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Something Ventured

...but what is gained when Meridian Management Group invests state money in minority businesses?

Christopher Myers
The Meridian Management Group building on East Baltimore Street
MMG officers (clockwise, from top left) Dyck Moses, Stanley Tucker, Anthony Williams, Catherine Lockhart, Randy Croxton, Timothy Smoot
Christopher Myers
The State Department Of Business And Economic Development's James Henry (left) and Chris Foster
The check Tucker wrote to pay fines for illegal corporate campaign contributions.

By Edward Ericson Jr. | Posted 5/3/2006

Trust Stanley Tucker.

The state legislature does. On March 10, 2005, it unanimously extended his company’s $1.3 million contract with the Maryland Department of Business and Economic Development.

The lawmakers decreed that the contract, which Tucker has held since 1995 and which has never been put out to bid, may run until 2012. And then it may be extended—until July 2022.

“I’d say it’s unusual, to put it even lightly,” Chris Foster, deputy secretary of the Department of Business and Economic Development.

Ordinarily, in Maryland and elsewhere, state agencies put their contracts out to bid and pick the most qualified or lowest-priced bidder. In general, any Maryland state contract worth more than $200,000 must be reviewed and ratified by the state Board of Public Works—the governor, the comptroller, and the state treasurer. Normally, the state legislature doesn’t decree who gets state contracts. It does in Tucker’s case.

“The statute specifically says who will get the contract,” says Mary Jo Childs, general counsel to the Board of Public Works (which has never ratified Tucker’s contract). “I’m trying to think of other situations in which sole source is authorized.”

Tucker says other states should emulate Maryland. “We are a national model,” he says. “That’s why you’re not going to see anything like this.”

Tucker operates Meridian Management Group, a self-described private financial “conglomerate” meant to act as an investment bank to the state’s minority-owned business community. Tucker says that MMG’s loans and investments generated $3.7 billion in economic impact to the state between 1995 and 2004, including $121.4 million in state tax revenues. Tucker cites studies from Towson University’s RESI and the Sage Policy Group indicating that his investments created more than 6,000 jobs in Maryland, though those figures have not been audited and Tucker declined to share copies of the studies.

Yet, in managing a state loan fund, MMG loses about $750,000 of taxpayer funds each year to bad loans and associated expenses, according to state budget records. And it appears that it may have run through as much as $29 million of additional taxpayer money through a unique venture capital fund—one that owes its existence to changes in both state and federal law that Tucker himself engineered. In February, the U.S. Small Business Administration placed Tucker’s venture capital fund—which was funded by $9.7 million in state money and $19.3 million in federal money—into liquidation, citing “capital impairment.” Put another way, the SBA is worried that it won’t be paid back.

Not to worry, says Tucker: “It’s really kind of an administrative kind of thing.”

From its neatly renovated offices inside two rowhouses on the 800 block of East Baltimore Street, MMG administers two separate venture capital funds: MMG Ventures LP, the fund now in liquidation, and Community Development Ventures, a nonprofit fund. Tucker’s firm also administers the state’s small- and minority-business loan program. MMG’s slogan: “Creating wealth via the efficient deployment of capital to underserved markets.”

Beginning in the 1970s, politicians began to respond to complaints in the African-American community that black-owned businesses could not compete for government contracts because they did not have the same access to capital as their white counterparts. State and local governments across the country implemented various programs to issue bonds and loans to minority contractors and other minority-owned businesses. Essentially, the programs are a taxpayer-paid subsidy to both the minority contractors and the financial institutions that back the bonds and loans, which are protected in case of loss. These programs are administered in most states by state employees.

Most of these programs lose money, some more than others. Typical commercial lenders might see a 3 to 4 percent default rate on their loans, says Timothy Smoot, MMG’s senior vice president and chief financial officer. MMG, by contrast, has a default rate of about 7 percent, he says. Other states lose 40 percent on their programs, though, Smoot asserts, and at higher overhead costs than the $1.3 million MMG annually bills the state of Maryland to operate its minority loan fund, called the Maryland Small Business Development Financing Authority, which people in the government usually shorten to MSBDFA. “It’s a very expensive market niche to lend money in,” says James L. Henry, managing director for financing programs at the state Department of Business and Economic Development, which oversees MSBDFA. Under MMG’s management, MSBDFA makes about 20 loans each year, recycling its $7.5 million in cash to create upward of $20 million in loans annually.

