The next shock wave for the ICO investors of ENVION AG (see our ENVION file here). On 26 July 2018, the Swiss Financial Market Authority FINMA announced that it found evidence justifying enforcement proceedings against ENVION AG on suspicion of a breach of Swiss financial market law:
The proceedings focus in particular on possible breaches of banking law resulting from the potentially unauthorised acceptance of public deposits in connection with the Initial Coin Offering (ICO) for the EVN token. Investigations carried out by FINMA to date indicate that, in the context of its ICO, envion AG accepted funds amounting to approximately one hundred million francs from more than 30,000 investors in return for issuing EVN tokens in a bond-like form.
In fact, ENVION and its law firm have chosen a rather complex ICO structure. ENVION AG is a Swiss company based in Baar. For the purpose of the ICO, the company issued a Swiss law prospectus for the issue of 150 million ENV tokens representing subordinated unsecuritized profit participation rights. However, the subordinated profit participation rights were issued under German law. The subscribers of EVN Tokens have actually acquired a participation right, which promised a share of the profit from crypto-mining via the EVN tokens issued. In this respect, ENVION AG and its ICO fall within the scope of both FINMA and the German Financial Market Authority BaFin.
ENVION is already a court case in Germany. The two founding teams around Michael LUCKOW and TRADO GmbH on the one hand and ENVION CEO Matthias WOESTMANN and his QUADRAT CAPITAL GmbH, on the other hand, have been in a legal dispute for months which is being heard before a court in Berlin. Apparently, WOESTMANN, with the support of Thomas VAN AULEN and his wife Jutta VON FALKENHAUSEN, tried to get the majority of the shares of ENVION AG under his control by way of a hostile takeover. Specifically, WOESTMANN carried out a capital increase in ENVION AG, dramatically diluting the founders around Michael LUCKOW and withdrawing control of ENVION AG.
In June 2018, a Berlin court ruled that WOESTMANN‘s acts were apparently not legally compliant and that he is therefore not entitled to dispose of the shares of ENVION AG or the company’s assets until a final judgment has been given (details here on the blog of the TRADO founding team). However, it may still be months before a final judgment will be rendered by the courts. Until then, ENVION must be described as an entrepreneurial zombie that does not carry out the crypto-mining activities promised to ICO investors.
With FINMA’ enforcement proceedings, ENVION and its ICO investors will continue to suffer. It is to be expected that the German Federal Financial Supervisory Authority BaFin will also initiate corresponding investigations into possible violations of German financial market laws. In its decision, the Austrian Financial Market Authority FMA found that crypto-mining systems such as those of ENVION AG are to qualified as Alternative Investment Funds (AIF) and their operation requires a respective license or permission. If BaFin follows FMA’s view, this would mean that ENVION AG would either have to cease its business operations or require permission from BaFin.
In any case, as an ICO investor of ENVION, one should expect the worst-case scenario. It does not appear likely that the company will commence regular business operations in the foreseeable future and generate the promised profits for EVN token holders. In this worst-case scenario, the EVN tokens will not be able to develop any intrinsic value and, moreover, financial market authorities may prohibit the business.