This is an English translation of the German Handelsblatt article by Sönke Iwerse and Felix Holtermann, with many thanks to Szilard for translation.
originally published 2018-08-23
Envion raised $100 million to make a virtual currency. But there was never actually a business, the money is gone. Now investors are complaining.
Düsseldorf. The boss earns a good $15,000 a month, but he cannot make decisions. Customers? Dead loss. Business has stopped. At the beginning of the year, investors entrusted $100 million to the founders of Envion AG. A 161 percent return was the promise.
At the start, inestors only received tokens, virtual coins. Envion made an Initial Coin Offering (ICO), a virtual IPO. At the time of issue the tokens had a face value of one dollar each. Now, they are trading at 7.8 cents.
Worse than that: Envion AG, celebrated in January as the poster boy of a thriving German crypto scene, has degenerated into a bizarre entity. The board and the founder are suing each other. Both operate websites where they insult each other. And while the top managers argue, 30,000 investors see their investments collapse day by day.
Market experts had already warned about such catastrophes. Shortly before the IPO of Envion AG,European Securities and Exchange Commissioner Esmasaid: „We are seeing a rapid increase in ICOs in Europe and around the world and are worried that investors do not know what the risks are.“ Two days later German Financial Supervisory Authority Bafin said: „ICOs are highly risky, speculative investments for investors. A total loss of the investment is possible.
The warnings died down. Investors put seven billion dollars into virtual IPOs in 2017, and in the first half of 2018 already 13.7 billion. There were 100 such ICOs month after month. The Stuttgart Stock Exchange even wants to start its own platform for the trading of cryptocurrencies in the autumn . No matter how vague the business idea may be, the makers are showered with money on the market.
One of them is called Michael Luckow. The man looks nervous when the Handelsblatt meets him in Dusseldorf. Tall and lanky, born in Berlin in 1984. He was barely of age when he founded his first company.
At university Luckow never looked back. Financially independent, he had a network of business contacts by the age of 20. Luckow tried a lot, founded a ticket company, a marketing agency, organized the Berlin dance festival Holi and sold Chinese bean bags on the internet. Those businesses were difficult and unsuccessful. But then everything suddenly became very simple.
A cornucopia called ICO
„At the beginning of 2017, I was sitting with friends. We were thinking about new business models,“ says Luckow. They talked about the new database technique Blockchain . It suddenly enabled both anonymous and secure transactions of assets over the Internet. Blockchain was becoming more popular by the day.
This was mainly due tothe electronic currency Bitcoin, which rose and rose. New crypto currencies kept coming up – and found investors. „It seemed to us like the Neuer Markt,“ says Luckow in reference to the Internet bubble in the late 1990s. „The theme worked and was successful. Financially, not necessarily technically.“
Financial success regardless of the technical feasibility. Tempting. The friends had an idea: Blockchain technology, on which virtually all crypto currencies are based, was immensely computationally intensive, the power requirement enormously high . Luckow’s group came up with the idea of installing computers for so-called cryptomining, the virtual production of Bitcoins and Co., in containers.
These mobile mining units were to be installed next to solar farms, wind farms or hydroelectric power plants, where they should absorb surplus green electricity. Some solar panels went offline when the price of energy was not profitable. Luckow wanted to use this wasted potential. His containers were supposed to produce bitcoins where power was cheap.
The project needed millions in investment. Luckows luck: If it used to take years to persuade financiers of the viability of a business idea, in 2017 a much faster method for raising funds had established itself: the so-called virtual IPO. In an initial coin offering, start-ups issue virtual coins called coins or tokens instead of shares.
The practice was more or less unregulated. Everything went much faster than a real IPO. At the same time, many investors desperately sought ways to increase their wealth due to the low interest rates worldwide. All this led to a surprising boom. Already in 2017 there were more than 500 ICOs worldwide.
Luckow only feared that the cornucopia could dry up. „It had to be fast. We had to anticipate others,“ recalls the young entrepreneur. „People were just throwing their money in. It was predictable that would not last long.“
Cooperation with ARD journalist Woestmann
Was that why he behaved the way he did? In 2017, Luckow wanted to found a company, collect millions, but to have no profile himself.Luckow admits that he wanted to stay in the background. However, it is also true that his name had been in the debtor register of the Berlin district court since October 2015.
Luckow does not explain that. Such an entry usually has something to do with unpaid bills and does not appeal to investors. Luckow and his partners went in search of a serious, established businessman. So they came across Matthias Woestmann.
