Minimal Donor Restrictions on Use of Funds by CIRM

Reader Jim Fossett today raised a good point in connection with the use of donated funds by the California stem cell agency, some of which is going to pay the new chairman's salary.

Fossett said in a comment that donors may place restrictions on the use of their donations, which do not amount to a great deal of money relative to CIRM's $3 billion. (Fossett's full comment can be found at the end of the "private money" item.) The agency currently has about $2.8 million in donor funds on hand, but has committed $700,000 of that for an Institute of Medicine study of CIRM and $250,000 annually for the chairman's salary.

We asked CIRM's outside counsel, James Harrison, whether any donors had placed restrictions on the funds.

Harrison promptly replied,

"Some of the donors placed restrictions on the use of their funds. For example, donations from private foundations include a restriction on the use of funds for lobbying purposes. I don't recall any other restrictions."

The reason for the restriction on lobbying expenditures? Some nonprofits can endanger their nonprofit status if they engage in lobbying activities.

On another donated fund note, Nature magazine on June 29 carried a statement from Jonathan Thomas, the CIRM board's new chair, saying,

"CIRM has received close to $900 million in private donations above and beyond the money from private-bond proceeds."

We asked CIRM Communications Chief Don Gibbons about that figure. He replied,

"He(Thomas) was referring to the $880 million in donor and other leveraged funds that our 12 major facilities attracted. So, those were not donations to CIRM, rather donations to CIRM-backed projects that benefitted the state."

CIRM Salaries Spark Outrage from LA Times Readers

"Rathole," "Alice in Wonderland," "shut the whole thing down," "they just lost my vote" – some of the reaction to the Los Angeles Times story this morning about the California stem cell agency.

By 3:10 p.m., 142 Times readers had commented – mostly angrily – about CIRM and its salaries, particularly the $400,000 pay for Chairman Jonathan Thomas for a four-day work week. The article  by Jack Dolan was among the top five most emailed stories on the LA Times web site. The article was promoted on the front page of the print edition of the Times. By mid-afternoon today, the story was "recommended" 142 times on Facebook and "tweeted" 58 times, drawing even more unpleasant attention to CIRM.

Obviously, the negative comments are coming from the people who feel the most strongly about the subject and do not necessarily represent a complete view of the sentiments of all readers. And the number of comments is not huge. But they do illustrate the serious PR problem facing CIRM as it ponders whether it should go to the ballot in the next few years and ask voters for another $3 billion to $5 billion.

One can only imagine what the opposition will do when it wraps some of these comments into a TV ad against such a bond measure.

Not all of the comments amounted to simple anti-government venom, however.

One reader wrote,

"Okay let's pretend an agency chairman's main job is fund raising and not running the agency, not evaluating the research, and not recruiting the best researchers.  Shouldn't we give him a small salary plus commission?  Wouldn't that focus him more on successful fundraising?"

Another wrote,

"The Bush-era stem-cell-research restrictions are gone. If the scientists are good enough, they will be able to compete successfully for grants from the National Institutes of Health (your federal tax dollars hard at work). If they are really good, and really lucky, they will be able to get funding from the Howard Hughes Medical Institute. There is no longer a reason for this separate California stem cell agency to exist. It's a boondoggle. But like so many government programs, it has taken on a life of its own, and it will consume vast amounts of wealth fighting for its own survival. It's time to shut them down. "

The story received front page attention in the print edition of the Times, a rare occurrence for a story about the stem cell agency. The paper carried the following tease on page one to the article. We should note that the tease may be all that many readers actually read.

"High salaries at state’s stem cell agency
"It will pay its new part-time chairman $400,000, pushing the combined annual income of its two top officials to nearly $1 million."

More media unpleasantness may be in the works for CIRM. If the Times works like most newspapers, an editorial critical of the agency is likely to appear in the next few days.

LA Times on $400,000 CIRM Chair Salary: Not a Clipping for CIRM to Parade Around

Until today, the Los Angeles Times, California's largest circulation newspaper, has remained silent on the election 11 days ago of bond financier Jonathan Thomas as the new chairman of the California stem cell agency.

