Thursday, February 27, 2014

Former Mayor Mary Verner on her early support for Blue Ray, a company now accused of fraud

Posted By on Thu, Feb 27, 2014 at 11:18 AM

This week, we have a lengthy investigation on a company called BlueStar Digital Technologies (formerly Blue Ray Technologies). It came to Spokane with big promises, fulfilled essentially none of them, has been tagged at least one civil judgment of fraud, and now is under investigation by the FBI.

Spokane’s enthusiasm for the company, back in 2007 and 2008, had been leveraged as a way to draw in further investment, despite the fact that wouldn’t actually begin selling small orders of discs until about December 2011.

click to enlarge Mary Verner
  • Mary Verner

For example, in her Feb. 8, 2008, State of the City address, Mayor Mary Verner mentioned Blue Ray twice, saying first: “We can credit our quality of appeal for bringing business like [Blue] Ray Technologies to Spokane. Companies like [Blue] Ray want a place where they can do business successfully, of course, but also a place where their managers and employees want to live.”

And later in her speech, while talking about Spokane constructing environmentally friendly buildings: “[Blue] Ray converted an historic downtown building into a manufacturing facility that uses subterranean cooling and water recycling to minimize energy costs and environmental impacts.”

But perhaps most controversial in hindsight was an April 14, 2008, letter Verner wrote, at request of the company, that they sent out to investors.

Here’s the full text of the letter, with some minor clarifications in brackets:

Finance and Technology Partners:
I endorse the efforts of Blue Ray [Technologies] and the affiliated companies positioned to operate in Spokane. They bring diversity and will be the foundation of new opportunities in the area driven by their developmental technology. My hope is that Blue Ray Technologies will be the catalyst for attracting further high tech companies to locate in Spokane by demonstrating that our area is a wonderful place to live and work.

I look forward to the growth of Blue Ray Technologies as they develop more jobs and contribute to the local economy. My vision for Spokane includes the creation and retention of employment in the high tech and clean tech arenas. The success of Blue Ray will not only help achieve our vision, but will show that high tech does not need to be in Silicon Valley to be successful. As companies come here to work with Blue Ray, they will see why Forbes ranked Spokane the ninth best city to work and live out of the largest 200 cities in the United States.

My staff and I are committed to new companies like Blue Ray Technologies. We work closely with Mr. [Erick Hansen] and his company because I am dedicated to successful growth in our City. I urge you to consider helping Blue Ray Technologies grow into a cornerstone for Spokane and Eastern Washington.

Sincerely,

Mary B. Verner

When working on this story, I wanted to get Verner’s thoughts in retrospect. She was not willing to do a phone interview, saying that she preferred to answer questions over email.

We paraphrased a small piece of her answer in the story, but we wanted to print my questions and her response in full.

Here were my questions. I used the name “BlueStar,” the title the company changed to in September of 2008 in response to a copyright suit from Sony, to refer to the company and its various related entities throughout the past seven years.

Mary,

I hope you're doing well. I've been looking into BlueStar and the city's role in promoting the company.

I'm hoping you could answer a few questions:

1) I understand you took a tour of the BlueStar plant in the grand opening in 2008. Does anything stick out in your mind? Any memories? Any details of things said or sights seen that you can still remember?

2) An investor says he received correspondence from BlueStar with a letter from you endorsing the company. I believe it was from April 14, 2008. It was one factor that made him want to consider investing even more money in the company.

Why did you endorse the company? What sort of due diligence or research did the city do before you endorsed the company? Was the city aware of any of the bankruptcy of his previous business, Hansen's considerable personal debt, the 1999 Cease and Desist from California, the lack of occupancy permit in the building, the outdated equipment, or the lack of any contracts from the company?

If not, should city officials or future Mayors take away anything from this?

It might be easier to call me, because I know that's a lot to go through. I know you're busy, but I can schedule a time that works for you.

(I should note that whether the equipment was outdated, instead of just not upgraded to legal specifications, is disputed.)

Here, after a little back and forth over timing, is Verner’s response. Her computer was in the shop, so she typed the response on her iPhone:

Specific memories have dimmed with time. I don't recall a company named BlueStar; seems is was Blue Ray Technologies or similar name.

I recall Blue [Ray] was a GSI recruit and there was optimism this company would help revitalize west downtown. As a member of City Council, I attended numerous meetings at which Council President Joe Shogan and DSP Director Marty Dickinson worked hard to find housing for individuals who would be displaced when low-rent housing in west downtown converted to new commercial uses. Apparently, GSI, DSP, Mayor Hession, and City Council believed Blue [Star] would be a transformative entrant into downtown's business community worthy of the hard work on the part of the city, DSP, and non-profit partners.

I had no information about Blue [Star]'s financial stability; like others, I presumed the recruitment process involved due diligence on the company (the city paid GSI to be our business recruitment entity).

I do remember a tour of the facility, although I don't recall the date. The storefront, office, and downstairs production machine areas were freshly painted and clean. Only a handful of Blue [Star] administrative employees were present, and talk at the time was about this company bringing high-wage tech jobs to downtown. The excitement and prominence of this company on GSI's list of recruitment successes were likely the reason this particular company was called out in the State of the City address. (Again, my memory on these details may be incorrect.)

After I became mayor, I learned the company wanted the city to provide more utility work. I don't recall specifics, but think it had something to do with the alley.

At some date, [Erick] Hansen of Blue [Star] invited me to an event at the facility involving Joe Jackson, father of famous musician Michael Jackson. There was much fanfare and the point of the visit was to garner interest from investors through Jackson. I remember thinking it odd, even disconcerting, that no employees were working at the "plant" and the facility seemed almost unused since the first open house.

At some date I don't specifically recall, city staff told me Blue[Star]/[Erick] Hansen wanted a letter of support from the city so the company could secure more funding. I was unwilling to involve the city in vouching for any particular company's financial stability and agreed to provide only a non-committal letter, something to the effect that Spokane welcomes new businesses and wish Blue [Star] success, so the recipient of the letter would look favorably upon Spokane as a place to do business. I very specifically recall not agreeing to vouch for Blue [Star]'s fiscal health. Any financial backer of a business would be expected to conduct their own thorough due diligence; that was not a role of the city, and I would think it odd an investor would purport to rely on a lukewarm "endorsement" letter.

Lessons learned include: clarify the roles of GSI and city (I tightened the city's contract with GSI to include a specific scope of work); ensure newly recruited companies provide sufficient proof of financial stability to warrant community investments; avoid even tepid support for any particular company's expansion plans unless thorough due diligence is conducted; and, believe in the old tongue-in-cheek adage that "no good deed goes unpunished."

I hope your story on this topic doesn't continue the trend of Inlander pieces that reflect negatively on my time serving in public office in Spokane. It is discouraging to read misrepresentations that distort history or damage my reputation for no apparent reason. I served in good faith, gave the job 100% of my energy and devotion, and accomplished significant good for Spokane. Your line of questioning leads me to think your story will convey a different angle. It would be refreshing to be proven wrong in that expectation.

Spokane is still home, and I'm still glad the Inlander provides an alternative to the Spokesman to help citizens be better informed.

Mary


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