBA initiated the Cancer Cures Project – July 2009 • KBA approved $50 million investment in Kansas Bioscience Growth Fund – October 2009 24 Lathrop & Gage determined that no action was required as Lindsay Holwick Thornton’s direct line of reporting had already been taken from Tom Thornton and given to Jan Katterhenry. 25 The July 2008 suit settled in April 2010 and resulted in a monetary payment by Epiq Systems, but included the denial of any liability, wrongdoing or improper conduct. The September 2008 suit was voluntarily dismissed in November 2008. 16
• KBA investment in three venture capital funds under the Kansas Bioscience Growth Fund – March 2010 through October 2010 • Tom Thornton resigned – April 2011 • KBA headquarters moved to the Venture Accelerator building – May 2011 INVESTMENT PROCESS The review of KBA’s investment process was one focus of BKD’s procedures, as was the review of specific investments. KBA has an established, standardized investment process for all potential grants or investments that are considered under a KBA program. Each program managed by KBA has its own unique program guidelines and application materials; however, the review process detailed below is the same regardless of the funding program, with the exception of Proof of Concept Investments less than $75,000. Application Assessment Initial assessments of all application submissions are made by an HBV staff member applying program guidelines and eligibility and investment criteria, and is based on a review of written submissions provided by the entity seeking investment. KBA rejects many opportunities at this assessment stage with an email or telephone call. The basis for rejection varies, but includes the perceived lack of viability, the existence of other established and accepted competing products or services, a lack of conformance with KBA’s then current strategic direction for investments, and the lack of budgeted funds for the specific program under which the application is submitted. The aim is to qualify submissions quickly before either party allocates and uses significant resources. The submitter of each rejected investment has the opportunity to request a debriefing session with the HBV staff member and is given the opportunity to reapply with a modified submission. Scientific and Financial Due Diligence All eligible applications are subjected to scientific and financial due diligence, among other evaluation criteria required by the program’s guidelines. HBV staff members conduct due diligence on most investment opportunities but may also choose to contract with outside parties to provide additional capabilities in unique circumstances, such as the review of specialized science and technology for the Eminent Scholars program. During the scientific and financial due diligence, HBV staff discuss the opportunity in weekly deal flow meetings. If it is determined that an opportunity is potentially suitable for investment, an initial Investment Recommendation is prepared for presentation to KBA’s Investment Committee, a standing committee of the BOD. The Investment Recommendation is forwarded to Investment Committee members five to seven days prior to the scheduled Investment Committee meeting to give directors sufficient time to review the Investment Recommendation and formulate their questions. David Vranicar, President of HBV, and other members of HBV staff indicated that Mr. Thornton rarely attended deal flow meetings and would often first become aware of an investment opportunity through his review of the Investment Recommendation prior to its submission to the 17
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Page 34 and 35: Table of Contents INTRODUCTION ....
Page 36 and 37: Other Employment Decision Allegatio
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Page 40 and 41: KBA again appeared before the Comme
Page 42 and 43: ENGAGEMENT APPROACH Interviews Inte
Page 44 and 45: • Kent Glasscock - President Nati
Page 46 and 47: Computer Forensics Computer hard dr
Page 48 and 49: START-UP PHASE KBA has operated und
Page 50 and 51: State University the proposed grant
Page 54 and 55: Investment Committee. All current H
Page 56 and 57: The program goals are to: 1) recrui
Page 58 and 59: Through June 30, 2011, three Rising
Page 60 and 61: grants or bonds. KBA also works wit
Page 62 and 63: center is a public and private coll
Page 64 and 65: Some individuals BKD interviewed ob
Page 66 and 67: The Texas Consortium also requested
Page 68 and 69: Accreditation Council for Graduate
Page 70 and 71: $581.8 Million Funding Cap Breakdow
Page 72 and 73: • Tom Thornton - President, Illin
Page 74 and 75: divine interVentures’ Bankruptcy
Page 76 and 77: Sullivan indicated that everything
Page 78 and 79: On January 11, 2011, Mr. Coburn ind
Page 80 and 81: CHANGE OF EMPLOYMENT STATUS OF CFO/
Page 82 and 83: Ethics Investigation Regarding Clay
Page 84 and 85: As a result of the possible violati
Page 86 and 87: large enough to meet KSU’s needs
Page 88 and 89: On January 9, 2007, KBA’s BOD aut
Page 90 and 91: The Kansas City Area Life Science I
Page 92 and 93: The committee that reviewed the arc
Page 94 and 95: Monthly payments for Series 2009A a
Page 96 and 97: If KBA is able to maintain the abov
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Business Development: HBV has a net
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Beginning in August 2009, Ryan Whit
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offered by KBA and the federal gove
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On June 8, 2010, ICM announced that
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However, the EarCheck product langu
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Furthermore, HBV Director of Commer
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industry dating back to Marion Labo
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Kansas’ #5 Ranking in Top 10 Stat
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merger, acquisition or other restru
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In summary, it appears that Lindsay
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Allegations have been made that the
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and interview. As previously stated
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Computer Solutions’ invoice detai
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After the RFQ evaluation, Ennis Knu
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venture firms that will co-invest a
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include only those guests determine
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management of KBA-owned facilities
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Audit. After additional requests of
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Mr. Eisenbrandt, Thornton’s attor
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Ms. LoScalzo further recalled that
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Based on these findings, Buck Consu
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In addition to base compensation an
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Tom Thornton Overpaid Car Allowance
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The following expenses are discusse
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either version, contradictory to po
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KBA Meeting Expenses In general, wi
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Furthermore, the required supportin
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Jan Katterhenry was reimbursed twic
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The agreements state that Akin Gump
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Midwest Research Institute Midwest
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Mr. Bret Healy Mr. Healy was origin
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Ennis Knupp & Associates, Inc. KBA
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Cedar Creek Development VI, LLC Ced
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approval. The executive staff will
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General Ledger Classification Gener
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Additionally, KBA’s BOD approved
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Subsequently, on April 4, 2011, KBA
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Cary Nourie Tom Thornton worked wit
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Tom Churchwell Tom Thornton sat on
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KBA’s Response: KBA management wi
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member of KansasBio since 2006. Mem
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statements, capital charts and payr
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Recommendation: The BOD should cons
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RELATIONSHIP APPENDIX 151
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KU Center for Research, Inc. Associ
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APPENDIX B
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Two specific software programs were
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used to remove data from a system i
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Temporary Internet Files and Cookie
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EXHIBIT 1 CCleaner Product Informat
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EXHIBIT 2 Microsoft Word Files from
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Thursday, April 14, 2011 Gov. John
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Kansas Bioscience Authority applaud
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Transition plan.docx
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Personnel Director of Marketing and
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EXHIBIT 4 Archive.PST Folder Schema
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Thornton Laptop Windows Shortcut Fi
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USBStor ControlSet001\Enum\USBStor
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EXHIBIT 8 Windows Shortcut Files Po
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APPENDIX F
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600 BKD Professional Hours through
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