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$44,256 to check email? Feds balk in case tied to Daley son

Patrick Daley  |  Brian Jackson~Sun-Times

Patrick Daley | Brian Jackson~Sun-Times

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Updated: April 5, 2013 6:04AM

A big Chicago law firm is demanding $44,256 for a search of emails that a federal agency wanted in a case involving Cardinal Growth, a venture capital firm tied to former Mayor Richard M. Daley’s son, Patrick Daley.

The U.S. Small Business Administration says taxpayers shouldn’t have to pay, and it’s fighting the bill in federal court.

The agency seized Cardinal Growth in 2011 over $21.4 million in unpaid loans the Chicago fund got from the SBA to invest in several businesses.

Cardinal Growth paid Daley’s son more than $1.2 million for his work on some of those deals, records show.

The SBA wanted any emails Pedersen & Houpt — Cardinal Growth’s longtime law firm — had involving the venture capital fund, which the federal agency holds in receivership and plans to liquidate.

Pedersen & Houpt says it brought in an outside company to do a search of the law firm’s computer systems.

“We had to hire a third-party firm to do the searches,” says Arthur M. Holtzman, a partner in the law firm. “We’re trying to get paid.”

The SBA says it’s the law firm’s own fault that it needed an outsider to do the search. In court documents, the agency says Pedersen & Houpt “elected to maintain Cardinal Growth’s emails in an un-indexed electronic archive of emails, the electronic equivalent of an enormous stack of unfiled and unsorted papers, pertaining not just to Cardinal Growth but to all of the firm’s clients.”

Besides, the SBA says that since it’s now running Cardinal Growth, Pedersen & Houpt is, in effect, charging a client for retrieving the client’s own records. It notes that the law firm was paid more than $2 million to prepare many of the “complex transactions” the venture capital firm engaged in that ended up losing money through default or foreclosure.

U.S. District Judge Ruben Castillo had directed Pedersen & Houpt to do the email search.

After months of delays, it complied by hiring Private Leadership Associates to search the 6.4 million emails in the law firm’s computer system, looking for 99 specified email addresses, 66 email domains and 122 entities.

The law firm says it ended up turning over 15,000 documents to the SBA.

The government agency’s lawyers, though, say they got only 7,500 emails, calling the search “woefully incomplete in that it omitted entire transactions, contained very few emails from key time periods and contained no emails to or from certain persons of interest.”

The SBA won’t say whether the “persons of interest” included Patrick Daley or the former mayor’s nephews Robert Vanecko and Richard J. “R.J.” Vanecko. All three were involved in business deals with Cardinal Growth.

“This is the subject of a lengthy ongoing investigation and litigation, and SBA is prohibited from making specific comment,” says Dennis E. Byrne, a spokesman for the federal agency. “The agency is working diligently to uncover what happened.”

Attorney Robert Bobb Jr., a friend of the former mayor, and accountant Joseph P. McInerney founded Cardinal Growth and won certification for the venture capital firm as an SBA-approved small business lender, a designation that allowed the company to borrow $2 from the government agency for every dollar the firm raised from private investors.

Bobb and McInerney couldn’t be reached for comment. But in a written statement, Bobb says the SBA actually didn’t lose any money through Cardinal Growth’s investments, claiming the firm borrowed $50 million from the federal government and repaid $53 million.

The SBA and private investors, though, have maintained that they lost millions of dollars through investments made with Bobb and McInerney.

Cardinal Growth made two investments in companies that landed deals with City Hall which benefitted then-Mayor Daley’s son, who worked for Cardinal, the Chicago Sun-Times has previously reported:

Concourse Communications, which got a 10-year contract from City Hall in 2005 to install Wi-Fi at O’Hare and Midway airports. Concourse was sold less than a year later in a deal that paid Patrick Daley $708,999.

Municipal Sewer Services, a sewer-inspection and cleaning company that was handed more than $4 million in no-bid contract extensions from City Hall after Patrick Daley and his cousin, Robert Vanecko, invested in the business. The company never disclosed Daley and Vanecko’s ownership stake even though, at the time, city regulations required it to do so. The younger Daley and his cousin sold their stake in the company by late 2004, when Patrick Daley enlisted in the U.S. Army.

Vanecko’s brother, Richard J. “R.J.” Vanecko, also was involved with Cardinal Growth, getting paid more than $200,000 to help secure financing for four movies produced by Radar Pictures, a company headed by former Sun-Times owner Ted Field.

R.J. Vanecko — who joined Cardinal Growth in September 2004 — was charged in December with involuntary manslaughter over a 2004 incident on Division Street near Dearborn Street that caused the death of 21-year-old David Koschman of Mount Prospect.

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