July 12, 2018

Fasano questions $10M loan to NY fintech

PHOTO | Twitter via Sen. Fasano
PHOTO | Twitter via Sen. Fasano
Senate Republican leader Len Fasano
Students walking through UConn's former West Hartford campus in 2016.

The state Senate's top Republican is questioning a $10 million loan the Malloy administration has committed to a New York-based financial technology company planning to move its headquarters for technology and innovation to the former UConn campus in West Hartford.

Senate Republican leader Len Fasano of North Haven on Thursday asked Gov. Dannel P. Malloy's administration to explain why it's providing a forgivable $10 million loan to Seven Stars Gloud Group (SSC), which he says "does not earn any money and is less stable than originally reported."

In a letter to the state Department of Economic and Community Development (DECD), which is administering the loan through Malloy's First Five Plus Program, Fasano has asked the governor to provide DECD's analysis of the loan and Seven Star's business plan.

According to the U.S. Securities and Exchange Commission, Fasano says SSC reported a gross profit of $389,495 on about $186 million of revenue during the first quarter of 2018.

Fasano questioned Seven Stars' financial statements, which he says reveal they have made few investments in research and development and reported nearly flat profits for patents.

"I am very concerned about the soundness of this deal, especially against the backdrop of DECD's spotty record," Fasano said, adding that Seven Stars lacks the funding needed to invest in innovation and has several "unfavorable ratios and is burning through whatever cash it and its shareholders have at a rapid pace."

Fasano also asked DECD why the fintech has hired three accounting firms in just two years.

SSC, he says, is on "borrowed time, something their auditors have emphasized and noted."

In a statement Wednesday, DECD Commissioner Catherine Smith said the loan presents no risk to the state as it's secured by a letter of credit from a U.S. chartered financial institution. If SSC defaults on its commitments, DECD says it can repay the state.

Smith said her unit performs "thorough" assessments of all loans, grants and other forms of financial assistance before providing funds.

DECD's agreement with SSC, Smith says, reflects the risks of the project in addition to providing incentives for the company to create hundreds of jobs.

"Senator Fasano's letter represents a fundamental misunderstanding not just of this project, but of the department's economic development efforts," she said. "This project is a win-win and will accelerate our efforts to create a technology and innovation hub that will attract similar companies and talent to the Hartford region and the state as a whole."

Smith added that SSC has upped its revenue by 500 percent since the first quarter ended March 31.

A spokesman for Malloy on Wednesday also slammed Fasano's remarks.

"It's sad that someone with no ideas and no real plan is once again raising a racket and throwing stones from the sidelines rather than offering any solutions whatsoever," the spokesman said. "It's equally sad that it appears to be so hard for him to welcome good news of the creation of hundreds of paying jobs and great use for a vacant UConn campus."

SSC could not be reached for immediate comment.

UConn's board of trustees last week agreed to sell its former campus to SSC for $5.2 million.

SSC hopes to invest more than $280 million to create a tech hub, called Chain Valley, for blockchain technology and artificial intelligence at the 58-acre vacant campus on Trout Brook Drive. The property currently includes five buildings.

The project will bring 330 jobs, according to Malloy.

This story has been updated

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