Friday, 29 September 2017

Is Ethos Global Crowdcube's worst comedy ever?



Ethos Global raised £709k on Crowdcube in 2016. In 2017 having failed to file any new accounts, it was forced into liquidation by creditors. Now new evidence we have seen suggests that this isnt simply a business failure but something far more serious.

We knew this one would end in tears as soon as we read the Crowdcube campaign's opening line

ETHOS is a chain of boutique Yoga & Fitness hybrid studios with headquarters in Cambridge..........

How can a one unit operation be a chain? We tried to give them the benefit of the doubt - after all landlords can be very unhelpful. But this evidence makes it pretty clear what has happened.

The case in to the liquidation is on going and nothing has been filed yet by CH post the Court's liquidation notice. But we have been in touch with shareholders.

We have written about Ethos many times, here but this evidence is new. A timeline from the point of the Crowdcube campaign shows that some people must have known about the problems the company had before they raised the £709k. And that these facts were not shared, even though they were materially important. They also reveal that Crowdcube have been involved in trying to persuade shareholders to take shares in newco Soma - even though it seems likely to us that Soma doesnt own the assets in the business it is running. These were paid for by Ethos Gobal and its shareholders and they have O/S liabilities. 

The most dramatic revelation is that Ethos Global sent an email to shareholders, requesting more funding, in which they blatantly used information about the company's situation that was false. And they did raise money according to filings at CH.

Lets look at the timeline - 

January 2016 Crowdcube campaign for £500k completes at a total of £709k. This campaign was centred on the success of the Cambridge studio, its future and the future growth on the London Spitalfields' site, which was already under construction. No mention was made of any problems with the Cambridge landlord. Shares were issued under a Crowdcube Nominee account.

June/July 2016 London Ethos Opens - we dont have a date but an article in The Standard in July and Ethos's own revenue figures show it must have been open at the start of July 2016. So this studio in Spitalfields was opened by Ethos Global not Ethos London England or SOMA London England.

September 2016 Ethos Accounts YE Dec2105 become over due - remember these accounts are in fact for an historical period with regard to the Crowdcube pitch - ie Crowdcube DD needed to be on this.

November 2016 Ethos Global email. This email is asking shareholders for more money. It is very upbeat about the company. It does not mention the fact that the 2015 accounts have not been filed. These accounts would have revealed the gap between the Crowdcube projections for 2015 and reality. It mentions that a VC has looked over the company's DD and has approved it and is on the cusp of investing. Remember no accounts filed! It gives the following figures for real turnover - for 2016 -

Feb - £3k
Mar - £7k
Apr - £9k
May- £10k
June- £11k
July - £16k
Aug - £21k
Sept - £36k
Oct -  £52k
(NB - these sales include over half from the use of Classpass. They charge a high comm rate and no longer deal with SOMA) 

In the Crowdcube pitch the figures for 2015 showed a gross revenue of over £550k for this period and these figures were historic - Crowdcube raise completed January 2016. You can see how wrong this was. That is if you can believe these figures produced by the company. Did CC bother to check anything? It seems very unlikely that the problems that caused the Petition to be filed in February 2017 or 3 months later, were not known to the Ethos management when this email was sent.

This email goes on to say -

·  Cambridge operations are being concluded efficiently by our management team demonstrating excellent customer care skills, while legal matters are progressing fast with our solicitors. Timing of Cambridge closure was beyond our control; however, all other developments indicate that exit from Cambridge is accelerating the short-term profitability of the London studio heading towards the January period, as well as the long-term growth of the company focusing head office resources in London and further expansion.

Well we all know this is tripe. Within a few months the company had been closed by court order by petition by its Cambridge landlord. The full details are, as yet, unclear. Again Dr Theo clearly has no idea about who owns the company assets.

The email, sent by the company's Development Officer who has since left, concludes with this message -

We would be thrilled to have your further participation in this special opportunity to increase significantly your stake-holding in ETHOS.

You bet! We tried to talk to her on behalf of shareholders but she refused.



Dec 2016 - First Gazette filed against Ethos and co founder Hersche resigns

Jan 2017 - £300k investement filed at CH and another allotment of 3m shares issued for no consideration.

Feb 2017 - Ethos London England incorporated with Dr Theo as sole director and SH.
Feb 2017 - Hersche joins board. Maybe rejoins would be more apt.

