The Atlanta Journal-Constitution
State contracts helped Abrams’ company
Former House minority leader says she avoided all conflicts of interest.
Former House minority leader and candidate for governor says she avoided all conflicts of interest.
For six years, Democratic gubernatorial candidate Stacey Abrams held a minority stake in a financial services company that contracted with the state through two related nonprofit corporations while she served in the General Assembly.
Abrams received a salary of $80,000 in her first year as a senior vice president of the company, NOWaccount, and $60,000 a year through 2015.
The state contracts used federal tax dollars to guarantee credit extended to small businesses, and gave Abrams’ start-up company a boost as it sought partnerships with financial institutions still skittish in the wake of the Great Recession.
Abrams, who served as House minority leader from 2010 until she resigned last year, told The Atlanta Journal-Constitution that she played no role in securing the state contracts, and that she scrupulously avoided conflicts of interest.
While the business arrangement did not run afoul of ethics laws, the AJC reviewed emails, text messages and other documents showing that state officials had numerous complaints about the company’s performance and, at one point, NOWaccount co-founder John Hayes threatened to “involve the legislature” in a dispute.
Abrams’ role in the firm and its performance for the state are emerging as issues in her primary race against former state Rep. Stacey Evans, who resigned from the Legislature last September to compete against Abrams for the nomination.
Evans said she and other Democrats should have known that Abrams was in a business relationship with Gov. Nathan Deal’s administration at a time when Abrams was House minority leader, and was negotiating with the governor’s office on many issues affecting Democratic priorities.
“I think that the way elected officials mix their private business with the public’s business is an issue in this campaign,” Evans said. “No one in the Democratic caucus had any reason to think there were business dealings between her and the governor when she was negotiating on our behalf. I think we should have been told that, and we weren’t.”
Abrams said she received a verbal opinion from the Georgia Attorney General’s office that her ownership was not a deterrent to NOWaccount’s involvement with the state contracts.
State law sets an ownership limit of 25 percent for members of the legislature who are invested in companies that do business with a state agency. Abrams owned 16 percent of the company at the time of the contract and disclosed her role in the company on a personal financial disclosure statement filed with the state ethics commission.
Although she still is invested in the company, Abrams told the AJC that she ceased being an employee in August 2016. But Abrams’ personal finance disclosure report filed last week, which covers calendar year 2017, still lists her as a senior vice president. A campaign spokeswoman said NOWaccount was listed on the report in error.
“I’m proud of what NOWaccount did,” Abrams said. “I went to a Republican attorney general to make certain I was not in violation of even the spirit of the law. After being told there was no conflict of interest, I still walled myself off ” from the company’s operations.
Jobs program crucial
Abrams formed NOWaccount in 2010. The company offers a payment system to businesses that sell products to other businesses — allowing their clients to be paid immediately, rather than keeping the credit on an accounts-receivable ledger for 30 to 60 days.
NOWaccount receives a 3-percent fee from its customers, and was not paid by the government for its participation in the state contract. Federal tax dollars did, however, guarantee 80 percent of the credit offered through the program.
Abrams said she thought her new company, co-founded with Hayes and Lara O’Connor Hodgson, would be a good fit for the Jobs Act of 2010, a Congressional response to the Great Recession that included $1.5 billion in government-backed small business loans to be distributed through community banks.
“I read the Jobs Act,” Abrams said. “I brought the provision to John and Lara. We talked about it, and during that process I became minority leader. I intentionally said here’s what we can do, but I don’t want there to be any conflict at all.”
The federal program was administered in Georgia by the Department of Community Affairs. A DCA spokeswoman said the agency held public hearings and contacted many people in finance to see who could help deploy the federal funds to small businesses.
NOWaccount was the only private lender that showed interest, and they were written into the state’s application, according to the spokeswoman, MaryBrown Sandys.
“At no time did Stacey Abrams participate in any meetings or discussions with DCA about NOWaccount,” Sandys said.
