The biggest local government in Delaware is trying to figure out how it will get back $3 million that it lent four years ago to a start-up securities market that has failed to produce promised jobs.
The New Castle County Council is weighing an offer to swap its loan collateral for shares of the market’s new owner, a New York company with backers linked to President Donald Trump, former Vice President Joe Biden, and investors in China.
The council will meet Tuesday to consider whether to accept shares of Ideanomics and give up its rights to the software that was supposed to power the new market, known as the Delaware Board of Trade (DBOT). New York-based Ideanomics wants to ditch that software, which it says is too slow, in favor of a new system, but adds that it can’t upgrade until the county accepts its stock as alternate collateral.
In 2014, Tom Gordon, then the county executive, agreed to accept the software as security for the loan. “I saw it as an opportunity to get jobs,” Gordon said Thursday.
Gordon noted the exchange’s promoters included John Wallace, a former chairman of the former Philadelphia Stock Exchange, and Dennis Toner, a longtime aide to Biden. Other DBOT investors included car dealer John Hynansky, a friend of Biden’s and past donor to his campaigns, and Delaware State Rep. Michael Ramone, a Republican.
Gordon said he was surprised the county would now consider accepting stock in Ideanomics, which could lose value and closed at $1.14 a share Thursday, down from its 2016 high of $8.25.
Instead, “the county ought to get its money back,” he said. DBOT has been paying the county $180,000 in yearly interest payments each November. The principal is due next November.
Why would the county agree to the switch? If the original software, made by Fundamental Systems of New York, isn’t being used, it won’t be much good as collateral, and the shares might be a better deal, says John Cartier, the New Castle County Council member who is cosponsoring the proposal with fellow member George Smiley.
The exchange wants to use new software to be built by Chicago-based Deep Systems LLC, Ideanomics spokesman Anthony Sklar said last month.
DBOT organizers have successively pitched the market as a penny-stock trading center, a venue for blockchain-based investments, and a place to develop and trade derivative securities whose value would be based on corporate debt and other assets.
Sklar said DBOT could be profitable if it had better software and if the federal government would upgrade the market’s regulatory status so it could sell more products.
Sklar didn’t return calls seeking comment Thursday.
The original agreement included a provision for early loan repayment if the exchange changed hands. At the time, bankers interviewed by The Inquirer said it was unusual to use business software as loan collateral, because it can be more costly than anticipated to install, and its value tends to drop as it becomes older.
But shares in a company that has generated little investor interest in recent years could also leave the county with depreciated collateral if DBOT doesn’t pay the loan back on time.
Cartier blamed Gordon for accepting the old software as security for the loan in the first place.
Asked how soon the bill he introduced would allow the county to liquidate the shares and get its money back, Cartier said he was uncertain, but added that it sounded like a good idea for the county to have that option. He also said he was curious whether Ideanomics was offering to pay other DBOT investors in stock.
DBOT investors Toner, Hynansky, Ramone, and Wallace didn’t return calls seeking comment.
Ideanomics is headed by Bruno Wu, who with his wife, Yang Lan, is among China’s top media investors.