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John Karantzis is the CEO of iSignthis and also now the CEO of NSX, the other very small stock exchange that iSignthis has bought a stake in, so John is now the CEO of that business as well as iSignthis.
I last spoke to John Karantzislast March, in 2019, and it’d be fair to say, a fair bit’s happened since then, specifically, they’ve been suspended since October and are suing the ASX for the suspension. Also, they’ve got a vote at the forthcoming general meeting in two weeks’ time to delist from the ASX.
It looks like they’re in permanent dispute with the ASX; shareholders are not getting a market for their shares, which has been a bit of a problem for them and the ASX has resolutely refused to relist them because of concerns about the way that iSignthis operates.
I thought it was time to put the questions to John Karantzis that need to be put, so here he is, John Karantzis, the CEO of iSignthis.
John, your dispute with the ASX has deprived shareholders of a market for their shares for eight months and a lot of them might have needed to sell. Don’t you think you owe it to them to do what the ASX requires so they’ve got a market?
Well, Alan, we have been. Every time the ASX has requested something of us, we’ve responded. Unfortunately, the ASX keeps demanding more and more information and it appears that just as it looks like we’re about to kick a goal and try to conclude the matter, the ASX will come up with further requests. All of that’s self-evident from the correspondence between us and the ASX.
You’re now in a fight about listing rule 18.7, with the ASX asking for details of the 16 per cent-odd of the register that’s asked for resolution to delist from the ASX, so you seem to be holding out – I guess you probably don’t care anymore because you’re effectively delisted now.
The thing is, continuous disclosure requirements and listing rule 3.17, we met that. We were required to provide the material, and let’s say, essence of what our shareholders put to the company. Compliance with the Corporation Act is the jurisdiction of ASIC. We see that there’s sort of a merging of the two activities and the ASX is really very much confusing its role as a market operator with that of the regulator, which is ASIC.
But the listing rules are pretty clear, the ASX can ask for whatever it wants.
There is a sort of reasonable test there and given we’re actually suing the ASX at the moment, we tend to think of them as the defendant or the respondent, asking for information that may or may not be subject to the Federal Court case is something that we have told the ASX that we’ll be reviewing with our legal advisers in terms of when and if it’s required to disclose to them.
But it’s pretty clear, isn’t it, that you are parting ways with the ASX and you’ll never be listed again on the ASX, isn’t that a reasonable conclusion to draw?
The ASX made that very clear to us back in November. In fact, in several discussions with our executive team and directors, the ASX made it clear that it was unlikely to ever lift the suspension. We persisted in doing what we could, of course, answering query after query. Eventually, we also arrived at the conclusion that the ASX is unlikely to be acting in good faith and our statement of claim in the Federal Court reflects that, that we do not believe that they have been acting in good faith in order to lift the suspension.
Is it fair to say you don’t want to be listed on the ASX, you don’t care?
I wouldn’t say that at all. For our shareholders, I think we’ve obviously instigated Federal Court action to try to get relisted on the ASX. It appears fairly evident that that matter will now drag on through circumstances outside of our control, including COVID. The courts won’t be able to hear the matter for some time, possibly another year, so we do need to look at other alternatives as I suppose is suggested by various shareholders in the forthcoming resolutions that have been put to the AGM. I wouldn’t say we don’t care, we’re far from not caring, it’s just that I think we’re resigned to the fact that we may not get there.
Will that vote get up? I mean, the meeting’s in a couple of weeks’ time, will that vote pass, do you think, to delist from the ASX?
Well, even if it does pass, that resolution allows the directors' discretion, so we’re still hopeful that once we meet all four of the ASX compliance directions – which we’ve met the first three – the last matter to meet is the independent expert on continuous disclosure obligations, whether we’ve met those. We are hopeful that once we get that final or fourth direction to the ASX, that the ASX may reconsider the matter. Certainly, their concern is whether we have been disclosing things appropriately under the listing rules, so let’s see where that goes in the next few weeks. If the independent expert report is positive and the ASX doesn’t requote the securities, then we’ve got the answer, don’t we?
In the meantime, you’ve bought a significant stake in NSX, which is the other tier one stock exchange and a competitor to the ASX, and you’ve become CEO of the NSX. Is that your intention now, that you just become listed on the NSX?
No, not at all. I don’t think that it’s appropriate for ISX to list on the NSX at all. If we do delist, we’ll be seeking an alternative exchange and one of the top 15 exchanges somewhere in the world would be better suited to ISX. NSX is an alternative marketplace, it’s a nascent exchange for much smaller entities that are looking to come up through their market capitalisation and growth. It’s probably not appropriate for something that is an ex-ASX300 to look at listing on the NSX.
What’s the plan with the NSX, what are you doing?
