Economic Development Authority issues ‘final demand’ to DK3

by Doug Thompson

Data Knight 365 (DK3) Friday missed another deadline for closing on purchase of 51.5 acres of undeveloped land in Floyd County’s Commerce Park for a proposed data center, prompting the Economic Development Authority (EDA) is authorize a formal “final demand for closing” Tuesday after meeting behind closed doors for more than a hour.
EDA chairman Jack Russell refused to provide details of just what a “final demand for closing” entails.
“I have no idea,” Russell said when asked by The Floyd Press what timeline, if any, is part of the “final demand.”
However, other sources confirmed four members of the authority, along with two county officials and an attorney, discussed suing DK3 to recover money the county has spent on legal fees and other costs from the deal that has twice failed to close. Documents provided by the company have also come under question. One county official close to the deal told The Floyd Press privately that the documentation required for the closing did not pass muster.
The Floyd Press has also learned that a county in Ohio earlier this year terminated a deal with a former company of one of the data center promoters after the company left the county with an empty 22,000-square foot building that the county paid to build.
“All we got from them was excuses,” Columbiana County Port Authority Executive Director Tracey Drake said about the failed deal with the company owned by Paul Allen, a promoter of the Floyd County project. “They kept stringing us along.”

In August, DK3 signed an agreement with Floyd County to close on purchase of the acreage behind an AEP substation just off Christiansburg Pike for $900,000. DK3 owner William W. Byler also signed a performance agreement which required the company to invest $67.8 million to build a 120,000 square-foot facility for the data center with a deadline of 2013 for completion.

DK3 failed to provide documentation required by the county, including a list of company principals and a letter of credit, along with a $100,000 down payment, by the Sept. 1 closing deadline. The EDA, at its September meeting, met in closed session and gave DK3 a new “final” deadline of Oct. 23 to close along with a deadline of five business days before closing for submission of the documents.

Byler delivered the documents on Friday, Oct. 16, and the EDA met in closed-door session on the following Monday, emerging to set closing for the following Friday.

Closing did not occur and both Russell and County Administrator Dan Campbell said Byler “apparently” did not have the resources to close the deal.  One suspected reason for the failure to come up with the $100,000 down payment was the withdrawal of Cleveland telemarketer Dan Delfino and his company, Power Direct, from the deal.

In August, Russell and Campbell said the involvement of Power Direct was a key to the county going forward with the deal. When Power Direct pulled out, the EDA decided to go ahead with the deal anyway but that decision was made in executive session, not in open meeting.

When asked last Friday about details of what the EDA discussed in its closed sessions regarding the withdrawal of Power Direct, Russell responded, via email that “I cannot comment on closed session discussions.  Personally, and based upon the outcome today, I suspect that Dan Delfino/Power Direct may have been the planned resource for the down payment.”

“I believe that the EDA kept to the high ground throughout and that it has adhered and will continue to adhere to the letter and spirit of the performance agreement with DK365,” Russell added.

Virginia’s Open Meetings law allows governmental bodies and agencies to meet behind closed doors for specific reasons, which must be stated in open session before the meeting starts and requires a vote before entering a closed session.

On Tuesday, the EDA authorized two areas of Virginia law for the session:

—Discussion of the acquisition of real property for public purpose, or of the disposition of publicly held property may be closed, where open discussion would adversely affect bargaining position on negotiating strategy of public body;

—Discussions pertaining to actual or probable litigation or other specific legal matters requiring the provision of legal advice by counsel.

After the closed-door meeting in September, Russell told The Floyd Press that “no action was taken” in the session but county officials later confirmed that the EDA, in the session, decided to set the Oct. 23 deadline and directed the county attorney and county administrator to send notices of the deadline to Byler and Delfino.

In the closed-door meeting Tuesday night, sources confirmed to the Floyd Press that a timeline for bringing the deal to an end was discussed but Russell said after the meeting that “I have no idea” what a final demand for closing meant.

When asked if making decisions in closed session violated the Virginia Opens Meetings law, Russell responded “I don’t believe it does.” When asked if discussing more of the deal in open session might better serve the taxpayers of Floyd County, Russell said: “I don’t disagree.”

The EDA decision Tuesday extends, for the time being, a deal that has become a topic of speculation and discussion since county officials and DK3, a company created in April of this year, announced plans for the data center in August.

At the announcement, DK3 listed itself as a “Power Direct Company,” part of the Cleveland telecommunications firms. Questions began to arise about participants in the project, including Delfino, promoter Paul Allen and Byler.

In 2006, The Federal Trade Commission fined Delfino and Power Direct for violating the federal “do not call” registry regulations and obtained a restraining order against both the company and its owner.

Allen’s company, B-Telecom Inc. (Bti), began the negotiations with Floyd County last year. Allen told the county his company operated several data centers in the United States but a check of public records could not find that any of the data centers listed on the company’s web sites actually existed.

In January, the Columbiana County Port Authority in Ohio announced it had “severed ties” with B-Telecom on a $4.2 million data center project in that county’s industrial park.

“They didn’t do anything they were supposed to do,” Port Authority Executive Director Tracey Drake told The Salem News. “All we got from them was excuses. They kept stringing us along. We couldn’t afford to wait.”

Columbiana County built a 22,000-square foot building and paid to have fiber optic cable run to it for the deal.

“We put all that money in acquiring fiber optic and the building,” Drake said. “BTi hasn’t performed and we still got all that money in play.”

Drake said the Port Authority would consider filing a breach-of-contract suit against Bti, saying “there’s a strong possibility action will be taken to recover the money that we spent.”

In March, the Ohio Secretary of State suspended the articles of incorporation and certificate of authority for Allen’s company, B-Telecom Inc., citing failure to file disclosure forms and pay taxes.  A month later, Byler – an Allen partner and participant with Bti in deals, filed papers to create DK3.

Although the data center in Columbiana County never materialized, Bti listed the location on its web site as a functioning data center. The web site disappeared from the Internet in August after questions surfaced about the Floyd County deal.

Bti also listed a data center in Radford but that data center did not exist. A deal with Radford Army Ammunition Plant operating ATK fell through when a letter of credit presented for the deal didn’t check out. The company is trying to recover $150,000 it paid Bti as part of the original agreement.

Allen is also named in a federal civil suit filed under the Racketeering and Influence Pedaling Act (RICO) as a participant in a loan-kiting scheme that almost brought down a 105-year-old family-owned bank in Oakland, Tennessee.