Maryland has thousands of small and minority-owned businesses that could use financing from the state. Under its contract, MMG is supposed to reach out to them constantly, making “substantive contacts” with at least 600 minority businesses each year. Yet, a few months after the legislature extended MMG’s state contract last year, when state auditors asked for the records of those contacts, they were told there were none.

“Consequently,” the auditors wrote in their report, “the Department was not aware of who the contractor contacted, nor was the Department in a position to verify, even on a test basis, the contacts reported.”

This was not very different from what state auditors wrote in 2001: “Although the Department concluded that the contractor had met the established performance standards for fiscal year 1999, there was a lack of documentation to support . . . that conclusion,” they wrote then. They also recommended that the Department of Business and Economic Development audit MMG periodically—something they had also recommended in their 1998 audit, citing similar record-keeping deficiencies.

Business and Economic Development officials promised to audit MMG every two years starting in 2001. In 2005, they said they would improve their monitoring of MMG. “We’ve discussed it with him,” Henry says.

But MMG has not been closely monitored in the past. Except for a few months in 1998 and ’99, when legislators held hearings and changed a state campaign-finance law in response to MMG’s actions, it has been trusted. “Why the trust?” MMG Vice President Anthony Williams asks, then answers. “It has been this [same] management team since 1981. It is unique in its capacity to manage programs.”

MMG appears unique in other ways, too: unique in its capacity to get legislation passed, for example, and unique in its capacity to avoid outside scrutiny. It is also unique in that in a state where black businesspeople still complain that they have little access to capital and few chances to bid on government contracts, Tucker and a handful of fellow political insiders appear to have little trouble landing government contracts and taxpayer-backed loans and investments to do with more or less as they wish.


MMG’s principles are no strangers to Maryland’s government. Founder, President and CEO Tucker, Executive Vice President and Chief Operating Officer Catherine Lockhart, Senior VP and Chief Information Officer R. Randy Croxton, and Chief Financial Officer Smoot are all former state employees. Tucker began his state service in 1981, taking over a 2-year-old MSBDFA loan portfolio that he says was in deep trouble. “When I came here there were 26 loans on the books, and 23 were in default,” he says.

Born in South Carolina, the son of a brick mason, Tucker came to Baltimore and earned his bachelor’s in 1969 from Morgan State University, where he played point guard on the basketball team. In 1979 he earned a master’s of science degree from Carnegie Mellon University in Pittsburgh, later saying his graduate studies inspired him to make his career financing underserved businesses. Tucker worked as a credit analyst at Baltimore’s now-defunct Equitable Trust Co. and served as vice president of the nonprofit Park Heights Development Corp. before taking his state job.

Upon taking on the fledgling, failing MSBDFA, Tucker assembled a team of young bankers, tracked down most of the debtors, and fought for more money in the legislature. Working with friendly legislators, many of whom belonged to the state’s Legislative Black Caucus, Tucker’s group expanded on its successes. “We’ve gone back to the General Assembly probably 22 times in 25 years, to try to enhance what we have,” Smoot says. Because of his team’s shrewd management, Tucker says, by the early 1990s the MSBDFA loan fund had ballooned to $24 million.

But Tucker had his eye on a federal Small Business Administration program that funded venture capital firms. Under the law, the government would invest up to $4 for every $1 in private money venture capitalists had invested. Tucker wanted to leverage state money to get quadruple that amount of federal money. But state money wasn’t considered “private capital,” so in 1992, he says, he asked then-Congressman Kweisi Mfume—who served on the House Banking and Financial Services Committee and the Small Business Committee—to change the federal law.

“We approached Kweisi,” Tucker says. “We needed the definition of private capital changed so that we can use public capital to leverage private capital.”

Mfume, now a candidate for U.S. Senate, says he can’t recall the specifics of the legislation he helped pass (he is not listed as a co-sponsor of the bill, the Small Business Equity Enhancement Act of 1992). “I worked with a number of civic groups,” he says. “One of the needs was this issue of undercapitalization.”

Little noticed at the time, the Small Business Equity Enhancement Act of 1992 allowed state funds to count as “private” for the federal SBA match. But the law would not permit Tucker to do so as a state employee. Tucker quit his state job; in 1994 Maryland legislators privatized MSBDFA and authorized the state Department of Business and Economic Development to invest $10 million of taxpayer funds in Tucker’s new venture capital fund.

