By Paul Kane and Carol D. Leonnig
Monday, October 26, 2009
It takes a while for most start-up companies to gain the confidence of a U.S. congressman and the promise of federal funds. But last year, a small Illinois company accomplished its goal in 16 days with the help of Rep. Peter J. Visclosky, a little-known Indiana Democrat who sits on the House committee that funds the Pentagon.
In rapid succession, the three-employee technology firm, NanoSonix, filed its incorporation papers in Skokie, Ill., and hired a Washington lobbying firm, K&L Gates, which boasted to clients of its close relationship with Visclosky. A week later, Visclosky wrote a letter of support for a $2.4 million earmark for NanoSonix from the House Appropriations Committee's defense subcommittee.
"I understand how this can look from the outside," NanoSonix chief executive Sean Murdock said in an interview, describing his company's rush to get research funding to develop night-vision goggles. "My belief was we had to pursue government funding if this technology was going to see the light of day."
Murdock's company was not the only one to find a winning formula in pursuit of federal earmarks through Visclosky. The congressman sponsored or supported at least $44 million in earmarks in fiscal years 2008 and 2009 for more than 15 technology firms that had hired K&L Gates as lobbyists. None of the companies operated in Visclosky's home state, but nearly all of them donated to Visclosky's campaign just before or soon after receiving the promise of federal money.
K&L Gates used its relationship with Visclosky as a marketing tool, a document obtained by The Washington Post reveals. "We also have a very good relationship with Representative Peter Visclosky, chairman of the House Energy and Water appropriations subcommittee and third ranking member on the defense appropriations committee," lobbyist Edward C. Olivares, a former Army Special Forces officer, wrote to a potential client in early 2007, soon after Democrats took control of the House. "We can ensure that Mr. Visclosky has visibility of this important project when funding is debated."
Federal investigators are scrutinizing Visclosky's earmarks and whether a member of his staff tried to raise campaign money by promising funding. The Post recently reported that the Justice Department probe is examining the role played by Visclosky's recently departed chief of staff, Charles Brimmer, in negotiating with lobbyists and companies to solicit campaign donations. Brimmer's attorney declined to comment.The K&L connection
Much of the public focus in the investigation has been on PMA Group, a former lobbying powerhouse that won $299 million in earmarks in the past two years from the defense panel -- $34 million of it directly from Visclosky. Visclosky's pattern of help for K&L Gates clients has not been previously disclosed.
A Post review shows that the K&L Gates clients winning Visclosky's support, along with their lobbyists and investors, donated almost $200,000 to Visclosky and an additional $130,000 to the House Democratic campaign committee since 2005. The donations often came in clusters, around the time Visclosky's committee was crafting its annual earmarks, which are added to the budget by committee members and do not go through the competitive or approval processes required for most government contracts.
The earmarks helped the companies fund their nanotechnology and biotechnology research into making cheaper fuels, stronger concrete and faster semiconductors and also increased the likelihood of their success or sale. One venture capitalist, after helping steer almost $16,000 to Visclosky's campaign, sold his fledgling company for nearly $20 million as the lawmaker endorsed a $2 million earmark for the company.
Both Visclosky and K&L Gates declined interview requests. Visclosky's attorney, Reid Weingarten, said in an e-mail: "Congressman Visclosky proudly helped many companies doing innovative and important work receive federal funds. Some of these companies chose to support his campaigns with legal and public contributions. This is traditional, open and utterly normal activity on the Hill that is protected by our laws and Constitution."
K&L Gates said in a statement that its actions were an aboveboard effort to get "cutting edge technology before key decision makers."
"While Members of Congress may lawfully seek campaign contributions from our clients, and some of our clients have attended their fundraisers, we have always been clear that campaign contributions cannot be a condition for any appropriation or official action," the statement said.
Over the past decade, the nanotechnology industry has generated ideas for improving everyday products by harnessing the power to measure materials in nanometers. By fashioning materials on the scale of atoms and molecules, the investors predicted, they could create blast-resistant cement, defect-free computers, even straighter-sailing golf balls.
The NanoBusiness Alliance, which is based in Skokie, was founded in 2002 by several scientists and a senior partner in Lux Capital in New York, and it aimed to help its members get research funding to turn their ideas into moneymakers. The alliance in 2003 hired the predecessor firm to K&L Gates, Preston Gates, which was then rebuilding its lobbying shop after the departure of rainmaker Jack Abramoff, who went to prison in a federal influence-peddling scandal. The firm became K&L Gates as part of a 2006 merger, and its lobbying revenue is on pace to hit nearly $20 million this year.