The plan is, as we put to the regulators over a year and a half ago, we’re looking to create an alternative marketplace, something that will allow smaller speculative high-tech stocks that the ASX doesn’t understand, to give them access to the cash equity market as an alternative route to either venture capital, crowd funding or trying to do an RTO onto the ASX.
Do you believe that this is fundamentally why you’re in dispute with the ASX now, because you’re competing with them?
Absolutely,100 per cent. The regulators, including the RBA, ASIC, APRA, as well as third parties like AusPayNet, have been well aware that we’ve been seeking to create an alternative clearing and settlement system based upon access to certain licensing regimes, including an exchange settlement account at the RBA, an ADI with APRA, certain sell requirements with ASIC, and then access to BSBs and accounts through AusPayNet. I’m not suggesting that any of the regulators leaked, but certainly, there’s a number of parties that were aware of our plans and that would have run headfirst into the ASX’s Austraclear subsidiary. And of course, I don’t believe that the ASX saw us as a threat until it realised that: a) our technology worked; and b) we’re actually making money and profitable.
But the NSX has been listed on the ASX for like 15 years and they’ve never been picked on, so why would that be an issue now for you?
Look, I mean, with all due respect to the previous directors of the NSX, it’s been there for the last 14 years and done exactly nothing other than burn money. What has changed is that as soon as ISX starts to get involved, what we see is that we have a company that’s obviously technically competent in ISX, we’re able to deliver technology very much on time and on budget. Then, of course, we’re able to deploy that technology and very quickly reach a profitable position. We went through four years of technology deployment and in the fifth year, we turned to profitability in a matter of mere months, in 2019.
That trend will continue into 2020 and if we didn’t have the yoke of the ASX and this persistent querying as to our capabilities – and let’s remember that their first round of questions were about our experience in trading platforms and what we know about clearing and settlement systems, and that’s on the public record – if the ASX wasn’t trying to basically crush us with this endless series of queries I think we’d be doing a lot better.
Are you talking here about the subsidiary called ClearPay? Is that what you’re saying is the competitor to the ASX?
That is now the competitor to the ASX, yes. We’ve crystallised the IP into ClearPay and formed a joint venture with the NSX in order to allow for a purpose-built clearing and settlement vehicle. That will seek appropriate licensing in due course, but the technology that ClearPay is pulling together, integrating and building, will effectively compete with the ASX’s digital ledger technology that I think they’ve just announced is running significantly late and other budget. ClearPay will be seeking to offer an alternative to CHESS, it will be offering an alternative digital ledger technology for clearing and settlement, as well as offering alternative clearing and settlement facilities in the future, subject to licensing of course.
NSX bought 41 per cent of ClearPay, I presume from ISX, is that right?
It was a joint venture, so both companies seeded the initial venture. As such, I wouldn’t say bought 41 per cent, but certainly was involved in 41 per cent of…
But the IP came from ISX, right?
Correct.
You put it into ClearPay and NSX paid $3.2 million dollars for 41 per cent of that business, right?
Correct.
But that money actually came from ISX in the capital raising. When you bought 13 per cent of NSX, that was that money, wasn’t it?
Correct.
So it was sort of a circular deal, the money went from you to NSX and then back to you for 41 per cent of ClearPay?
Not a bad deal if you can get it, Alan, exactly.
Anyway…
That’s right, we purchased 12.96 per cent of the NSX for $4.5 million dollars. $3.2 million of those funds were then used by the NSX to purchase 41 per cent of ClearPay. All of that was disclosed in the relevant notices. In terms of where that sits, yes, it does look like there’s a circularity. Certainly, for ISX shareholders, it’s a great deal. We’ve leveraged minimal cash and the IP in order to start a joint venture with the NSX and take a holding in the NSX of circa 13 per cent in that initial transaction.
What was the point of all of that? What’s the reason? Why give NSX the money to buy the share in the first place?
NSX, at the time, required capital raising basically for its day to day operations. There was obviously an additional $1.3 million at stake with NSX during that capital raise. But NSX also needed to get a strategic direction. NSX, the last 10-12 years has been funded [without] direction. It’s had no platform, it’s had no capability. It’s had aspirations, but really, all it’s had is a tier one market operators licence. Without a platform, it couldn’t go forward. What the deal did was allow it to basically get itself a stake in some relevant technology that would allow it to develop a platform and move forward as an exchange.
I suppose I’m wondering, why do you care? Why don’t you get on with your own business, why muck around with the NSX?
Well, this is our business. In terms of payment systems – and let’s not forget that where the ASX’s bulk of their profit or their best profit margin lies, it sits within Austraclear. Now, Austraclear is by far the juiciest target in the ASX stable. If we can get, which we will, when we launch an alternative to Austraclear via ClearPay, the revenues and of course the profit margins in that are absolutely the highest in the world, the profit margins, that is. When we compare what Austraclear is charging versus any other clearing and settlement agent anywhere in the world, it could be as high as up to 10 times.