By then, however, the SBA program Tucker hoped to join was in trouble. In the mid-’90s, a series of reports from the federal General Accounting Office detailed millions of dollars loaned to or invested with unqualified individuals—sometimes the wealthy friends and relatives of the fund’s managers. The government-backed venture funds—called Small Business Investment Cos. (SBICs) and, in the case of those investing in “socially or economically disadvantaged” businesses, Specialized Small Business Investment Cos. (SSBICs), were found to be speculating in real estate, oil and gas contracts, and other prohibited investments. A General Accounting Office report from March 1995 noted that of the 280 SBICs and SSBICs in existence then, 111—just under 40 percent—“have engaged in regulatory violations and misconduct”; 192 of the 280 funds were in liquidation, and they owed the federal government $790 million. It was not an auspicious time to be starting an SSBIC.

By 1994 the feds had stopped licensing new SSBICs amid a debate about how to define “socially or economically disadvantaged.” Many of the failing SSBICs, the GAO found, had expanded that definition to fit associates, “including officers and directors of the” SSBICs themselves.

While lawmakers and bureaucrats wrangled over how to manage the program, Tucker and company laid the groundwork for their new venture fund by setting up the nonprofit Maryland Corp. for Enterprise Development, now referred to by its acronym, McFed. Registered with the state in October 1994, McFed was designed to be a nonprofit conduit to funnel nearly half of the state’s $10 million investment—$4.7 million—into Tucker’s venture fund as “private” cash. The new enterprise was needed to conform to the federal Small Business Administration’s arcane regulations, according to W. Astor Kirk, McFed’s president. “They were kind of required [by] SBA to go that kind of route,” he says.

A former regional manager of the U.S. Office of Economic Opportunity, Kirk developed McFed’s official mandate: to help “economically or socially disadvantaged individuals or businesses, principally in the state of Maryland,” according to a history Kirk supplied. “And once I’d done all that, they twisted my arm to serve as president of the organization,” he says. He became president in 1997, replacing Tucker. Kirk was paid about $50,000 per year, plus expenses, to run the charity. Investment gains from the venture fund were supposed to pay for McFed’s ongoing operations.

In 1996, Congress terminated the SSBIC program altogether. But MMG Ventures was licensed anyway, apparently becoming the only specialized small-business investment company in the United States, past or present, allowed to count state money as private.

Tucker testified at a hearing of the U.S. Senate Small Business Committee in 1997 that his company’s “investment philosophy draws upon the strengths and professional backgrounds of its managers, which represent a combined 70 years of experience in venture capital investing, commercial lending, business development, finance, and accounting.”

In fact, on the day it was licensed, MMG’s managers had no documented experience yet as private venture capitalists. They were learning on the job.


“The fact of the matter is, this is not appropriate—to be gambling taxpayer funds on companies that are not promoting the economic development of Maryland,” then-Del. Robert Flanagan (R-Howard County) said as he called for legislative hearings to look into MMG, according to a September 1998 story in The Sun. “It is ridiculous. It is absolutely ridiculous.”

Flanagan, now state secretary of transportation, had become interested in MMG after a state audit report criticized the company’s heavy contributions to state legislators, its out-of-state investments, and payments the company made to lease the building that the MMG partners themselves had purchased with a city government-backed loan.

From its first $3.7 million, MMG Ventures had invested $1.25 million in Sacramento, Calif.-based Z-Spanish Radio Network Inc. and $1 million to help finance the purchase of a Texas food processing company by a former Beatrice official named Dumarsais Siméus, according to the audit.

The legislature’s concerns were misplaced, Tucker explained at the time, because the federal Small Business Administration’s rules did not allow the state to restrict his fund’s investments to in-state companies. Of course he invested in Maryland-based enterprises as well. But the state of Maryland—even though a limited partner in MMG with nearly $10 million invested—had no right to tell Tucker what to do with the money.

Like fully private venture capital funds, SBA-backed funds look for small and medium-sized companies to invest in long term. The typical investment might be $500,000 to $2 million, and the venture capital fund usually wants to get its money back—plus interest—within three to five years.

After the business grows and profits improve, the venture fund might sell its piece of the company to another investor, who will pay much more than the original dollar amount. In this way, venture capital funds can generate returns of 35 or 40 percent over the prevailing inflation rate. But if a company goes bankrupt, the venture capital fund may lose its entire investment.

