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ENVION CASE DISCLOSED – FORENSIC ANALYSIS OF A HOSTILE TAKEOVER

Disclaimer


Over the last couple of days, we received literally tons of materials from different parties involved in the ENVION case: founders, investors, partners, and lawyers. We have heard many different opinions on the case which is quite natural given its complexity. And we are doing our own research, of course. We still don’t have all answers and do our best to structure the information in the very best interest of our readers. We do not provide legal opinions nor do we give any advice. We structure information on a “best-effort” basis. We draw our conclusions exclusively from the material and information we have. We are not related in any way to any party and we do not hold any EVN token.

The Anatomy of the Hostile Takeover Transactions


Hostile takeovers happen more often than many people believe. Especially in the VC-driven startup environment, it’s part of the game. It is estimated that around 50% of founders get kicked out of the companies they founded or removed as CEO within 18 months following a funding event. I suggest reading Micha Benoliel’s article on Startup Grind for example.

That said, we can conclude that ENVION‘s hostile takeover battle is no new approach in the start-up industry. Blockchain and crypto-mining may be rather new concepts but the ENVION battle in its essence is simply old wine in new bottles –  and evidently, this hostile takeover is performed by experienced people.

We had a chance to read through some of the papers and agreements between TRADO GmbH and QUADRAT CAPITAL and can accordingly verify:

  • TRADO had a written and signed agreement with QUADRAT CAPITAL for the establishment of ENVION as a joint vehicle for the mining operation with TRADO holding 81% and QUADRAT CAPITAL holding the remaining 19%.
  • TRADO GmbH mandated QUADRAT CAPITAL with the establishment of ENVION AG in Switzerland and provided their part of the share capital upfront to QUADRAT CAPITAL.
  • QUADRAT CAPITAL definitely tricked TRADO, breached (or at least intentionally re-interpreted) the signed agreement and has not yet delivered the acquired 81% in ENVION to TRADO. Up to today QUADRAT CAPITAL only delivered 31%, therefore QUADRAT CAPITAL definitely still has to deliver the remaining 50% or otherwise reimburse TRADO for any damages.
  • QUADRAT CAPITAL offered its ENVION shares on the market to potential investors along with a suggested restructuring/repositioning of ENVION into a kind of financial holding open for business with institutional investors (i.e. joint mining facilites).
  • The TRADO founders, on the other hand, control all of the 12.6 million founder tokens, obviously part of the ICO funds and the operating business.
  • The ENVION ICO prospectus and the respective EVN Subscription Agreement evidently miss material information and misstated the financial situation of the Company.

We intentionally deploy the more general term “tricked” because QUADRAT CAPITAL’s behavior bears the signature of professional raiders that try to find loopholes in agreements and to use these loopholes to their advantage. The legal qualification of these actions will be done by lawyers and courts in the future. Nevertheless, everyone can judge the situation on the ethical side of the measures undertaken.

The Script, the Actors and the Performance


The authors of the takeover script obviously are Matthias WOESTMANN (QUADRAT CAPITAL) and his partner and legal adviser Thomas VAN AUBEL (SYCAMORE GMBH). They obviously worked out a well-written script for a hostile takeover on the shareholder level.

The takeover script was performed immediately after the successful ICO. While the TRADO founders were working on setting up their mining technology, QUADRAT CAPITAL and their advisors performed their roles.

ActorRoleComments
TRADO GmbHBerlin-based legal entity, owner of crypto-mining business and MMU technologythe founders team legal entity
Michael LUCKOWBerlin-based founder and CEO of TRADO GmbH, representative of founders team
QUADRAT CAPITAL GmbHBerlin-based co-Founder of ENVION AG and acting agent for TRADO GmbHPrivate investment holding run by Matthias WOESTMANN
Matthias WOESTMANNCEO and board member of ENVION AG, CEO of QUADRAT CAPITAL
Cyrill STAEGERENVION Director and board member
Thomas VAN AUBELLawyer, CEO of SYCAMORE GmbHAdvisor to QUADRAT CAPITAL
SYCAMORE GmbHENVION AG shareholder headed by Thomas VAN AUBEL
ENVION AGSwiss-based issuer of EVN Tokens and issuer of ICO prospectusdoes currently now own the crypto-mining business
EVN Tokenholders30,000+ ENVION investors waiting for their future profits

Milestones and actions of the hostile takeover performance are included in the table below:

