A lack of data from a data center company

Floyd County officials are moving to resolve, one way or another, the controversial proposed data center project in the Commerce Park on Christiansburg Pike.

Details of decisions made in an hour-long closed-door session of the Economic Development Authority have not yet been disclosed but the county is obviously moving to either get Data Knight 365 to move on the deal or move on.

I’ve been around a lot of business deals in my life but this one ranks as one of the strangest I’ve ever encountered. Questions continue to haunt Paul Allen, promoter of the project after the State of Ohio shut down his business and a civil suit filed under the Racketeering Influenced and Corrupt Organizations (RICO) act in Tennessee names him in a loan-kiting scheme that nearly brought down a 105-year-old family owned bank.

At this point, Allen is not charged with any crime — either state or federal — but he has been accused of being less than forthright in a deal that fell through at the Radford Army Ammunition Plant and an aborted attempt to buy a networking project in Memphis.

So far, the only name on agreement documents signed with Floyd County officials is William Byler, the Amish businessman from Middlefield, Ohio, who co-owns a woodworking firm with his father and who has partnered with Allen in other ventures. The county based, in large part, its decision to go forward with the deal because on the reported involvement of Power Direct, a Cleveland telemarketing firm run by Dan Delfino.

But Delfino, like others involved in the deal, has not been in contact with the county since Data Knight 365 missed the Sept. 1 deadline for closing on the $900,000 purchase of 51.5 acres of land behind the power substation in the Commerce Park.

A tightly-written performance agreement requires Data Knight to spend $67 million to develop a 120,000 square-foot facility by Sept. 1, 2013.  Failure to meet any of several milestones in the agreement gives the county the right to revoke the deal and retain all funds paid to that date and ownership of all improvements made to the property.

Floyd County required Data Knight to furnish three pieces of documentation by closing:

  • A documented list of all principals in the project;
  • A verifiable letter of credit;
  • A detailed explanation of what role Allen now plays or will play in the project.

When the EDA met Tuesday night, the county had not heard from the company nor had Data Knight provided any of the documentation requested.

A lack of communication and failure to turn over required documentation led to the disqualification of Allen’s previous company, B-Telecom Inc., from further consideration in the sale of the Networx project in Memphis a few years ago. Questions over the validity of a letter of credit also became an issue when B-Telecom tried to lease space for a data center operation at the Radford Army Ammunition Plant.

Data Knight’s filings as an LLC (limited liability company) list only Byler as an owner of the company. Byler was also a participant in the failed deal at Radford.

So the county is faced with a data project hampered by a considerable lack of data.

Data Knight 365 missed deadline for closing

A number of people have called, emailed or dropped by to ask about the status of the announced data center for the Floyd County Commerce Park.

My story in today’s Floyd Press updates the situation: Data Knight 365 (DK365) missed the Tuesday deadline for coming up with $100,000 for a down payment for their $900,000 purchase of a 51.5 acres of undeveloped land at the Commerce Park on Christiansburg Pike where the company says it will eventually spend $67 million to build a 120,000 square foot data center.

The company also failed to provide the county with documentation on principals in the company, a letter of credit and a detailed explanation of the role Paul Allen plays in both the current and future operations of the company.

Allen, who was named last month in a loan kiting scheme that resulted in a federal case filed in Tennessee, moved out of one of the two apartments DK365 is renting at the Station on South Locust. In March, the Ohio Secretary of State shut down Allen’s company, B-Telecom. Bill Byler, the Amish businessman who now appears to be the front man on the deal, returned to Floyd this week and tells people "nothing has changed."

Things have changed. The Tuesday deadline for closing was the first milestone DK365 needed to meet in a performance agreement signed last month. Missing the deadline is grounds for canceling the deal if the county chooses to do so.

Economic Development Authority member Mike Maslaney says the "level of skepticism" over the deal has increased and that "questions need to be answered." Maslaney says he and others on the EDA still have hope the deal can be closed.

EDA chairman Jack Russell is occupied with the death of a family member and is not available for comment The EDA meets on September 22 and a decision on the future of the project may be made at that meeting.

Or it may not. Like so much of the hyperbole, mystery and intrigue that surrounds this deal, the questions far outnumber the answers.

(Updated September 23, 2009 to information about why EDA Chairman Jack Russell was unavailable for comment.)

Data Center promoter named in loan kiting scheme

A civil case filed in federal court under the Racketeer Influenced and Corrupt Organizations (RICO) act names Paul Allen, the promoter behind the announced data center in Floyd, as a participant in a "loan kiting" scheme that threatened the solvency of a 100-year-old family-owned bank in Oakland, Tennessee.

