A high-risk investment firm did not mislead legislators when it paid the state $5 million for preferred stock it later sold for $7.6 million, according to a report released Friday.

The firm, Kansas Venture Capital Inc., welcomed the findings by the Kansas securities commissioner. But a legislative critic of the company called the report “a whitewash.”

“The company is gratified, though it’s not surprised,” said William Schutte, an Overland Park attorney representing Kansas Venture Capital Inc. “An impartial observer would come to that conclusion.”

Gov. Bill Graves directed the securities commissioner’s office to investigate the transaction in April after two former KVCI employees accused company executives of misleading investors and using the profits to give themselves bonuses worth more than $200,000 each year for three years.

The former employees, Ellyn Tyrell and Carole Ladish, sued the company, claiming they were unjustly fired after sharing their concerns with stockholders and several state officials.

The lawsuit is pending in Johnson County District Court.

The securities commissioner’s office did not investigate events leading to Tyrell and Ladish being fired.

“Those are two separate issues,” said Rick Fleming, the office’s general counsel.

“The basic rule in securities law is that no one can lie or mislead,” he said. “In this case, the Legislature was told a deal was in the works and that stock worth $12.20 a share at the time was expected to increase to $16.85 a share. Kansas Venture Capital offered to pay the state $10 a share for its shares, and the state, which was looking to get out of its venture-capital investments, agreed.

“Given what all was disclosed, there didn’t seem to be deception.”

The investigation also found that the bonuses paid to the firm’s executives John Dalton, Thomas Blackburn and Marshall Parker were approved by the its board of directors.

Bruce Woner, a Topeka attorney representing Tyrell and Ladish, could not be reached for comment Friday.

KVCI recently asked the court to dismiss Tyrell and Ladish’s case, arguing that under the state’s whistle-blower law, employees were not protected unless they went public before they were fired.

The company claims Tyrell and Ladish went public after learning their positions were to be eliminated.

Woner, in turn, has filed a motion citing company officials knew of his clients’ intent before they were fired.

The securities commissioner’s report did not impress Rep. Doug Spangler, D-Kansas City, a harsh critic of the firm.

“It’s a whitewash,” he said. “This is like somebody stealing a cupcake, and police showing up and asking whether the bakery was notified. Well, no, it wasn’t, but what difference does that make?”

Lawmakers formed KVCI in 1976 in hopes of using tax credits to encourage investment in high-risk, high-potential Kansas companies.

After a 1994 restructuring, the state put $5 million in the company.