CIRM Releases Bank Info That It Once Withheld

The California stem cell agency late today released information on a $250,000 contract with Square 1 bank that the agency previously had refused to disclose at the request of Square 1.

The move was prompted by inquiries from the California Stem Cell Report about the withholding of the information, which is public record and should have been released earlier.

Don Gibbons, chief communications officer for CIRM, said in an email,

“After your inquiry, we contacted Square 1 to see if they would reconsider their request to treat the pricing information as confidential, in the interest of public disclosure. Square 1 has agreed that we should produce an unredacted copy of attachment B to the contract, but they would like to note that they sought to protect the pricing information because they do regard it as proprietary (i.e., it is not known to their competitors and could give them a competitive advantage), but that they will waive their objection to producing the information in the interests of transparency. The unredacted document is attached.

“CIRM staff initially redacted the pricing information at Square 1’s request, but we remain responsible for deciding whether to honor such requests. We could have asked Square 1 to waive its request before we produced the document. In retrospect, we should have slowed down and taken the time to do that.”

CIRM is to be commended for pushing forward with its effort to release the information. Square 1 did the right thing as well, even though it contends the information should be proprietary. We wrote earlier about the implications for CIRM in connection with failing to comply with state public record law.

John M. Simpson, stem cell project director for Consumer Watchdog of Santa Monica, Ca., was harshly criticial of the earlier censorship of the Square 1 contract. Following the release of the information, he said,

“I'm glad CIRM is doing the right thing. I hope the staff learns something from this experience.”

One of the downsides for many businesses in dealing with the state is that it does require disclosure of information that many business would like to keep out of the public gaze. But there can be great benefits as well. In the case of Square 1, this initial contract gives it a leg up on competitors in terms of securing much a more lucrative, long-term contract with CIRM for its fledgling, $500 million biotech loan program.

The current contract will serve as a baseline for future arrangements. Square 1 and CIRM staff will be working together to smooth out the process and build relationships that will be valuable in the future. The linkage between Square 1 and the $3 billion stem cell agency, the world's largest source of funding for human embryonic stem cell research, will also enhance the bank's prestige and ability to secure additional profitable business.

It is also likely that the fee structure, as now disclosed by CIRM, will be modified in future arrangements, which will require a new, public bidding process.

The redacted contract can be found here. The newly released information can be found here.

CIRM's Openness Failures Raise Broader Questions

The chairman of the California stem cell agency, Robert Klein, frequently is given to declaring that the $3 billion research effort adheres to the highest standards of openness and transparency.

Recently, however, the agency has had difficulty even complying with the basic state public records law and the state Constitution's public access guarantees, much less achieving a higher level of performance.

The specific instances are relatively minor, but they raise important questions concerning the conduct of the public's business. How is CIRM, which cannot operate without outside contractors, overseeing their efforts? Is CIRM becoming too cozy with industry? And how can CIRM maintain its credibility unless it is forthright about its affairs?

One longtime CIRM observer, John M. Simpson, stem cell project director of Consumer Watchdog of Santa Monica, Ca., described as “outrageous” CIRM's most recent failure to comply with the open records law.

In response to a query, he said,

"CIRM's lawyers need to learn who their client is when they are employed at a public agency. It's the citizens of California, not vested special interests."

The two most recent cases involving CIRM's failure to comply with state public records law both concern contracts with private firms. The first is a $100,000 contract with Levin & Co., of Boston, Mass., to help search for candidates for the position of vice president for research and development. The second involves a $250,000 contract with Square One Bank to conduct a financial review of Novocell, which was approved for a $20 million loan by CIRM directors last month.

In the case of Levin, the censored material involved 16 pieces of information including its legal business name, address, whether it is a partnership or corporation, name of the person signing the document and his or her title along with his signature and date of the signing. Even the names of those categories were blacked out.

(See page 14 of the contract for a look at the redaction. A blank copy of the state form involved can be found here.

Previously CIRM had posted such information for other companies voluntarily on its Web site, so we had assumed that the redactions were a mistake and consequently did not write about the matter. (After we questioned the redaction, CIRM ultimately provided the material it had chosen to withhold.)

Then came the response to our Oct. 16 request for a copy of the contract with Square One bank. It was another relatively routine matter, although it involves the start-up stages of a $500 million biotech loan program that is expected to have default rates up to 50 percent.

The copy of the contract showed that it was capped at $250,000, but that information had been reported earlier. Censored was the following information: underwriting fee to be paid per loan, annual service fee, warrant administration fee and the legal fee to be paid by CIRM to Square One

Such information is public record and commonly disclosed by state agencies. Otherwise, invoices to CIRM and payments by the agency containing that information would be cloaked in secrecy.

On Nov. 8, we asked CIRM for the legal justification for not providing the Square One fee information. Yesterday (Nov. 16), Don Gibbons, chief communications officer for CIRM, replied with one sentence,

“From our legal team: The redactions were made at the request of Square 1 Bank, based on its determination that the fee structure is confidential and proprietary.“

In response, we emailed Gibbons,

“I assume that your response ...means that the lawyers agree that the material is confidential under state law. It does not directly say that, however. Please let me know if CIRM lawyers think otherwise.”

Gibbons' complete reply:

“We let all contractors make initial decisions on what is proprietary. Square One made the decision that the structure of their fees, not the ultimate amount paid, was proprietary. In the interest of transparency, we have asked them to reconsider that decision.”

As of this writing, we have received no further response from Gibbons. Also yesterday, we asked Square One about its justification for censoring the information, but have received no response. (We will carry its response verbatim if we receive one.)

As Consumer Watchdog's Simpson indicated earlier, CIRM's actions raise questions about the management of its outside contractors, which are essential to the agency's operations. CIRM would cease to function without its outside help. It is restricted by an ill-considered provision in Prop. 71 to only 50 employees. Currently the cost of contracting is the second largest item ($3.1 million) in its operational budget, just behind salaries and benefits.

In the case of Square One, CIRM's attorneys should have told the firm that its request did not comply with state law. CIRM should have then released the entire document. In our case, we have had decades of experience with public record law and can generally tell when there is a flagrant violation. But other members of the public are likely to accept whatever CIRM, driven by desires of its suppliers, deigns to pass along.

The contracts signed by Levin and Square One are state documents. CIRM is required by law to determine what is public or confidential, not the outside contractors. Certainly they can and should be consulted, but their wishes must not be blindly followed. To do so is to open CIRM to unnecessary legal challenges by foes of stem cell research.

Failure to be forthright also raises questions about other areas of CIRM that bear attention, such as the problems with the software that is critical to the oversight of what is now a $1 billion grant portfolio along with the $250,000 federal lobbying contract with Tony Podesta, also heavily censored and we suspect unnecessarily so.

Managing outside contractors has always been difficult for government, both at the state and national levels. The stories of abuses are legion, whether it is a Defense Department boondoggle or fouled up databases at the state Department of Motor Vehicles. CIRM must make it clear to its contractors that the agency's needs must be met and that the interests of the taxpayers do not necessarily coincide with those of the contractors.