December 5, 2017

CT in talks with Higher One buyer about $5.5M incentive grant

The state is in talks with one of the buyers of now-closed financial technology startup Higher One about meeting the obligations of a $5.5 million state economic incentive grant.

In 2011, the state Department of Economic and Community Development awarded a $5.5 million grant to a highflying New Haven company on the condition it create more than 200 full-time jobs.

Higher One, which specialized in distributing college loan refunds electronically, was red hot at the time, experiencing explosive growth and having just gone public the year before. The grant, approved under former Gov. M. Jodi Rell and distributed by Gov. Dannel P. Malloy's administration, covered almost 12 percent of the $45.9 million cost to transform part of the disused Winchester Arms factory into the company's new headquarters. It was supposed to be the beginning of a long and fruitful presence in the Elm City.

It didn't work out that way. Not long after the facility was completed, Higher One began to unravel. In a series of investigations stretching over several years, federal regulators found that the company charged students abusive and deceptive bank fees and ordered it to pay restitution and penalties totaling more than $70 million.

Unable to pay, Higher One sold itself off in pieces in 2015 and 2016. Today, one of the company's buyers, Blackboard Inc., occupies the building that state taxpayers helped renovate.

So what is the status of the $5.5 million state grant? It required Higher One to pay the money back unless it averaged 368 full-time employees – 203 of them new hires – during the four years leading up to the end of 2018.

DECD Spokesman Jim Watson said last week that Blackboard inherited Higher One's employment obligations when it bought part of the company in Aug. 2016. The agency is "in discussions" with the firm about how to meet those obligations, Watson said.

Watson would not say what the parties are discussing or how long the talks have gone on but added that Blackboard currently owes the state "none" of the $5.5 million.

Watson referred questions about current employment levels at the former Higher One headquarters to Blackboard. Company spokesperson Shawnee Cohn did not respond to an email asking how many people work there.

In a one-sentence statement, Cohn said that Blackboard "remains committed to employment in Connecticut" and is "in regular discussions with the Department of Economic and Community Development with regard to our hiring plans."

Cohn did not respond to further emailed questions.

Comptroller Kevin Lembo said the grant illustrates serious flaws in the state's economic development policies that he has long pointed out.

"This case validates my concerns about the state's economic development strategy of picking winners and losers," Lembo said in an emailed statement. "We need to focus more investments on making Connecticut a more desirable place for business – a place where companies want to come on their own, not because we paid them, but because we have the quality of life that they're looking for, in our infrastructure, education system, skilled workforce and vibrant cities."

Watson did not respond to a request for comment on Lembo's criticism.

In 2012, Higher One staged a media event to mark the opening of its new, partially state-financed headquarters. Among those in attendance were Malloy and former New Haven Mayor John DeStefano, Jr., who lavished praised on the company.

The state-of-the-art facility was outfitted with a kitchen that provided employees free meals, a fitness center, an espresso bar and a rooftop sitting area, according to a New Haven Register account of the opening. A total of 240 people worked at the headquarters then, and it had room to expand up to 150,000 square feet, the same report said.

Higher One's saga, meanwhile, continues, only now in a courtroom. Former company executives, including two of its founders, face a shareholders' lawsuit accusing them of insider trading and knowingly failing to implement reforms required by settlement agreements reached with federal regulators and class action lawyers.

The case is in U. S. District Court in New Haven.

Christopher Hoffman can be reached at news@newhavenbiz.com

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