Token Holders are not Second-Class Citizens


The purpose of this article is to discuss the importance of disclosure, or adequate disclosure, in respect of key aspects of a token sale.

Cryptocurrencies are new territory, regulation is uncertain and investor protection almost non-existent; given this landscape, prospective token buyers need to rely heavily on proper and full disclosure by promoters. Transparency and trust become key factors.

The specific subject matter of this article is a token sale arranged on behalf of IvyKoin LLC and otherwise known as Ivy Project (“Ivy”). The involvement of a publicly listed company, Change Financial (“CCA”), makes this a particularly interesting case. CCA is listed on the Australian Stock Exchange (“ASX”).

There appear to be material matters that have not been disclosed in a timely manner, or that have been inadequately disclosed, and I discuss these below. Without proper disclosure, token buyers may be at a significant disadvantage.

I have raised these matters previously both in the Ivy Telegram channel and in other articles posted on Medium. Ivy has preferred only to provide limited response and has described my questions as “frivolous” or “wasting team time”. That is unfortunate.

Disclosure: I am an Ivy token holder.

What is Ivy Project?

Ivy was described by CCA as “a partnership to build a blockchain-based cryptocurrency”. CCA acquired a minority 33.34% equity stake in the partnership in late 2017.

Ivy proposes to facilitate secure, transparent business payments on a global scale using blockchain technology. Its white paper makes a direct comparison with Ripple Labs and its XRP token. Ivy’s key point of difference is to assist financial institutions in managing Anti Money Laundering regulatory compliance by providing access to more customer and transaction data points than incumbent payment systems such as SWIFT or ACH.

Ivy token sale

Ivy held a token sale in early 2018 to secure the required funding for its project. It was described as a pre-sale and was over-subscribed, raising $16.5 million. Whilst Ivy is a US registered company, the sale was managed by Australian broker Discovery Capital Partners. For this reason, a significant number of participants in the sale is resident in Australia.

The token sale was put forward by Ivy as being more professionally-managed than most other tokens sales in what Ivy described as “the Wild West” environment of crypto. Ivy sought to bring a higher standard to its sale and likened it more to an IPO. The participation of an ASX-listed company added a certain amount of gravitas and the impression given was that this would assure increased propriety.

Matters of concern

1. Project ownership. The token sale was presented as an opportunity to participate in a project created by a new partnership between ASX-listed CCA and others. Curiously, the partner’s identity was not revealed but it was implied that it comprised “a variety of expert individuals” (CCA press release of 31 October 2017). Not until five months post the sale closing date did we first learn that CCA’s partner was in fact an Australian private company by the name of Elmoson Pty Ltd (“Elmoson”) with a single nominee director. We have also learned only recently that Elmoson directly controls around 16% of all tokens. Despite numerous requests, Ivy declines to reveal the beneficial ownership of Elmoson, although it has been confirmed that “no (Ivy) management or advisors have an equity interest in Elmoson”.

2. Token distribution. There is conflict between Ivy’s statements over time in respect of public token allocations. During the token sale, Ivy had claimed that 40% of all tokens had been sold to the public. On 15 June 2018 Ivy published a re-stated token allocation chart that seems to show only 14% could in fact reasonably be attributed to public token sales. The difference of 26% was allocated as to 2% to token-based fees paid for services and 24% to seed investors (i.e. Ivy’s owners CCA and Elmoson) and unnamed vendors of IP. This was a very material change and little explanation was afforded. Only later did we discover that the IP vendors were actually Ivy’s owners.

3. Non-declaration of owners’ tokens. Ivy’s owners have been allotted a significant number of the tokens that were originally claimed to have been sold to the public. The quantum of CCA’s allotment (130 million) was only announced post-TGE and was, in fact, initially declared as comprising part of the management & advisory pool tokens. Elmoson appears to have been allotted approximately 250 million tokens. This was not declared at the time of the token sale. In fact, it has only recently been admitted by Ivy that Elmoson was allotted tokens.

4. The role of CCA. There is circumstantial evidence to suggest that Ivy is effectively controlled by CCA and/or by parties connected to CCA. The only known public officers of the Ivy entities are individuals connected to CCA. Ivy’s President is currently CCA’s largest shareholder and was its Managing Director and CEO at the time of the token sale. The offices of CCA and Ivy in the US are in very close proximity to one another and on its recent Californian business registration application Ivy uses CCA’s mailing address, rather than its own, for service of official documents.

Let’s now take a closer look.

What is known about the Ivy set-up?