The Times' first story on Thomas' election, however, was not the sort of good news that Thomas has made one of his top priorities in his new post at the $3 billion enterprise.

The piece by reporter Jack Dolan focused on Thomas' $400,000 salary for part-time work (80 percent) as well as other salaries at the agency. And they were not placed in a favorable context.

The first three paragraphs of the story said,

"California's stem-cell research agency says it needs billions more taxpayer dollars to deliver on promised cures to major diseases. Yet at a time when other departments are cutting back spending, the agency recently agreed to pay its new boss one of the highest salaries in state government.

"The 50-person grant-making body will pay a Los Angeles investment banker $400,000 to serve as its new part-time board chairman, pushing the combined salaries of its two top officials to nearly $1 million per year.

"Santa Monica-based Saybrook Capital founder Jonathan Thomas - chosen over a former cardiologist who was willing to take the job for less than half the salary - said his pay is 'reasonable' because he has the background to help the agency raise the money it needs to survive. 'Without funding, everything else suffers,' Thomas said."

The story appears to be destined for publication in tomorrow's Los Angeles Times and will probably receive prominent play, perhaps even page one. But the piece first surfaced, as best we can tell, on the web site of the Bellingham Herald in the state of Washington. Presumably the paper subscribes to the Times news service, and the story was posted automatically to the Bellingham web site. (The Times has now posted the story, which can be found here on its web site.)

Dolan's story noted that Thomas' well-qualified rival for the chairman's job, Los Angeles cardiologist Frank Litvack, would have served for $123,000 a year. Dolan quoted John M. Simpson of Consumer Watchdog of Santa Monica, Ca., as saying that the decision on Thomas was "tone-deaf" in a state mired in a financial crisis. Simpson said it will come back to haunt the agency.

The last two paragraphs of the Times story said that Thomas told CIRM directors last month that "they were in a 'communications war' in which 'the world seems to be focused on internal issues instead of the grand big picture' of the institute's mission to cure disease.

"His solution? In late June the agency posted an ad for a new public relations director who will make as much as $208,520 per year."

Private Money for Stem Cell Agency: 'Not That Simple'

The new chairman of the California stem cell agency, Jonathan Thomas, is talking about raising vast sums of money from the private sector to support CIRM's research efforts – enough to significantly reduce the size of another state bond measure that could run as high as $5 billion.

The proposal may be necessary at a time when state government is slashing services for the poor, elderly and children, but it raises a number of major ethical questions. Coincidentally, the Los Angeles Times last week addressed some of those questions, albeit in a different area of government.

Here is what Thomas told Nature magazine,

"I think that the agency could put together a non-profit fund into which would go donations from individuals of high net worth or medical foundations. If it is very successful you might reduce the amount of general-obligation bond authorization that you would go for in 2014 or 2016."

On July 1, The Times editorialized on the matter of private funds going to help support the governor and schools. It also suggested some common sense rules that should be applied in such cases. The Times said,

"Last Sunday(June 26), The Times reported that Gov. Jerry Brown has been taking thousands of dollars each month from donors to pay the rent on his Sacramento loft, while refusing his official state housing stipend.

"In the same day's paper, it was reported that as part of a "public-private partnership," corporations and foundations would pay several million dollars toward the successful Summer Night Lights anti-gang program in L.A. parks this year. And a few weeks earlier, the paper noted that the Los Angeles Unified School District was taking money from developer Eli Broad, entrepreneur Casey Wasserman and the Bill & Melinda Gates Foundation to pay the salaries of about 20 top officials in the school bureaucracy.

"In each of these cases, government officials are accepting private dollars to cover the kind of costs that used to be borne by the taxpayers. And why shouldn't they? Times are tough and money is scarce. The state and city are cutting billions of dollars' worth of vital services, and struggling Californians seem strongly disinclined to tax themselves further to pay for the common good.

