A good idea gone awry
Oct. 18, 2002
The Magnolia Venture Capital Corp. was created as a private, for-profit corporation by the Legislature in 1994 to provide seed money for business start-ups. The state put up $20 million. But in the three years of its operation, Magnolia Venture helped only one business and that was an existing business in Jackson, not a start-up.
The venture began to unravel in 1997-98 with allegations first reported in the Mississippi Business Journal that its head, Steve Caldwell, had directed its activities with less than honorable intentions. Caldwell was convicted in April 1999 of three counts of mail fraud and one count of money laundering in federal district court in Jackson. He was sentenced to six years and three months in prison. In August, the 5th U.S. Circuit Court of Appeals in New Orleans upheld Caldwell's conviction.
Caldwell served as Magnolia Venture's chief executive and chairman. It was during this period, prosecutors contended, that Caldwell set out for Magnolia Venture to buy services from companies he owned or partially owned.
Prosecutors said Caldwell planned out every detail of how he was going to make money off Magnolia Venture. They said one of Caldwell's companies, Capital Strategies Group, was paid $1.17 million. They said Caldwell also set up a second company, American Telesys Inc., that was paid $75,483 for handling telephones and communications for Magnolia Venture in 1994. Prosecutors contended much of that money made its way into Caldwell's pocket.
The state recovered $12 million last year from the now-defunct venture capital corporation.
On Tuesday, U.S. District Judge Henry T. Wingate ordered Caldwell to report to prison on Nov. 18. The judge also ordered Caldwell, 48, to pay $1.38 million in restitution.
Magnolia Venture Capital Corp. was created with the best of intentions but as has happened so frequently lately, the human element of a single greedy executive overshadowed those intentions. The shame of this venture is that no business start-ups got financial help and, in fact, the episode probably set back the concept of state-backed seed money for decades.