It has never been publicly declared who originated the concept of the “Ivy Project”. What is known is that CCA announced its participation in a “partnership to develop a blockchain-based cryptocurrency” in a press release dated 31 October 2017. The release went on to state that “the Ivy Project will be owned by a separate limited liability company (“LLC”) to Change Financial”.

IvyKoin LLC was registered in Delaware, USA on 27 October 2017. One assumes that this is the entity CCA referred to, as it is the entity that issued the tokens. There is no public information available as to the identity of the officers of IvyKoin LLC. Membership (equity) participation is CCA (33.34%) and Elmoson (66.66%).

We know that the responsible manager for IvyKoin LLC is Ivy Management Group LLC as confirmed by CCA in its press release dated 4 July 2018. A search of the Delaware Department of State web site does not return any results for this company. However, CCA director Ian Leijer’s LinkedIn profile declares him to be Advisor to Ivy Management Group.

A third entity completes the Ivy Project corporate infrastructure — Ivy Blockchain Pty Ltd registered in Queensland on 22 March 2018; apparently, it played some role in the TGE but its ongoing function and purpose is unknown. Shareholders are Elmoson (200 shares) and CCA (100 shares) and paid up capital is $300. Directors are Ashley Shilkin, Ian Leijer and Young Lee. All are connected to CCA either by directorship and/or shareholding or employment.

CCA’s partner in Ivy

Whilst CCA has labelled its investment in Ivy a “partnership”, there has been nil information provided as to the nature of the partner’s business, what role the partner played in originating the Ivy Project, what investment the partner has made in the partnership, what benefits and capabilities the partner brings to the partnership or what ongoing contribution the partner will make.

We do know that the partner has employed a company vehicle to hold its investment in the Ivy Project entities — Elmoson. This company is registered in Western Australia and has a sole director, David Ross Moustaka. However, he does not beneficially own the issued shares. In short, this is a nominee arrangement — one often used to protect the actual owner’s identity from public scrutiny.

In its October 2017 press release CCA did announce that “the project will bring together leading blockchain and cryptocurrency experts, security experts and regulatory experts to develop a cryptocurrency solution and bring this innovative technology to banks and businesses”. Perhaps this was interpreted generally by most token buyers as reference to the “Tier 1 World Class Team” that Ivy emphasized as a key part of its message when promoting the token sale. It would have been a reasonable assumption that some among this team were the founders/originators of the Ivy Project.

However, we have subsequently learned that most of that group of individuals are/were either advisors or arms-length contractors rewarded by salary or contract payments and/or tokens from the management & advisory pool. It seems that what might have been considered a reasonable assumption was in fact not so.

Who controls Ivy?

What do we know about the ownership and control of the Ivy Project? CCA’s minority equity position is clear. It’s degree of control, however, is uncertain. Based upon the limited information publicly available, no one other than individuals connected to CCA are appointed in positions of authority. Despite numerous requests, Ivy has been unwilling to provide any information in respect of the partner (i.e. those who sit behind Elmoson and are its beneficial owners).

Elmoson therefore remains an enigma. No individual claiming to represent the company has ever come forward to make comment on the partnership with CCA, or on the Ivy Project or, for that matter, any topic whatsoever. CCA made no mention in its ASX release of 31 October 2017 of the identity of the partner or how CCA came to be introduced to the opportunity itself. One wonders why CCA’s shareholders did not bring up this matter and possibly the same might be said for Ivy token holders.

What is interesting to note is that in October Ashley Shilkin replaced Gary Fan as President of Ivy. Shilkin was previously CEO and Managing Director of CCA and was still an Executive Director at the time of his Ivy appointment. He is also currently CCA’s largest shareholder. No information has been provided as to how his appointment as Ivy President was arrived at, or who sanctioned it. Ordinarily, an appointment of such importance would be a matter dealt with by a company’s board of directors. Given that we do not understand the relationship between all three entities in the Ivy Project corporate infrastructure, it is difficult to know where the decision might have been made.

What we do know is that parties connected to CCA comprise the entire board of Ivy Blockchain Pty Ltd and one of them also advises IvyKoin LLC’s management company. It would certainly appear that CCA has the facility to exert significant influence over Ivy’s activities and, by implication, so too would CCA’s largest shareholder. This conclusion appears to be supported by CCA in its annual report where it described CCA’s influence over Ivy as “significant”.

Returning to Elmoson. It strikes one as unusual that a majority shareholder in any venture would relinquish its right to board representation. What might be the reason for this? Perhaps the originators of the Ivy Project simply wish to remain out of the limelight and implicitly trust CCA to make all decisions in respect of their investment. This would seem rather a tenuous argument, unless there had been significant prior dealings between the parties that had created a strong bond of trust. However, CCA has made no reference to prior familiarity with its new partner. Another possibility is that there may be a connected relationship between Elmoson and CCA. That would cover off the trust aspect.