Feb2017 - Petition to liquidate Ethos Global presented by The London Borough of Tower Hamlets and The Prudential - both of whom are creditors.

April 2017 - Name change to Soma London England. So why change the name from Ethos London England? Why rub out all of that brand awareness? Well...... You are not allowed to use a liquidated trading name to establish a newco whilst the process is still ongoing. The name may have value which is owned by the company. Of course we know that the process wasnt yet on going and it is illegal for company directors to 'plan' these things if it impinges on the outcome for creditors.

2 July 2017 - Ethos Global  - Court Order filed to wind up the company as result of February petition.

8 July 2017 - Dr Theo writes to shareholders - This is how he opened the email -

We are writing to update you on the status of Ethos Global Ltd (EGL) and our move to a new company structure. We invite you to own an equal amount of shares in a new company that includes the London location and expansion plans for new studios.

He goes on  - 

To protect the original vision we had to separate the operations that initiated in Cambridge under EGL and the current London operations. EGL will now be liquidated while the new company structure has been set up under a new trade, lease and assets in the same London location, owing to the contributions of our unwavering supporters including the London landlord. Following the Cambridge studio closure and months of increasingly expensive legal proceedings defending our position against multiple claims against the Cambridge landlord’s contractual breaches, we decided to not spend further resources in that direction and focus on larger opportunities in hand.

And on............

we are combining forces once again with Crowdcube to involve you in the new company structure. Crowdcube will play a purely administrative role holding shares in the new company for the crowd as nominee.

So CC are actively involved in this. There is no mention of the legality of running Ethos Global into liquidation, leaving creditors hung out to dry. The fact that the money invested in Ethos Global was used to invest in the new London studio, seems to have been missed by Dr Theo's logic. He clearly believes that he owns all the IP and assets and he seems confused about the closure of Ethos and opening of a new legal entity with no ties to Ethos, Soma. As the CEO of a company, you dont get to choose who to pay as creditors and who to ignore and you cannot reallocate assets via a liquidation. If the liquidation was a choice, planned by the founders (ie by refusing to pay the landlord they knew he would be forced to take this action, as the timings might suggest), as opposed to enforced on them as the filings suggest, then they are surely in breech of some company laws?  Maybe they are anyway? We are treading carefully as the liquidator's report is still awaited.

Why would investors want to follow the new Soma London England, seeing what they see here? Are Crowdcube really going to be the nominees holding shares in this newco after all they have been involved with in allowing Ethos Global take £700k plus off investors? What would the FCA say about that, given they license Crowdcube's activity? There are creditors here - it is not a straight share swap.

Meanwhile in the midst of this, Ethos Global have the balls to ask for new funding from investors, using highly contentious information.

Crowdcube have a knack of creating godawful messes. In the end the losers are the creditors and investors. Investors should know better - it's the creditors who get most of our sympathy. In this case both seem to have been treated with total contempt by the company and Crowdcube. Just for amusement, Ethos Global's Crowdcube financials had them with revenues of £4m and NP of £1.8m for 2017.

We have some correspondence from Crowdcube's XXXXXXX - answering some very serious accusations from some very worried Ethos shareholders. This is not to denigrate XXXXXX's efforts but you would really expect an FCA regulated platform, holding a nominee account with this mess on their hands, to have someone with just a jot of experience in something related to ECF, to be handling these matters. XXXXXX has none of the above, is mid twenties, read arts at uni, and clearly from the replies knows absolutely nothing about share ownership, liquidations and the mess Crowdcube are in. Shareholders may as well ask the lady at Tesco's check out - maybe they did!  That isnt XXXX's fault per se but it is further proof that Crowdcube isnt fit for purpose.

Finally - we received an email just now from SOMA. They are selling more future monthly memberships in their new business - the one that may or may not be legal. You get a discount from £250 to £150. All of this after the SOMA opening party was cancelled a couple of weeks ago. No reason given. The email claims that the offer sent out only two days ago, is fully subscribed - funny that we never received that offer?? And funny that the same offer was sent out on the 3rd August. Are people really being taken in by this?

And yes, you did just read all of that here!








3 comments:

  1. The FCA are supposed to be "protecting consumers" ... so what the hell is going on? Or should I rephrase, not going on??

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  2. Stay away from these muppets they're off their rockers

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  3. "Management team demonstrating excellent customer care skills"? As a Cambridge customer I can tell you that no customer care was involved. Nobody should ever trust them with their money.

    ReplyDelete