Kansas City, Mo. ? The Kansas Venture Capital Inc. board of directors on Friday rejected a move to let a panel of stock-holding bankers audit the investment firm’s operations for the past five years.

“We see this as something that’s both duplicative and an unnecessary expense,” said board member Phil Worden, a senior vice president with Bank of America in Kansas City, Mo., after the firm’s annual stockholders’ meeting at the Blue Hills Country Club.

Kansas Venture Capital already subjects itself to independent annual audits and regular reviews by the Small Business Administration, Worden said.

Two former Kansas Venture Capital employees filed a lawsuit in Johnson County District Court earlier this month, accusing the firm’s managing partners of shortchanging the firm’s stockholders and the state treasury.

The partners John Dalton, Thomas Blackburn and Marshall Parker deny any wrongdoing.

“It is my belief and the board’s belief that this lawsuit is totally without merit,” said board chairman Mark Jorgenson, regional president with U.S. Bank in Shawnee.

Leading audit charge

Bruce Woner, a Topeka attorney representing former Kansas Venture Capital employees Ellyn Tyrell and Carole Ladish, asked for the banker-led audit Friday, saying it was needed to restore stockholder confidence.

Many of Kansas Venture Capital’s 222 stockholders are rural Kansas bankers. KVCI was formed in the 1980s with $5 million from the state treasury and several million from Kansas bankers bent on creating a fund to help Kansas startup companies. The firm was privatized after the Kansas Legislature passed a 1998 law that allowed KVCI executives to buy the state’s share of the enterprise without returning any profits to the state.

At the Friday meeting, Dalton, Kansas Venture Capital’s president, controlled a majority of the stockholder votes.

The 11-member board voted unanimously against Woner’s proposal.

Woner called the vote “very well-orchestrated,” adding, “I think it’s interesting that we’re assured their operations are above reproach while, at the same time, they don’t want any shareholder scrutiny.”

Other shareholders didn’t share Woner’s skepticism.

“As a shareholder, I put my money in their hands, the board’s hands. I trust them,” said Stewart Stein, an attorney and a director at Bank of Blue Valley.

Of the eight stockholders in the audience, it appeared that four sided with Woner.

“What you saw today was raw, healthy democracy,” Woner said. “It’s clear, I think, that we’ve gotten their attention, and that’s good we didn’t before.”

Woner held proxies from six Kansas banks.

Lawsuit allegations

In the lawsuit, Tyrell and Ladish claim they were unjustly fired after Dalton, Blackburn and Parker were each given bonuses worth more than $200,000 a year for three years 1999, 2000 and 2001. The partners, they said, also raised their $110,000-a-year salaries to $125,000, spent more than $93,000 remodeling their offices, and used the firm’s money to buy a pair of $40,000 sport utility vehicles after selling KVCI’s stake in a Wichita manufacturing business.

In a written statement shared with stockholders Friday, Kansas Venture Capital’s board of directors said the bonuses had been “in keeping with practices that are common within the venture capital industry” and had the board’s full support.

“The (partners’) contracts were in place for years before the transactions took place,” said William Schutte, legal counsel for Kansas Venture Capital.

State probe

Responding to concerns that Kansas Venture Capital may have duped the state into accepting $5 million for the stock officials knew would soon be worth $7.6 million, Gov. Bill Graves on April 12 ordered an investigation of the circumstances surrounding the transaction.

Schutte said Kansas Venture Capital had offered Kansas Securities Commissioner David Brant a complete record of its negotiations with state officials.

“It’s my sense that we won’t be asked to provide that record because the record is already clear,” Schutte said. “Everything was aboveboard.”