Co-founder of firm behind Patrick Daley deals settles SBA lawsuit

A co-founder of Cardinal Growth — the venture capital company that bankrolled City Hall projects involving former Mayor Richard M. Daley’s son — has agreed to pay $1.5 million to the federal government, which seized the company four years ago for failing to repay $21.4 million it borrowed from taxpayers.

Robert J. Bobb Jr., a former federal prosecutor who co-founded Cardinal Growth, agreed to pay the U.S. Small Business Administration by last Friday, avoiding a battle in federal court. Bobb also agreed to cooperate with regulators hoping to recover more of the tax dollars that he borrowed to invest in various companies.

Besides Bobb’s payments, federal regulators have collected more than $6.6 million after liquidating Cardinal Growth’s investments, according to a report the SBA filed in federal court two months ago.

The SBA hopes to collect from Bobb’s former partner, Joseph McInerney, who Bobb said was responsible for running the company’s daily operations, according to court records. McInerney, a close friend of the former mayor’s son, Patrick Daley, has failed to respond to the SBA’s demands for his “unpaid (financial) commitments,” the records show.

Bobb, 68, of Chicago, and McInerney, 48, of River Forest, could not be reached for comment.

Bobb and his then-wife Patricia Bobb were friends of Mayor Daley, who appointed Patricia Bobb, an attorney, to the police board in 1998. Two years later, Bobb and McInerney founded Cardinal Growth to invest in financially troubled companies with money from private investors, including Bruce Rauner, now the governor of Illinois, as well as loans from the SBA. The SBA had certified Cardinal Growth as a “small business investment company,” allowed Bobb and McInerney to borrow $2 from taxpayers for every dollar raised from private investors. Altogether, they borrowed $51 million.

Cardinal Growth invested in companies across the United States. Among them: Municipal Sewer Services, a company they created to take over City Hall contracts for cleaning and inspection of sewers when the original contractor, Kenny Industrial Services, went bankrupt. They bought Kenny’s equipment with money from private investors and the SBA and got $4 million in no-bid contract extensions from the Daley administration.

In documents with the Daley administration, Municipal Sewer Services said it was owned by Bobb, McInerney and Anthony Duffy but failed to disclose two other investors — the mayor’s son and the mayor’s nephew Robert G. Vanecko — who had invested about $65,000 in the company in 2003, a deal exposed by the Chicago Sun-Times four years later. MSS is now out of business. Duffy went to prison for lying to the FBI about the roles of Daley’s son and nephew.

Two years after the sewer deal, Cardinal Growth invested federal and private money in Concourse Communications, which got a 10-year contract from the Daley administration to install Wi-Fi service at O’Hare and Midway airports. The mayor’s son collected $708,999 for helping find investors, including Blair Hull, the wealthy commodities trader who was running for U.S. Senate, hoping for the mayor’s endorsement.

Patrick Daley made more than $1.2 million on deals with Cardinal Growth while his father was mayor, the Sun-Times has reported.

After the SBA seized Cardinal Growth in summer 2011, regulators forced Rauner and other investors to abide by their financial commitments, which were used to leverage the federal tax dollars. Rauner, who owed $50,000, and the other investors paid the regulators more than $6 million. SBA officials are suing to collect from a few others, including McInerney and Near North Insurance Co., which the government seized after the fraud and racketeering conviction of Michael Segal, Near North’s CEO.

Over the past four years, the SBA has spent more than $3 million, primarily hiring accountants and lawyers to recoup the money loaned to Cardinal Growth.