Shuttered Delaware stock exchange repays $3M county loan
WILMINGTON – After four years of wrangling and negotiations over how to repay a $3 million loan taken to support the creation of a startup “penny stock” exchange, the owner of the Delaware Board of Trade (DBOT) quietly paid its debt Wednesday.
That repayment, which accompanied an annual $180,000 interest payment on the five-year loan backed by county taxpayers, came without any public debate by county officials over other potential payment options, unlike last fall.
A year ago, New Castle County Executive Matt Meyer negotiated a stock-swap deal that would see DBOT owner Ideanomics Inc. avoid paying cash to settle the debt. Despite criticism from County Council President Karen Hartley-Nagle, the county council ultimately approved the plan, but later saw Meyer reverse course and decide not to sign the deal.
According to documents submitted to the county, Ideanomics proposed two different repayment plans through lawyers this year, seeking to defer paying more than $1 million of the loan in 2020. The first sought to delay the remaining $2 million repayment until 2023 while the second guaranteed repayments of $500,000 over the next two years while also offering Ideanomics stock to hold as security. Meyer rejected them all.
“I told them this is crazy. Either you pay the whole thing or we’re going to court,” he told Delaware Business Times. “On Wednesday morning, we were having pretty heated discussions about how we were going to handle the litigation. So, we were gearing up and then they honored the agreement, so hat’s off to them.”
The DBOT deal had been fraught from its 2015 origins, when then-County Executive Tom Gordon agreed to lend the startup $3 million from county park maintenance endowment funds after council voted not to do so. Finance experts questioned the appropriateness of taking software as collateral on the loan when the market had yet to even be formed and it risked being usurped by better developing technology.
But Gordon touted the bonafides of the market’s backers, which included former New York Stock Exchange head Dick Grasso and former Philadelphia Stock Exchange chief John Wallace, as a reason to invest in the hope of bringing high-paying financial tech, or fintech, jobs to Wilmington. DBOT was advertised as an alternative way for startups to raise necessary funding compared to pursuing traditional venture capital.
Despite its rocky origin, DBOT opened in the Hercules Building in downtown Wilmington in May 2017. Within a year it was trading millions of shares of over-the-counter stock each day from roughly 1,000 companies, including low-tier equities and international stocks like BMW and Bayer Aspirin that don’t want to meet reporting requirements necessary on larger exchanges.
DBOT was also notably an adopter of blockchain technology, a decentralized, unalterable recordkeeping system made famous by its connection to cryptocurrencies like Bitcoin. In 2018, it launched DBOT ATS, or alternate trading system, underpinned by the tech designed by a precursor to Ideanomics.
Although officials had touted job growth of up to 100 positions at DBOT it only ever created a handful of jobs.
In April, Ideanomics, a rapidly evolving tech-focused company led by Chinese billionaire tech investor Bruno Wu, decided to close DBOT and vacate its Wilmington offices. It terminated its lease, negotiating a $100,000 early-exit penalty, according to U.S. Securities and Exchange Commission records. It also terminated an agreement with a vendor in May, negotiating a $90,000 payment for leaving its contract early.
“Management re-evaluated the opportunities in the over-the-counter (OTC) equity market and determined that the Delaware Board of Trade business as structured was unlikely to achieve profitability in the short to medium term without significant additional investment,” the company told shareholders, noting that it would remain a registered broker dealer. “The company continues to develop its plan to use DBOT for sale of digital securities and brokering of commodity products subject to obtaining the required regulatory approvals.”
Although the deal was debated over its appropriateness for a county government, in the end the loan brought in $900,000 over five years to New Castle County’s coffers through interest payments. Meyer said he was just happy the issue was closed.
Ironically, the concerns that county officials harbored a year ago about Ideanomics’ stock is in a very different territory today. It was trading at about 97 cents a share exactly one year ago – dropping it to “penny-stock” territory of equities trading for less than $1 – and had been on a slide for months.
But today, buffeted by Ideanmonics’ move into supporting the development of electric-powered taxis and tractors, the stock has tripled in value, trading at about $2.70 a share and touched peaks above $3 this past summer. If the county had accepted the stock-swap deal a year ago, it would be sitting on about $7.7 million of Ideanomics stock today.
Meyer, who previously worked in private equity investment before being elected, said that he did not regret turning down the stock swap deal in retrospect.
“That money is not for us to go invest in stocks based on deals like this,” he said of the taxpayer-backed funds. “That’s just not the game we play.”
A request for comment regarding its loan repayment was not immediately returned by Ideanomics on Wednesday.
By Jacob Owens