Missouri economic development officials were made aware of concerns about a Chinese artificial sweetener manufacturer several months before they announced they had awarded the company millions of dollars of incentives to build a factory in Moberly.
The emails raising the red flags were publicly released Tuesday by a Missouri House committee investigating whether government officials and private financial advisers failed to thoroughly research Mamtek U.S. Inc. before committing state and local incentives to the company.
Construction halted this fall on the partially built Mamtek factory after the company's financing fell apart and it failed to make a payment on $39 million in bonds issued by Moberly to finance the building. The state had pledged an additional $17 million in incentives, but those weren't paid because the project collapsed before the state aid was triggered. The Missouri attorney general's office and the federal Securities and Exchange Commission are now investigating the Mamtek deal.
While seeking government incentives, Mamtek said it had developed proprietary technology and begun manufacturing the artificial sweetener sucralose in China. The company said it wanted to expand production in the U.S., and its project was presented to 12 Midwestern states by former Missouri Gov. Bob Holden, who is chairman of the Midwest U.S.-China Association, which promotes trade between the countries. The Missouri Department of Economic Development then offered the project to several cities, including Moberly.
According to email records obtained by the House Interim Committee on Government Oversight and Accountability, state economic development officials asked for a background check to be conducted on Mamtek by Armstrong Teasdale attorney Edward Li, who is a Chinese trade consultant for the Missouri Department of Agriculture. In an April 13, 2010, email to two Department of Economic Development officials, Li said Mamtek's plant in Fujian Province, China, had never started to manufacture artificial sweetener. Although the facility was nearly complete in 2008, the local conservation department protested that it was not properly zoned and Mamtek agreed in 2009 to move out of the facility, Li said.
In May, Department of Economic Development project manager Lynne Shea asked Li to check out other potential addresses for Mamtek in Hong Kong, noting that the company claimed to be producing a product in China. Li responded that there were no manufacturing plants at those addresses.
It's unclear whether the Department of Economic Development took any additional steps to verify that Mamtek actually had a production facility in China. The emails released by the committee did not include further follow up, and a department spokesman did not immediately respond to a request for comment Tuesday from The Associated Press. Department Director David Kerr is scheduled to testify Wednesday before the committee.
Gov. Jay Nixon and local officials announced the deal to bring Mamtek to Moberly in July 2010.
Corey Mehaffy, president of the Moberly Area Economic Development Corp., testified Tuesday that department officials never shared Li's emails with Moberly officials who were pursuing the Mamtek project. Asked by committee chairman Rep. Jay Barnes whether that email would have raised a red flag, Mehaffy responded: "Absolutely."
But Mehaffy said a department official had briefly mentioned to the Moberly city manager that the department was having some trouble verifying the existence of the Chinese facility. Mehaffy said that prompted him to have a June 3, 2010, conversation with Michael Wise, a patent attorney for Mamtek employed by the law firm of Perkins Coie. Mehaffy said Wise assured him that he had observed a production line in November 2009 and had the company's "cookbook" for sucralose - along with an actual, tested sample - in his office in Shanghai.
Wise did not immediately respond to a phone message left at his firm Tuesday seeking comment.
Lawmakers said Tuesday they were baffled by the conflicting accounts of whether Mamtek actually operated a manufacturing plant in China. Barnes said Armstrong Teasdale declined an invitation to testify before the committee and Perkins Coie hadn't responded.
The existence of the factory has become an important point in whether government officials and private financial advisers carried out their due diligence on the Mamtek project, because a Chinese facility would have provided some evidence that the start-up company was able to convert its ideas into products.
Few people took responsibility for vetting the project during Tuesday's testimony. Officials with the bond underwriter of Morgan Keegan said they were focused on structuring and selling the bonds and were unaware of the concerns raised in Li's email.
Mehaffy said the city relied on "professional people" - including state economic development officials and private-sector financial and legal advisers - to conduct the due diligence on Mamtek.
Holden said the role of the Midwest U.S.-China Association was merely to facilitate relationships between businesses and economic development officials, and the organization does not have the resources to run background checks on firms.
"If I had known that the finances were not there, would I have pursued it? I would have been more reluctant," Holden said Tuesday. But "I think the people sincerely - all the way up and down the line - wanted to see this thing happen."