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Pocatello Development Authority misleads public about decision to forgive loan in exchange for stock in a private corporation

Pocatello Development Authority misleads public about decision to forgive loan in exchange for stock in a private corporation

Erik Makrush
September 7, 2011
Erik Makrush
September 7, 2011

Press Release

September 7, 2011 - The Idaho Freedom Foundation (IFF), a government watchdog and free market think tank based in Boise, today accused Pocatello’s urban renewal agency, the Pocatello Development Authority, of trying to mislead the public on its ill-fated decision to loan taxpayer money to a private company and then forgive the loan in exchange for ownership in the company.  IFF also accused the government agency for failing to secure adequate collateral to protect taxpayers in the loan.

The government agency loaned Positron Systems, Inc., $400,000 in 2003 at zero percent interest, with repayment expected by 2011.  When it appeared Positron would be unable to repay the debt, the agency, at Positron’s behest, agreed to forgive the loan in exchange for 200,000 shares of common stock in Positron’s subsidiary, Acceloris Isotopes.

IFF reported on the shaky deal in its 2011 Idaho Report on Government Waste, released in January, labeling it “A deal possibly worse than the Fed’s ownership of General Motors.”  But when IFF decided to check up on the arrangement in August, the urban renewal agency tried to pass it off as if the loan-for-stock swap vote had never happened.

Director Quayle, responding to a public records request, told IFF in an Aug. 15 email, “this was a proposal that was brought before the Pocatello Development Authority, there was a vote and the proposal was rejected.”

But records show that’s not the case: In 2008, Positron officials petitioned the agency to forgive its loan, the entire balance of which remains outstanding.  According to minutes from the December 17, 2008, urban renewal district meeting, the urban renewal board voted in favor of a motion to “forgive the $400,000 loan owed to the PDA by Positron Systems, Inc if a plan could be created which would provide an equity position for the Development Authority to recoup its loss.”

In January 2009, Positron told the urban renewal board that the company ran into problems when it attempted to secure funding for its new start-up company.  But at the urban renewal agency’s September 2009 meeting, then Pocatello Mayor Roger Chase made a motion to “forgive the $400,000 loan from Positron in exchange for 200,000 shares of the common stock of Acceloris Isotopes, LLC.,” according to meeting minutes.  “Upon making the motion, Chase noted that the proposed motion would help Positron and Idaho State University, and if the PDA didn’t do something, it wouldn’t get paid in 2011.”  The motion passed.

On Sept. 24, 2009, the Bannock Development Corporation published a press release quoting the urban renewal agency’s interim executive director, Robert Chambers, announcing that the agency had “recently acquired 200,000 shares in a secondary company being formed by privately-held Positron Systems in exchange for the $400,000 loan.”  This was done for two reasons according to Chambers, “it protects our investment and it converts debt equity into share equity.”

On April 21, 2010, Positron advised the Pocatello Development Authority that the urban renewal agency would need to be a member of the Acceloris Isotopes, LLC, rather than a shareholder.  But the urban renewal board balked at that idea.

In January, Idaho Freedom Foundation released its 2nd annual report on government waste, highlighting the Positron-Pocatello Development Authority deal as an example of bad government decision-making. IFF panned the agency’s original zero-interest loan and its subsequent decision to take an ownership stake in a private company.

On March 16, the PDA board voted to extend Positron’s loan due date for a at least an additional two years, giving Positron until March 2013 to repay its debt, according to meeting minutes.  After two years, the board may reconsider Positron investment options, the minutes say.

In August, IFF decided to see what’s happening with the Positron loan, to which the agency claimed no equity-share deal had ever been entered. Furthermore, after IFF pointed out that a September 2009 news release contradicts that assessment, the news release was mysteriously removed from the Bannock Development Corporation’s website.

“Clearly, the Pocatello Development Authority has entered into a very bad business deal with a private company, and now the agency is trying to hide it and erase the history of what really happened,” said Erik Makrush, policy analyst for the Idaho Freedom Foundation. “Facts are facts: The agency loaned $400,000 of taxpayer money to a private company, at no interest, without reasonable collateral to back up the loan, voted twice to forgive the loan in exchange for private equity shares of the company and then pretended that no such votes ever took place.”

The loan was supposed to be secured by collateral.  Unfortunately for the taxpayers, the collateral used was a long-term lease on property owned by Idaho State University, according to interim director Merril Quayle of the PDA.

According to Darlene Gerry, Associate General Counsel at Idaho State University, “Positron has a long-term lease to a portion of the IAC (Idaho Accelorator Center) building.  Thus, they cannot put ownership of the IAC building up as collateral for a loan because they do not own any portion of the premises.  If they did use the lease as collateral, it would mean that in a default situation, another entity could take over the lease, subject to the same uses and restrictions that Positron agreed to.”

“Pocatello taxpayers have a $400,000 bad debt hanging out there,” Makrush said. “They’re entitled to straight answers from the urban renewal agency, and right now, they’re not really getting them.”


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