The Double Life of Henry Phyfe was an American TV show about an accountant who impersonates a dead spy. Phyfe and the dead man looked identical. He was ideally suited to pose as the spy.
Phyfe took his fake identity seriously. He pretended that his girlfriend was a stranger. Phyfe even avoided eye contact with his friends.
This TV show was last aired in 1966, but it may have inspired a Singapore-based company. Triterras, a commodity trader that uses blockchain, was the first Singapore company to be bought by a special purpose acquisition company (SPAC).
Blockchain proponents tout their platforms as a way to run a more transparent trading ecosystem. Blockchain would verify inventory in trade financing. For instance, the recent Greensill collapse was partly because the same cargo was pledged to multiple banks. In one case, six banks were holding the same consignment as collateral.
Triterras, which runs the Kratos blockchain platform, was bought by Netfin, a US-listed SPAC, in June 2020. The deal was valued at US$939 million ($1.245 billion), including US$269 million of new financing.
SPACs, also known as blank-check companies, are listed shell corporations with the aim of acquiring a private company. The private company gets listed through a fast-track process. It avoids the cumbersome route of a conventional IPO.
SPACs are sweeping the world. In 2021 alone, almost US$100 billion have been raised by SPACs, which is more than the IPO proceeds for this year. SPACs are not supposed to target companies that they are connected to. They cannot do “married deals”. For instance, Altimeter, the SPAC that Grab is listing through, has no prior relationship with Grab.
Arm’s-length relationship?
Phase 2 Partners, a short-seller, has alleged that Triterras and Netfin were anything but strangers. In a series of claims, the short-seller says Triteras founder, chairman and CEO, Srinivas Koneru, and NetFin’s CEO Rick Maurer had founded a company together in December 2004. They have been involved in many ventures since then. In fact, they were joint respondents to a lawsuit for one of their companies in June 2012.
Like Phyfe’s pretence that he had never met his girlfriend, Maurer has apparently acted like Koneru was a recent acquaintance. If it was an arm’s-length relationship, then it may have been a very short arm!
The Phase 2 Partners report also claims that 64% of Kratos trades between June 2019 and August 2020 were handled by entities controlled by Maurer and Koneru. These two parties supposedly dominate the Kratos sales.
Besides founding and heading Triterras, Koneru is also the founder and CEO of Singapore-based commodities trader Rhodium. Maurer, apart from being the CEO of Netfin, is also the founder and CEO of Longview Resources, another commodity trader.
Phase 2 Partners claims that the related-party transactions have actually worsened. Rhodium has faced difficulties. Since Rhodium’s travails surfaced, only two individuals have been entering trades on the platform on behalf of four entities.
Triterras has rejected Phase 2 Partners’ allegations. It has countered that Phase 2 Partners has been selective in its facts. Phase 2 Partners has allegedly secured the data through improper access to the company’s data. Triterras states that “the conclusions that the report has drawn are wrong”.
It is too early to pass judgment on the allegations, but the market has reacted. The SPAC has fallen 47% since the allegations emerged in January.
This episode is ironic. It might be the portent of the risks that SPACs contain for investors. The sponsor’s credibility should be an overwhelming concern for SPAC investors, according to Paul De Vierno of UOB Kay Hian. The disclosure standards in an IPO serve a purpose. For instance, the Securities and Exchange Commission undertakes a full review of the sponsor’s background. Traditional IPOs can take six to nine months, as opposed to just two to three months for SPACs. Relaxing these standards can be potentially risky.
Also, Triterras projected its blockchain platform as a means to prevent fraud. In a cruel twist, allegations of impropriety are haunting a company that sought to eliminate it. As Phyfe showed during his impersonation of a foreign spy, looks can be deceptive.
Nirgunan Tiruchelvam is head of consumer sector equity at Tellimer. He does not hold any position in the stocks mentioned in this column