"So if a generous, civic-minded citizen like Broad, or a rich corporation like Wal-Mart or AT&T, offers to step forward to fill some of the gaps, it would be foolish to say no, right?

"Unfortunately, it's not always that simple."

The Times noted that donors may be seeking to curry favor with the governmental recipients. They may seek contracts or simply priority access to important governmental agencies or officials. Their donations could skew the actions on the part of the recipients. The Times did not say private donations should be barred but came up with a "few basic rules" to help address what may be a burgeoning trend in California government.

The proposed "rules" represent something for the CIRM board to consider as it moves ahead on financing issues. Here are the rules in abbreviated form.

• "When private donors give money to help government do its job, the law should require that the donor's name and affiliation be disclosed. (In the case of CIRM, it should simply disclose the names as it has in the past and not wait for passage of a new law.)
• "Private donors should be required to disclose whether they have any direct interest in pending legislation or are seeking government contracts or other assistance. Transparency is essential so the public can make judgments about potential conflicts of interest."
• "If private money is accepted, it should be used to advance the goals of the government, not the giver."
• "Private money shouldn't pay the personal expenses of public officials or enrich them in any way."

The Times concluded:

"All in all, the system works best when government pays for government. Not only is it ethically complicated to rely on private dollars, but even Bill Gates and Eli Broad don't have enough money to fund California for very long. The state's voters have to acknowledge eventually that if they still want to live in a first-class state with the kind of services they've long been used to — great and affordable state universities, safe streets, magnificent parks, public schools that rival any in the nation, and a safety net for those who fall on hard times — they're going to have to pay for those things. For too long, Californians have been encouraged by politicians to believe that they can have all the services they want without the responsibility of paying for them. That myth has been shattered. And there aren't enough white-knight billionaires to make up the difference."

Thomas: No Conflicts of Interest with Bond Investment Firm

Jonathan Thomas, the newly elected chairman of the $3 billion California stem cell agency, plans to continue his financial ties to a Southern California bond investment firm.

Thomas, who is being paid $400,000 annually by CIRM for four days of work each week, said no conflict of interest exists in his relationship with Saybrook Capital of Santa Monica, Ca. Thomas co-founded the firm and is currently a partner.

In response to an inquiry from the California Stem Cell Report, Thomas said in an email,

"I checked with Board counsel again on the Saybrook issue.  My relationship with Saybrook does not create a real or perceived conflict for me as Chair of CIRM's Governing Board.  Saybrook is not involved in the issuance or underwriting of State General Obligation bonds.  Indeed, Saybrook stopped underwriting muni bonds altogether over 10 years ago when it raised its first distressed muni fund. That fund and the subsequent funds in the series are focused principally on distressed corporate-backed or project-backed municipal bonds.  Furthermore, even if we were still in the underwriting business (which we're not and will not be in the future), the State Treasurer, not CIRM, decides who the State will work with to issue bonds on behalf of CIRM and other state agencies.  In light of these facts, I do not believe there is a perceived conflict, much less a real one.  I will, of course, work with CIRM's counsel to ensure that I comply with the letter and spirit of California's conflict of interest laws."

CIRM's New Chair to Sell Stem Cell Stocks Shortly but Continue Link with Bond Firm

The new chairman of the $3 billion California stem cell agency, Jonathan Thomas, says he will soon sell his interests in a California stem cell company but will retain his financial ties to a bond investment firm, pending a double-check with the agency's outside counsel.

As part of his pitch for the $400,000 post as the chair of CIRM, Thomas, a bond financier and partner in Saybrook Capital of Santa Monica, Ca., said he led an earlier round of financing for Advanced Cell Technology, also of Santa Monica, Ca. He said he still owned a "small portion" of the company's stock and was prepared to liquidate it to avoid any conflicts. He also said he has no other "actual or potential conflicts."

The California Stem Cell Report queried Thomas via email concerning the timing of the sale and also his relationship with Saybrook. The firm posted a news release this week congratulating Thomas and declaring that it was looking forward to a continuing and flourishing relationship with him.