A strange choice. The journalist was until 1997 a foreign correspondent with ARD. Then he founded a film rights company that was unsuccessful. Subsequently, Woestmann brought Quadra Capital into being. This investment company concentrates on fossil and renewable energy projects in its own image.
There are no projects on Quadrat Capital’s website, in fact there are only two investments: a delivery service and a Canadian oil company. The most recently filed annual financial returns date from 2015 and show equity of zero Euros. For the years 2012, 2013 and 2014 the numbers are missing from the official „Bundesanzeiger” (German Federal Gazette).
Luckow and his partners were not bothered about that. Woestmann was based, like Luckow, in the capital. It was known in the Berlin scene that the ex-journalist had earned a lot of money through shares in the solar module manufacturer Solon before the company collapsed. In the summer of 2017 there was an initial meeting. „Woestmann made a smart impression,“ says Luckow.“ He said he had many contacts in the renewable energy industry, could bring in investors.“
But the beginning of October, Woestmann was CEO of the newly founded company: Envion AG. The 57-year-old admits openly that he did not understand how to make virtual coins. „But Luckow and his boys talked about it all the time. They all ran around in T-shirts and looked like you just imagine computer nerds,“ says Woestmann.“I thought that would be a learning experience. And then of course there was the money.“
CDU politician promoted Envion
All the parties were to receive company shares. Woestmann 19 percent, Luckow and his partners 81 percent. The nerds, gathered within Luckow’s company Trado GmbH, would take care of the actual business, Woestmann would take over the presentation to the outside. This was kept from potential investors.
The Envion prospectus is 56 pages long. The names „Trado“ or „Luckow“ do not appear anywhere. Envion campaigned to be „a start-up from the heart of Berlin“. Woestmann registered the company in Switzerland.
The construction crunched. The ICO, scheduled for December 1, 2017, had to be postponed for two weeks for unexplained legal reasons. Not even the bookkeeping worked. Trado’s bills were not settled until Luckow called Woestmann personally. The only thing that went very well was marketing.
Woestmann succeeded in harnessing the well-known former politician Friedbert Pflüger, the chairman of the Internet Economy Foundation. However, Pflüger had his price: 15,000 Euros.
At the request of the Handelsblatt, the former CDU man mentions in his response a two-and-a-half-month „consultation on the energy and climate policy component of the Envion business model“. There is apparently nothing written about that. Woestmann only remembers „an exchange of ideas“ with Pflüger.
Anyway, the most important thing was this: A prominent photo was displayed during the ICO on the website of Envion AG. Right next to his own: Thorsten Grenz, a proven financial expert with experience in large companies.
Such an approach is common, said Woestmann later. Also the one learning experience. Every start-up tries to get big names for themselves, even if they’re expensive.
Disagreement in Hong Kong
But there was no shortage of money. As soon as Envion offered its virtual coins in December 2017, hopeful investors helped the company raise $30 million. On the Internet, Envion announced glorious prospects, including a collaboration with the Italian electricity giant Enel. In a circular letter to investors, Envion said it had „ deal after deal with global players in the energy industry. Now is the time to invest!“
Was it like that? The cooperation with Enel never came about. At the end of January 2018, the Italians denied any interest. That did not hurt Envion. By that time, the start-up had already raised $100 million from investors.
Woestmann and Luckow ran one of the most successful ICOs worldwide. Then they fell out. It happened in Hong Kong. On the outbound flight Woestmann made a video congratulating the investors. In the evening, there was a meeting with a potential business partner who could supply computers for the production of virtual currencies. „I suggested doing this without Matthias,“ says Luckow. „He flipped out. He shouted that he would not let a man like me get out.”
Woestmann flew back to Germany alone. He blew out the appointment for a discussion with Luckow two weeks later. On the 31st of January, at Trado’s offices they met again.
This time Luckow had a good reason for a tantrum: Woestmann had frozen him out. If Luckow and his business partners owned 81 percent of Envion AG at the end of the ICO, it was now down to only 31 percent. In a surprise coup Woestmann had carried out a capital increase without Luckow’s knowledge.
Luckow was stunned. „You cannot do that,“ he told Woestmann. „How do we go on from here?“ Woestmann did not answer. He looked across to the good friend who accompanied him that day: Thomas van Aubel.
