There have been many new developments in European P2P over the last two weeks. Kuetzal and Envestio investors have joined forces to organise and plan their response since both sites vanished earlier this month. What we outline below will not be news to most of them. However the potential impact, and learnings from these platform failures will be of interest to all investors in this space, even if they were not directly impacted. We thought it could be useful to all P2P investors to provide an update on both situations, and the impact on some other sites.
There has been no communication at all from anyone at Kuetzal since they blamed various attacks and anti-money laundering procedures for the need to close down their operations. Initially, the site was kept open and available for login by investors. However the site has now completely disappeared. Recently, a Kuetzal investor with an IT background was able to access and extract all of the data on the site. This was possible due to the use of very weak admin passwords. This clearly shows how weak the security of the Kuetzal site was, and creates some potential data protection concerns for Kuetzal investors (particularly relating to bank account information and identification documents). The good news is that the information saved is likely to become useful in the future for law enforcement investigations. In particular, the IP addresses that were used by people that had admin rights.
Unlike Envestio (see below), the Estonian police have not yet announced the launch of a criminal investigation. This is extremely surprising and disappointing. Thousands of Kuetzal investors have made reports to Police in their home countries, as well as to Estonian police. We expect that this will eventually create sufficient pressure to open an investigation. If no investigation is launched, this will raise questions about why the Estonian police are not acting. What is really happening behind the scenes?
Kuetzal investors are also planning to start their own litigation, which could result in a bankruptcy petition against Kuetzal. It will also likely include lawsuits against Kuetzal owners and management team members. If you were a Kuetzal investor and would like to learn more about this, we would suggest that you join the Telegram channel called ‘KuetzalDiscussion’.
Investors have begun to investigate the loans that were listed on the Kuetzal site. The results so far have been extremely concerning. In one case, it seems that an entire development project was fake, as the designated site in the loan agreement was owned by a third party, the site had a mortgage in favour of a bank, and no development has ever taken place. In other situations, the management teams of borrowers listed on Kuetzal say that they had never received any funds from Kuetzal, and there was no loan agreement in place. So far only one borrower has been found that confirms receiving funds. However he claims to have fully repaid the loan (yet investors were never credited/paid).
It seems more and more clear that Kuetzal was a fairly unsophisticated fraud from day 1. A glossy website, high interest rates and promises of a ‘Kuetzal care’ buyback guarantee were sufficient to raise over €8 million from investors.
The Envestio website disappeared on the 23rd January. At the same time, former (and returning) CEO/COO Evgeniy Kukin deleted all social media accounts, and applied to google to have all links to his name removed under the European Union ‘right to be forgotten’ rules.
The only former management team member so far to have made a statement is Liene Meldere, who was listed as the ‘Investment and Development Advisor’. However Ms Meldere attempted simply to distance herself from Envestio, saying that she knew nothing about the situation and was only working as a contractor.
At this stage it seems that many if not all Envestio loans were highly dubious. Investors have begun the process of attempting to verify with the management teams of the borrowers whether any of the loans were genuine and valid. Progress has been slow so far, but unlike Kuetzal it seems possible that some loans may potentially be recoverable for investors.
Following significant pressure from investors around Europe, Estonian Police finally announced the launch of a criminal investigation. While this is good news, the Police noted that the likelihood of this resulting in any recoveries for investors is small. The launch of the investigation shows that investors can get results if they work together and make enough noise.
In addition to the criminal investigation, Envestio investors have organised a collective lawsuit, and also a successful gofundme campaign to raise the initial funds needed to start the litigation process. More information can be found on the Telegram channel called ‘Envestio Discussion’.
What has been the impact on other sites?
After the disappearance of Envestio, P2P investors immediately turned their attention to other dubious websites that also ‘early exit’ facilities. Investors were nervous and wanted to get their funds out quickly. This immediately forced two sites, Monethera, and Wisefund (not listed on Explore P2P) to disclose that they did not have sufficient funds to meet the redemption requests. Both sites said that they would refuse to honour any early redemption requests for the foreseeable future.
The statement from Wisefund was particularly strange. It had promoted the early exit facility as a benefit for investors. This encouraged many people to place their funds with the site. However when Wisefund ran out of cash needed to honour these commitments it accused investors of ‘forgetting they entered into a contractual relationship’. Wisefund likened the investor requests to a bank unreasonably asking for an immediate repayment of a mortgage. We saw this type of unprofessional communication from the Envestio management team shortly before they disappeared.
The cancellation of the early exit facilities will prevent Wisefund and Monethera from immediately becoming insolvent. However we think that over time more and more investors will begin to do perform proper analysis and research on both sites, and won’t like what they find.
Another site to have come under pressure is Crowdestor, who have received hundreds of emails from concerned investors. Why did this happen? Crowdestor is located in the same region as Kuetzal and Envestio, and also offers loans with very high interest rates.
In our view, Crowdestor is not in a similar category to Wisefund and Monethera. Although the projects are high risk, they do not seem to be fictitious, or impossible to verify. The management team members are known within the local business community. Crowdestor have never offered an ‘early exit’ facility or claimed to have partnerships with mysterious Hong Kong companies.
However, we have stated many times in the past that we felt that Crowdestor was not providing investors with enough information to make informed investment decisions. We have listed several Crowdestor loans as a ‘loan we don’t like’ in our regular series on the best and worst P2P loans for this reason.
It seems that recent events have shown Crowdestor management the importance of transparency to investors. In a private email to their investors, they recently committed to several initiatives that we highly support. Full details will be provided towards the end of February but will include providing more financial information, due diligence information, more details about their management team and their experience, investor webinars, and twice a year events where investors can meet Crowdestor management in person. This seems to cover all of the main areas of concern we have expressed in the past and highly support this initiative. We will watching to make sure they are implemented.