Somewhere between 8 and 12 percent of all private-sector venture capital funds lose all of their money, according to research reports. The figure is fuzzy because the funds are not regulated, and they need not report their results to anyone but their own investors. A study last year of venture funds that concentrated on minority-business investing concluded that the minority-focused funds generally were more profitable than the others. The researchers also discovered, however, that SBA-backed funds, and funds managed by inexperienced people, performed far under par.

Whether profitable or not for investors, venture capital funds can be lucrative for their managers. Like most private investors, the Small Business Administration allows its venture fund managers to annually take up to 2.5 percent of the total amount paid in by investors to the fund as a management fee, plus 20 percent of any profits on the investments made. MMG billed the venture fund $183,750 in 1996, and $367,500 in both ’97 and ’98, according to a fee schedule obtained by City Paper. In years to come, as more money came into the fund, those fees would balloon.

Though troubling to some legislators, MMG’s out-of-state investments and self-dealing rent payments were perfectly legal. The campaign donations were not.

MMG had contributed about $21,000 to local and state political campaigns between 1995 and ’98. The amount was more than double the allowable corporate contribution of $10,000 per election cycle. Tucker acknowledged his mistake to The Sun in the fall of 1998, saying that he had thought that the contribution limit was annual, not over four years.

Citing MMG’s illegal contributions, in 1999 the legislature passed a law banning state-dependent contractors from making political donations. Tucker by then had already promised that his company would not make any more political campaign gifts and reported himself and MMG to the Federal Elections Commission, which fined MMG and its principals a total of $8,900 for making about $6,000 in illegal corporate contributions to federal candidates.

But MMG gave again, state campaign records show: $200 to Del. Ruth Kirk (D-Baltimore City) in 2002 and $100 to state Sen. Ralph Hughes (D-Baltimore City) in 2004. Its principals, meanwhile, gave more than $42,000 to state and local candidates from 1999 through ’06. Most of the gifts were to members of the Legislative Black Caucus, usually in $100 denominations totaling between $500 and $2,000. MMG’s staff also gave $1,500 to Lt. Gov. Michael Steele and $1,545 to Baltimore Mayor Martin O’Malley. Their largest recent donation, on Jan. 4, consisted of seven checks totaling $1,950 to Gov. Robert Ehrlich.

MMG officials declined to respond to questions about the company’s political giving.

After the brief controversy in 1998-’99, state legislators paid little attention to MMG’s venture capital fund, quietly altering state law surrounding the MSBDFA loan program to accommodate MMG’s wishes and renewing its state contract in 2002, despite state auditors’ reports.


By February of 1999, Tucker could brag to the Baltimore Business Journal that his investments were paying off. “I’m going to invest in companies in which I get the best return,” he told the BBJ, adding that his $1.25 million investment in Z-Spanish Radio Network produced a 32 percent return over 18 months. “After only two and a half years in operation, MMG Ventures made $904,000 last year,” the BBJ enthused.

Success attracted other investors—although not quite the private, for-profit types Tucker had originally envisioned.

In 1998, Tucker started a second venture fund, Community Development Ventures, using more than $9 million from the Ford Foundation and other charitable foundations and nonprofits, plus $3.25 million in federal money and $2 million from the state. Unlike MMG Ventures, Community Development Ventures, capitalized with $14.4 million, was established as a nonprofit, 501(c)3, and took on the task of training and funding young minority entrepreneurs, focusing on those in and around Southeast Baltimore’s federa"ly designated Empowerment Zone.

In 2000, MMG Ventures received $2 million from Citigroup, the first and only truly private money the fund got, increasing the fund’s total invested capital to $31.2 million.

In MMG’s early years Tucker would sometimes announce the names of companies and the amounts MMG had invested in them—such as Ntegrity Telecontent Services, a phone-service reseller Tucker had lured to Baltimore from the Midwest with a package of Empowerment Zone tax breaks and a reported $2 million stake from MMG Ventures.

“It was really a one-stop shop for us. They addressed our capital needs, but also gave us guidance and helped us create a plan,” Ntegrity Vice President Keith Machen said in February 1999, according to the Baltimore Business Journal. “If had not been for the package MMG put together, we would not be in Baltimore.”

In August 2000, MMG disclosed a $1 million investment in, a Rockville-based internet startup that sought to make getting building and other government permits a painless, online experience. Tucker also convinced the state to lend PermitsNow $500,000, according to a story in The Daily Record.