Action for „corporate robbery“
The well-known Berlin lawyer had a message: He was now the new strong man in the house. His company, Sycamore GmbH, signed, on January 22 the capital increase of 240,000 new shares of Envion AG at a unit price of one franc (the company is officially located in Switzerland). It was an amazing piece of business: for 240,000 francs van Aubel bought 61 percent of a company that had 60 million dollars in the cash.
Luckow raved, talked about „corporate robbery“ and went to court. There he was proved right for the time being. In a preliminary injunction, the district court of Berlin ruled that Woestmann had deliberately inflicted damage on him with the capital increase „in a manner contrary to morals“. Now, Woestmann and van Aubel must „refrain from any action that results in a transfer or encumbrance of the assets of Envion AG“. Those who do not stick to it face fines of 250,000 Euros or up to six months imprisonment.
When asked about the verdict, van Aubel weighed against Handelsblatt. He could challenge this decision in various ways. And anyway: „In terms of content, the Disposition provisionally prohibits the sale of shares in Envion, which was not intended anyway.“
Really not? „Invitation to Offers“ is the title of a letter that Woestmann addresses to potential investors on 4 February. „Envion is an innovative cryptomining company. The ICO, completed on January 15, 2018, was the sixth largest in the history of the ICOs.“ Then the company’s advantages are listed: a global brand, innovative technology, and many millions of dollars of capital. Interested parties may refer their offers to „Matthias Woestmann, CEO of Envion AG and shareholder of Quadrat Capital“.
While Woestmann tries to sell the company, the business is down. Woestmann no longer transfers money to Trado GmbH, where the actual work is to take place. He commissions reports, hires experts for PR. Investors still believe their funds are being spent on innovative cryptography. In fact, only consultants and lawyers rely on Envion.
The crypto-evangelist
The only thing that seems to work is the PR. For the Envion, communicating with its „community“, buyers of tokens and those who might become buyers is especially important. The division is not supervised by CEO Woestmann, but by Luckow’s Trado GmbH. Now that Woestmann and Luckow are divided, this arrangement leads to absurd situations.
The company’s social media face is Laurent Martin, a close associate of Luckow’s. The American, a former opera singer, came to Germany several years ago and worked for various Internet companies as a specialist in marketing. Today he describes himself among other things as a „crypto-evangelist“ and is active on all channels: Facebook, Twitter, Instagram.
In February, Martin announces himself to investors via a video message from Los Angeles and talks about big investors and his great experiences at the „Beverly Hills Blockchain Meet-up“. In March he will appear as a speaker at the „Blockchain Technology Conference“ in Berlin.
In an „Update for Investors“ it is reported that Envion is working hard to „prepare for the mass production of the mining units and the organized process for the payment of dividends“. It can already be seen that „our commitment to professionalism pays off“. In April, Martin will be on stage at the „Event Horizon“ conference in Berlin and will talk about a „low risk for our customers“.
Envion AG’s turnover is at zero all the time. Although Trado works according to his own statements on the implementation of the business idea. Everything happens, but more slowly than planned and on their own account. CEO Woestmann refuses to spend the necessary millions for the crypto hardware before the dispute with company founder Luckow is clarified.
And nothing is clarified. In May 2018, the Handelsblatt reports for the first time on the true conditions at Envion. The price of the token falls by 45 percent.
Now Luckow hires more media consultants and sets up a new website: http://www.envion-founders.org. Laurent Martin again takes over communication in the social media. From then on, Woestmann is portrayed as a man who has no idea of the company he runs. Martin describes the major shareholder van Aubel and his wife as „parasites“. He encourages investors in chats to „call and ask for answers“.
Prominent advocates of Envion now prefer to keep their distance. Friedbert Pflüger has his image removed from the company’s website months after the termination of his consulting contract. Others follow his example. Only the investors cannot run away. Szilard Damm (name changed) for example, a 50- year-old IT consultant, may be tearing out his hair when thinking of his investment in Envion today. At the end of 2017, he had saved some money and wanted to take care of his little daughter. Damm bought tokens from Envion for 20,000 Euros.
Investors seek help from the lawyer
Was he crazy? No, says Damm, the timing of the Envion campaign was perfect. At the start of the ICO in mid-December 2017, the Bitcoin price climbed to its all-time high of $ 20.000.