The firm signed clients at nanotechnology trade conferences and told them that it had found a committed supporter in Visclosky, who was then gaining seniority on the Appropriations subcommittee that controls the Pentagon budget.
According to an internal letter given to The Post by a potential client, K&L Gates hoped to share a cut of its clients' earmark success. K&L's Olivares offered a menu of pricing options, including a "success fee" in which the client would pay 7.5 percent of its earmark haul to K&L Gates, on top of a $6,500 monthly retainer.'To build a relationship'
Several firms said that signing K&L Gates helped them gain the access they had long been denied by federal agencies.
David Rosenberg, who founded Hycrete in New Jersey in 2005, said he hired K&L in August 2007 and has since paid the firm $190,000 to help obtain defense appropriations and other funds.
Rosenberg said he knocked on dozens of doors trying to get the Army Corps of Engineers to read data showing that his moisture-control additive would strengthen concrete structures. Success eluded him until K&L Gates made a presentation to Visclosky's staff last year.
Rosenberg said K&L encouraged him to donate to Visclosky -- "to build a relationship with a member of Congress." Last year, Visclosky requested a $2 million Army earmark to evaluate Hycrete's technology. The next month, Rosenberg and his colleagues donated $20,000 to Visclosky and the Democratic Congressional Campaign Committee.
"I'm a fan of earmarks," Rosenberg said. "None of that would have happened without this funding -- there was no light at the end of the tunnel."
Genocea Biosciences, a Boston area vaccine maker founded in 2006 by Harvard professors David Sinclair and Darren Higgins, began a relationship with K&L Gates soon after it was formed, according to a spokesman. Lobbying reports show that K&L Gates began lobbying for the company in March 2007, and within weeks, company officials and investors gave $18,000 to Visclosky. It was the first time many of them had ever contributed to a federal politician, records show.
Visclosky then sought $2 million to help Genocea, which hoped to develop vaccines for chlamydia and bacterial meningitis. He later helped it secure an additional $1.6 million.
The earmarks helped the firm position itself financially. Earlier this year, it raised $23 million in private capital, largely from a GlaxoSmithKline fund, and is now positioned for sale, according to trade reports.
Sinclair, Genocea and Lux Capital declined to comment on their relationships with K&L or Visclosky. Lux, whose portfolio includes four other K&L Gates clients, said in a statement that it invests in companies that will provide "important breakthroughs."
"Congress and the agencies of the federal government often serve a crucial support role in incubating emerging technologies," the statement says.Fledgling firm's earmarks
The NanoSonix earmarks were unusual for such a fledgling company, and founder Murdock acknowledged in an interview that he moved hurriedly to protect future patents and obtain federal funds.
Over 16 days in March 2008, it started operations, hired the lobbying firm and won Visclosky's help seeking $2.4 million for research to see whether a polymer might have improved night-vision goggles.
As Visclosky's committee moved the earmark forward, Murdock, his wife and executives from the NanoBusiness Alliance wrote $21,700 in campaign checks to the congressman and the DCCC. Murdock said he could not recall whether K&L Gates suggested the donations.
The night-vision-goggle research has not begun yet. An Army spokesman said NanoSonix and the Army are still negotiating details.
"I've been trying to get NanoSonix off the ground for the past year and a half. It's been a lot of tough sledding," Murdock said.
Murdock said he hopes the Visclosky investigation will not present issues for his company. "I'm not enthusiastic about the way that looks that we got an earmark from a congressman for whom this has happened," Murdock said. Visclosky stepped aside as chairman of the Appropriations energy panel in June after the Justice Department subpoenaed his office, his political committees and Brimmer for records. Brimmer resigned as chief of staff immediately.
Before the federal probe became public, nearly 30 percent of Visclosky's earmarks -- $63 million worth in 2008 and 2009 -- were steered to firms outside Indiana. And nearly three-quarters of his campaign donations came from out of state, as well, most of it tied to firms requesting earmarks.
After the probe was public, Visclosky said he would only seek earmarks for nonprofits in his state, and his fundraising has subsequently dried up.
When asked in 2004 why Visclosky relied so heavily on out-of-state donations, Brimmer told Roll Call that it was because of the congressman's popularity:
"Pete is a national legislator, and he has lots of friends in northwest Indiana but also around the country."
Research editor Alice Crites contributed to this report.