Abstract : Jia Yueting, Faraday Future, blockchain startup, STO...when ChainDD reporter got to the bottom of these key words and key figures, what was hidden underneath turned out disappointing. Behind the publicity stunt lies a number game which both parties expect to win with their sleight of hand tricks.
News of “blockchain company EVAIO's intention to invest 900 million USD in Jia Yueting's FF (Faraday Future) via STO (Security Token Offering)” has drawn attention again to Jia Yueting and his FF company. However, ensuing doubts and questions remain.
Has EVAIO really invested 900 million USD? Where is the investment capital from? How is the investment going to be enforced and executed? What is a real STO? What kind of role is the STO playing in this incident? Was FF really in the dark as it claimed?
With all these questions in mind, the reporter of the ChainDD App conducted interviews of many parties involved including the relevant staff members in charge of EVAIO's involvement, verified information files of all implicated parties and visited people who were heading several projects which successfully launched STOs and four lawyers specialized in the blockchain industry, in order to get to the bottom of the whole incident.
The rapid spread of the news owed a great deal to several popular keywords: Jia Yueting, FF company, blockchain startup, STO. However, when the ChainDD reporter got to the bottom of these key words and key figures, what was hidden underneath turned out disappointing. Behind the publicity stunt lies a number game which both parties expect to win with their sleight of hand tricks, in other words, a scheme, using the popular concept of STO to help raise funds via FF's questionable equity, the legal basis of which is still debatable.
EVAIO, the blockchain startup which arrived on the scene in the name of the new investor, or more precisely, the underwriter for this round of fundraising by FF, attempted to sell the publicized “short” FF assets by tokenization to private investors in order to raise funds for FF. At the same time, FF was not really kept in the dark as it claimed. The two parties set up this scheme and publicity stunt with a preliminary confidentiality agreement.
Investors on the Attack
The new energy auto company Faraday Future (hereinafter referred to as FF) actually controlled by Jia Yueting has been facing pressing financial crisis since FF and Evergrande Health had strong disputes over their cooperation in October this year and applied for arbitration in Hong Kong
On November 29, Evergrande Health made a public announcement saying Shiying (of which Evergrande Health holds 100% equity) has received the emergency arbitration ruling on the Faraday Future’s motion to waive Evergrande Health's right to use Faraday Future’s corporate assets as financing guaranty on November 12. It also claimed that “the emergency arbitrators fully dismissed the joint venture FF's motion to waive Shiying's right to use the joint venture FF's corporate assets as financial guaranty.” On the other hand, FF issued a public statement on November 30, saying the emergency arbitration appeal would be transferred to the main arbitral tribunal for arbitration and the statement in Evergrande Health's announcement that “FF' motion was fully dismissed” was not completely true.
According to some estimation, there is at least a 500 million USD funding gap for FF91's 2019 production plan. It was revealed earlier that “FF employees had their salaries reduced by 20% across the company, and Jia Yueting, founder and CEO of the company will only receive 1 USD as his annual salary”, which attests to FF's difficult financial position indirectly.
FF and Evergrande's Disputes over Their Cooperation
On November 9, FF filed a petition in the District Court for the Central District of California, to confirm and forcefully execute the emergency arbitration award by the Hong Kong arbitration tribunal, which granted Jia Yueting's permission to seek financing, capped at 500 million USD. In other words, Smart King, a joint venture established by Jia Yueting's FF and Evergrande Health will be able to issue new shares valued at 500 million USD by equity dilution.
Michael Agosta, Global VP of Finance of FF stated that FF is currently in negotiation with potential investors of the 500 million USD and EVAIO claimed it is one of the investors.
“We took the initiative to contact Wang Jiawei, FF's CFO, in the hope of reaching an agreement of cooperation.” said Director of EVAIO China. The core team members of EVAIO are all from the well known American new energy car maker Tesla and to them, judging from its technological reserve and the design of its current model, FF has been undervalued under its current funding pressure.
