Think the first problem Greg is that you went to Francis for the source of your info instead of going straight to the source. The prospectus (
https://www.sec.gov/Archives/edgar/data/1725882/000121390020023202/ea125858-424b1_inxlimited.htm) lays out a lot of answers to your concerns, and the company is here to answer questions. Let me make some things clear here on the facts about the company:
(1) the Cash Fund that is ~$63MM upon the target raise the tokenholders have priority to (equity holders signed subordination agreements in this respect and since the tokens are carried as debt on the balance sheet they are in the capital stack above equity anyway),
(2) Tokenholders get liquidation priority to the Cash Fund in a liquidation,
(3) Tokenholders get their pro rata share of the Cash Fund in a change of control and the token lives on with its contractual rights,
(4) The tokenholder profit share is a contractual right, any dividends to shareholders would need to be decided on by the Board,
(5) Senior management, directors, insiders all have significant amounts of tokens aligning us with the public (again in the prospectus),
(6) We have 35MM tokens in reserve for extraordinary situations including acquisitions so why would we jeopardize the value of these,
(7) All ‘control persons’ that are insiders - all of senior management and all Board members - have 24-month lockups on our tokens,
(8 ) Advisors have 6 month lockups on their tokens and gave us 2 years of their time with zero compensation other than tokens that were worthless at the time (SEC clearance was a near miracle),
(9) Our Board is majority independent and governs the company; the independent directors all visible, prominent, easily-vetted individuals with a lot to lose in terms of their liability,
(10) Said independent Board members govern executive compensation going forward,
(11) Every single material agreement is in the public domain, and
(12) By the very nature of what we are doing, making this a public security, a publicly reporting company, a regulated company, everybody in senior management has a giant target on their back for liability reasons.
So we basically did everything that every scam didn’t do in the history of the space. I think people need to dig in more, ask more questions of us, dig into our very transparent document.
Here is an email I wrote about this a few days ago:
I am really disappointed-- on the basis the content excerpted in this thread:
https://twitter.com/francispouliot_/status/1298423415594840066Long before cryptocurrency existed I was regularly asked by friends to help them understand investments, taxes, and finance stuff-- since I'm the sort of person that finds numbers and contract terms fun. If cryptocurrency had never existed and a friend came to me asking about an investment with INX's terms I would strongly caution them away from it; I might even say it smells like a scam.
-- because if it's a scam or not depends critically on unknowable post issuance management decisions: Do they actually pay out income or do they shovel all income back into operations and grow the company until they ultimately sell it out from under the token holders? AFAICT nothing about the terms suggests that they're particularly incentivized to ever pay the token holders even if their revenue becomes substantial, much less obligated. I think at a minimum to be equitable there would need to be an option-like component to the terms which in the event that the company was sold token holders would receive a share of the companies' gain in value minus the dividends already paid out. Otherwise, I think an argument can be made that the management is legally obligated to the shareholders to rip off the token holders in this manner.
Even with that I'd still probably caution against the investment due to how complex and unusual it is and the potential for gotchas.
The fact that it is issued on some cryptocurrency system just makes it a little less trustworthy (potential for technical snafu), taps into an established market of read-made victims, and imports a collection of people incentivized to pump a sketchy investment. None of this helps but it is not the most fundamental issue.
Some people have pointed out that unlike many ICO's this one doesn't appear to be an outright scam. I think it would be more accurate to say that it's not necessarily true that it is a scam, maybe it turns out to be one, maybe it doesn't. Then again, if someone were making a really attractive offering in a market of scammy products you would expect them to put in a real effort to make it extremely clear that their investment isn't a bad one. They haven't done that and I think that is a pretty bad sign.
So, sure, while they might meet a "not certainly a scam" bar, that is an extremely low bar and the fact people think this is noteworthy is really just an indictment of the ecosystem.
That well respected Bitcoiners are sticking their names on it-- for what sounds like more or less an immediate $250k payment-- is really disappointing to me. If INX merely goes as poorly as explicitly permitted by the contracts their reputations should be justifiably trashed-- because it'll be impossible to tell if the holders weren't paid because the company tunnelled out real profits as payroll and other expenses vs just failed in the marketplace. Considering the failure rate of businesses, even if all intentions are good, the odds of it going poorly can't be extremely low.
So to me that says that they assign a fairly low value to their reputations, or that they believe that it's likely that even if it fails and takes everyone's money they won't take a substantial reputational hit from it, or that they're being foolish and don't actually see what an inequitable setup the whole thing is. I think the first two are likely and the last isn't likely. All of them are bad.
I don't know if other people have similar thoughts but this is my impression.