Oakland Deposit Bank cites RICO in its case against former president and CEO Stephen D. Henry.  According to court filings in the case, filed on August 14, 2009, in U.S. District Court in Memphis, the bank says it lost millions in the scheme and charges Henry with breach of fiduciary duty.

The bank, founded in 1904 by the Henry family, was sold in January of this year to Tennessee banker Marion "Ed" Lowery, who immediately invested $12 million in the financial institution. On December 2, 2008, the Federal Deposit Insurance Corporation (FDIC) found the bank had engaged in "unsound banking practices and violations of laws," issued a cease and desist order and forced the bank’s sale.

Court papers say Henry, acting as the bank’s chief executive with unquestioned authority to approve loans, set up loans in shell companies and other people’s names and proceeds were then diverted to Henry and his co-conspirators: Stephen L. Sims of Memphis and Paul Allen of B-Telecom of Ohio.

According to court files:

Henry became acquainted with Allen in or around 2002 and subsequently originated a personal loan for Allen.

From 2002 to 2008, Henry opened deposit accounts and originated several loans for businesses owned or controlled by Allen, including, but not limited to, actual or purported businesses known as the following: BTl Home Theatre, Inc.; B-Telecom Construction, Inc.; M&A Holdings, LLC (a Montana entity); M&A Holdings, LLC (a Tennessee entity); Fiber Media US, Inc.; S& P Properties, LLC; and BTl Sales Management & Marketing LTD.

From 2002 to 2008, Allen also provided Henry with personal information for individuals with whom he worked or was acquainted for the purpose of originating loans in their names. These borrowers included residents of Ohio, Montana, Tennessee, and Canada.

Many of the Allen-related loans were fixed-term loans, while others were lines of credit. Most of the loans were unsecured and, as in the case with the Sims-related loans, Henry did not engage in any due diligence to investigate the credit-worthiness of the borrowers.

After the initial loans were made, Henry and Allen created subsequent loans in the names of the individual borrowers without the borrowers’ knowledge or consent. Signatures for the borrowers on the subsequent loan documentation was typically forged.

The proceeds from these loans were channeled to Allen for his personal use and to fund Allen’s business ventures.

In another instance of loan-kiting, loan proceeds were often used to pay the interest due on loans to Allen’s businesses and other Allen-borrower loans, as well as to cover Allen’s excessive and chronic deposit-account overdrafts.

In order to obtain funds to keep the scheme going and to obtain cash for other purposes, Henry inflated loans, increasing the principal amount of a loan without the borrower’s knowledge or consent. Henry often used those funds to cover the interest payments for Allen’s loans and overdraft amounts. As with the Sims loan scheme, Henry personally benefited from the Allen loan scheme by means of obtaining large amounts of cash through cash-out transactions.

A federal criminal investigation is ongoing.

Allen came to Floyd County in 2008 and began negotiating with the Economic Development Authority to purchase 51.5 acres of undeveloped land in the county’s Commerce Park to, he said, build a "world class" data center.

Earlier this year, the Ohio Secretary of State revoked the certificate of authority and the articles of incorporation for B-Telecom, the original company name used by Allen to promote the deal.

A month later, Data Knight 365 emerged as the company backing the project, along with Power Direct of Cleveland, a telemarketing firm fined by the Federal Trade Commission for violating federal Do Not Call registry rules.

Bill Byler, an Amish businessman from Middlefield, Ohio, and a partner with Allen, became the owner of record for Data Knight 365, which filed organizational papers with the Ohio Secretary of State in April.

Allen and Byler moved into apartments at the Station on South Locust project across the street from the Floyd Country Store. Allen bragged to others that his company was a "world class developer" of data centers with locations all over the world. Dun & Bradstreet, however, listed B-Telecom as a "data entry service" with 11 employees at one location in Parma, Ohio. Data centers listed on the company’s web site did not exist.

Allen continued to promote the project and work with county officials under the Data Knight 365 name and the new comppany announced plans for the data center three weeks ago in a press release listing, as a contact, Don Sabin, an Allen associate at B-Telecom. A  two-page web site was set up through Citizen’s Telephone in Floyd.

As late as last week, the county appeared ready to proceed with closing on the $900,000 purchase and was waiting on additional documentation and a $100,000 deposit from Data Knight, due by September 1. County officials said they were unaware of Allen’s previous problems but based their belief in the project on the backing of Power Direct.

