ASX firm funnels cash for global multi-level marketing scheme, page-2

In response to ASX queries, Emerge Gaming confirmed that company representatives had “regular engagement” with former Crowd1 chief executive Johan Staël von Holstein before it struck the deal with Crowd1. The Swedish Mr von Holstein resigned abruptly late last year citing health reasons and has not been seen publicly since. The primary point of contact is now the CEO of ICT, Johan Westerdahl, Emerge Gaming said.

Only Crowd1 members can sign up to Miggster and then invite and sign up friends or family members to join, for which they receive a credit from Crowd1. The more people sign up, the greater earning power Crowd1 members can achieve.

Crowd1 said in August it had signed up 1.8 million subscribers to Miggster.

Crowd1 members must use the social gaming platform’s invitation tool to invite friends to attend events. If you are not a Crowd1 member you need to “find an invite link to attend”.

Since Emerge Gaming announced its Miggster program with Crowd1 late last year, the Australian Securities Exchange has issued Emerge with seven different Query Letters attempting to gain further clarity on the financial relationship between Emerge and Crowd1.

At this stage, the Australian Securities and Investments Commission appears not to have taken any ASX referral further, although the matter remains of some interest according to those familiar with the regulator’s monitoring program. A spokesman for ASIC declined to comment, while the Australian Competition and Consumer Commission, which polices consumer scams, referred questions back to ASIC.

Plenty of warnings

While Australian regulators have taken no action against Crowd1, New Zealand’s Financial Markets Authority has urged consumers to exercise caution when dealing with Crowd1, Peru has banned Crowd1 from raising money in the country, Mauritius’ Financial Service Commission warned consumers about “ponzi / pyramid schemes” and “scams and swindles” in a release urging caution when dealing with Crowd1, the Philippines Securities Exchange Commission issued a permanent cease and desist order to stop Crowd1 from soliciting funds from the public, while South Africa’s Financial Sector Conduct Authority has instructed consumers “to not conduct any financial services business with any individual or entity associated with Crowd1”.

At least 13 countries have issued similar warnings about Crowd1.

A spokeswoman for Emerge Gaming said because of the one-way nature of the company’s relationship with Crowd1, there was no “undue risk” in the operations from the relationship.

Emerge said the gaming industry was often marked by growing audience and revenue “through non-traditional marketing channels and direct-to-consumer in-game offerings”, while defending the multi-level marketing model as one not unlike international brands such as supplements group Herbalife and MLM company Amway.

Perth-based entrepreneur and serial penny-stock chairman Bert Mondello is the chairman of Emerge Gaming, while another board director, Phillip Re, who shares several board positions with Mr Mondello, is closely associated with Emerge’s auditor, Criterion Audit.

Disclosed in the company’s annual report, Emerge Gaming granted nearly $385,000 worth of options for corporate advisory and investor relations services during fiscal 2020-21. This includes a $120,000-odd payment to Regency Corporate Pty Ltd, another entity associated with Mr Re.

In addition, it paid $60,000 in consultancy fees to Indomain Enterprises, which is associated with Mr Mondello, and paid $215,000 in software development fees to Technobrave Pty Ltd, a subsidiary of Vection Technologies in which Mr Mondello is a director. Legal fees of $24,000 were paid to Hartness Consulting, which is associated with Emerge director Jonathan Hart.

In September last year, Emerge Gaming announced it had become a Microsoft Independent Software Vendor, which will give it access to technology and new customers across 61 countries.

A spokeswoman for Microsoft said: “We hold our potential partners to high ethical standards as described in our Partner Code of Conduct. While we cannot speak to this particular case, we can confirm that we will thoroughly investigate and take appropriate actions as warranted.”

A New Zealand Financial Markets Authority spokesman told the Financial Review it regularly issued warnings about investment scams to protect investors from potential harm.

“The FMA’s attention was first drawn to Crowd1 by fellow securities regulators in the Philippines and Mauritius, which have also issued warnings,” the spokesman said. “The FMA shares intelligence with similar regulators as part of the International Organisation of Securities Commissions.

“We issued a warning about Crowd1 in the event that the scheme might begin to promote itself to New Zealand investors. At this point, we consider any concerns about Crowd1’s connections to an ASX-listed company a matter for ASIC or the ACCC, rather than New Zealand regulators.”

Emerge Gaming has recently decided to establish an Australian registered special purpose vehicle, even though it does not offer its platforms in Australia. It told the ASX that prospective offerings involving its joint venture partner, Singapore-based Cloudzen Pte Ltd’s technology, would be considered in the future for Australian consumers.

Emerge Gaming also claims that under a local SPV, it has more control over its planned R&D (it is investing $US800,000 [$1.1 million] to customise its Cloud Game Streaming offering), and that it may also gain tax rebates from the government from this investment program. It received $198,000 in research and development tax credits last year.

Emerge Gaming also recently entered into a deal with Cloudzen, which is listed by the Singapore Accounting and Corporate Regulatory Authority as a developer of software for interactive digital media. Under this agreement, Emerge has licensed access to five AAA games developed by Cloudzen. AAA is a classification term used for games with the highest development budgets.

Emerge Gaming told the Financial Review it was reviewing Miggster’s commercial feasibility for a “tailored Australian offering in the market”, but declined to elaborate on product plans with Cloudzen.

Cloudzen’s accounts show it has posted three years of consecutive bottom line losses. Its biggest shareholders are OMG Capital Pte Ltd and Cloudzen Alpha Pte Ltd. Cloudzen and investment firm OMG Capital did not respond to inquiries from the Financial Review.