FinTelegram positions itself as a medium for the protection and education of investors with a special focus on crypto investments. We act as carefully as possible in our analyses and reports, as we always assume that all parties involved have their own views and implicitly or explicitly represent these views in all statements. This is a legitimate course of action. Therefore, we do not rely solely on the statements of the parties for our reports, but draw on our own expertise and form our own opinion together with experts. So much for our position and our approach. However, it is always possible that we are mistaken despite the greatest care. In this case, we are happy to correct our view on the basis of facts.
ICO Investors’ Accusations Remain On The Table
We have already reported on the possible impact of last week’s Berlin court ruling on the ENVION case. The ENVION Case goes well beyond the Swiss ENVION AG and the battle for its shares and control. The real issues in this ENVION Case are the ICO and ICO Investors’ rights. Moreover, the ENVION Case is a reference case for a multijurisdictional ICO and crypto-fund raising environment.
It is obvious that some ENVION ICO investors are not too much impressed by this first Berlin court decision. And rightfully so. Yes, the TRADO founder team just won a first court order regarding the ENVION shares. Nevertheless, the TRADO founders too are responsible for the ICO mess created by both founder teams. Investors still feel deceived and misled by both parties to the dispute. In particular, the following accusations are made:
|Insider Trading||The mission-critical problems of ENVION AG and the founding teams were not disclosed to ICO investors and the public. Nevertheless, the founders sold their tokens to crypto exchanges with this insider knowledge||Envion Investors and FinTelegram|
|Post-Audit Smart Contract manipulation||After the audit, the founders of TRADO GmbH changed the smart contract several times in their favor and thus made it possible to sell their tokens during the blocking period while other investors were blocked.||Guy Mann's Medium posts, BIG Report|
|Lock-Up infringement||The founders sold their EVN tokens during the 6-month lock-up period even though they said several times on Telegram that this would not happen (see also Smart Contract Manipulation).||Envion Investors|
|False Prospectus||The ICO prospectus contained false and misleading information. TRADO GmbH was not represented, ENVION AG never had IPR and control over the smart contract. ENVION AG was just a shell.||FinTelegram and other sources|
|MMU Production||MMU mass production has not yet started. None of the 5 MMUs is active, no proof has been delivered that they even exist.||Enfion Investors|
Investors are not being careless in their accusations, on the contrary. Some of them have joined forces and maintain the envion-investors.org website. This website collects, analyses, structures and publishes all information concerning ENVION AG and the ICO. Based on their analysis, investors conclude that EVN Token Distribution has been conducted properly and in accordance with the information in the published prospectus. In this respect, the accusations made by ENVION CEO Matthias WOESTMANN and the Blockchain Intelligence Group (BIG) of excessive EVN token production – the reason for the illegal capital increase of Envion AG – are not accepted by investors.
However, ICO investors maintain their accusation that the founders around Michael LUCKOW sold EVN tokens worth around US$ 2 million during the 6-month lock-up period via crypto currency exchanges, despite their knowledge of the massive disputes between TRADO GmbH and the board of ENVION AG.
The first EVN Token sale is expected to have taken place shortly after the end of the ICO, the investors claim. Michael LUCKOW admits this sale to EVN Token but says that the realization of the token sale would have been “just” some US$ 2 million and that he would have used the proceeds primarily to continue the operational business, to pay the costs of the token sales and legal expenses. No documents to prove this claim in more detail have been provided to date.
The Smart Contract Manipulations
Some ENVION ICO investors have set themselves the task of closer analyzing the findings of the BIG Report and examining Smart Contract and the procedure surrounding the issue of EVN founder tokens in more detail. And again, those investors are prudent and thorough in their approach. The different versions of the Smart Contract stored on GitHub are analyzed around the timeline of the ICO project. The results of these researches and hypotheses based on them have meanwhile been published in two articles on Medium for further public discussion. The author published these contributions under a pseudonym and was quickly accused by Michael LUCKOW of having a close relationship with Matthias WOESTMANN.
Based on his analysis of the different versions of the Smart Contract on GitHub, the author concludes that the Smart Contract has been manipulated to get the EVN founder tokens out of the wallets during the lock-up period and sell them on crypto-exchanges. Here, the analysis of the investor coincides with the BIG report. The investor also believes that he can prove that the smart contract was manipulated only after the audit in the run-up to the ICO:
1. First draft: 83% current supply / 17% deliverTeamTokens after 6 months (consistent with Backes audit and committed on Nov 27, 2017). At this point all team, company and bounty tokens are all vesting for six months per standard vesting period.
2. Intermediate draft: 90% current supply / 10% deliverTeamTokens
(committed on Dec 11, 2017 — not sure what this intermediary split means). The important point here though is that vesting is still enforced — no one (not even the founders) can get their tokens until six months after the ICO ends.
3. Final draft: 93% current supply = ICO+founders / 7% = Company + Bounty. More importantly deliverTeamTokens has no time restriction (committed on Dec 11, 2017). The final version of this code is actually completely misnamed.
The founders around Michael LUCKOW have not yet commented on the results of this investors’ research. In this respect, the author’s assertion is uncontradicted. However, we believe that the fact that this ICO investor is discussing his considerations in public shows his seriousness and his determination to find answers.
Insider trading and investor deception
ENVION EVN Tokens have been positioned as security tokens and hence subject to security laws. ICO investors raise the question of insider trading and thus unjustified enrichment by deceiving investors about the actual situation at ENVION AG.
What is ‘Insider Trading’
Insider trading is the buying or selling of a security by someone who has access to material nonpublic information about the security. Insider trading can be illegal or legal depending on when the insider makes the trade. It is illegal when the material information is still nonpublic. Source: Investopia
Insider Trading in Germany (BaFin)
Using inside information is prohibited and deemed a criminal offence. In order to detect insider trading, BaFin analyses data on all securities transactions that banks, for instance, have to report. It also analyses ad hoc notifications and follows up on information from third parties.
Insiders are persons who have knowledge of facts relating to listed companies that are not in the public domain and that could potentially have a significant impact on the share price of these companies, for instance because these persons have come into possession of this inside information in a professional capacity. Source: BaFin
From the information available the fundamental problems between the two shareholder groups started in January or February 2018 already. Although the conflict between the two founding teams had been going on for months, the public was not informed until mid-May 2018 with the WOESTMANN announcement. According to the findings on the Envion Investors website
- the first founder tokens were moved to HitBTC exchange on Feb 16, 2018, and
- the last founder tokens were moved to HitBTC exchange on May 8, 2018.
In the view of the published ENVION timeline, the sale of EVN founder tokens may actually have to be qualified as insider trading in accordance with applicable BaFin regulations, irrespective of the violation of the lockup period.
With this insider knowledge, the founders could have sold their EVN tokens on the crypto exchanges in a profit-maximizing way. This procedure undoubtedly fulfills the requirements of insider trading in the first place, if the circumstances were indeed as provided to the public.