Uulala Ltd. Legitimate Fintech or Just More “La La Land” Hype?
Bermuda is officially in the cryptocurrency business and if initial reports are any indication, they are off to a terrible start. Offshore Alert, the leading financial news service for offshore financial centers, reports two of Bermuda’s new blockchain start-ups are operated by known deadbeats. According to the publication, “Uulala Ltd. and Arbitrade Ltd. – are being operated by North Americans with long records of business failures, indebtedness, and scandal.”
The first company authorized to launch an initial coin offering (“ICO”) in Bermuda is Uulala, Ltd. The Royal Gazette says a lead figure in the company has a history of lawsuits, judgments and tax liens in the United States. They say Oscar Garcia, founder and CEO of Uulala, Ltd has several U.S. court judgments and tax liens in recent history in the United States.
Tax liens and judgments can also be found against an e-commerce business, Lucrazon Global. Although those judgments aren’t against Garcia personally, the Royal Gazette says Garcia claimed in a promotional video to be Executive Vice President of Lucrazon.
There is also litigation against Garcia brought by a former business partner over a U.S. company with a very similar name, Uulala, Inc.
A photo taken in October shows Oscar Garcia posing with Bermuda’s National Security Minister Wayne Caines. Minister Caines said, “For Bermuda to go from just the legislative concept nine months ago to our first ICO now with Uulala is magnificent.
Knowing what we know about Caribbean tax havens and cryptocurrency fraud, we don’t share the security minister’s enthusiasm.
According to Uulala’s website, Garcia claims the company is oriented to Hispanics just like himself. Instead of bringing up Mom, apple pie and the American dream, Garcia has a slightly different message invoking images of mom, pan dulce and Mexico:
“As a son of an immigrant, I saw first-hand as a child how my mother struggled without access to her money. We had to stand in line constantly. First to cash her check, where a fee was charged. Then another line to pay our bills where a fee was charged; another line to send money back to Mexico where again a fee was charged. Those fees cost us bread, milk and my favorite treat, pan dulce. This company was built to empower those like my mom. Their time is now, this platform is theirs, and we are here to serve you.”
A video on the company’s website features none other than Bermuda’s premier, E. David Burt. He claims that Bermuda is the first country in the world to have a comprehensive suite of legislation for companies in the digital asset space and that Uulala was the first company to meet its stringent requirements (more on those “stringent” licensing requirements below).
Hacked.com reports the company is raising $50 million through its ICO. There are reportedly no restrictions on those who can participate.
[Updates thru August 2021] We won’t say “I told you so.” There is nothing funny when investors lose their hard earned money. Uulala and Arbitrade especially concerned us since the government of Bermuda gave both companies undeserved legitimacy.
When Arbitrade boldly announced that it had $14.5 billion in gold reserved backing its cryptocurrency, it also said it was renovating Victoria Hall in Hamilton, Bermuda and planned on hiring 400 locals. Published reports say that two years later Victoria Hall remains dark. We aren’t aware of anyone being hired and the company’s domain name registration has expired.
The company also said it divested itself of all its gold. We highly doubt it ever held any gold.
On May 14, 2020, Uulala company sued three of its former employees. The lawsuit was filed in the Superior Court of Los Angeles County.
Uulala says the three men have made disparaging remarks about the company in a systematic campaign to disparage Uulala’s reputation with investors and employees.” The company also says that former Chief Development Officer Damiano Raigoza solicited an employee to leave the company in order to start up a new company called Taco Maps.
As the result of the three former employees’ remarks, investors are pulling out their money. At least that is what Uulala claims. We think Uulala is still in “la la” land. If the company fails – we are surprised it is still operating – we believe it will be because it simply doesn’t have a viable business model.
Despite the lawsuit by the company, we think the company isn’t ready for primetime and can’t deliver on its promises to customers and investors. That makes us wonder if the lawsuit is nothing more than an attempt to silence critics in the hopes that the company can continue raising capital.