Each state was responsible for writing a proposal to the U.S. Department of Treasury. Georgia received $48 million from the program, and its application included $17 million dedicated to credit guarantees. The state later reduced that amount to $10 million.
NOWaccount’s nonprofits ultimately received 90 percent of that business, extending $9.1 million in credit and earning about $273,000 by vetting small businesses for the program. Those proceeds were used by NOWaccount to pay overhead and operational expenses.
Abrams, who is a tax attorney, said her major contribution to the partnership was legal analysis. Abrams said she also handled human resources functions and marketing. Hayes and Hodgson handled day-to-day operations.
Hayes acknowledged the taxpayer guarantees from the program gave the company a significant boost: “It was really important ... when we were first getting started with the credit unions.”
Political interference
Tensions rose toward the end of the jobs program, however, as DCA struggled to keep up with the applications being pushed through. The contract required DCA to evaluate credit applications within five days, or they would be approved by default.
Christopher Nunn, then a deputy director for the DCA who now leads the agency, wrote in a June 15, 2016, email that the relationship with NOWaccount “seems to be headed south.” He called the agency’s contracts with NOWaccount a “headache.”
Nunn wrote the email to then DCA commissioner Camila Knowles and the agency’s director of external government relations Seth Coker, after a meeting with Hayes.
“... While our backlog is unacceptable, it is still necessary that we approve the loans they make,” Nunn wrote in the email. “The founder (Hayes) sees things differently and acts entitled to these funds, which may play an important role in the business model.
“In a meeting today with our team, he advanced several challenging points of view, as well as threats to engage the legislature, his high profile board, and his attorneys,” the email says. “Seth, you should be aware that Stacey Abrams is a co-founder and SVP in the company. (I expect she is smart enough not to weigh in, but John is otherwise well-connected).”
Hayes acknowledged the meeting was contentious and said his statement about involving the legislature meant “we might have to start telling the small businesses that the long delays in enrolling them was the fault of DCA, and suggest they complain to their DCA board member, or senator or representative from their district.”
“I would never threaten to use Stacey’s relationship” in the dispute, Hayes said.
Hayes wrote to DCA program manager Holly Hunt on July 22, 2015, saying NOWaccount planned to focus on Georgia for the coming 18 months.
“Even through our applications from outside Georgia have picked up because of more national exposure, the reality is that our approval rate in Georgia is 6 times that in other states,” Hayes wrote. “We were never successful in getting other states to adopt a Georgia-like program.”
Parting of ways
Before that 18 months was up, DCA became frustrated with NOWaccount, according to emails obtained by the AJC.
In September 2015, Hunt complained to a co-worker about a recommendation from NOWaccount for a company that had two tax liens and an open court judgment.
“This loan is a classic example of files we received that are incomplete,” Hunt’s email says. “You can see that once the business owner was asked for proof of payment, he withdrew the loan. (We) spent valuable time with research and internal documentation on a loan that was obviously not eligible to begin with.”
In February 2016, Hunt wrote that DCA had received $51,376 in fees from NOWaccount, but had paid out nearly $160,000 in losses to cover lines of credit in default. In all, taxpayers covered about $1.3 million in defaults.
Hunt also sent three emails in early 2017, rejecting applications recommended for approval by NOWaccount because credit scores were inflated.
“FYI — we have received numerous renewals and new loans with their in-house scores that are better than the (credit) reports that we eventually request and get,” Hunt wrote to her supervisor and to Nunn, who by then was director of DCA.
The contracts were terminated a few months before the program officially ended.
Abrams said NOWaccount’s participation in the program helped create and retain jobs in Georgia.
“I am very proud of my financial services company helping Georgia businesses thrive,” Abrams said. “I’m equally satisfied that at one of the worst moments in the state’s history, I was a co-founder of a financial services product that did not cause a business to sell its soul.”