The baroness the ICO fiasco and enter Steve Wozniak
The baroness, the ICO fiasco, and enter Steve Wozniak
Baroness Michelle Mone
Earlier this year, we brought you news that Scottish lingerie entrepreneur-turned Conservative peer Michelle Mone and her businessman boyfriend Doug Barrowman were launching an initial coin offering (ICO). The plan was to raise money for a token-based crowdfunding venture, EQUI Capital. But the project has ended in a fiasco that exposes the total absence of oversight in the ICO market, and in particular the lack of protection for those at the bottom of the crypto, er, FUDchain: “bounty-hunters” — essentially online marketers who promote ICOs on social media and across the internet, supposedly in return for digital tokens.
EQUI told us in February they hoped to raise up to $80m. Even if they raised less than that, the token offering would be “going live” no matter what, Barrowman said. Lady Mone of Mayfair, OBE, calling herself “one of the biggest experts in Cryptocurrency and Blockchain”, told Business Insider that she and Barrowman were staking their “incredible reputations” on the ICO and that there was “no way [they were] going to do anything untowards (sic) to let these people down”.
The reassurance might have been welcome, because initial coin offerings are effectively an unregulated way for companies to raise money from the public, bypassing securities laws designed to protect investors through the use of so-called cryptocurrencies. Regulators may yet step in, with those in the US indicating the rules still apply to what are securities in all but name. For now the ICO boom has prompted a flourishing in the number of businesses offering tokens, with more than $6.8bn raised so far this year alone, according to icodata.io, which tracks the market.
The EQUI ICO didn't go quite to plan, however. It isn't going live, and lots of people seem to be feeling pretty let down. (But as you will see, dear reader, we wouldn't want to say it failed, because EQUI are watching, and they're going to tell our editor, and we might get sued.) After launching a two-week pre-sale a on March 1, with a minimum required investment of $100,000, EQUI put out a press release on March 6 boasting that it had raised a nice, round $7m “in only a few days”.
Barrowman said in a statement at the time:
Trading has been frenetic, with investments ranging from the minimum hundred thousand dollar threshold up to a solid couple of million per investment.
Then, having still only apparently raised $7m on March 30, EQUI announced the “good news” that it would be extending the public ICO — minimum investment $100 — until June 30 (having originally planned to close it on April 12). By the end of June, the total amount raised still seems to have been stuck at $7m. At that point, EQUI decided to abandon the ICO idea altogether and to relaunch, on September 18, as “EQUI Global”. It is still promising to be the “ULTIMATE DISRUPTOR TO TRADITIONAL VENTURE CAPITAL INVESTING”, the logo looks the same, and the founders are pretty much the same — Mone, Barrowman plus one other “soon to be announced” (more on that below). But there is no initial coin offering.
The ICO World Of Business is a very strange place of doing business
EQUI explained, via email:
Our Founders are conventional business people with a track record of over 300 years in business between them. They have all found the ICO World Of Business a very strange place of doing business with some very alarming things going on. Therefore we will not be doing an ICO going forward and instead we will be focusing on our Token Blockchain technology.
We asked how it was possible for the founders to have a track record of “over 300 years in business” given that there were only two of them. That must have been a typo, we were told — actually that figure also includes the advisory board, of whom there are four members (apparently very sprightly-looking 90-year-olds):
Here's the breakdown of the $7m EQUI says it raised (emphasis ours):
Our short ICO raised a total of 843.33 ETH. In addition, a consortium of private investors who are known and work directly with members of the EQUI management team pledged $6 million USD. This was the $7 million that was earlier reported. A consortium of private investors who are known and work directly with members of the EQUI management team pledged $6 million USD.
It's unclear just how close the “consortium” of investors is to the EQUI management team. But the statement appears somewhat inconsistent with the earlier one about “investments ranging from the minimum hundred thousand dollar threshold up to a solid couple of million per investment”. On top of the $6m, EQUI's “short” four-month-long ICO raised ether, a popular cryptocurrency, worth about $250,000 at current rates. (At the ether rates back in March, when this $7m was first announced, the ether was worth about $700,000.)