On May 1, 2001, however, PermitsNow closed its doors, leaving its employees without their last month’s wages, according to a story in The Washington Post. MMG’s $1 million investment—made just nine months before—was gone. So was the $500,000 chipped in by the Maryland Small Business Development Financing Authority.

Ntegrity shut down in the summer of 2001, laying off 20 employees in the Baltimore Empowerment Zone. Verizon literally shut off phone service to the company and its 12,000 customers, claiming that Ntegrity owed it $4 million for phone service it had been reselling for three years but had never paid for. Machen did not return a message left on his answering machine.

In the spring off 2001, Community Development Ventures invested $150,000 in CitySoft—a web-design company based in Boston that opened an office in Baltimore and hired local, African-American workers. By fall of 2002, Tucker had gone to court to get the fund’s money back. MMG Ventures also invested at least $250,000 in TriCo Wireless, a Winter Park, Fla.-based “personal communications services” provider that filed for bankruptcy on Jan.31, 2005, and received another setback when Lanham-based On Top Communications, which operated five radio stations, filed for bankruptcy protection in July 2005. MMG Venture was one of several venture funds that invested a total of $20 million in On Top in late 2002.


State legislators took no notice of the venture funds’ losses as they voted to extend MMG’s state contract in 2005, despite a fiscal note attached to the legislation. On page 3, the note dryly stated that as of Dec. 31, 2003, MMG Ventures had turned $32 million in mostly state and federal money into “a portfolio of assets and investments worth $600,000.”

Del. Norman H. Conway (D-Wicomico and Worcester counties), who sponsored the bill in the House, did so as a favor to Baltimore City Democratic Del. Hattie Harrison, “who was hospitalized at the time,” he says. “You have to carry it in, and I put the bill in for her and shared her written testimony with Economic Matters Committee—I made it clear that it was not my bill, that it was Hattie Harrison’s bill.” (Conway obtained his first—and apparently only—contribution from MMG in December 2005, when Tucker wrote him a $100 check.)

Calls to Harrison’s office went unreturned. Campaign-finance records show $425 in donations from Timothy Smoot and Cynthia A. Tucker, MMG’s resident agent, between 2002 and 2004. Harrison has not filed her 2005 or ’06 contribution reports.

“This bill looks like it was wired,” Del. Curtis Stovall Anderson (D- Baltimore City), who co-sponsored the bill, says. “It’s got the chair of appropriations, chair of economic matters . . . environment. Basically it’s a Black Caucus bill.”

Directed to the fiscal note, Anderson, who has received $200 in contributions from MMG principals, says, “That’s very troubling if there is no explanation. I do not remember that.

“This would be bad news, obviously, if [MMG] was so poorly run, because the need for it is there,” he continues. “And if it becomes public that it’s lost all this money . . . it’d be hard for us as a Black Caucus to go back to the state and ask for more money—because it is needed.”

State Sen. Nathaniel Exum (D-Prince George’s County) sponsored the Senate version of the bill. “I haven’t seen that fiscal note,” he says, adding that it “may not have anything to do with the program that they’re running. Remember they’re a loan program—loan of last resort.” Exum says Tucker and state Department of Business and Economic Development Secretary Aris Melissaratos asked that MMG’s contract be extended (Melissaratos’ office did not confirm or deny this by press time) and suggests that the contract is routine: “There are many contracts in the [Department of Budget and Economic Development] that are done that way,” Exum claims, erroneously. MMG executives have donated $700 to his campaigns.

Co-sponsor Sen. Delores G. Kelley (D-Baltimore County) says she has not seen the fiscal note, but she’s certain it’s wrong. “The General Assembly is not crazy. We’re not giving away free money,” Kelley says. “They [MMG] have strong, bipartisan support because they actually have been so effective. If they had not been, we would be looking for someone else to do the job.” Kelley has received $1,975 from MMG executives since 1999, campaign-finance records show.

Questions about MMG Ventures’ value revealed confusion at the U.S. Small Business Administration, MMG’s largest investor. Spokesman Dennis Byrne, for example, was unaware of MMG’s status as a Specialized Small Business Investment Co. (SSBIC). “SSBIC—that was years ago,” Byrne says in an interview days after receiving a reporter’s e-mails questioning the fund’s status. “In 1994 Congress cut off funding for that program—we had too many failures and we lost too much money. MMG is not one of those companies.” MMG is, in fact, an SSBIC.