In response to our query, Thomas, who is being paid $400,000 a year for 4/5 time by CIRM, said,

"With respect to ACT, I will be selling my interests very shortly.  Re Saybrook, we don't buy or underwrite (nor have ever bought or underwritten) any State of California GO's (state general obligation bonds).  No conflict of any kind there.  Re severing ties with Saybrook, I have been previously advised that there are no conflicts maintaining affiliations with the firm.  Just to get additional input on both issues, though, I will check again with (the CIRM) Board counsel and advise."

(Thomas later said that no conflicts existed with Saybrook and indicated he was continuing his financial relationship with the firm.)

Advanced Cell Technology reportedly applied for a loan in the $50 million CIRM clinical trial round this spring. No action was reported on the application, but financial scuttlebutt has it that ACT is line for a CIRM loan later this year.

As for the California state bonds, the stem cell agency relies on the state to borrow money for its funding and has no other real source of cash. Saybrook specializes in distressed government bonds. Currently California has the lowest bond rankings of any state in the nation.

Prior to the election for chairman, we asked the CIRM board counsel, James Harrison of Remcho Johansen & Purcell of San Leandro, Ca., whether the board required the chair candidates, including Thomas, to file a written disclosure of financial interest. Harrison said,

"We have discussed the state's disclosure and disqualification rules with both candidates."

But he said no written disclosure was required in advance of board action.

As of this year, the stem cell agency has begun posting the state-required financial disclosure forms of its board members and top officials. Thomas is required to file his within 30 days of assuming office, which would be July 23.

As chair, Thomas will be working with the office of state Treasurer Bill Lockyer, who controls the sale of state bonds. One of the mechanisms Thomas will operate through is the California Stem Cell Research and Cures Finance Committee, a six-member body created by Prop. 71, which also created the stem cell agency. The committee determines whether it is "necessary or desirable" to sell bonds for CIRM. In addition to sitting on the committee, Thomas can appoint two members. The other members are the state treasurer, state controller and state director of finance.

In its press release on Thomas, Saybrook said,

"'JT (Jon Thomas) is the best man for the job. I’ve known him since our high school tennis days and he brings an impressive skill set to the position,' said Jon Schotz, partner at Saybrook Capital, LLC and Jon Thomas’s graduate school roommate at Yale.

"Jonathan Rosenthal, also a partner at Saybrook Capital, LLC says: 'I couldn’t be happier for JT. We’ve had a wonderful partnership and friendship for the past 20 years and expect that it will continue to flourish.'"

Stem Cell Agency's New Chief Heads for BIO

Jon Thomas (right) presided briefly at the end of the CIRM board meeting last week on a resolution
 honoring outgoing Chairman Robert Klein (left). Co-vice
Chairman Art Torres is in the center of the photo. 

SAN DIEGO, Ca. – The newly minted chairman of the $3 billion California stem cell agency kicks off his first full week today with a trip to the mammoth BIO convention in Washington, D.C., to spread the word about CIRM and learn about the latest the biotech industry has to offer.

Jonathan Thomas, who won his $400,000-a-year post on a 14-11 vote by the CIRM board here last week, told the California Stem Cell Report last Thursday that for the next couple of weeks he will be "generally setting up shop." The Los Angeles bond financier expects to spend some time at CIRM headquarters in San Francisco following the BIO meeting.

Once past the initial stages, he estimated that he would be spending one to two days a week in San Francisco and more as needed. He said there is "no substitute for a personal presence."

One of his priorities, he said, will be trying to "get the facts out to the public" about CIRM. In a statement to the CIRM board last Wednesday, he said the agency is engaged in "a communications war." He said CIRM's successes are not well-known.

As for the BIO convention, it is the premier biotech industry event of the year with about 15,000 attendees and 17,000 "business partnering meetings." Presumably other CIRM executives will be attending the session in addition to Thomas.