Allen moved out of the apartment on Locust Street last week, telling some he had relocated to Montgomery County and saying to others that he is now living "between Floyd and Roanoke." The apartment is still rented by Data Knight 365.

I knocked on the doors today of the two apartments rented by the company.

No one answered.

The art of the deal: Floyd County style

As my story in today’s Floyd Press reports, county officials hope to close a deal by September 1 to sell 51.5 acres of undeveloped land in the Commerce Park on Christiansburg Pike to Data Knight 365 for $900,000 — plus interest — even though we uncovered past and present legal problems of some involved in the project.

"I don’t think it’s relevant," Economic Development Authority chairman Jack Russell says of the run-ins with the Federal Trade Commission by Cleveland’s Power Direct and its owner, Dan Delfino.  Russell and other county officials did not know of Delfino’s fine by the FTC for violating federal "do not call" registry rules until we reported it recently. Power Direct is backing the deal even though the project is a data storage facility, not a call center.

They also did not know that Paul Allen, the front man for the deal, lost the right to operate his company, B Telecom, Inc., when the Secretary of State in Ohio revoked that company’s articles of incorporation and certificate of authority in March of this year for not filing disclosure reports or paying taxes. The company’s status remains "on hold" in Ohio because of an open investigation of other actvities. Bti’s web site is down and returns a "403 Forbidden code."

County administrator Dan Campbell says the county checked references and ran Dun & Bradstreet reports on Delfino’s company and also vetted Bill Byler, an Amish businessman involved in the deal but did not conduct a full background investigation. The county, Campbell says, does not have the resources for such investigations.

Neither do I. I found the infomation in short order by seaching the Internet and the databases of the sources like the Ohio Secretary of State’s business filings database, D&B reports and the Cleveland Plain Dealer online archives.  It’s the kind of research that any first-year associate of the law firm of county attorney Jim Cornwell could have completed in a day or two.

In the county’s defense, Bti appeared to be a going concern when Allen and other company reps came to Floyd last fall and began negotiations. Bti touted a deal with the Department of Defense for, they said, a top-secret data facility "somewhere outside of Blacksburg, VA."  We’ve learned the proposed center was slated for space the company would rent at the the Radford Army Ammunition Plant complex but that deal fell through for reasons that remain private because of pending litigation. Although the Bti web site claimed ground had been broken on the construction on September 8 last year no such construction ever began.

A news database search last year, however, would have found controversy surrounding Bti in the controversial Networx deal in Memphis, TN, where an investment banking group hired by the city’s public utility found problems with Bti and questioned the company’s ability to fund the deal or its honesty in due diligence.

A month after Ohio shut down Bti, Byler filed papers in the state to create Data Knight 365.

Russell, Campbell and others in Floyd County government feel they have crafted a performance agreement that protects the county if the deal goes south and one that will allow the county to collect at least $100,000 in a non-refundable deposit that the company must have by September 1.  The performance agreement also requires the company to spend over $7 million on site prep and construction by certain dates and pay the remaining $800,000 at 7.5 percent interest over the next few years.  The county holds the first deed of trust on the land and can take it back at any time that Data Knight fails to meet its milestones in the agreement.  Any money paid remains in the EDA accounts and any improvements become county property.

Data Knight has not asked for any tax concessions or money from the county and Campbell estimates the county has spent about $4,000 in legal fees.

So, if Data Knight comes up wth a hundred grand by September 1, the county makes at least $96,000 and stands to make more if the project proceeds. If the project is fully developed, Data Knight must build a 120,000 square foot facility and spend over $67 million facility that could bring $2.6 million a year to the county in taxes on land and equipment. About 20 employees would work there if it opens.

The county is still waiting for addtional verfications documents before scheduling an exact date for closing.

Floyd is a poor county and cannot afford to spend the $1 million or so that it would take the prep the 51 acres behind a power substation for use in the commerce park. Basically, the EDA and county feels it can dump 51.5 acres at a profit by taking a chance on a company that may or may not be able to deliver on its promises.

Both Russell and Campbell admit the deal is a risk but they feel the county has crafted an agreement that minimizes risk to the county and provides a big payoff if things work out.

"If" remains the question. Can the Data Knight team deliver on its grand promises? If more legal problems arise for those involved in the project, will the county be tainted by an association with the company or its players? Does the potential reward justify the risk?

Time will tell.