When we suggested that according to their numbers, no money at all had been raised between the “frenetic trading” of early March and June 30, we were told that the pre-sale had in fact raised “between $6.5m and $7m”, and that the 843.33 ether had been raised in the public sale. Thus the $7m originally announced grew to… $7m. Rounding, huh. Barrowman told FT Alphaville when we spoke to him earlier this year that he had spent a “seven-figure” sum on the project since beginning in summer 2017, though it's wasn't exactly clear what that money referred to. Either way, the paltry $7m EQUI had raised — less than 10 per cent of its target —
then started to ebb further. Here's EQUI:
At the time of stopping our ICO, we at EQUI did something that very few ICOs or projects do when they change the project fundamentals. We offered full refunds to those that wanted to rethink their investment into the project. While fewer than 40 investors took us up on this offer, the consortium, brought in privately has pulled back their $6 million investment as they are waiting to reassess the project and changes that are actively being made. This is to ensure compliance with regulatory guidelines of the fundamentals of EQUItoken and its potential classification by the regulatory boards governing the EQUI project as a security.
A total of 57.8 ETH was returned to investors who requested a refund. This means that a total of 785.53 ETH was raised via the ICO.
Some were refunded without their consent. When we asked about this, someone who wanted to be described only as an “insider” told us that first of all investors were told they would be refunded. But, as not all of them had wanted a refund, the “sophisticated investors” were allowed to stay on, while the others were refunded, the insider said. It is these sophisticated investors who will now be allowed to participate in the new EQUI venture which, as we've seen, focuses on “Token Blockchain Technology”, but is strictly not an ICO according to the company.
The reason for the change in tack after the wildly successful and not in any way failed ICO, our insider told us, is that — as has been reported in the crypto-press — an Apple co-founder called Steve Wozniak is to join the company, and will become EQUI's third co-founder. He didn't want to be part of an ICO, and “he’s come up with a different way of doing it”, we were told. Woz told CNBC in June that he wanted bitcoin to become the single global currency because “that is so pure thinking” (the whole video is worth a watch).
The most miserable cryptojob of them all
A dispute has broken out — reported first by Scottish politics site Wings over Scotland — over how much the “bounty-hunters” we mentioned before should be paid, given that the ICO no longer appears to be going ahead. It highlights another aspect of the ICO world. Unlike, say, the highly legalistic prospectuses produced for securities offerings in the traditional financial system, the legal status of the promotional documents associated with coin and token offerings remains untested.
In EQUI's original “White Paper” it was written, under “token distribution”, that “2 per cent will be available for Bounty Rewards”, with a pie chart to illustrate that as a proportion of the total supply: Given that the price of one of these tokens was $0.50 and there were to be 250m tokens, bounty-hunters say they were expecting to share a pool of $2.5m, and indeed this is what was said in EQUI's
Bitcointalk group for bounty-hunters:
A total of 2% ($2.5M) of the total token supply will be assigned to the Bounty Pool.
EQUI say they were not responsible for the post but we understand that it was reviewed by them before it was posted by the company managing the bounty programme, as is standard practice. In a later Bitcointalk post, we find similar wording: “A total of 2 per cent (5,000,000 EQUI) of the total token supply will be assigned to the Bounty Pool.” But EQUI seem to be a bit confused about what that 2 per cent meant.
They told us, via email:
The Bounty community only raised $2,000 between them all and should only be getting paid out $40.00 but as a gesture of goodwill we have decided to pay them out on the full amount raised after eu finds [sic — we think they mean refunds] which is over $10,000.
As such, 2% of this amount was originally promised to the bounty pool, this is our legal contract with the Bounty agency. This constitutes a bounty pool of 15.71 ETH. We at EQUI are 100% transparent and will offer complete records and TXID’s to verify this. As it was EQUI’s decision to stop our ICO to show appreciation for Bounty hunters hard work and dedication to the project we will be increasing the reward for the bounty payout from 2% to 5%.
So in the first paragraph, they tell us that the bounty-hunters raised just $2,000 between them, and that they should therefore only be given $40 to divide between themselves (2 per cent of $2,000). That seems strange; bounty-hunters are not meant to be “raising” money per se. Rather, they are effectively online street teams — typically from low-income regions of the world — who are paid a certain amount of tokens for each task they perform, such as sharing promotional tweets and posts on social media, adding their logo to their online “signatures”, creating videos and writing puff pieces for the ICO they are toiling on behalf of.
But EQUI says all the money it raised except for $2,000 — again a nice round number, which is apparently an “estimate” — came from its own contacts, and that therefore the bounty-hunters should really only get a share of this tiny amount. Confusingly though, in the second paragraph above, EQUI seems to be saying it had a “legal contract” in which they promise that 2 per cent of the total raised after refunds — so the 785.33 ether — should go to the bounty-hunting pool. That would be 15.71 ether, currently worth just over $4,000. But as a “gesture of good will”, they've decided to increase that to just under 40 ether, or about $11,000.