The Ivy Option

Let’s now consider more closely the option acquired by CCA in July 2018 to purchase Elmoson’s equity interest in the Ivy Entities.

On exercise, the consideration to be paid by CCA was US$10 million, comprising 13.5 million new shares in CCA to be issued at A$0.80 per share, plus US$2 million in cash. Just prior to the option announcement CCA had raised US$2.62 million in a private placement of shares priced at A$0.58 per share. The Elmoson shares were therefore being acquired at a premium of 38% and were also subject to escrow, with vesting over 12 months — clearly rather favourable terms for CCA. One wonders why Elmoson required a cash element and how CCA intended to fund it.

Following exercise, the option would have given CCA not only unfettered control over Ivy but also access to the remaining funds raised from the token sale (around US$13 million at the time according to CCA). Given CCA’s cash position, such an injection of funds would have been very useful. Looked at holistically, one might consider that the nature of the transaction was more akin to a private placement of CCA shares but at a significant premium to market and with a blockchain asset thrown in to the bargain.

Given CCA’s circumstances at the time, it is challenging to believe that anyone other than a connected party would have subscribed to new CCA shares on such terms. Perhaps the cash element of the consideration was in recognition of this.

One might also wonder why Elmoson determined to effectively divest its interest in Ivy so soon after its launch. The project had hardly got off the ground and was allegedly targeting a multi-trillion-dollar market opportunity. Exchanging 66.66% of Ivy for roughly 14% equity in CCA and US$2 million in cash proposes interesting maths. Perhaps the matter of Elmoson’s 250 million tokens played a role here. There was no mention of these tokens changing hands as part of the Ivy option. One therefore assumes that they were excluded and that Elmoson would have retained them, even in the event of exercise of the option.

As we now know, the option has lapsed, CCA has changed strategic direction and Ivy has a new President who is now no longer a director of CCA. The full circumstances surrounding this sequence of events is likely to remain known only to insiders.

Current position

CCA has fallen on hard times and is seeking to raise cash to finance its core business. In its Investor Presentation dated December 2018 CCA now describes Ivy as a “non-core business” and states that it is “reviewing a number of strategies to monetise its (Ivy) investment”. This is likely to mean that CCA is actively seeking a buyer. Nothing is known of Elmoson’s current disposition towards its Ivy investment. Could it be a buyer of CCA’s stake? That may seem unlikely given its earlier intention to sell its own stake. It is also highly unlikely that a third party would be willing to acquire a minority interest, especially given Ivy’s nascent state. Perhaps CCA and Elmoson will work in concert to identify an acquirer for Ivy?

Given CCA’s “monetisation” declaration, token holders will also be keen to understand CCA’s intentions with regard its significant token holdings. Vesting has already commenced, so disposal is possible.


There are matters of concern that might be considered significant. These are essentially in relation to control and ownership of the Ivy entities and the distribution of tokens issued by IvyKoin LLC. If there were transactions between connected parties, which seems to be the case, then one would reasonably have expected their timely disclosure. It does appear as though disclosure of information was insufficient and inaccurate in some respects, possibly disadvantaging public token holders.

One wonders what the reasons might be behind the lack of willingness to address genuine concerns, as that only serves to increase speculation and to seed doubt. A more open disposition by the principals might have already consigned these matters to history.

There is a prevailing sentiment among some founders that token holders are not entitled to receive the same standard of information that may ordinarily be afforded to holders of equity. In my view this is misguided. There is potentially a significant conflict of interest between the shareholders in a token issuing vehicle and its token holders. How value created by a network is to be captured and shared between stakeholders is of the utmost relevance to token holders, given that they have no specific claim on the token issuing vehicle itself. For this reason, proper disclosure of key ownership and control information is vital if token holders are to be able hold founders to account.

I shall leave you, reader, to make up your own mind as to the importance of the matters I have highlighted here. Whether or not you agree with me, or with my interpretation of the specific events discussed, I hope at least to have provided you with useful information that will assist you in your own research and due diligence process when considering investing in any token project.

Disclaimer: The opinions expressed in this article are mine alone and represent my personal point of view, based upon my understanding and interpretation of the information presented. I take no responsibility for any errors or omissions and make no guarantees as to the accuracy or completeness of any of the information provided in this article. The information in this article is provided for informative purposes only and under no circumstances should it be perceived as, nor does it constitute, financial or legal advice or any other advice of whatsoever nature. Any reliance upon the information contained in this article is entirely at the reader’s own risk.

Token Holders are not Second-Class Citizens was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.