Ohio shut down business of data center promoter

Paul Allen arrived in Floyd a few months ago with all the subtlety of a Tasmanian Devil, whirling about with grand promises of bringing a mutli-million dollar data center to the county’s commerce park.

He had plenty of time of his hands because the State of Ohio had shut down his data center business there by revoking his company’s registration and Certificate of Authority.

Allen’s bold stories and grand plans sparked interest with the revenue-starved county government, which jumped to embrace the wheeler-dealer from Ohio. He rented one of the most expensive apartments in the new Station on South Locust complex across the street from the Floyd Country Store and then asked locals to help him find free or cheap used furniture. He drove around in a fancy white Mercedes G-Class SUV and talked about buying land, making Floyd his home and even buying Citizens Telephone Cooperative because, he said, they are in trouble, and need his help.

In Floyd County, being showy attracts attention and also creates doubt. People started talking about the flashy promoter and asking questions. No land purchases are on file with the Circuit Clerk’s office. As a public-owned cooperative, Citizens would be difficult, if not impossible, for an indivual to buy.

He bragged about big contracts with the federal government, the Radford Army Ammunition Plant and pending deals with Virginia Tech.  None of these deals, however, can be confirmed.

He said his company was a multi-million dollar operation wth locations around the world. Manta, which tracks small businesses, reports:

B Telecom, Inc is a private company categorized under Data entry service and located in Parma, OH. Our records show it was established in 2002 and incorporated in Ohio. Current estimates show this company has an annual revenue of $630,000 and employs a staff of approximately 11.

Manta’s information came from Dun & Bradstreet, the business and commercial rating company.

Some said Paul Allen was too good to be true. They might be right. Although he shares the same name as the billionaire Paul Allen who co-founded Microsoft with Bill Gates, this Paul Allen is not the same force in the technology industry. Questions are arising about this Paul Allen, his past, and his promises.

Not long after Allen hit town, the Ohio Secretary of State canceled the Articles of Incorporation certificate for his company, B-Telecom Inc. (also known as Bti) for failure to file necessary corporate franchise tax reports or pay taxes. 

In a March 6 letter signed by Secretary of State Jennifer Brunner, Allen was notified of the revocation and told to stop practicing business under the B-Telecom name. The registration for that company remains “on hold” by the state of Ohio.

A month after Ohio revoked Bti’s business credentials, Amish businessman Bill Byler, an Allen partner, filed corporation papers creating Data Knight 365 LLC and Allen continued promoting his latest venture.

It’s not Allen’s first run-in with government or those with questions. An investigation is open in Ohio regarding questions about the validity of letters of credit used by Bti.  Questions about the authenticity of letters of credit provided by Bti were cited in the company’s failure to win a bid for the controversial Networx project in Memphis, TN.

Memphis Light, Gas & Water hired The McLean Group, a prominent investment banking firm headquartered in Northern Virginia, to vet the bidders. McLean found problems with B Telecom, saying their letters of credit were “unconvincing” and the company failed to show for a due deligence meeting.

Others who have dealt with B Telecom and Allen report similar problems. Some said Allen would not show for scheduled meetings but would send Byler or Don Sabin, who served as spokesman when DK3 announced plans for the data center in Floyd. Sometimes, nobody would show.

“I would advise Floyd County to stay as far away from these guys as possible,” says a Virginia-based procurement officer who has dealt with Bti and who asked not to be identified. That procurement officer contacted us this week after reading our earlier reports about Data Knight 365.

When the Networx deal fell through, Allen told Memphis media that the “fix was in” and that the McLean Group was not a competent organization to judge his credentials. The McLean Group’s managing director is Dennis Roberts, a former bank President, certified valuation analyst and a teacher and writer on mergers & acquisitions, business valuation and corporate finance. The McLean Group’s board of advisors includes former Congressman Vic Fazio, former White House National Security Director Robert McFarlane, who also served as US Ambassador to the Middle East and retired Navy Vice Admiral Al Burkhalter Jr.

The county and Data Knight 365 announced a deal last week for plans to spend more than $20 million for a “world class data center” in Floyd’s industrial park. Allen has said the deal is done and the land is his but no contract has been signed and no money has changed hands. There is a performance agreement in place and it outlines things that Data Knight 365 must deliver before the deal can move forward. Two supervisors told us they need more information and some questions answered about Paul Allen and the DK3 deal but the board will not have a role in this transaction unless the Economic Development Authority wants the county to spend money. From what we have been told, the county is not granting any concessions or spending any taxpayer funds.

(Updated to include new information)