- Troubled online gaming company Emerge Gaming (EM1) has seemingly turned a corner after announcing ongoing record subscribers for its controversial Miggster platform
- The company claims over 150,000 people have subscribed to the platform, but eight regulators around the world have banned or raised concerns about Emerge's partners, ICT and Crowd 1, for operating unlicensed investment schemes
- As such, it's unclear how much of the "banked" revenue from Miggster subscriptions comes from an investment scheme rather than online gaming
- When asked to clarify the nature of its subscriptions, Emerge's board said it is "not privy to the motivations and decision-making process" of its 150,000 subscribers, meaning questions remain around whether its partners are selling online gaming or multi-level marketing recruitment schemes
Troubled online gaming company Emerge Gaming (EM1) appears to have turned a corner after announcing ongoing record subscribers for its controversial Miggster platform.
In the company's latest Miggster announcement, Emerge claims just over 150,000 people have subscribed to the platform, with the total value of all subscriptions now over $13 million. This is after EM1 told investors it had "banked" $8.3 million from Miggster subscriptions in early January 2021.
Yet, after lengthy suspensions from trade and a string of ASX queries, questions still remain over the platform, the nature of the 150,000 subscriptions and, most importantly, Crowd1 and Influence Crowd Technologies (ICT) — Emerge's partners, which run the operation.
To be clear: there's no suggestion that Emerge or its directors have acted unlawfully in any way. But investors have a right to know what exactly they're investing in.
How much, if any, of the "banked" revenue is for African and Asian get-rich-quick schemes, not for online gaming?
Emerge Gaming presents itself as an online gaming disruptor. Its mission statement is simple: “Changing the eSports gaming landscape.”
The company has launched a mobile competition network in South Africa with several legitimate, bona fide network operators.
But, so far, not much revenue has come out of these partnerships.
So, along comes Miggster and Crowd1.
In September 2020, Emerge inked a deal with ICT, an affiliate of Crowd1 formerly known as Tecnología de Impacto Multiple S.L. (TIM), run by a Swedish entrepreneur with management teams in Barcelona and Dubai.
Historically, Crowd1 and its partners have not had anything to do with online games. Instead, they're a multi-level marketing network selling get-rich-quick investment schemes to some of the poorest people in the developing world.
BBC Eye Africa ran a six-month investigation into Crowd1 in which it called the company "the most audacious scam we've ever seen".
"Crowd1 is peddling a range of bogus products and false promises to cover an old-fashioned pyramid scheme based on recruitment," BBC said.
But it gets worse.
Crowd1 has been flagged by regulators in at least eight different countries across four continents for operating unlicensed investment schemes.
What are the regulators saying?
Regulators and consumer watchdogs who have looked into Crowd1 and its business have issued various warnings against the company — some more worrying than others.
New Zealand's Financial Markets Authority, for example, has warned citizens to exercise caution when dealing with Crowd1 and ICT as "they are not registered companies or financial service providers in New Zealand".
South Africa's Financial Sector Conduct Authority (FSCA) has issued a similar warning against Crowd1, urging people to avoid doing any financial services business with Crowd1.
"Crowd1 is neither an authorised Financial Service Provider (FSP), nor is it a representative of an authorised FSP," the FSCA said.
"While it is true that all investments hold risk, one with an unauthorised FSP should be considered extremely high-risk. It is also often fraudulent in nature, and likely to lead to losses for customers, for which there is little or no recourse."
Importantly, the FSCA said Crowd1 is currently under investigation by the Prudential Authority at the South African Reserve Bank.
The Mauritius Financial Services Commission's (FSC) warning against Crowd1 is more serious:
"Members of the public in Mauritius are being solicited via media to invest in schemes offered by 'Crowd1' with the promise of high monetary rewards or profits," the financial watchdog said.
While, like with the warnings from New Zealand and South Africa, the FSC said Crowd1 is unlicensed to provide such services, the Mauritius financial regulator also warned investors about Ponzi schemes, social media fraud, multi-level marketing schemes, and more.
The Norwegian Lottery Authority has gone one step further in its assertions about Crowd1.
The financial watchdog sent a letter to Crowd1 officials to clarify the nature of the business because of suspicious activity and several reports about Crowd1 from members of the public.
"The Lottery Authority records that Crowd1 is being traded in a pyramid system but does not currently have sufficient knowledge of the trading system to be able to assess whether this is an illegal pyramid scheme," Norway's Lottery Authority said.
"Based on the information we have, we assume that the business of Crowd1 is built up in a pyramid structure with several levels where the participants can achieve financial gain by recruiting new participants at a lower level."
The most damning regulatory action against Crowd1 comes in the form of a cease-and-desist order from the Philippine Department of Finance's Securities Exchange Commission.
This financial watchdog has completed a full investigation into Crowd1 through the Enforcement and Investor Protection Department (EIPD) — an investigation that included attending Crowd1 webinars and signing up to the business' investment scheme.
The findings of the investigation are clear.