Tom Morris, director of the SBA’s Office of Liquidation, was incredulous at the $600,000 figure. “If we believed the fund was worth anything like $600,000, then we wouldn’t be going through [liquidation],” he said April 12. Morris pointed out that liquidation—in which a fund’s investments are cashed in as quickly as possible, is a step short of receivership, in which the SBA seizes the fund from the management company. SBA did just that last year to another Baltimore SBIC, Anthem Capital Management LLC. Morris stressed repeatedly that MMG’s situation is not like that of Anthem, though he could not say how much money—if any—the federal government expects to lose on MMG Ventures. Since the SBA takes months to evaluate a fund in liquidation, Morris acknowledges, “I don’t know what it’s worth.”


Like other venture funds, MMG invested in closely held corporations whose value (when they are not bankrupt) is hard to determine. MMG has refused to divulge the names of all the companies in which it has invested. But the limited partners in the fund—those who have invested millions in the expectation of receiving millions more—have consistently marked the value of their MMG investment down. They have done this by relying on MMG’s annual reports of its own value.

“They have some problems,” says McFed head W. Astor Kirk. “Let’s put it that way.”

Kirk says MMG has returned nothing to McFed since 1998, and that lack of returns caused him to scale back the organization’s incidental activities. McFed has not filed a federal tax return since 1998, citing lack of income, and Kirk’s management fee for the charity fell from $51,000 in 2001 to $3,453 in ’03, after which, he says, he worked for free. “At some point in time the VC fund is going to end, and whatever income there is—and it’s anticipated to be considerable—we’ll get our share of it,” Kirk says.

Kirk says Tucker has claimed a much higher value for the investment than what’s reflected in its annual reports to McFed, but adds, “I have no way of knowing whether their projections are sound or not sound.”

As of the end of 2003, McFed’s accountant valued its $4.7 million stake in MMG at $1,267,832. But an accounting rule change eroded that figure further—to about $600,000, according to the financial statement. That was the figure the state Department of Legislative Services analysts used to prepare the 2005 fiscal note that apparently went unread.

Tucker says he was unaware of the fiscal note until April 14, when he received written questions about it from a City Paper reporter. “You know what, I just saw that,” Tucker said then, adding quickly that it was erroneous. “There was a statement in there that says they lost all the money—we have no idea how that analysis was made.”

It turns out the fiscal note was wrong. If McFed’s piece of the $32 million fund was worth $600,000, then the whole fund was worth about six times that, or $3.6 million—11 percent of its original cash value. But Tucker objected to that valuation as well.

“Venture capital accounting requires you to keep your investment at cost,” Tucker explained. He likened the situation to buying a home in Baltimore for $100,000. Three years later the house might be worth $200,000, but under the accounting rules MMG must follow the house could not be valued at more than $100,000—and might even be depreciated.

Tucker also said it “is not correct” that Ntegrity shut down owing Verizon $4 million, and promised to answer questions about the venture funds and his unique state contract. “We’re the most transparent people in the world,” Tucker said.

At an April 18 meeting in MMG’s conference room, Tucker, Smoot, and two other MMG principals elaborate on this theme with an hourlong PowerPoint presentation that includes a list of selected MMG Venture investments and their “projected appreciation.” But Tucker refuses to supply a copy of his state contract and says he is “not allowed” to divulge the names of his venture funds’ portfolio companies. Instead, he gives City Paper a “schedule of projected appreciation” listing 11 of MMG Ventures’ investments, identified only by business area, such as “Telecom Service and Equipment Provider.” The list does not account for all of the 19 companies Tucker says MMG had invested in, nor does it account for all of fund’s money, listing only $19.2 million of the $28 million he says MMG Ventures invested.

Tucker’s chart values “Telecom Service and Equipment Provider,” originally a $4,050,000 investment, as a projected $598,500. The schedule also claims MMG Ventures invested $3,404,050 in “Radio Stations” and expects to reap nothing from that investment.

In all, seven of the 11 listed investments are projected to lose money. But one investment—a $2.5 million stake in “SMS and Content Network Company”—looks promising. The investment is in a company called Mobile 365 that created software that allows text messages to be sent to and from various kinds of cell phones. In 2005 Fortune magazine listed Mobile 365, known as InphoMatch before a merger, as one of its “25 Breakout Companies” in the technology field; the Chantilly, Va.-based company claimed $73.5 million in revenues for 2005, according to spokesman Greg Matranga. MMG projects its holdings will be worth more than $34 million by 2008, covering all the fund’s losses and expenses and bringing the entire venture to a profitable conclusion.