DateAction Comment
October 27, 2018Agreement between TRADO GmbH and QUADRAT CAPITAL to establish ENVION AGTRADO provides 81% of ENVION shareholder capital upfront to QUADRAT CAPITAL
January 15, 2018Closing of ICO with some USD 100 million raised from 30,000+ crypto-investorsENVION Enterprise value estimated to be several hundred millions
January 22, 2018ENVION Shareholders' assembly passes resolution to increase ENVION share capital from CHF 150,000 to CHF 390,000TRADO GmbH was not present at the shareholder assembly and excluded from the share capital increase
January 25, 2018ENVION board acknowledges share capital increase and files it with Commercial Register SYCAMORE becomes new ENVION shareholder
January 30, 2018The new share capital was registered with Commercial Register and thus officialTRADO "officially" diluted to 31% with QUADRAT CAPITAL and SYCAMORE controlling the company
starting with February 2018WOESTMANN and QUADRAT CAPITAL offer ENVION shares to investorsWOESTMANN proposes to develop ENVION into a financial holding open for additional businesses*
(*) EVN Tokenholders participate exclusively in crypto-mining profits
Thomas van Aubel at work at ENVION
Thomas van AUBEL at work with ENVION

At the first glance, it looked like a perfect script written by experienced corporate raiders. But, wait a minute! There are some substantial flaws! WOESTMANN evidently forgot to adhere to his basic responsibilities being the CEO of ENVION:  He forgot to asssure that ENVION AG is in possession of everything required to do the mining business as promised in the public announcements and, well, he forgot about the EVN tokenholders, the company’s crypto-investors.

Who controls the business today?


According to the founder team, WOESTMANN neither had (has) access to the smart contract nor to the mobile mining technology (mining containers). Evidently the TRADO team has been running the mining business in TRADO since the beginning:

Trado has continued operations for Envion with the founders financing preparation for mass production of mobile mining units with their own money until a solution could be worked out with Mr. Woestmann.

That said, it’s clear who controls ENVION’s business.

 

ENVION Control Matrix
Who controls what in the ENVION group

We understand that TRADO GmbH also controls all mining-related contracts with partners, developers and technology supplier. Hence, even if WOESTMANN controls ENVION  and its funds (or parts of it), he does not control the business.

Here is a simple control matrix we put together for a quick orientation:

 TRADOQUADRAT CAPITALENVION
ENVION AGnoyesn.a.
Smart Contractyesnono
Mining Technologyyesnono
Mining Operationyesnono
Supplier Contractsyesnono
Developer Contractsyesnono
Pre-Sale and ICO Fundspartlynopartly
Founders Token yesnono
Telegram and Social Mediayesnono

The Prospectus Question


As a matter of fact, WOESTMANN primarily acted in the very best interest of QUADRAT CAPITAL.  It seems that WOESTMANN didn’t (and doesn’t) care about his fiduciary obligations as CEO and director of ENVION.

Additionally, and maybe even more important, he is responsible for a false prospectus. It seems WOESTMANN caught himself in his own trap. Its perfectly clear that the prospectus approved by WOESTMANN and ENVION’s board of directors does not provide the true picture to the crypto-investors. Could it be that because of the final target to sell ENVION shares, WOESTMANN was primarily busy in pushing the ENVION valuation with a successful ICO?

The operation and the operational control never were transferred from TRADO GmbH to ENVION, i.e. ENVION as the token issuer was never in a position to deliver what it promised to investors without the consent of TRADO GmbH.

Another Preliminary Conclusion


According to the founders, TRADO and Michael LUCKOW are using their EVN founder tokens to finance the mining operation and its further development. This may, in part, explain why the founders transferred their tokens despite a communicated 6-months lock-up period. The admin on the ENVION Telegram channel announced founder-statements for this week.

Actually, the business, as well as the ICO smart contract is controlled by TRADO GmbH as it has not been transferred into ENVION. Although ENVION is the legal issuer of EVN tokens, the de-facto issuer of EVN token is TRADO GmbH.  Currently, ENVION doesn’t seem to be in a position to fulfill their obligation as laid out in the EVN subscription agreement and the prospectus.

We learned from the documents we saw that the TRADO founders around Michael LUCKOW tried for weeks and even months to find a solution with Matthias WOESTMANN. They turned to leading law firms to support them but, unfortunately, no solution was found and the ENVION case exploded mid-May 2018.

We wonder how much of the ICO funds will spend for this legal battle on both sides. Ridiculous, isn’t it?

Let me close with a big thank you to all supporters and contributors. Please let us know any errors you may identify and updates you find in this Envion case.

[to be continued]

3 Comments

  1. Joey Joey June 5, 2018

    So out of all that….where does this leave investors?

  2. grave grave July 11, 2018

    Thаnks for sharing your thoughts. I really appreciɑte your efforts and
    I am waiting for your next post thanks once again.

  3. Jay Jay August 13, 2018

    hi Charlene,

    great investigative work.

    Do you know which agency was used to prepare the ICO as well?

    Jay

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