Summary–Need for an Inquiry

Representative Michael Ramone

When advocating for the “Youth and Training Wage” on the House floor at the end of the 2018 session, Mike Ramone cited his pool management company as a “great example” confessing to a conflict of interest which has probably saved tens of thousands for his seven companies. 

After his opponent filed to run in 2018, he sent intimidating emails to her non-profit employer and she was fired shortly thereafter. 

While SB 69, the “Blockchain Amendments” bill, was moving through the legislative process, Mike Ramone bought  an 11% share in the Delaware Board of Trade (DBOT).  Six months after the passage of SB 69, the company announced that “DBOT is the first and only blockchain based Alternative Trading System fully licensed by the SEC”.  The stock price shot up and Mike Ramone’s investment was worth more than $4 million although he didn’t sell at that time.  He may have benefited from inside information.

The Seven Stars Cloud (SSC) group made a major investment in DBOT at the end of 2017.  Mike Ramone was the largest investor entering into a Stock Purchase Agreement which exchanged his DBOT shares for SSC. Mike Ramone’s Stock Purchase Agreement included a “Second Addendum” dated January 13, 2018, which states:

“WHEREAS, the Parties now wish to change the purchasing party from Seven Stars Cloud Group, Inc. to its wholly owned subsidiary China Broadband, Ltd., a Cayman Islands limited liability company.  THEREFORE, the Parties hereby agree to the abovementioned change to the Stock Purchase Agreement.”

As a Board member of the DBOT, Mike Ramone may have engaged in an arrangement enabling his company to avoid federal and state taxes.

These issues are documented below with links to articles and documents.

Mike Ramone’s Public Confession

In the debate over the Youth and Training Wage Mike Ramone publicly confessed to a major conflict of interest.  June 30, 2018 was the last day of the 149th General Assembly and it was an unusually long day in Dover. The controversy began when House Democrats passed HB 170 which provided a $1.00 increase in the minimum wage.

The Republicans were angry, and Mike Ramone went into action.  As a Prime Sponsor, he introduced the “Youth and Training Wage” bill allowing employers to pay workers under 18 and new employees $.50 less than the minimum wage. 

Mike Ramone led the minority caucus to withhold their votes from both an infrastructure bond bill and grant in aid funding.  These combined measures, representing almost $1 billion in critical state funding, were held hostage to Representative Ramone’s two-level minimum wage which passed at 8:15 in the morning.

During the House floor debate at 3:30 AM when he was advocating to add the Youth and Training Wage as an amendment to HB 170, Mike Ramone pleaded his case based on the benefit to his own company.  Here’s a link to an audio recording of the floor debate including Mike Ramone’s statement below 9:42—10:20.

Pool Lifeguard

“A second portion to this amendment would be what’s called a youth wage.  A youth wage would be a great example for like our pool management company.  We have a lot of children, a lot of young people 15, 16, 17 being lifeguards, kind of learning how to do it…”

To be clear, the “great example” which Mike Ramone is citing is his company’s leeway to pay all these young people $.50 less than the minimum wage.  Mike Ramone’s bio on the General Assembly website states that he and his wife “currently own six successful businesses and employ over 200 individuals throughout the year. The Ramone businesses include multiple swim and fitness centers which primarily employ young people.

The national standard for full-time work is 2,087 hours, so a $.50 reduction in hourly wages would be worth more than $1,000 per employee representing a substantial cost savings for the Ramone businesses.

Mike Ramone’s Opponent Gets Fired

Stephanie Barry

Following his election as State Representative in 2008,  Mike Ramone did not face a contested election for the next ten years in either primary or general elections.  In June 2018, Stephanie Barry filed to run against him.

Barry had been an employee of a nonprofit animal welfare agency, PAWS for People, for more than a decade.  In an interview with WDEL, she explained that she was late in filing for the election because she waited for permission from her employer before running.

One of Stephanie Barry’s first campaign communications was through Facebook messenger which included the following sentence.  “This is a part-time job—I have the support of my employer (PAWS) and I hope I can count on yours.” Barry explained to WDEL that her mention of “support” from PAWS referred to their permission for her to run for election.

As a member of the powerful Joint Finance Committee, Mike Ramone had helped PAWS obtain $5,000 in Grant in Aid funding the following year.  Having received a copy of Barry’s Facebook communication, on July 10th Ramone sent two extremely intimidating emails to PAWs officials.  These emails were obtained by both WDEL and Blue Delaware:

“As you may know Mrs. Barry is running for the 21st representative seat.  I only wanted to ask for some clarity on posts made about PAWS.  Could I please see a copy of that policy [of no endorsements in political campaigns by PAWS].  I was just confused about PAWS endorsement of my opponent (as written in her posts) without ever speaking with me.  I thought that odd viewing the fact were a Grant and Aid recipient and was looking for some direction but a copy of your policy would help me better understand.” Blue Delaware reported that Mike Ramone copied the General Assembly’s Controller General, who manages the Grant in Aid budget, and that he sent another email later that day.