Regardless of whether MMG Ventures pays back its limited partners, Stanley Tucker and his fellow MMG principals have earned millions managing the fund. The schedule of MMG’s management fees City Paper obtained shows that MMG took $464,300 in 1999, $582,661 in 2000, $571,550 in 2001, and $631,117 in 2002 to manage the venture fund. Kirk says the fees “for 2003 and 2004 are not less than that,” meaning that MMG had earned at least $4.4 million managing the fund by the end of that year—not counting its 20 percent share of the profits on its good deals.

In addition, the Community Development Ventures fund paid its managers more than $1.5 million between 2002 and ’04, according to its tax returns (which do not identify the managers), while the fund’s assets dropped from $4.9 million to $3.5 million.

That $500,000-per-year management fee tops 3.4 percent of CDV’s claimed $14.5 million capitalization—well beyond the industry standard 2.5 percent. But the nonprofit fund is a special case, says Robert Greene, president of the National Association of Investment Companies, a Washington, D.C.-based association for minority-focused venture capital firms that Tucker led in 1999 and 2000 and which counts MMG as a member. The higher fees make sense, he says, “if that fund is set up to provide training and development.”

Indeed, providing training and advice to young entrepreneurs is the mandate for both CDV and MSBDFA. That’s why the state spends $1.4 million per year on a 13-employee company running a $7 million loan fund that loses $750,000 per year, according to Chris Foster, the Department of Business and Economic Development deputy secretary.

“It’s sort of a loss leader,” Foster says.


Tucker is irritated by that description. “That’s totally uncharacteristic,” he says, citing again the economic analysis by Towson University’s RESI that he says proves MMG returns more than eight times its cost to the state’s taxpayers.

Smoot says the higher costs—and the loan loss rate—are inevitable when working with companies whose owners have bankruptcies on their records, low (or no) net worth, and little education or business experience.

“We love doing this stuff,” Smoot says. “When these companies go for financing [to private bankers], they take one look, write them a short note, and send them away. We don’t do that! We sit down with them, we work with them. It’s easy to say ‘no.’ It’s hard to say ‘yes.’”

But who does MMG say “yes” to? A look at the seven bad loans from 2005, which in aggregate owe the state more than $1.5 million, raises questions.

In 2001, MSBDFA loaned $200,000 to “Narrows Partnership/Wine Cellar,” on the expectation that it would create one job and retain three jobs in Allegany County, according to MSBDFA’s 2005 annual report. As of last year, the loan was delinquent, with $177,092 past due. The borrowers have been given extra time to pay without incurring penalties.

The state Department of Assessments and Taxation has no record of a “Narrows Partnership.” Asking MMG’s principals to name the people behind Narrows Partnership elicits a 15-minute, off the record speech by Levi Rabinowitz of Red Zone News Management; of the Narrows Partnership, he says nothing. Smoot also will not divulge the names of the people behind the business. He says only that “wine cellar” is not the whole business and that they “sold spirits” and “had a deli as well.”

Then Smoot and Tucker demand to know why a reporter would want to know anything “negative” about MMG.

“MSBDFA has been a profit center,” Smoot insists. “You’re a taxpayer. You’re pleased that because the state provides this kind of advantage, Maryland is benefiting multiple times from those efforts. That’s a good story!”

A glance at other unpaid, MMG-brokered loans lead to other stories, though.

A $500,000 “contract finance” loan from MSBDFA to Baltimore-based Precision Signs in 2002 was in “liquidation” by July 2005, according to state records. Owner Donald Nickels declared personal bankruptcy in 2003, according to court records, and still owed $462,000 to the state as of last summer. Among Precision Signs’ specialties are political campaign placards.

Nexgen Solutions, a Silver Spring-based software and services vendor, still owed more than $385,000 of its $500,000 state loan as of last year. MMG also sued it in court to recover $591,000 in venture fund investments. Despite his company’s financial difficulties, Nexgen owner Ed Howlette Jr. was still flush enough to donate $1,000 to Del. Herman Taylor, a Montgomery County Democrat, in September 2005.