„According to Envion’s advertising one could hope with an investment of 20,000 Euros to 2,500 Euros payment per month,“ recalls Damm.You looked at the Bitcoin course and said, ‘Okay’. That’s the way you think, that’s just human.“
Today he thinks differently. Damm represents a group of around 100 investors who have networked via chat app Telegram to inform and defend themselves. They first seek legal action to limit the damage.
Many end up the offices of István Cocron. The specialist for capital market law of CLLB in Berlin has been working intensively with providers of cryptocurrencies for 18 months. „This market is very confusing,“ says Cocron.“Envion seemed to be lazy right from the start.“
Cocron does not want to lose himself in the question of whether Woestmann betrayed his Trado GmbH business partners or the other way around. The 46-year-old lawyer has just filed several claims for damages at the district court in Berlin – against both sides. Core of his charge: prospectus fraud.
„Investors believed they would invest in a reputable company – Envion AG,“ says Cocron. „In fact, all the people who worked for the ICO worked for Trado GmbH in Berlin.“ He sees Luckow as the de facto CEO – a man who is in the Berlin debt register. Cocron: „If my clients had known about this construction, they would not have acquired the tokens in question.“ And other information seems suspicious with hindsight.
In the „White Paper“, in which Envion AG introduced itself to investors, the origins of the company date back to 2015. This was followed by „two years of hard work“ for the „development of revolutionary technology and a vision for the company“. After the split, however, both Luckow and Woestmann told the Handelsblatt that they had only met in the summer of 2017 – which is why the rush for the ICO.
Whether out of haste or deliberate – there were big mistakes when selling the tokens, complains today lawyer Cocron. Envion also sold the virtual coins to German retail investors, but did not have their prospectus audited by the German capital market supervisory authority as required.
Luckow and Woestmann accuse each other
Strange also: Many millions of Euros, handed over by investors, ended up in the accounts of Trado or their employees. According to Luckow this happened at the request of Woestmann. But Cocron enumerates half a dozen laws that forbid so lax handling of investors’ money.
The damage to his clients was intentional and immoral, the lawyer says. Every week new Envion investors call him. Some have invested 10,000 Euros, others even 40 times that. Cocron sees his first complaints as a forerunner of a legal storm: „Here, 30,000 investors have invested more than 80 million Euros. Nothing promised was respected.“
Now the authorities are on the train as well. After a case by Woestmann against Luckow, prosecutors in Berlin are now investigating a possible cybercrime with a suspicion of fraud and embezzlement. Luckow, in turn, now wants to file a criminal complaint – against Woestmann.
At the same time, the Swiss stock exchange regulator Finma has initiated a so-called „enforcement procedure“ . It „focuses in particular on possible violations of banking law due to a possible unauthorized acceptance of public deposits in connection with the Initial Coin Offering (ICO) of the EVN token,“ it says. What that actually means, investors will have to piece together themselves. Until they finish their work, the authority will remain silent. But Finma is hard at work.
Finma have sidelined Woestmann and placed lawyer Markus Brülhart in charge. On June 30, he wrote a letter. His law firm, GHR from Bern, is now the company’s investigator. In the last sentence of the letter, Woestmann learned the consequences: „Finally, we ask you to take note that until the final decision of the Cantonal Court, the investigating officer remains employed in its capacity as sole authorized corporate body.“
The learning experience for CEO Matthias Woestmann is nearing its end. He is still CEO, but is not allowed to sign anything anymore. His operational remit is terminated. There are only talks with lawyers.
Sales remain at zero
Ten months ago, the ex-journalist unexpectedly came to the forefront of an emerging startup. Three months later he succeeded, with Luckow and his computer nerds, to implement the largest ICO in Germany. The official website of Envion AG still bears witness to the plans they once had.
The „most profitable crypto concept in the world“ is invoked on http://www.envion.org, a „blockbuster product“ announced. Everything seems very well planned, at least on paper. Forecasted monthly revenue for July 2018: $ 13.4 million. The status quo looks different: zero turnover. The former partners are hopelessly divided. 30,000 investors are worried about their money.
All this is sad, but not uncommon. At Envion, investors filed an action for the first time after an ICO. But there is no shortage of scandals. 80 percent of all ICOs last year, according to a study by the US consulting firm Satis Group, were frauds. Bitconnect in the US was closed by the authorities, Pincoin in Vietnam – millions vanished. Cointed in Austria is also causing negative headlines. As Envion founder Luckow told Handelsblatt: „People were just throwing their money in. It was predictable that would not last long.“ He was right.
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