VELTYCO GROUP – RELATED PARTY TRANSACTIONS AND OFFSHORE BUSINESS

A German Venture in London

VELTYCO GROUP PLC, a publicly traded UK company, focused on gaming, gambling, and sports betting recently dedicated itself to the crypto sector. A corresponding announcement to become involved in the blockchain and cryptocurrency area had caused the price of VELTYCO shares to jump in December 2017. How could it not?

VELTYCO is basically a German game coordinated by the German Uwe LENHOFF. Until recently, LENHOFF was also a member of the company’s board, but resigned as part of a restructuring and is now “only the most important shareholder” and the business developer of VELTYCO. The projects developed by Uwe LENHOFF for VELTYCO are mainly located in Germany or Austria and are then developed by offshore companies.

VELTYCO acquired the majority stake in the Cologne sports betting company Bet90 around Ingo SAAGER, a long-time companion of LENHOFF, and in the eSports.com AG which LENHOFF developed with some German friends.

VELTYCO’s Related Party Transactions and the Commissions Issue

A few days ago, VELTYCO published its results for the 2017 financial year, revealing some really interesting facts that somewhat lift the veil over the company´s business practices.

Although the company announces an explosion in sales and profits, it must also announce that its trade receivables also exploded in 2017:

The increase in the company’s trade receivables is therefore much higher than the increase in profit and almost as high as the increase in revenues. Interesting, isn’t it?

Even more interesting is that a large part of the trade receivables is due from ALTAIR ENTERTAINMENT N.V., an offshore company without a website but with a record in the Offshore Leaks Database. ALTAIR ENTERTAINMENT N.V. is part of the LENHOFF-Group and owes EUR 10.7 million to VELTYCO as of Dec 31, 2017.

ALTAIR is a Curacao-licensed gaming license & marketing services provider to other websites and their operators. Many of these other websites like KULBET also belong to the LENHOFF empire. Some of VELTYCO’s and/or ALTAIR’s operators have a rather damaged reputation. The website Option888 and its former operator Capital Force Ltd for example received cease and desist orders from several financial market authorities including the German BaFin.

Just recently, VELTYCO had to announce that a company called WINSLET ENTERPRISES LTD is directly related with Uwe LENHOFF. This company entered into a loan agreement with Bet 90 Sports Ltd, in which VELTYCO has a 51% interest. Hence, it was another undisclosed related transaction. On June 1, 2018, VELTYCO informed the public about a violation of the AIM rules regarding related-party transaction:

The Company has become aware, as part of the audit process in respect of the Group’s financial results for the year ended 31 December 2017, that Winslet was and remains wholly owned by Uwe Lenhoff who was, at the time the Loan was entered into and the Pre-payment provided, a Director of the Company. […] As a result, Winslet was and remains a related party of the Company pursuant to the AIM Rules and the Loan, Set-off Agreement and Pre-payment are therefore related party transactions for the purposes of Rule 13 of the AIM Rules and should have been announced at the time they were entered into.  

LENHOFF subsequently resigned as a director of VELTYCO

Preliminary Conclusion on VELTYCO’s Growth Drivers

VELTYCO apparently owes the explosive growth in sales and profits to its business with related offshore companies, i.e. business with shareholders, members of the management and other affiliated persons.

Invoices were diligently issued and thus impressive revenues were generated on VELTYCO’s side, but the invoices were not paid. The increase in profits is, therefore, a Potemkin village. The VELTYCO business is basically a LENHOFF business with a significant lack of transparency. VELTYCO’s fortune rests on related offshore companies under LENHOFF’s control, it seems.

Consequently, VELTYCO’s auditors also expressed material concerns about the company’s continued existence due to the company’s high level of receivables. This may be justified because ALTAIR & Co have neither websites nor offices, but function through trustees. Some of the companies have respective records in the Offshore Leaks Database (see below).

Financial Imbalance, Restructuring, and Offshore Locations

The approach outlined above has apparently put the company in a financial imbalance, at least temporarily. And maybe exposed the company to legal and regulatory risks. The annual report explains that the company had problems with its banking relationships and had to restructure its bank accounts. In March 2018, the company was also forced to restructure its Executive Board and appointed a new CEO – the US-American Melissa BLAU.

Uwe LENHOFF had to leave the board. Under the leadership of Melissa BLAU, VELTYCO apparently tries to collect its due claims against the LENHOFF companies. Besides ALTAIR, there are a number of other LENHOFF-companies involved in VELTYCO’s business, e.g. PAYIFIC Ltd or Winslet Enterprises Ltd. According to the subsequent events stated in the annual report, a reduction in outstanding receivables from ALTAIR down to EUR 3.4 million was achieved already (mainly by non-cash transactions). Cash is the issue here.

For the financial year 2017, VELYTCO recorded a negative cash flow of EUR 3.6 million which had to be financed by capital increases against the issue of new shares and a loan. Otherwise, VELTYCO would have had liquidity issues because the LENHOFF Group could not or did not want to pay its debts to VELTYCO.

According to the Executive Board’s report, the company is now confident that it will be able to overcome this situation and recover the remaining outstanding debts. The problems with the banks and the high receivables seem to have caused massive problems to VELTYCO.

First-time Dividend

In the light of these facts, it is interesting that VELTYCO intends to distribute a generous dividend of 0.25 pence per share. We have spoken to some shareholders of VELTYCO and thus can report that they are not really enthusiastic or amused about the way VELTYCO and the LENHOFF Group do business.