There’s a juicy profit centre there that we’re certainly after as ISX and the payment systems that are involved are where ISX will make its money. But it needs to basically facilitate that in conjunction or collaboration with a tier one market operator in order to create the transactional and regulatory basis for that to occur.
Let’s just focus now on ISX’s business. I just want to deal with the paper that the ASX put out, 42 pages’ worth, on April the 30th. The essence of that was that your revenue was overstated, so that you personally would qualify for performance shares and they singled out four customers: Corp Destination, which they say was registered just eight weeks before entering into an agreement with you; something called Fcorp, which is in the Marshall Islands; another company in the Marshall Islands called Nona; and a Prague company called IMMO; which they reckon they couldn’t see how all the deals that you did with them generated the revenue described. Are those four businesses still your customers?
Not all four of them, no. Since that time, we’ve done business with some of them. Others, for example, Fcorp, has lost its regulatory licences and we ceased doing business at that time. I believe that Corporate Destination, after it couldn’t get its licence from AUSTRAC, has ceased with its ambitions and plans. And IMMO, we did business with the two sort of brands that they spun out from IMMO for about a year/year-and-a-half afterwards and I’m not sure if we’re presently still doing business. I think they’re still on our books, one of them, but we certainly processed more than $35 million payments for the IMMO entities post those contracts. What’s interesting about the ASX’s allegations, we have recently filed on the Federal Court that the ASX has engaged in misleading and deceptive conduct under Section 1041H of The Corporations Act. We are basically saying to the ASX, “You’re using a lot of language like, ‘We believe’, ‘We suppose’, ‘We think it might be’, ‘It’s possible’, within your documentation. So, it’s the acid test time now, prove it.” We are now suing the ASX for – I think our initial claim is $27 million. I know there’s a further multiple of that about to be lodged with the court as well and they now need to prove all of these suppositions that they’ve put and actually show us the evidence. On the flipside, we’ve had two audits go over the revenues, we’ve got cash in the bank, we’ve got inflows, we’ve got outflows and we’ve got substantiated documentation.
The ASX, by asking for a scattergun approach of our documentation, without ever interviewing us or asking us what went on, rather just pursuing a Q&A, means that they arrived at a conclusion that’s incorrect, now they have to prove it.
But it sounds like at least most of those companies popped into existence, paid you some money and then disappeared again. And you managed to qualify, as a result of those payments, for a whole lot of performance shares.
No, that’s not factual, Alan. Fcorp’s been around for years and years and years, for example. IMMO was incorporated four or five years earlier. The only one that was a pure start-up was Corporate Destination, which was an Australian entity, so that’s just not factual at all.
Who are these companies, what do they do, what are their businesses?
Fcorp was an FX CFD, market maker or dealer or broker, as we call it. IMMO provides bitcoin services in the EU under a couple of brands. Corporate Destination, I believe, was seeking an AFSL or perhaps an AUSTRAC licence, I can’t recall which, to be either a bitcoin operator or an FX CFD operator.
And what about Nona in the Marshall Islands?
Nona was actually a completely separate agreement. They paid us to do some sort of strategy work for them with regards to KYC and identities online. That was a very small agreement, about $200,000 dollars’ worth, and blown well out of proportion. Nona, I think, was just picked on by the ASX because about a year after we did business with them, there was an advisory that they may have been running a scam, made by ASIC. If you read the text in the ASX report, somehow in 2018 or late 2017, we were supposed to know in 2019 ASX was going to issue a warning about that company. The whole thing is a little bit of a nonsense because we only know what we know based on the information at the time. In 2018, a $200,000 deal to do some KYC work didn’t look so threatening.
Your quarterly statement for March says that 60 per cent of your revenue came from online video gaming. What do you do for them?
We process the payments, Alan. We are very much like a Stripe or a Square, those sort of entities that process payments online. When you need your credit card transactions processed or your bank to bank transactions processed like BPAY, etcetera, you come to a payment service provider like us or Stripe, or Square, or such entities and we facilitate those arrangements for you.
But you’ve been suspended by Visa, has that interrupted your business?
I think the proof will be in the next 4C. Even during COVID, we’re surprised – or not surprised, I suppose you could say, the business has held up very well. Being suspended by Visa is a little bit deeper than it appears on the surface. When we did our deal with Visa a couple of years back as a start-up, we did a very, very restrictive deal and the business is actually moving in a different direction to pure retail. If we were a retail payment processor like Stripe, then Visa is the absolute dominant player. They dominate about 55 to 60 per cent of the market. In the area of the market where we are heading, which is more towards AML regulated services, CFD, FX, gaming, gambling and so on, Visa is about 9 per cent of the market. What we’re seeing is that the impact to our revenue and bottom line doesn’t appear to have been impacted that much by Visa and in fact, we’re seeing that by decoupling from Visa’s onerous rules, that we’re actually able to put different initiatives into place.