But one of the most interesting recent MSBDFA deals was the $500,000 loan the state agency made in 2001 in a company called Carnegie Morgan Information Services. Originally slated to create 40 jobs, the loan went into default, with Carnegie Morgan owing more than $226,000 as of last summer. The loan was in “forbearance,” according to the state financial report, so the proprietor can pay it back over a longer period.

This kind of forbearance is what sets MSBDFA apart from banks, MMG’s principals say. It is necessary, too, when loaning large sums of money to new, unsophisticated entrepreneurs.

But Larry E. Jennings Jr., Carnegie Morgan’s resident agent, is a former municipal investment banker at Legg Mason. He was also, in the mid-1990s, a financial adviser for the city of Detroit. He got that job, according to newspaper reports, weeks after resigning his position on the Baltimore Housing Authority board in the midst of a bribery scandal involving his father, Larry E. Jennings Sr., whose company received more than $1 million in no-bid construction contracts through the city housing authority. Jennings Jr. reportedly kept the financial records for and served as vice president of his father’s construction company. He denied involvement in the bribes and was not charged with any crime. Jennings Sr. was convicted and sentenced to a year in prison.

Later, Jennings Jr. received lucrative no-bid contracts to do computer work in Baltimore City schools, the Sun reported. State campaign-finance records show that he and his wife, Katherine, their Carnegie Morgan companies, and Carnegie Morgan’s officers contributed at least $43,500 to state and local politicians since 1999. Carnegie Morgan Information Services itself contributed $6,200 to state and local candidates, including former Prince George’s County Executive Wayne Curry, the late Del. Pete Rawlings (D-Baltimore City), and City Council President Sheila Dixon.

Beginning in the early 1990s, Jennings founded a family of Carnegie Morgan companies, now organized under the umbrella of Touchstone Partners LLC, devoted to money management and investment banking. On its web site, Touchstone claims to control $173 million worth of assets.


A recent series of Census Bureau reports found that Prince George’s County is home to more African-American-owned businesses than all but three other counties in the nation. Baltimore City, with 10,000 black-owned businesses, ranked ninth.

The new businesses represent a huge opportunity for Maryland, and a huge potential market for Stanley Tucker—if he can get funding. The governor’s budget for 2007 includes $3.4 million to “recapitalize” the MSBDFA fund. Asked how much the state ought to give MSBDFA, Smoot smiles: “$20 million over the next five years,” he says, and Tucker endorses the number.

Wayne Frazier, president of the Maryland-Washington Minority Contractors Association, wants more than that. He calls the $3.4 million recapitalization this year “an insult” to the state’s growing population of minority businesses, most of which can’t get any financing, he says, because MSBDFA’s “funds have been exhausted.

“I wrote a paper to Ehrlich,” Frazier says. “If he wanted to fund MSBDFA, he should fund it by $100 million. And he can do it.”

Frazier says he trusts Stanley Tucker (and served until last year on the board of Community Development Ventures), but Ehrlich seems unlikely to approve a huge increase in MSBDFA’s funding soon. Tucker and his team may be able to solve their own cash-flow problems, however, if their investment savvy is as good as they say.

The state Department of Business and Economic Development supplied City Paper with a list of its 50 non-publicly traded “enterprise” investments (similar to venture capital). Its single largest one is its $5 million stake in MMG Ventures. In its 2005 audited financial statement, the state agency reported “fair market value” of its MMG stake as $929,166 as of June 30, 2004. The value as of June 2005 was “-.”

Business and Economic Development spokespeople would not answer questions regarding the valuations, saying the page had been released in error. But the 2005 law extending MMG’s state contract provides the answer. In addition to trusting Tucker with the MSBDFA for up to another 17 years, the legislators sought to buoy the ever-melting loan fund with new money. So they decreed that any profits from MMG Ventures would be returned not to the state Enterprise Fund, which made the investment with taxpayer dollars, but to MSBDFA, under Tucker’s effective control.

If Stanley Tucker is right about his venture fund’s value, the state program will be well-funded, and the state’s minority business ventures will be able to get loans and bonds at good terms. If Tucker is wrong, however, he will have to return to the legislature, hat in hand—or dozens of minority businesses will face a bleak future.

But that won’t happen until MMG Ventures liquidates—in 2008, at the earliest. For now, Maryland’s taxpayers, and its struggling minority-owned businesses, will just have to trust him.

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