“I only requested a copy of your “strict” policy so I could understand the position taken by PAWS and their decision to not speak to any political candidates as stated by [PAWS official]. I requested clarity since on Mrs. Barry’s post it states she is being supported by PAWS and she then requests monetary support from those whom she solicited.”

“Being on JFC and being the Representative which reviewed PAWS Grant and Aid request, I was the person who recommended PAWS get additional funding from last year.  Having done that, I wanted to be certain PAWS was not supporting a political candidate through any “support,” either financially nor looking away while hours are adjusted for the Candidate/Employee; while campaign needs are addressed.  I will leave this to you to resolve in a consistent fair manor.”

PAWS fired Stephanie Barry about six weeks later–on August 29th.  No inquiry has been undertaken to determine whether Mike Ramone abused his office.  In an email, Mike Ramone indicated that PAWS and Barry have signed Non-Disclosure Agreements (NDAs).

A Promising Investment

Late in 2016 or early in 2017 Mike Ramone made a major investment in the Delaware Board of Trade (DBOT) purchasing 11% of the company’s stock.  This investment is also documented in Representative Ramone’s Financial Disclosure Form for 2017.

On May 5, 2017, Senate Bill 69 was introduced in the Delaware General Assembly providing “specific statutory authority for Delaware corporations” to use blockchain technology.  Mike Ramone did not recuse himself as a DBOT investor and joined most of his General Assembly colleagues in passing this bill on June 30, 2017.

On December 18, 2017, the Seven Stars Cloud Group bought a 27% share of the DBOT for an estimated $7–$8 million.  Here’s a link to the Stock Purchase Agreement.  Seven Stars Cloud Group is a Chinese company previously known as “You on Demand Holdings” and then “Wecast Network.”  The company also trades under the name
ideanomics which the News Journal characterized as a “cash poor tech company founded by a professional wrestler as a pay-per-view video provider in China.”

Seven Stars acquired this large block of DBOT shares from four different purchasers, and Mike Ramone’s 918,000 shares represented the largest block of stock purchased by Seven Stars.  He exchanged his shares of DBOT stock for 587,869 shares of Seven Stars Cloud Group (see pages 26 and 28 of the Stock Purchase Agreement).

DBOT is the first and only blockchain based Alternative
Trading System fully licensed by the SEC

At the end of the 29 page Stock Purchase Agreement are two four page addendums.  The earlier addendum dated January 4, 2018 states:

“WHEREAS, the Parties wish to add language explicitly describing the share calculations in Schedule A and Schedule B: the consideration for the Stock Purchase Agreement shall be equal to the number of shares of the Company’s Common Stock issued and outstanding multiplied by the quotient of $1.92 divided by the price per share of the Investors common stock valued at $3.00 per share.”

Two days after Mike Ramone acquired his Seven Stars stock for $3.00 a share, on December 20, 2017, Seven Stars stock hit a 52 weeks high of $7.00 a share–a 210% increase.  On that date, the value of Mike Ramone’s 587,869 SSC shares exceeded $4 million.  However, Mike Ramone apparently did not sell the stock until much later when the value had declined substantially. 

Below is a quote from a November 1, 2018 story by Joseph DiStefano in the Philadelphia Inquirer which summarizes Mike Ramone’s role:

Ramone recorded his investment in DBOT on his annual state financial disclosure form for 2017. In June of that year, he voted for a bill that would recognize blockchain-based corporate records, giving DBOT backers something to point to when promoting their Delaware location as blockchain-friendly. It passed by a wide bipartisan margin.

Ramone, a landlord, fitness-center, and swim-school operator when he’s not making law in Dover, didn’t recuse himself from that vote. In his brief response to my calls and emails, Ramone did not address questions about why he joined those Democrats investing in DBOT when Wall Street declined to invest, or explain his non-recusal. 

In a May 2019 News Journal article, Mike Ramone stated that his original investment in the DBOT was “between $1 and $2 million” which seems bizarrely vague.  Continuing this fuzzy recollection, he stated, “I know you think I’m BSing you but I really don’t know how many shares I have”.

Here’s another tantalizing bit of information.  A May 7, 2017 article in the News Journal included the following regarding the DBOT:

“A document filed with federal regulators last year detailed that two investors had committed a total of $600,000 in return for a share of the company. The document did not disclose their names. The document was filed in September  and states the proceeds are to be used for launching the company.”

In all the articles and documents quoted on this webpage, only three individual DBOT investors are mentioned:  Mike Ramone, John Hynanski, and Dennis Toner. There’s a good possibility that two of them made the $600,000 investment in September 2016. 