Because of lax KYC checks in such schemes and therefore the possibility that people register more than once, it is difficult to know how many real people were involved in this bounty-hunting effort. EQUI say between 1,000 and 1,500 while AmaZix — the company that was originally managing the bounty programme but who stopped working with Equi back in May, citing “irreconcilable differences” — said there were 7,600 unique usernames in the bounty. Either way, $11,000 doesn't seem like a very big pool to share among them.
“Police can track you down”
We spoke to several of EQUI's bounty-hunters and were shown Telegram messages. When they complained about the amount there were getting paid or the way they were being treated, EQUI threatened them with lawyers if they “bad-mouthed” the company. One Telegram message sent to a group of bounty hunters said “police can track you down if you threaten & track and bad mouth our brand name”; another sent the same day said “you are all so stupid”. EQUI declined to comment on the messages. That a peer of the realm's business appears to have threatened criminal consequences for people encouraged to take part in its unregulated investment scheme is, if nothing else, a bad look.
One bounty-hunter, Maksim Koselev, a 29-year-old Russian warehouse worker, told us he had spent about 10 to 15 minutes per day, seven days a week, promoting EQUI online for the months during which the ICO was running, which included writing two promotional articles about the company in Russian. He's worked as a bounty-hunter for more than 100 ICOs, he said, and apart from the exit scams — where those raising money disappear with the funds they have raised — this is the worst experience he's ever had. He, and others, said bounty-hunters should have been paid 2 per cent of the $7m Equi raised, particularly given that EQUI is still planning to raise money from investors.
He told us:
We’ve been thrown out of the window with this… This is not the way you talk, even to bounty-hunters. They treat people like nothing.
Our experience of interacting with EQUI has also been a bit… strange. When we contacted the company via its website we were replied to by Baroness Mone's press officer, who offered us a “deal on an exclusive”. When we asked some questions about the bounty-hunters' complaints, we were told that “anything that is written that is defamatory to EQUI or our founders we will take severe action”. Not only did Equi copy in their lawyers, but all this came with a “UK parliament disclaimer” at the bottom, a nice reminder this was a member of the upper house of the British parliament we were dealing with.
EQUI's solicitor Paul Tweed — a celebrity media lawyer so renowned that the New York Times dedicated a whole story to him earlier this year, who has represented everyone from Sylvester Stallone to, er, Britney Spears — was copied in conspicuously to emails, as was Egg Media, a PR company “specialising in crisis management, corporate brand and individual reputation”. These are well-connected people who seem to know what they're doing and don't appear to be struggling for cash.
“We are watching your every move”
In an email on Monday, we were told:
All Bounty people have now been paid from their agreed contract from 2% to 5% as a gesture of goodwill.
To check the bounty participants had received the cash, we sent a message to the Telegram support group asking if members had received anything. We were told no one had yet been paid, as it turned out. EQUI later said it had paid the money to a third party, who will distribute this to bounty-hunters shortly. But straight after we'd sent the message to the group, things got creepier. EQUI Support got in touch on Telegram with the following:
We at Alphaville have a history of frustration over the baroness's media team's antics, but telling us that our every move was being watched kind of felt like another level. We look forward to learning how EQUI Global can be relaunched in a way which isn’t an ICO, given its business model was built around the tokens it hoped to sell. It seems that yet another Conservative parliamentarian has learned that dipping one's (cryp)toes into the murky waters of ICOs can be a rough experience.
Article Produced By
Jemima Kelly joined FT Alphaville in April 2018. Before that she wrote about the foreign exchange market, cryptocurrencies, and fintech at Reuters. She also had stints there writing about the asset management industry and pensions. She covered the BP oil spill from Louisiana, and the Brexit reverberations from a muddy field in Glastonbury.
She got her start by sneaking into The Economist as a “corrector”, then moonlighting as a reporter, travelling to Myanmar to write about its literal and political landmines. She once perused every issue of The Sun between 1979 and 1990 for her history dissertation, “What a pair! Page Three and the Thatcher Years”. Before university she pursued a career in music. She still sings and writes songs. Jemima is interested in cryptoeconomics (sorry), technology, philanthropy, the ideas industry and pseudo-religions, index investing, and the media.