Wilmington is still the Corporate Capital, home to more companies than people, at least on paper. But it's also an aging postindustrial city, where even the DuPont Co. has moved to the suburbs, and ABC plans to shoot a television show called Murder Town.

Amid all that, politicians dare to dream of attracting a penny stock exchange and the well-paid traders and techies it could attract.

It sounds anachronistic, since few investors are posted to public trading floors in these days of remote networks and online trading.

But a group of Wall Street pros with support from former New York Stock Exchange boss Richard Grasso and ex-Philadelphia Stock Exchange chairman John Wallace came to town last summer, claiming that President Obama's small-business stock deregulation law had spawned demand for a new penny-stock market to raise cash for small companies. The New Castle County Council even endorsed a $15 million revenue-bond issue to help the proposed Delaware Board of Trade raise cash - so long as the exchange, not taxpayers, was on the hook to repay investors.

But when the proposal's backers returned this fall asking for a $3 million investment from the county where most Delawareans live, the council declined.

On Nov. 30, County Executive Thomas Gordon, a former police chief, bulled past the resistant council.

He said he'd found $3 million to give the market by selling stocks and mutual funds from the county's park-maintenance endowment, and investing the money in private 6 percent exchange bonds, to be guaranteed by the exchange's as-yet-unbuilt computer software. In a statement, Gordon also said he had persuaded council members to reconsider their opposition.

If the exchange doesn't get off the ground and the bonds aren't paid, can the county monetize the software and keep funding its parks?

"In my experience, it's tough to use software [code] as direct collateral," says Charles Robins, investment banker at Fairmount Partners in Philadelphia.

There are specialized lenders that finance software companies in exchange for a claim on their recurring license revenues. But that doesn't work at companies with no revenues.

Securities backed by intellectual property "seem a bit afield of what I would consider appropriate investments," especially given the usual limits on "allowable investments" for government accounts, said Alan Schankel, municipal finance managing director at Janney Montgomery Scott in Philadelphia.

"It's really hard to value software. Can you assign the rights" and find a buyer? asked Chris Annas, president of Malvern-based Meridian Bank. "Even if it's working, who'll do the maintenance? You're one entrepreneur away from someone coming up with something better" and destroying its collateral value.

The council fumed at Gordon. "It's an abuse of power," New Castle County Councilman Penrose Hollins, a Democrat who sponsored last summer's bond legislation, told me. "I feel betrayed" by Gordon's "heavy-handed" approach, Hollins said.

In his statement, Gordon said the bonds he bought were valued by an outside economist and the exchange has won financing from a national bank.

But the Gordon administration won't identify the bank or the economist. Council members can't get that basic information either, Hollins told me. They're asking lawyers if Gordon could move park money without council consent. Hollins joined Council President Chris Bullock and members Janet Kilpatrick, John Cartier, and Lisa Diller in a protest statement. Kilpatrick is a member of council's Republican minority; the others are Democrats, like Gordon, who holds an elective post.

David Grimaldi, the former county administrator, who supports the board of trade and negotiated the bond deal before Gordon fired him last month, says his old boss made a risky bet moving millions "from a diversified basket of publicly traded equities to a single, illiquid, unrated, and undercollateralized debt security."

Grimaldi says an earlier version of the deal would have required a reserve account to protect the park money and interest. Gordon's plan, he says, "removes this crucial credit enhancement and replaces it with a pledge of technological and intangible assets, which may have little or no liquidation value." Gordon's office hasn't responded to follow-up queries.




NOTE: The name of New Castle County Chairman Chris Bullock has been corrected.