A number of South African investors have lost hundreds of thousands, if not millions of Rands each, as a result of investing in a cryptocurrency initial coin offering (ICO) that has turned sour.
The saga highlights the risks involved of investing in schemes – particularly cryptocurrency ones – without doing the necessary due diligence, or having the requisite knowledge and understanding of what it is you are buying. It also serves as a general warning to be wary of investing in an opportunity based entirely on the recommendation of friends or acquaintances.
The investors in this particular scheme – which include a number of prominent South African business people – invested a minimum of $20 000 each – although many investments were substantially larger – in the ICO of J8T tokens launched by the JET8 Foundation.
The JET8 Foundation was set up to integrate the J8T tokens in the JET8 ecosystem. JET8 is a social media platform, which has technology that allows brands, agencies and influencers to engage and sell to social communities through user-generated mobile content.
The idea behind the J8T ICO was to scale JET8’s system for rewarding regular users who effectively promote brands on Instagram, Twitter, Facebook and more. For every in-app like, comment, and share, users earn tokens, which can be used to redeem products online or over-the-counter across retail stores around the world.
Just before the ICO, JET8 said it aimed to sell $36 million worth of its tokens in the ICO, amounting to 30 percent of a total 1.5 billion token supply. Tokens in the public sale were sold for $0.10 per J8T. According to JET8’s website, the ICO raised 32,7 million USD by closure on 14 March 2018.
At the time of the ICO, the JET8 executive team included:
Victor Zabrockis – Founder, Chairman of the Board, SVP of Product Design and Architecture;
Joshua Thomson – Founder, SVP’s of Partnerships, who formerly had a position with FC Barcelona as Director of International Business;
Mike Allen – Founder, SVP’s of Partnerships. Allen formerly managed Titan Media, part of the Naspers Group, for 7 years in China.
Shannon Cullum – Chief Marketing Officer has worked with A-list brands like Unilever, Coca Cola and Google.
Bruce Aitken – CEO of JET8 (effective early April 2018), who was a former Vice President of Amazon China and previously Director of Finance and Strategy for Intel China
JET8 also provided advisory board details, namely Uriel Peled (Cointree Capital), Eyal Herzog (Bancor) and the founding director of the Bitcoin Foundation, Jon Matonis.
So on the surface, it seemed like a decent enough opportunity. Certainly good enough to convince a number of astute business people to part with significant amounts of cash. Unfortunately, immediately following the ICO, things went south very quickly.
In the days following the conclusion of the ICO on 14th March 2018, the price of a J8T token plunged to one tenth of the original value. It has gotten progressively worse since then. At the current price of $0.0002, J8T tokens have lost over 99.9% of their value.
So what led to the rapid decline in value? It did not help that the capital raised was apparently held in Ethereum (or ETH – a larger, well-known cryptocurrency), the devaluation of which took place almost immediately following the J8T ICO. At close of trading on 14thMarch 2018 when the ICO was concluded, ETH was priced at $688.70. During the 3-month window after the ICO, ETH devalued to a low of $379.56.
However, according to one investor in J8T – Cape Town businessman, Ian Kaplan who has agreed to be the representative for a group of aggrieved investors – the drop in the price of ETH alone does not explain the reasons for the spectacular overnight collapse in value of J8T tokens.
Kaplan believes – based on information given to him by a member of the Jet8 team – that the value destruction was the direct result of an ‘off the table deal’ with an investment broker, which was enabled through the lifting of restrictions on the sale of the tokens.
“Restrictions were intentionally lifted prior to launch with a ‘last-minute’ contract amendment allowing these tokens to be traded. Most of us signed this based on the strength of our trust and our personal friendships with certain JET8 directors,” says Kaplan.
“Tokens were then sold on IDEX, a peer-to-peer exchange at $0.035c and less, while the public sale was active at a price of $0.10c. This resulted in a complete loss of market integrity and faith in the ICO.
“We have been ‘sold’ the impression that all the J8T downside was unfortunate, circumstantial and due to a devaluation in crypto prices at the time of the ICO. However, other ICOs were launched in the same volatile market, yet many have shown favourable returns and capitalisations,” says Kaplan.
However, the investors in the ICO also need to shoulder some of the responsibility for their losses. The investors I spoke to, admit that they did very little of their own research before investing in the ICO – preferring to buy into the growth story told to them by the Directors of JET8, with whom some of them had long-standing close personal relationships.
In addition, the Token Purchase Agreement signed by investors prior to the ICO does clarify that J8T was not intended as an investment, but rather that the tokens being bought were a utility that carry rights of use to the JET8 ecosystem and marketing services.
As such, the company can (and does) argue that the trading price of the J8T tokens are completely irrelevant.
In a response (seen by Wealthwoke) sent to Kaplan in response to his queries on the loss of value of J8T tokens, JET8 offered to run a campaign for his business honouring their commitment at 10c per token.
The quote provided by JET8 for this campaign read as follows:
Licence agreement on 24-month contract @ $10 000 per month = $240 000
Sundry design, setup and configuration costs = $6 120
Total commitment over two years : $ 246 120
Balance after using utility tokens at full value : $226 120
(Two hundred and twenty-six thousand one hundred and twenty US dollars)
Kaplan says; “Upon querying this quote, I was told that this is the standard rate card price and terms that all J8T clients are required to commit to. Clearly I was going to find it difficult to come up with the required balance of US$226 120 I would need to exercise my J8T ‘utility rights’ on what would simply be a social media promotional campaign.”
Kaplan says the quote resulted in these questions :
- If the token was indeed transparently sold as a utility and intended as such as claimed by the JET8 foundation and directors, why were buyers not informed of the substantial additional commitment to be required when they wanted to use their tokens in the JET8 ecosystem?
- If the standard rate card prescribes a 24-month contract at $10 000 per month, why was the minimum pre-sale deal for J8T token pegged at $20 000 rather than $240 000?
- Why was this token sold to numerous buyers who are not business owners and would never have any cause or need for the JET8 ecosystem and apps?
- Communities supposedly using the JET8 ecosystem include AB DeVilliers Cam; Maties; Ikeys; Wits; Soccer Laduma; TaxiCam and other clubs, societies etc. Glaringly absent are multinational companies that can afford a $240 000 commitment. Have all users also committed to the 24-month, $246 120 deal? (Kaplan says he would be very surprised if AB had given over $246 000 of his hard-earned IPL dollars.)
Kaplan says all the above queries were mailed at various times to the company but that “to date nothing lucid has been received in response other than what can be best described as verbal busking.”
These questions, as well as several others were sent to the JET8 Foundation by Wealthwoke. While an automated response acknowledging receipt of the email was sent by the JET8 Foundation, no response to the questions were forthcoming by the time of the deadline given by Wealthwoke.
So, while much remains unanswered and unexplained as to the exact reasons behind the spectacular collapse in value of these tokens – and potentially how the US$32,7m raised in the ICO has been utilised – the fact is that a lot of investors have lost a lot of money. It once again highlights the dangers of putting your hard earned money into schemes that are unregulated, untested and which they know very little about.
If you are still hellbent on trying your hand at cryptocurrency investing (or let’s be honest – speculating), take a look at the recent Q&A I did with Ran NeuNer about how to go about it in a less risky manner than the J8T investors.