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Reference Case and the Legal Puzzle

To us, ENVION not only is one of the biggest ICOs in Europe but also represents a reference case for future ICOs and future legal cases around ICOs. The legal (and PR) battle around ENVION may become a sort of a role model for future ICO-related litigation cases and thus we take a closer look into the case to inform our readers and teach ourselves some lessons about “how-not-to-do-an-ICO“.

Over the last couple of days, we reached out to ENVION investors and founders and asked our questions. We received a lot of answers and some interesting documents which we digested for our reports. From what we learned so far we at least got a feeling about the situation and the background of the case. As already outlined in our last report, the ENVION case is playing on two distinctive levels

  • shareholder level
  • tokenholder level

We would even go so far as to say that ENVION actually tests the legal grounds around ICOs and cryptographic tokens as a new financial instrument. Consequently, we structured the case and decided to report on it in 3 parts:

  • Part 1: the ENVION shareholder case
  • Part 2: the ENVION tokenholder case
  • Part 3: the business model and its legal issues

So, let’s start with the ENVION puzzle and part 1- the shareholder case.

ENVION, the ICO and the EVN tokens

The Envion Set-Up for ICO
The Envion Set-Up for ICO

ENVION was set up in Zug, Switzerland, as of October 5th, 2017, issuing 150.000 shares at a par value of CHF 1. Matthias WOESTMANN and Cyrill STAEGER evidently joined the board of directors. Additionally, WOESTMANN took on the role of company’s CEO. A freshly squeezed company ready for the ICO, right?

The company then issued a prospectus under Swiss law for the issue of 150,000,000 Tokens representing subordinated unsecuritized profit participation rights. The Swiss prospectus was approved by the company’s board, i.e. WOESTMANN and STAEGER. Although such a prospectus is not subject to the approval of Swiss authorities, it must comply with disclosure requirements set forth in the Swiss Code of Obligations. These disclosure requirements demand issuers to provide potential investors with all information necessary to render a qualified investment decision. Issuers are liable to investors for false and misleading information. It’s worth mentioning that an investor may also be misled by not providing certain information.

That said, its evident that Matthias WOESTMANN as director and CEO is liable to investors and authorities for all missing and false information regarding the token sale under Swiss law. The prospectus evidently fails to deliver important information on the founder team, related party and important contracts (trustee contracts) and so on.

The EVN token definitely qualifies as a profit participation (security) token according to the classification done by the FINMA just a few months ago.

The Tokenholders shall participate in accordance with the provisions of this Agreement in the profits of the Issuer, but not in its loss and assets. No securities shall be issued the Tokens and the profit participation rights represented by the Tokens shall not be represented by a security or certificate. The Tokenholders shall not be entitled to claim securitization (Source: EVN Subscription Agreement).

In plain English: tokenholders participate in the profit but not in the assets (mining facilities). The assets solely belong to ENVION and thus (beneficially) its shareholders. To be even more specific, EVN tokenholders participate only in the company’s mining-profit:

The profit participation granted does not refer to the overall profit of the Issuer as stated in the annual financial statements of the Issuer, but to the profits resulting from the mining operation as described in further detail below (the “Profit Participation”). Source: Subscription Agreement.

EVN Token and a Token-based Enterprise Valuation

It seems to be important to understand that the battle between the two ENVION shareholder groups is about much money. The ICO not only developed a (possible) asset value for Tokenholders but even more value for ENVION shareholders. Hence, we produced some value considerations to give the reader a rough idea about the value associated with the #EnvionCase. Additionally, it may be worth to think about such ICO structures in general.

EVN token distribution:

  • Token issued in the ICO: 83 million
  • additional tokens issued to ENVION Founders: 10 million
  • additional tokens issued to ENVION AG (company): 5 million

Profit sharing mechanism:

  • Tokenholders: 75%
  • ENVION: 25%

Consequently, 75% of the company’s mining net profits are to be distributed to the tokenholders, i.e. 25% of the future profits remain in the company to finance the future growth. The costs associated with the mining (power, administration, maintenance, depreciation, etc.) are already deducted from the profits before the distribution and don’t need to be paid from ENVION’s 25% share.

Profits from the Proprietary Mining Operation shall be the total rewards received by the Issuer, after conversion in USD, minus operation costs such as, but not limited to, cost for electricity, rent or lease of land for MMUs,  replacement of hardware components, depreciation and a handling fee for the overhead costs of the Issuer (the “Profit”). Source: EVN Token subscription agreement (download here).

Thus, the 25% profit share received by ENVION qualifies as net profit and can be used to calculate the Enterprise Value (EV) of the company by applying a discounted cash flow (DCF) approach.