'A Critical Crossroads:' California Stem Cell Agency's Finances and 'Communications War'

The new chairman of the California stem cell agency, Jonathan Thomas, last week spoke more forthrightly in public about the financial condition of the research effort than we have heard from other CIRM officials.

Thomas also addressed the "communications war" involving the $3 billion research endeavor along with the dual executive arrangement at CIRM. In a conversation at last week's meeting of the CIRM board, he took issue with the coverage of the management structure by the California Stem Cell Report.  Thomas said his prepared statement would more clearly represent his position on the much-criticized arrangement.

Here are excerpts from his remarks dealing with those three areas. The full text of his remarks, which he provided at the request of this blog, can be found at the end of this item.

Thomas summarized the "huge success" story of CIRM and then said,

"Having said all that, CIRM is at a critical crossroads in its history. As the events of the past week continue to remind us, California is in a state of full-out fiscal crisis. No one knows when it will end or how it will ultimately play out. As a result, the agency faces the real possibility that it will not have timely access to the amount of bond proceeds it expected and may be forced to look elsewhere in very short order to the full funding required to meet its projected short term needs or to evaluate how to push grants out or otherwise modify expenses if that becomes necessary. And let's not kid ourselves – this problem could last for a long time. As a result the medium and long term funding questions are no less profound. As the agency enters a translation phase with the goal of getting more and more products into clinical trials, will CIRM be able to help its grantee and loan recipients get the money they need to cover this most expensive part of therapy development? Will CIRM be able to line up funding to sustain it beyond the target last award in 2017? These are huge questions. 

"On other fronts, the agency is in the middle of a communications war. In spite of its great story, the world seems to be focused on internal issues instead of the grand, big picture. These negative impressions distract from CIRM's mission and unnecessarily create adversaries where there would be many fewer if the true story were known. For that reason, CIRM must mount a robust public communications and information effort to get the message out. Front and center in any public communications stragetgy must be the patient advocates and their vast networks. These are the people that it's all about. When you tell their stories, you put a real life face on the marvelous science and cannot help but compel public enthusiasm and compassion."

On the subject of the shared responsibilities of the chair and the president, Thomas said,

"On reading the statute (Prop. 71), the positions of chair and president are designed to be complementary, not overlapping. When carried out as defined in a collaborative and respectful manner, they should together provide 100 percent of what the agency needs to be effective.

"On this latter point, some have decried having two chief executives. I couldn't agree more. If elected, I would attend to my many responsibilities and would expect (CIRM President) Alan (Trounson) to do the same. I would not look to micromanage but would instead empower Alan to handle his considerable job duties. He and I spoke on Sunday on this very issue and agreed that a complimentary, highly collaborative relationship was the best way to bring the agency towards fulfilling its goals."

Here is the full text of Thomas' remarks.
Statement by Jonathan Thomas to CIRM governing board 6-22-11

Hand-Off at The Top

Jonathan Thomas takes oath of office. (left to right, Robert Klein, Thomas, Melissa King, executive
director of  CIRM board, James Harrison, outside board counsel)

It was a statement that could be taken in more ways than one.

It came from outgoing CIRM Chairman Robert Klein today as he swore in his successor, Jonathan Thomas, a Los Angeles bond financier.

Thomas read the prescribed oath for all state employees. Then Klein shook his hand and said,

"I congratulate you on a journey that you will never forget."

Klein said one reason he is leaving his post is to spend more time
 with his wife and family.
 (left to right, Klein and his wife, Danielle, and Thomas, following the swearing in. 

Thomas Reacts to Vote News

Jonathan Thomas was not in the room late last night when directors of the California stem cell agency voted to elect him to a six-year term as chairman of the $3 billion research endeavor. He was elsewhere in the hotel in San Diego. Directors went on to some minor business as they waited for his return. Shortly after he and his wife were seated in the audience, outgoing Chairman Robert Klein reiterated the vote and Thomas received a standing ovation. In this photo, Thomas is applauding in return. His wife is seated. In the background is Frank Litvack(with glasses), who lost the election for the chairmanship.