A Johnson County judge has dismissed a lawsuit that sought to expose alleged wrongdoing of Kansas Venture Capital Inc., a high-risk investment firm once considered a key player in state efforts to attract new businesses.

In a decision handed down last week, District Judge Janice Russell ruled that lawyers representing former Kansas Venture Capital employees Ellyn Tyrell and Carole Ladish had “failed to plead any legally viable cause of action against the defendants.”

In their lawsuit, Tyrell and Ladish accused their bosses  John Dalton, Thomas Blackburn and Marshall Parker  of using the profits from the sale of a Wichita company to give themselves each annual bonuses of more than $200,000 for three years.

Also, the suit alleged the executives raised their annual salaries from $110,000 to $125,000, spent more than $93,000 to remodel and expand their offices, and bought two $40,000 sport-utility vehicles.

Tyrell and Ladish claimed they were unjustly fired for calling the bonuses to the attention of the firm’s stockholders.

Kansas Venture Capital officials denied the allegations, claiming Tyrell and Ladish’s positions were eliminated as part of a much-needed restructuring. And, they said, the restructuring occurred before Tyrell and Ladish began contacting stockholders.

Tyrell and Ladish had argued they were entitled to “whistle-blower” protection. The court ruled they were not.

Ruling hailed, panned

Kansas Venture Capital’s lawyer, Bill Schutte, welcomed the judge’s decision.

“We’d contended they didn’t have a case, and the ruling says they didn’t state a case, so obviously we’re gratified,” Schutte said.

Bruce Woner, Tyrell and Radish’s attorney, said the state, Kansas Venture Capital shareholders and his clients all were taken advantage of  “and it’s all legal? Yes, we’re considering an appeal.”

Created in 1976 by legislators and then-Gov. Robert Bennett, Kansas Venture Capital gave a 25 percent tax credit to investors who were willing to put money into high-risk, high-potential Kansas companies.

Eleven years later, the state put $5 million in the fund. But in 1994 lawmakers began questioning the fund’s effectiveness, noting that in the seven years since the state investment only 18 companies and 823 new jobs had been created.

State’s involvement

In 1998, Kansas Venture Capital executives went to the Legislature with an offer to buy back the state’s stake in the fund for $5 million. Legislators took the offer.

During the buyback, Tyrell and Ladish argued, the firm knew the state’s share in Tru-Circle Corp., a Wichita-based aviation company then wooing buyers, was likely worth $7.6 million. The executives, they claimed, used the $2.6 million profit from the sale of Tru-Circle to give themselves  rather than the firm’s unsuspecting shareholders  bonuses.

In June, an Office of the Securities Commissioner of Kansas investigation cleared the firm of any wrongdoing, noting that legislators had been adequately informed of the potential profit.

Still, some legislators are not happy.

“The issues raised in the lawsuit, I think, made it clear that state money should not be utilized in economic development-type investments like this,” said Sen. Karin Brownlee, R-Olathe, chairwoman of the Senate Commerce Committee.

“The money,” she said, “ought to come from the private sector.”

Earlier this year, lawmakers increased the tax credits available to venture-capital investors but blocked the state from putting any more money into high-risk projects.

“That’s the way it should be,” Brownlee said.

Most of Kansas Venture Capital’s shareholders are small-town Kansas bankers, who, 15 years ago, hoped to diversify the state’s rural economy. They, too, are not happy.

“I’m afraid this does not bode well for economic development issues in the future,” said Jim Maag, executive vice president at the Kansas Bankers Assn.