"Crowd1's business model claims to be a digital marketing business which generates income from online games, and allegedly facilities the generation by its members of residual income from its affiliate gaming companies such as AFFIGLO and MIGGSTER," the Department of Finance said.
"As established by the EIPD, Crowd1, in reality, is carrying out a fraudulent investment scheme consisting of the sale and/or offer of inexistent securities in the form of investment contracts to the public using the internet and online platforms."
The Philippine investigation report highlights exactly how Crowd1's business model operates, how members are enticed to investment with the promise of sturdy returns, and how many of the country's poorest citizens never get the money they were promised.
"Clearly, CROWD1’s members were lured to invest their money not for an existing legitimate business enterprise but simply for the purpose of obtaining commissions through recruitment of new members," the report said.
The report highlights how Crowd1 refused to pay member-investors their "guaranteed return" and instead directed them to just keep recruiting more people.
In light of the investigation, the Philippine Securities Exchange Commission has banned Crowd1 and any and all people acting on the business' behalf from operating in the country.
The full investigation and scathing accusations against Crowd1 from the Philippine commission can be found here.
What does this mean for Emerge?
As biting as the regulatory reports can be, Emerge Gaming is not Crowd1; the companies are simply business partners.
But the link between Crowd1 and the Miggster platform is clear: Miggster is one of the products Crowd1 uses to entice investors to sign up to a scheme the Philippine government has concluded is a scam.
This begs the question: how many of Emerge's 150,000 subscribers are actually subscribing to play games, and how many are subscribing to an investment scheme?
By Emerge's own words on January 22, 2021, only 26 per cent of Miggster subscribers had actually played a tournament in the last month. This suggests the vast majority of people are subscribing to Miggster for a reason other than gaming.
When The Market Herald asked Emerge about the nature of its subscriber numbers, lawyers speaking on behalf of EM1 said Emerge cannot possibly know the motivations of its subscribers.
"People subscribing to Miggster can enter online tournaments in which they play games of their choice. Those playing are eligible to win rewards and prizes. It is assumed that some participants will be motivated to play games for the pure enjoyment of playing, some will be motivated to win the rewards and prizes on offer, and others will have mixed motivations," Emerge's legal team said.
The company said it is "not privy to the motivations and decision-making processes" of individual Miggster subscribers.
Emerge does not acknowledge the real risk that its subscriber numbers include those paying in hopes of financial return and subscribers paying to play games.
What has ICT and Crowd1 promised subscribers?
If the receipts for Miggster subscriptions come from get-rich-quick schemes, thousands of people will be waiting for a return on their investment.
And the dubious scammers running these quick -rich schemes have a track record of not paying what they promised — as highlighted by the Philippine Securities Exchange Commission.
So, if Crowd1 doesn't pay up, will Emerge step in and make good on what is owed to hopeful Miggster subscribers?
The Market Herald put this question to Emerge Gaming, and the company directed The Market Herald to its response to ASX queries on November 9, 2020, when it assured the ASX that Miggster is designed to let subscribers win prizes by playing games.
Interestingly, it would appear — based on the Miggster website — that subscribers first need to invite others to join the platform before they are eligible for these prizes.
Further, although it seems Emerge operates the Miggster platform, it is owned by Crowd1 — and subscribers need to be Crowd1 members before they can use the platform.
So, we asked Emerge what happens if it turns out investor expectations aren't met.
The company said we "appear to wrongfully consider that the company has a liability to 'hopeful subscribers' whose relationship is in fact with Crowd1 — not the company."
Emerge denies the Miggster platform is any sort of investment scheme but makes clear the company is handballing any potential subscriber liability to Crowd1.
Does Emerge know who it's partnered with?
Alarmingly, in an ASX announcement from November 9, 2020, Emerge admitted the limited due diligence it did into Crowd1 and ICT was purely verbal.
"The enquiries were conducted verbally," Emerge said.
"The enquiry was not made in writing and no written response was received."
This goes for the international warnings about Crowd1 and how it operates to legal proceedings against the business; every time Emerge was asked how it conducted its due diligence, the company said "verbally".
Emerge admitted it doesn't know who owns Crowd1 and ICT. It admitted its due diligence into its partners was verbal. And so, it would appear that Emerge went ahead with the partnership despite knowing about regulatory warnings against Crowd1 ahead of time.
Where does this leave investors?
The stock market is really a trade of opinions. Especially for fast-growth disruptive businesses, investors with limited information speculate on an uncertain future.
If they get it right, they win. If they get it wrong, they lose. And that's exactly how it should work. This is the risk investors take.
But there are rules. These rules govern how companies should tell investors about their business. And how investors should be protected from shady promoters. And how exchange operators such as the ASX determine who — and who should not — access public equity funding.
And it's only because we have these rules that we have a functioning capital market. The playing field needs to be fair. The game can't be rigged.
The only way this can happen is if investors have all the facts. They need to come to their own conclusion. And then they can decide if Emerge is a future billion-dollar online gaming platform — or if it's unwittingly part of a banned offshore multi-level marketing scheme that preys on the world's most vulnerable as financial regulators allege.