Canrock Ventures, the venture capital firm founded by onetime tech wunderkind Mark Fasciano, “recklessly misused” $1.6 million in federal funds by investing the money in startups in its own portfolio, a lengthy U.S. Treasury Department audit has concluded.
The federal program dates back to 2012, when Washington awarded $55.4 million to New York under the State Small Business Credit Initiative program, which was designed to spur the growth of technology companies following the recession.
New York’s lead economic development agency, Empire State Development, selected Canrock and seven other venture firms to invest the funds in promising startups.
In 2013, Canrock used the money to support five companies, four of which it owned controlling stakes in via its own investment fund: General Sentiment, Sentiment Alpha Capital Management, Thrive Metrics and Karma411, which was later renamed Crowdster.
The government found no fault with a fifth investment by Canrock in Manhattan-based Vidaao, since sold.
Fasciano was not immediately available for comment. However, he has said throughout the investigation that New York officials were fully aware of his fund’s investments and had no problem with them at the time. New York officials did not supply comments for publication in the audit, the Treasury Department said.
The Treasury Department defines “reckless misuse” as “a highly unreasonable departure or willful disregard of the standards of ordinary care.”
The Treasury audit recommended recouping the investment money from Canrock. In the interim, the agency said it would withhold a final $1.6 million due the state.