Highlights:

  • Triterras became a unicorn when it merged with a SPAC in November 2020
  • Significant trading volumes were disclosed with related parties
  • An affiliate is now having financial difficulties
  • In a lawsuit, insufficient information about related parties is asserted
  • A short seller report alleges a contested drop in volume by the company
  • The short report also claims strange trading patterns
  • It will ask if the SPAC merger was agreed in advance

Less than six weeks after blockchain trading firm Triterras merged with a Nasdaq SPAC to create a unicorn, a lawsuit was filed for insufficient disclosure of related party transactions. That was at the end of December. Last week, Phase2 Partners, which works with clients keen to capitalize on a decline in Triterras’ prices, released an even more devastating report on the Singapore company. Some of this was related to related party transactions, but also other matters. We are investigating whether the allegations are substantive.

Raw materials company Rhodium Resources featured almost all traders who used the trade and trade finance platform KRATOS (Triterras) in the fiscal year ending February 2020, and 15% of traders in the six months ending August 2020. The proportion should continue to decrease. Rhodium is owned by Triterras CEO and Founder, Srinivas Koneru. Unfortunately, Rhodium is in financial trouble and is seeking protection from its creditors. Triterras announced this fact in late December, partly because rhodium owes it $ 1.7 million.

At the time of the SPAC merger in November, only a short time had passed since Triterras was completely dependent on rhodium. However, this was a disclosed risk factor that shareholders should have assessed. One or two of the issues alleged in the Phase 2 Summary Report affect more.

The class action

The result of the announcement of Rhodium’s troubles was a decrease in Triterras’ share price by more than $ 4, or 31%, to $ 9.09 on December 17, which triggered the lawsuit. However, the share price rebounded, hitting a high of $ 14.72 on December 28 after the lawsuit was filed. And it’s been on a roller coaster ever since. Right now the price is $ 8.10 which means it’s no longer a unicorn.

The share price hasn’t moved materially despite a $ 50 million share buyback plan announced earlier this week. This is in part because Triterras released a trade update that shows a small drop in trade volume but significant growth in trade finance. This is a stock price based on hopes for rapid expansion. However, the disruption from COVID-19 makes matters a little murky.

During the presentations at the time of the SPAC merger, several statements were made of past reliance on rhodium and agreements with rhodium were included in SEC filings. As do the risk factors: “Our success depends to a large extent on our credibility and reputation, and to a certain extent on the reputation and credibility of rhodium with all of our stakeholders, including suppliers, customers, employees, financiers and insurers.”

The lawsuit makes a rather weak claim that there was insufficient information about its relationship with rhodium. What could be a more accurate point is the lawsuit’s allegation that it failed to disclose that “Rhodium faced significant financial liabilities that threatened its ability to continue as a business.”

The Phase2 Short Seller Report

Some of the allegations in the short report are similar to the lawsuit, but with additional details. In phase 2, a stronger dependency on “related parties” after February 2020 is indicated than stated. However, two professional directors employed by corporate service companies who provide directors and secretaries to dozens or even hundreds of companies have been incorrectly identified as related parties.

This and at least one other inaccuracy opened the door for Triterras to credibly refute the report. However, further details in phase 2 must be observed.

In particular, phase 2 claims a decrease in the volume of trade that Triterras rejects, implies a high churn rate, and highlights rather strange trade patterns. Much deeper connections are also alleged between the CEO of Netfin SPAC and the CEO of Triterras.

Allegations that the quantities have decreased

The Triterras Kratos platform uses the public Ethereum blockchain and Phase2 analyzed transactions. These show that more than 60 retailers have used the platform so far. According to Phase2, only four merchants were using the Kratos platform in November and December 2020 (at the height of COVID-19), and all of them have been new customers since the SPAC merger, implying a high churn rate.

Triterras provided unaudited numbers for the quarter ended November that show only a small decrease in trade sales but a significant increase in trade finance.

The Triterras rebuttal of the report stated that the Phase 2 data was out of date and “the conclusions the report reached are incorrect. Simply put, the claim that our volumes have shown the steep decline claimed in the report is wrong. Our business remains on track and we fully adhere to our statements of December 22, 2020 that 66 traders were on the platform as of November 30, 2020 and that our business is still strong. “

Phase 2 did not discuss the 66 cumulative Dealer. The problem is the alleged lack of activity in November and December. To address any concerns, include how many customers there are actively traded since the beginning of November?

Aside from noting that the data used by Phase2 is out of date, Triterras stated, “We believe that (it) was not obtained solely from public data, but that certain data points may have been the result of unauthorized access to corporate data.” This violation in itself is somewhat worrying.

Strange patterns

Phase 2 also claims strange patterns where numerous transactions are logged on a few days, especially towards the end of the quarter, and then none for days. There was no response from Triterras on this point. While this may seem like a minor detail, it could be a red flag for an examiner. The allegations also raise questions about the real-time nature of the platform.

Finally, the platform is used to digitize trade and trade finance. If a company arranges trade finance over the phone and email and later logs it on a blockchain platform, should such a company’s stock hypothetically receive a fast-growing software premium?

There was another strange pattern in the Phase2 numbers that wasn’t highlighted. In February 2020, the last month of Triterras’ fiscal year, a trader appeared to be doing more than 40% of transactions. It was a big tip for this company and this month only. Separately, Phase2 made an unconvincing claim that the owner of this trading company had a connection with Richard Maurer, the former CEO of Netfin (the SPAC). That’s because their addresses in Georgia, United States are a mile apart.

The Richard Maurer links

Netfin CEO Richard Maurer announced related party transactions at the time of the prospectus. Longview, a company with which it is affiliated, represented 5.2% of Triterras’ sales prior to February 2020 and 9.4% of sales through August 2020. The fact that related parties Rhodium and Longview together represented 25% of sales at the time of the SPAC merger could be very high. Well, give you cause for concern. But they revealed it.

The prospectus also gave details of Mason’s relationship with Triterra’s CEO Koneru. “Mr. Koneru was known to Mr. Maurer from previous business relationships. including As a 10% minority shareholder in Exxova, Inc., an IT services company founded by Mr. Koneru in 2005, which was subsequently sold in 2010, ”the prospectus says.

The Phase 2 report includes a 2012 legal letter to Exxova identifying Maurer as co-founder and chairman of Exxova.

In addition, the report alleges that the two men together were officials in three other companies (we did not verify this), one of which was dissolved shortly before the SPAC merger. However, the prospectus did not claim that Exxova was the only affiliation. The word “including” was used. If the phase 2 data is correct, the question arises whether there should have been more comprehensive information.

In phase 2 it was not directly claimed that the SPAC merger had been agreed in advance, but that it sailed close to the wind. It says, “One has to wonder if this was a ‘pre-planned’ transaction” and it says, “The SPAC rules strictly prohibit pre-determined goals.”