Fast forward to August 2021 and this month the SEC announced it had filed and settled charges against Uulala, Oscar Garcia and Matthew Loughran. The Commission says they allegedly defrauded “more than a thousand investors in an unregistered offering of digital asset securities that raised more than $9 million and against Uulala and Garcia for allegedly engaging in a second fraudulent offering of convertible notes.”
The SEC’s complaint claimss that, from December 2017 through January 2019, Uulala sold UULA tokens, which were allegedly to be used to record transactions in a financial application that Uulala was developing and promoting to those without access to traditional banking services. According to the SEC’s complaint, the company Uulala made “materially false and misleading statements to investors throughout their offering of UULA about having ‘patent pending’ technology that had been incorporated into their app and having a proprietary algorithm to assign credit scores to users of their app.” The SEC further claimed that Uulala and Garcia then made materially false and misleading statements about Uulala’s financial performance.
Yet Uulala carried the blessing of the government of Bermuda and its “stringent licensing requirements.”
We aren’t sure what to make of Uulala but it certainly has a business plan and employees and contacts. The case for Arbitrade Ltd is an entirely different story.
According to an article in the Royal Gazette, Arbitrade Ltd announced in late October that it acquired title to 395,000 kilograms of gold worth billions of dollars. Unfortunately, the company didn’t say how it acquired the gold or where the gold is. The company says an accounting firm has “verified” the gold but the company doesn’t name the accounting firm.
(Even if the accountant was named, we would still be skeptical. Bernie Madoff’s accountant, David G. Friehling, “verified” his billions of investor dollars and was subsequently convicted for his role in the scam.)
The gold claim sets Arbitrade apart from other cryptocurrency firms. The company claims it currency is backed by gold.
The claims of gold backing caused the price of Arbitrade’s “dignity” cryptocurrency to jump in value overnight by 40%. Our fear is that innocent investors are being duped by these extravagant claims.
The company made another brash claim that it had lined up “the largest deal ever placed for mining rigs [cryptocurrency mining] in the history of the industry.”
Of course, none of these statements make any sense or appear verifiable. That hasn’t stopped Premier Burt from saying, “We thank Arbitrade for this tangible sign of commitment to Bermuda and look forward to further announcements as the island continues to set the pace for the world in fintech.”
Another reason we are concerned is the involvement of Troy Hogg (or one of several other names he uses). Just Google Troy Hogg and the word “fraud” and examine the responses. People love him or hate him. Watch his videos, however, and you see he is a pyramid marketer and that has landed him in trouble previously.
Bermuda and Fintech Licensing
Bermuda wants to be first in the world with licensing crypto and blockchain fintech businesses. We worry that the early players are taking advantage of the island nation. We further worry that the public statements from the country’s premier and security minister will give legitimacy to businesses that have been questioned by several in the media. Businesses that may soon turn out to be scams.
According to the government’s “FinTech Bermuda” website,” The Bermuda Government understands the power and disruptive potential of this technology and has identified an opportunity to be a pioneer in this sphere. Bermuda is leveraging the island’s significant expertise in regulatory management and is a leader in the fintech space with cutting-edge ICO legislation. The legislation creates a unique environment that prioritizes regulatory certainty, investor confidence and compliance with international Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. There are many benefits to the certainty and stability that this framework provides to the industry and this attracts the best-structured fintech companies to be a part of the Fintech Bermuda ecosystem.”
Given what we have seen so far, we don’t believe Bermuda is ready to regulate cryptos, ICO’s, blockchain businesses or fintech. That said, their imprimatur on businesses like Arbitrade and Uulala will cause many people to invest.
Cryptocurrency companies in Bermuda are regulated by the Bermuda Monetary Authority and are subject to the Digital Asset Business Act of 2018. Compared to tens of thousands of pages of securities laws and regulations in the United States, Bermuda’s law has just 59 pages. The requirements to be a licensed digital asset business are just a couple pages.
Quoting from the law,
MINIMUM CRITERIA FOR LICENSING
(1) Every person who is, or is to be, a controller or officer of the licensed undertaking is a fit and proper person to hold the particular position which he holds or is to hold.