When I interviewed last March, it was all about iSignthis was becoming a ‘know your customer’ business under the EU’s new rules about ‘know your customer’ and I guess I did not expect that – well, it seems that you’re actually changing to become more a payments and an online gambling payments operator, which is not what I thought you were going to do.
Well, the two are actually linked. When I just AML regulated sector, we haven’t changed at all, the direction. In fact, if you go back to our prospectus from 2014, we are doing exactly what that prospectus says we’re going to do, which is combine payments and identity into what we call, ‘Paydentity’, and be able to offer a clear service for online merchants, which effectively clears both identity and payments at the same time. Very much our target sectors have always been non-retail, retail doesn’t need KYC. Whereas, gambling, CFDs, FX, banking, brokerage, all of those sort of sectors do need KYC and they do need online payments, so putting the two together has absolutely been the mission of the company since we listed on the ASX.
In that March quarterly statement, ‘Other’ was 22 per cent of your revenue. What’s that? Is that pornography?
No, we don’t do pornography. Pornography carries a number of risks that we don’t believe a public company should be getting into. It is one thing to be dealing in regulated financial services or gaming or gambling or what have you, that are overseen by supervisory authorities, and quite another to get into pornography. It’s simply something that myself, the board and the executives are not getting into.
What is that 22 per cent that’s ‘Other’? Because it’s obviously the next biggest category of your revenue.
It’d be a smattering of different industries. There’ll be some retail in there. I can’t remember what categories the ASX tried to or has asked us to fit our revenues into. What’s unusual about this Alan, is that rather than the company defining what’s important to report on, the ASX has told us what we need to report on. That ‘Other’ could be absolutely anything because it’s not the way we would normally report. But in terms of the way we would categorise revenues, we would probably say, ‘AML regulated sector’ and ‘Unregulated sectors’ would be a better way to do it. That sort of stuff that’s in the ‘Other’ will be, I don’t know, retail, there could be some travel, but there certainly won’t be any pornography or adult services in it.
Can you tell me who some of your customers are, names of them, big customers?
I can do, although what we do is with customers we tend not to unless they pass a materiality test. Of course, that would need to be more than 10 per cent. We’ve got non-disclosure agreements with our customers whereby we don’t disclose them unless they actually do become material. At this stage, I think I’ll decline to play that game, Alan. But certainly, you can rest assured that if any one particular customer becomes material, we do and we have in the past announced them.
I wasn’t trying to play a game, I was just wondering who your customers are?
I know, that’s a game the ASX is playing, Alan. That’s not one we’re prepared to get into at the moment.
Just finally, when I last interviewed you, you said you were a qualified patent attorney. I looked in your LinkedIn and it seems you’re a trademark attorney, is that right? That’s a different thing, right?
No, I’ve met the educational requirements to qualify as a patent attorney. I’m not registered. I am currently registered as a trademarks attorney. Certainly, in terms of where we are and so on, I hold all the educational requirements to progress to registration, but I’m not a registered attorney at present.
Where to from here? Are you just going to become delisted off the ASX and list in Europe or somewhere else, is that the plan?
Well, 95 per cent of our revenues are in Europe and of course, our growth is in North America as we go forward. Australia is a very, very small market for the sort of services that we’re targeting. I think the natural viewpoint of the board and of course for the company is a North American exchange or a European exchange would be better suited to where we are. Of course, the Europeans don’t carry all the moralising and business value judgement the ASX seems to be going through at the moment. If a customer is regulated, then they’re regulated. I’m not sure why the ASX tries to single out certain of our customers or why, but certainly that sort of effect makes the ASX less desirable for a company like ours to be listed on it, and we certainly will be looking at alternatives, or we are doing so at the moment.
And what’s the point of the lawsuit that you’ve got going as the ASX, is it to end up getting back on the ASX, or is it to just get money off them?
Our claim includes relisting. That, of course, could be a timing thing now with COVID. If we can’t relist in any reasonable time then we’ll look at that. But again, that’s at the board’s discretion assuming we get a vote at the AGM to delist. And money – I mean, the monetary damages are getting significant now. An initial $27 or $28 million dollars claim, with a lot, lot more to follow. I don’t think the ASX quite understands the damage it's done to the business and our shareholders by putting out this statement of reasons that isn’t based on fact, so someone’s going to have to pay the piper.
I presume you’d use that money, if you got it, to attack them through ClearPay?
I would love to use their money to cannibalise their business, absolutely. That would be justice.
Thanks very much, John.
Thanks, Alan. Appreciate it.
That was John Karantzis, the CEO of iSignthis.
