From Deseret News archives:
Fund act is subject of lawsuit
The suit, filed in 3rd District Court, seeks to have the Utah Venture Capital Enhancement Act declared constitutional, clearing the way for the act to be implemented.
The suit was filed by the Utah Capital Investment Corp. Named as defendants are the Utah Capital Investment Board and state auditor Auston G. Johnson.
The act calls for creation of a $100 million "fund of funds" that would come from private sources. The fund would invest that private money in private seed and venture capital partnerships and entities. But the state would protect institutional investors from losses by issuing contingent tax credits if investors do not receive an agreed-upon minimum return on their investment in the fund.
The issue of the act's constitutionality was raised even as legislators passed the measure during the 2003 session. The suit says the board has declined to "establish the criteria and procedures necessary to implement the purposes and goals" of the act, stunting the corporation's ability to establish the fund of funds and start to seek investors, and that Johnson and the board believe the act is unconstitutional.
The suit says the board and auditor believe that investment by the corporation through the fund of funds into various venture capital funds is an unconstitutional "subscription to stock" and that the issuance of contingent tax credits is an unconstitutional lending of credit by the state.
The credits would be issued to an investor to ensure that the investor receives the agreed-upon return from the corporation.
The suit seeks to clarify those issues and require the board and auditor to take various steps consistent with the act.
"The important issue is that this is actually a lawsuit that all sides are looking forward to," Will West, chairman of the corporation's board of directors, said Monday. "It's not a bad thing. It's a good thing. We want to be sure all that we do associated with the fund of funds has strong support from all fronts and be sure that everything is clean and really done right. The lawsuit gives us an opportunity resolve any of the outstanding questions that are there."
West said act supporters believed it met constitutional requirements when it was passed and that the bill had no constitutionality note attached, "but the questions have remained in spite of that. . . . We think that while there are not constitutionality issues, we think the questions are coming from reasoned people, and we want them addressed and put to bed."
Johnson also saw the suit as "a good thing."