According to the profit projections made by the ENVION management (published on the website) for pushing the EVN Token Sale, the profit per token develops as follows:

  • profit per EVN Token until YE 2024: USD 51.57
  • present Value (PV) with 20% interest (discount) rate: USD 21

Each EVN token is forecasted to generate a discounted cash flow of USD 21 until YE 2024, 75% of it, or USD 16, will be distributed to the tokenholders. ENVION’s share of the discounted cash flow per token amount to USD 5.2.

When evaluating ENVION as company one has to take into account

  • the future profits resulting from the 25% profit share all EVN tokens issued (per Token USD 5.2) and, additionally,
  • the 100% of the profit generated by the tokens held directly by the company.

Based on these  assumptions, we did the valuation for all tokens issued, applied a 20% discount rate and arrived at a present enterprise value (EV) of USD 540 million. Additionally, the token held by the founders represent a present value of USD 197 million (see the graphics below):

Token-based valuation approach for ENVION
Token-based valuation approach for ENVION

The Hostile Take-Over Mission

Understanding that we are talking about a multi-million dollar company with a present Enterprise Value of more than USD 500 million, it’s easy to understand what the shareholder battle is all about. It’s easy money, right? A company founded 8 months ago represents a value of USD 540 million dollars.

According to the prospectus ENVION’s ICO was conducted between December 15, 2017, and January 14, 2018. On the ICO website, the company informed the public that USD 100 was raised in the ICO from more than 30,000 investors. It was a real success story back then in January 2018, wasn’t it?

At the time of the closing of the ICO, the founders held 81% of ENVION via TRADO GMBH. Back then Trado GmbH`s shares could be valued (accord. to the management`s business plans) to USD 437 million.

On January 25, 2018, only 10 days after the closing of the ICO, WOESTMANN and STAEGER exercised the authorized share capital (and additionally increased the nominal capital to 390.000 shares at par value of CHF 1. Details of the shareholders’ assembly have not yet been disclosed to us, so we need to be careful here but the numbers stated are in line with official documents.

In plain english: the company’s board was legally authorized to exercise the authorized share capital and exclude
the preemptive right of other shareholders. Being the majority owner then and acting as trustee for the founders’ TRADO GMBH, an additional capital increase was concluded and  evidently, WOESTMANN himself did the private placement providing him with 67% of the total equity of the company.

At this time the company was worth som estimated USD 540 million because of the successful ICO (see our considerations above). Despite the ICO success and the resulting impact on the value of the company, the board decided to do the private placement at the nominal value of the shares. WOESTMANN’s QUADRAT CAPITAL allegedly invested CHF 240,000 and increased its shareholding from 19% to 67%. TRADO GMBH was diluted down to 33% from 81% ex-ante private placement. Given the valuation above TRADO GmbH lost several USD 100 millions and QUADRAT CAPITAL won it by paying ??? CHF (supposingly 240.000 CHF?)Envion ICO and Private Placement situation

ENVION scenario post-ICO and post-Private PlacementAccording to the founders and some investors close to the company, WOESTMANN’s Quadrat Capital acted as trustee for TRADO GmbH and voted for the private placement on behalf of TRADO GmbH in the shareholder meeting. As  TRADO GMBH never gave the necessary approval for this decision, they claim that QUADRAT CAPITAL and their CEO WOESTMANN acted in breach of contract and abused the trustee agreement for his purpose.

Unfortunately, the private placement along with the new shareholder structure has already been registered in the Swiss Commercial Register and thus is legally binding. QUADRAT CAPITAL has full control over ENVION. TRADO GmbH and the founders have to apply to the respective courts to revise the shareholder decision and cancel the commercial register entry. This will probably take months if not years.

For now, we have to assume that the hostile takeover attempt by WOESTMANN and his QUADRAT CAPITAL was successful on the shareholder level and can only fought by the founders via the courts. From what we learned so far, we believe that on the shareholder level (!) the founders behind TRADO GmbH were either simply naive, did not have an “appropriate” legal advisor, or any other (undisclosed) reason to trust WOESTMANN. We still do not understand why they hide in the dark and left the stage solely to the CEO and their fellow shareholders in QUADRAT CAPITAL but maybe we find the clue in the course of our further investigations.

Disclaimer: FinTelegram wrote this report on the basis of material we received from people close to the case and did our best to analyze the situation holistically. We consulted lawyers and auditors and carefully did our research but, of course, we have made some mistakes and wrong assumptions. We would be more than happy to correct errors based on your feedback.

To be continued with part 2 on the tokenholder scenario and the allegation of excess token generation.


  1. Skomi Skomi May 25, 2018

    You’ve hit the spot. Very good investigation and very good analysis…

  2. Shariq Ul Yaqeen Shariq Ul Yaqeen May 26, 2018

    Well written and thx for spreadibg the riggt awarness.

  3. xaos xaos June 3, 2018

    looks like whole thing was set up

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