What is Insider Trading?

The Securities and Exchange Commission (SEC) defines insider trading as follows:

“Insider trading” refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security.”  The SEC policy also states that, “In general, an insider must not trade for personal gain in the securities of that entity if that person possesses material, nonpublic information about the entity.”

The SEC definition is not limited to publicly traded stocks and the profitability of a trade is also not a factor in defining insider trading.  The key element is the possession of “material, nonpublic information”. Most jurisdictions around the world have rules prohibiting or criminalizing insider trading. Not all cases of insider trading are illegal, but most of them are considered unethical.

DBOT Offices in Hercules Plaza

So, in Mike Ramone’s case, the issue is whether he possessed “material, nonpublic information”.  The ”relationship of trust and confidence” which may have been breached would be with his constituents in the 21st District and with fellow members of the General Assembly.

Insider trading is top of mind this year because of the 2020 Congressional insider trading scandal.  Insider trading has long been a major factor in public corruption by legislators.  A 2014 study found that, “For the first time in history, the majority of America’s elected officials in Washington, D.C. are millionaires.”  The study tracked the increase in net worth by members of Congress from 2004 to 2012 finding that, “The average increase in net worth in the Top 100 was 114% per year.”

A 2011 episode of 60 minutes focused on Peter Schweizer’s work at the Hoover Foundation. Sixty minutes revisited insider trading with Schweizer in 2019. Schweizer worked with a group of student researchers who reviewed the financial disclosure records required of members of Congress. The study documented that members had frequent access to “market moving information” enabling them to exit the market just prior to the 2008 crash and to profit by trading healthcare stocks during the 2009 debate.

Material Nonpublic Information

Here’s a definition from Investopedia.

“Material nonpublic information is any information that could substantially impact an investor’s decision to buy or sell the security that has not been made available to the public.”

There are two pieces of “material” information which had a substantial impact on investors when announced in a Seven Stars press release on December 20, 2017.

  • Seven Stars Cloud announces 27% purchase of Delaware Board of Trade.
  • DBOT is the first and only blockchain based Alternative Trading System fully licensed by the SEC.
The SEC definition is not limited
to publicly traded stocks

The release of this information resulted in the dramatic increase in the Seven Stars Cloud (SSC) stock price on December 20th.  The News Journal published the story on December 26th with the title “Blockchain Sparks Big Investment in DBOT” quoting Seven Stars CEO Bruno Wu who “compared the blockchain to the human-life altering inventions like the wheel and the printing press.”

The material information announced in the December 20, 2017 press release was unmentioned in public media prior to that date.  In fact, what was reported in the press about the DBOT during 2017 was extremely negative. The DBOT was a troubled company which had not found a physical location, employed only a few people, and had never conducted a single trade.

Here’s a quote from a News Journal article dated May 7, 2017:

“The long-planned stock exchange in Wilmington doesn’t appear to be functional…  It remains unclear when the exchange, dubbed the Delaware Board of Trade, might open, and officials are currently unwilling to discuss the project, its workforce or future.”

The article quotes Councilwoman Janet Kilpatrick stating:

“I’d be surprised at this point if they do open.  I have no idea what is going on there. It will be interesting to see what they have to say. They have missed every soft opening (date) they have mentioned.”

Nevertheless, Representative Mike Ramone saw promise in the fledgling DBOT despite its failures.  Only an official inquiry could determine what Mike Ramone knew and when he knew it.

The Cayman Islands Connection

Tax Havens A Paradise for US Tech

Mike Ramone is not only an investor in the Delaware Board of Trade, he’s also listed as a member of the Board of Directors.  The dates of Mike’s tenure on the Board of DBOT are unknown.  In addition to possible insider trading, Mike’s conduct as a DBOT Board Member is also potentially relevant to an ethics inquiry.

Mike Ramone’s Stock Purchase Agreement included a “Second Addendum” dated January 13, 2018, which states:

“WHEREAS, the Parties now wish to change the purchasing party from Seven Stars Cloud Group, Inc. to its wholly owned subsidiary China Broadband, Ltd., a Cayman Islands limited liability company.  THEREFORE, the Parties hereby agree to the abovementioned change to the Stock Purchase Agreement.”

The 2016 Limited Liability Companies Law enhanced the reputation of the Cayman Islands as one of the world’s premier offshore financial centers attractive to investors due to tax incentives and corporate secrecy.

The DBOT received a $3 million loan from NCC which was granted to bring jobs and revenue to Delaware.  Mike Ramone’s Stock Purchase Agreement specifically states that he agreed to the creation of a wholly owned Cayman Islands subsidiary. 

Was this new entity formed so that the DBOT and SSC could avoid US federal and state taxes?  That would seem inconsistent with NCC and State of Delaware economic development objectives and with the role of a Delaware State Representative.