(Dec. 11 update with comments from Ideanomics at bottom) Dec. 5: Brushing aside an 11-1 vote by his County Council last month, New Castle County Executive Matt Meyer says he won’t sign a deal to accept shares of Ideanomics, a well-connected but cash-poor New York firm, as collateral for a $3 million loan the county gave to the Delaware Board of Trade (DBOT), a four-year-old Wilmington stock exchange that has so far failed to produce promised jobs.
“Giving the taxpayers a Chinese penny stock is not the way out," said Meyer on Tuesday. “There’s one way out of it: to pay us back."
Ideanomics’ chairman is New York-based Chinese-media impresario Bruno Wu and its vice chairman is Shane McMahon, son of President Donald Trump’s former Small Business Administration chief and current super-PAC head Linda McMahon. Ideanomics bought control of DBOT earlier this year, and it traded some of its own shares for those of United Arab Emirates- and Delaware-based investors, including a couple of close friends of Democratic presidential hopeful Joe Biden.
Shares of Ideanomics, which hit a recent peak of $4 last summer, have traded below $1 in recent weeks, becoming a “penny stock” territory, in trader jargon. The company has reported annual losses in each of the last four years, though it also posted profits in the winter and spring quarters of this year, before returning to a loss in the third quarter.
Besides DBOT, Ideanomics says it plans to develop a blockchain and software research center in Connecticut, using state grants. It says it has a group of programmers in Ukraine who are helping build software systems, and a Mobile Energy Group that on Dec. 2 announced a deal to help cut energy use in the Chinese province of Inner Mongolia by boosting use of battery-powered cars.
Ideanomics spokesperson Tony Sklar didn’t return calls seeking comment on Meyer’s refusal or its effect on DBOT. He had previously said his company sought to switch collateral with the county because DBOT needs improved software, and the old software served as collateral for the loan.
DBOT last month made its yearly 6 percent, $180,000 annual interest payment to the county on schedule. The final interest payment, and the $3 million principal, are due back next November. Meyer and council members have expressed concern they may have a hard time forcing payment if Ideanomics isn’t more profitable when the loan comes due.
Meyer noted he never supported the DBOT loan but inherited it from his predecessor, Tom Gordon, whose bid for a fourth term running Delaware’s most populous county was ended by Meyer in a 2016 primary election.
But in rejecting council’s latest plan for the loan, the elected executive raised questions about the impotence of the council, which is dominated by Meyer’s fellow Democrats.
In expressing his skepticism, Meyer also echoed complaints by the lone legislator who voted against accepting shares -- Council President Karen Hartley-Nagle -- who warned that borrowers typically get more money from courts in bankruptcy proceedings than shareholders do, if the exchange’s owner goes broke. She said the county would be better protected without changing collateral.
Meyer insisted he never talked to Hartley-Nagle about the deal, nor did he read the two pages of objections she filed with council last month. “That’s getting into the weeds,” he said.
Meyer said the DBOT loan is an example of government trying to do too much for private business. “If a business needs money, they should sell more stuff," he said. “If they can’t borrow from a bank, they should get investors.” He added that the stock exchange’s owners “are not poor” and shouldn’t depend on taxpayer funds.
Ideanomics didn’t reply to calls while I was reporting this column. On Dec. 11 I received this response via spokespersons Tony Sklar and Jessica Lee. I appended a few notes of my own in italics:
"The board and management of Ideanomics would like to publicly set the record straight on the following points:
"1. As your article noted, the company made its recent annual interest payment as agreed and is scheduled under the terms of the loan to repay the principal in November. The suggestion by Meyer or anyone else that the company might not pay any creditor on time is false and irresponsible.
"2. The previous collateral on the loan was outdated software used by DBOT to operate as an exchange. The newspaper suggested that the company needed permission from the county to upgrade its software. This is not true. Ideanomics was required only to notify the county of the change. The software update was necessary for the exchange to perform its mission of providing regulated market access to small U.S. companies in an economy dominated by much larger firms.
"3. Meyer himself persuaded the county to seek an uncollateralized loan, declining an offer from Ideanomics to provide collateral. While Meyer’s decision was in our view irrational and not in the interest of taxpayers, it is not the job of Ideanomics management to act as the county’s fiduciary. Rather, our job is to focus on the interests of our shareholders, employees, and subsidiaries.
“4. Penny stocks by definition do not trade on major exchanges but instead trade over the counter and are, as a result, less heavily regulated. Ideanomics, in contrast, trades on the highly regulated Nasdaq, as do many well-known technology firms. The accounting and reporting requirements to remain on the Nasdaq are rigorous. Ask the folks at Netflix, Starbucks and Costco, all Nasdaq-listed companies like Ideanomics.” (“Penny stocks” are indeed listed sometimes on major exchanges. As noted in the column, what makes them “penny stocks” is that they typically trade at low valuations.)
“5. The story seemed to suggest that recent market valuations of Ideanomics of under $1 per share imply increased risk. Microsoft traded for less than $1 for years. Same for Apple and many other young technology firms. They nevertheless changed the world we live in and continue to do so. (I would be glad of the opportunity to write about Ideanomics shares rising like Microsoft or Apple, and DBOT’s role in making that happen.)
"6. Ideanomics is based in New York and does business around the world, including in China. Calling it a ‘Chinese stock’ is no more logical than calling Ford or Caterpillar the same. (Dr. Wu, also known professionally as Wu Zheng, who owns the largest block of Ideanomics voting stock, lists his address in Ideanomics’ current shareholders’ statement as a location in Chaoyang district, Beijing, China. The company’s four other large owners are based, two in Beijing, two in Hong Kong.)
“7. The chairman of the board of Ideanomics has the last name Wu. Dr. Bruno Wu has been an American citizen for many years. Calling the firm ‘Chinese’ based on his personal background makes as much sense as calling Amazon a Cuban company because of Jeff Bezos’s last name. While we consider the point irrelevant, the majority of the Ideanomics management team is American.
"8. The same goes for the newspaper’s brief mention of Ukraine, a political hot potato at the moment. Ideanomics acquired a different firm based in California, unrelated to DBOT, which brought us a number of talented Ukraine-based engineers. We seek talent and innovation anywhere we can find it in the world, as you would expect from any global technology firm. We also have investments in Connecticut, Santa Monica, Boston, and Hong Kong - other interesting places that go unmentioned in the reporting.