“First of all, we hope that our purchase of FF equity using the 'bottom fishing' strategy now will generate higher investment return. Second, as a company providing vehicle mounted blockchain solutions, we hope that our products will be used on a good vehicle model, which can be used as a case of application. Finally, the major shareholder of the joint venture Smart King is Evergrande Health. Endorsed by Evergrande's standing, credibility and background, the investment subject matter can't be that bad. At least it is formally guaranteed.” said the above EVAIO director, talking about the reason behind the investment decision.
Smart King is a joint venture established by Shiying company in Hong Kong and FF's original shareholders. On November 30, 2017, Hong Kong based Shiying invested 2 billion USD and acquired 45% of the joint venture's equity and FF's original shareholders bought 33% of the joint venture's equity with the technology assets and business of FF. Smart King wholly owns FF and is the corporate entity of FF. Furthermore, FF's CFO is Wang Jiawei. A report by TMTPost last year showed that Wang Jiawei is a relative of Jia Yueting and a large number of assets of the latter have already been transferred to Wang Jiawei's name.
900 million USD STO investment is actually public fundraising
In the current market, dual-channel financing in both fiat money and cryptocurrencies is rapidly becoming more difficult and the digital currency market is experiencing a sharp downturn. ICO financing in all major countries globally is facing stricter supervision. Against this backdrop, everybody is pinning great hope on STO financing that satisfies the compliance requirements.
STO refers to Security Token Offering and its purpose is to issue tokens publicly, under the conditions that the offering must comply with the relevant rules and accept supervision of its legality and compliance status.
Security Tokens (ST) are normally backed by real assets such as equity assets, shares of limited liability companies and commodities.
Director of EVAIO China told ChainDD that EVAIO has not so far issued any STO and is not helping FF to raise funds via STO. As a blockchain startup registered at the beginning of the year, EVAIO though has performed private fundraising with project tokens (exact figure not disclosed), itself doesn't have underlying priced assets to anchor STO. EVAIO's plan is that, under ideal conditions, it will use some of its own capital (exact figure not disclosed for confidentiality reasons) to inject capital into cash-strapped FF, in exchange for a certain share of FF's parent company, Smart King's equity. It claimed that EVAIO has already signed the confidentiality agreement with Smart King.
In other words, so far it is only a tentative plan of blockchain startup EVAIO that it will invest 900 million USD to Smart King in three years and its source of funding remains uncertain.
According to the plan of EVAIO, if it acquires Smart King's equity, it will use the equity as the underlying priced asset of its own platform to raise funds via STO. In other words, the equity of Smart King acquired by EVAIO will be sold to private investors by way of tokenization. The profit to be generated from the sale will be used to pay by installments for its funding promise made earlier on to Smart King. The difference between the sales revenue and financing payment, room for price appreciation due to maturity mismatch and appreciation of security tokens held by EVAIO due to the STO are EVAIO's ways of profiting from this model.
Director of EVAIO China told ChainDD frankly that they don't know how to define or name this investment operation. However, CEO Patrick De Potter coined a new name for this fundraising method earlier on in the company's publicity, which is fundraising “Via indirect STO”, meaning indirect STO. According to the company's plan, since tokens issued this way involve equity, EVAIO exercised their discretion and defined the tokens security tokens. Thus, this proposal which is still at its planning stage, became a popular talk point in the community that EVAIO is going to raise funds for Jia Yueting via “STO”, a story made even more popular by several hot keywords.
EVAIO's “STO” Plan
Therefore, the real plan of this once hotly discussed report of “Jia Yueting and FF using STO to raise emergency funds” is that EVAIO plans to carry out a new round of fundraising on its own platform, or to imitate investment banks and engage in equity underwriting business. It plans to use the equity of Smart King acquired and sell the equity by way of tokenization and quantified division of tokens to investors in order for the EVAIO platform to obtain funding and relevant appreciation profit. As mentioned above, EVAIO actually plans to invest 900 million USD raised this way in Smart King in three years.