(2) In determining whether a person is a fit and proper person to hold any particular position, regard shall be had to his probity, to his competence and soundness of judgement for fulfilling the responsibilities of that position, to the diligence with which he is fulfilling or likely to fulfil those responsibilities and to whether the interests of clients or potential clients of the licensed undertaking are, or are likely to be, in any way threatened by his holding that position.
(3) Without prejudice to the generality of the foregoing provisions, regard maybe had to the previous conduct and activities in business or financial matters of the person in question and, in particular, to any evidence that he has—
(a) committed an offence involving fraud or other dishonesty, or violence;
(b) contravened any provision made by or under any enactment appearing to the Authority to be designed for protecting members of the public against financial loss due to dishonesty, incompetence or malpractice by persons concerned in the provision of banking, insurance, investment or other financial services or the management of companies or against financial loss due to the conduct of discharged or undischarged bankrupts;
(c) engaged in any business practices appearing to the Authority to be deceitful or oppressive or otherwise improper (whether lawful or not) or which otherwise reflect discredit on his method of conducting business;
(d) engaged in or has been associated with any other business practices or otherwise conducted himself in such a way as to cast doubt on his competence and soundness of judgement.
Basically, you must appear to be an honest person and shouldn’t have a history of fraud or dishonesty. That doesn’t sound very stringent to us. As low as the bar appears, we also don’t understand how someone like Tony Hogg could even pass muster.
In stark contrast to Bermuda, the United States Securities and Exchange Commission has a radically different approach to ICO’s.
U.S. regulators worry that many of the new ICO’s may be subject to fraud. They say that these offerings are subject to federal securities laws.
It is almost impossible to regulate these offerings. Sometimes it is even impossible to find where they are located. (The Royal Gazette said that emails to Arbitrade bounced back and phones were unanswered.) We are aware of a US based ICO, when we attempted to track down the address from the website it came back to a vacant lot.
Another reason the U.S takes a stringent view on cryptos is that often the sales staff promoting these coin offerings can’t even explain how they work!
In the typical ICO, virtual tokens (or “coins”) are sold by the offeror to the public. Often the promoters of these ICOs seek to get paid by Bitcoin or other cryptocurrency. (Uulala accepts U.S. dollars as well.) The buyer gets tokens in return. The tokens allow the purchaser to obtain a fixed number of units of digital currency or share in the profits of the issuer.
Whether digital currency is here to stay is still undecided. We know, unfortunately, that the industry has brought with it many fraudulent promoters hoping to profit on the craze. A few experts claim that most ICO’s today are scams.
The SEC and its sister agency the CFTC have announced that they will take an expansive view of their jurisdiction when new currency offerings are involved. The Commission has issued written guidance that says any coin or token that can be exchanged for another cryptocurrency or fiat currency with the expectation of profit is subject to regulation.
Regulation doesn’t mean safety, however. This is still very much a buyer beware industry.
MahanyLaw and Cryptocurrency Fraud
The fraud recovery lawyers at MahanyLaw limit their cryptocurrency cases to investors who purchased from legitimate stockbrokers or financial advisors. If you purchased directly through an ICO, we can’t help you.
Almost every week we get calls and emails from investors who lost significant sums of money in crypto and fintech scams. (One person lost over $1 million through someone he met through Facebook!) Unless you invested through a legitimate third party we can’t help.
On occasion we consider class action claims against banks and other businesses who may have facilitated the scheme.
These posts are published a public service. We hate hearing stories of people who lost money in fintech frauds. While we are happy that Bermuda is trying to step into the regulatory space and develop standards, we are a long way from saying something approved by a Bermudan politician is a safe investment.
*We have made no independent investigation of either Uulala or Arbitrade. While we wouldn’t invest in either, that is our opinion and not based on anything more than what we read through SEC court filings, the Royal Gazette and Offshore Alert, a publication that is always accurate in its reporting, as well as our own knowledge of the lax regulatory environment in Bermuda.
Whenever you are investing in an ICO, make sure you get answers to your questions. Simply because a company makes claims in a white paper doesn’t mean those claims are true. We understand the temptation to get in on the ground floor of the next big thing. Get answers to your questions before you invest!
As my dear grandmother would say when we were kids, “Be careful, where there is smoke, there is fire.”