Backer behind Overstock-funded company says it's going under

An Overstock-backed firm has shut down, according to one of its largest shareholders. But the company’s executives have been assuring agitated investors that everything is operating normally. 

Beijing-based security token startup Bankorus, which raised at least $10 million over the past few years, originally set out to be the main security token platform for high-net-worth individuals in Asia. Now, it finds itself with zero cash and no employees, according to Sonic Zhang, who invested in the project in 2017. Indeed, the only remnant of the firm is an active equity stake in a small Lithuanian credit union and a few shareholders attempting to salvage the situation, Zhang said in a blog post and conversations with The Block.

When asked for comment, Overstock told The Block that it has “been a passive investor in Bankorus” and noted that any specific questions on Bankorus’ business plan should be sent to the company directly. Meanwhile, Bankorus founder Gregory Van den Bergh refused to comment on the company’s financial situation to The Block. He said he formally resigned from Bankorus on July 30 due to “family reasons.” Zhang told The Block he never received any formal notice pertaining to Van den Bergh's departure.

Despite these new developments, recent updates to investors paint a rosier picture of the company. In August, the firm announced plans to launch a security token exchange by Q1 2020. However, Zhang noted that the deadline would likely be unobtainable given the limited resources that remain.

A promising start

Bankorus was founded in 2013 by Van den Bergh, the creator of China's first robo-advisor system, and Eagle An, who built out CreditEase, China's second-largest private wealth management company. The firm raised $5.2 million in seed funding between 2015 and 2016 and claimed to reach $1 million in revenue during 2017. By early 2018, Bankorus said it had over 200,000 wealth management firms using its software. 

In 2018, the company launched an initial coin offering (ICO) with hopes to raise $35 million but ended up only raising 16,800 ETH in a private sale, which was worth around $5 million at the close of the ICO. 

Since the beginning of 2019, the Beijing-based startup has been inundated by token holders’ inquiries for updates. Complaints and speculation soon piled up on the company’s Telegram channel as the firm assured its investors that there would soon be “major update.”

In August, several sources told The Block that the company had laid off almost all of its employees and was on the verge of shutting down. However, when reached for comment, Bankorus told The Block that the company was operating “as normal, and there is no foreseeable plan at any point to shut down Bankorus.”

Running on fumes

Investors’ frustration was temporarily tamed in March when Overstock’s venture arm Medici Ventures announced it had purchased a 5.1% share of the company for an undisclosed amount. Financial statements suggest that Medici paid approximately $919,000 at an $18 million valuation, but Overstock was not willing to comment on the matter.

However, this investment did not seem to turn the situation around for Bankorus. In a July dinner after Zhang came back to Beijing from the U.S., Van den Bergh and An revealed that the company had run out of cash and lost all of its employees, claims Zhang.

According to Zhang, the two founders tried to convince him to take over the company and said they had forfeited their shares to Zhang’s LedgerZ Capital. This would give Zhang a majority stake in the company, which the investor said he “will have to accept” to make sure his investment has "maximum returns.”

“I told both of them I’m very disappointed in them, in the way they have treated investors and the lack of communication before and after what has happened,” Zhang wrote in a statement. “I told Greg I don’t accept him quitting, because this project started with him and it should end with him too."

Van den Bergh declined to comment on whether he would consider further employment with Bankorus.

Only hope 

The only asset Bankorus has left is an approximately 1 million euro capital investment in a Lithuania-based credit union called Rato Credit Union. The investment was made with the intent to convert the credit union into a crypto-friendly bank and a security token offering platform. 

According to a news article from March, Rato earned $305,000 in revenue in 2018. The article also points out that 437,000 shares of Rato are owned by UAB Aukstojas, a company affiliated with Bankorus. 

Now that all Bankorus' other assets are gone, the deal with Rato seems to be the firm’s only hope to pay back token holders their investments, according to Zhang’s statement. The plan is to push through Rato’s conversation into a bank and use the return from this investment to buy back Bankorus’ tokens, Zhang said. 

“I talked to all the shareholders asking for their support in this Rato deal, and convinced them to be patient,” Zhang said. “Because I think waiting for the bank to be converted is the best option, pulling out now means all efforts will have been wasted and it becomes a sure loss for all the investors.”

Zhang said he is bringing several shareholders to visit the credit union in late October to facilitate the bank conversion, which is due March 2020. Meanwhile, he is trying to rebuild a team to push forward the security token exchange that Bankorus just launched. 

As Zhang tries to pull the company out of its tailspin, he promised to “keep being transparent and straightforward” with all token holders. On Oct. 6, he issued a statement to all investors after communication with The Block. 

After all, as Van den Bergh said in a 2018 interview, “security tokens is all about transparency. It’s all about protecting the investor rights. It’s not the Wild West.”