Venture Fund That Financed Indiana Gubernatorial Candidate's Business Taken Over By Feds

A Chicago venture capital fund that helped finance a company founded by Indiana GOP gubernatorial candidate James Wallace has been taken over by the federal government. Cardinal Growth, which also has financial ties to former Chicago Mayor Richard Daley's son and nephew, owes taxpayers $21.4 million from funds it borrowed from the Small Business Administration, some of which went to Wallace's Indianapolis-based TWG Capital. From the Sun-Times:

A Chicago venture capital fund whose projects paid more than $1.2 million to former Mayor Richard M. Daley’s son has been taken over by the federal government, which says the fund owes taxpayers $21.4 million.

Cardinal Growth L.P. — which was run by attorney and former federal prosecutor Robert Bobb Jr. and accountant Joseph McInerney, a close friend of Daley’s son, Patrick Daley — borrowed nearly $51 million from the U.S. Small Business Administration over the past decade but has been unable to repay $21.4 million, court records show.

U.S. Attorney Patrick Fitzgerald filed the civil lawsuit on behalf of the federal agency on June 15. The SBA is seeking to liquidate Cardinal Growth L.P. because of mounting losses that threaten the fund’s ability to repay the taxpayer money it got from the agency.

The venture capital fund agreed to be liquidated, acknowledging that it has mounting losses.

“There’s been significant write-downs on the portfolio,” says Alan B. Roth, its attorney. “If a company is not performing well, you have to write down its value.’’

A federal judge approved the plan last week, removing Bobb and McInerney as the fund’s general partners and ordering them to turn over their records to the SBA . . .

Cardinal's two principals,  Robert Bobb, Jr. and Joseph McInerney, serve on the board of directors for Wallace's TWG Capital, an insurance services company. According to the Sun-Times, Cardinal received $2 from the SBA for every $1 it raised from private investors to invest a variety of companies, including companies that won lucrative contracts with the City of Chicago. Mayor Daley's son Patrick received money from Cardinal for his assistance in enticing investors to invest in Cardinal. According to an earlier story by the Sun-Times, the federal government was seeking to liquidate some of the businesses financed by Cardinal, including Wallace's TWG Capital. Wallace announced last month that he intended to seek the 2012 gubernatorial nomination of the Republican Party.