Blog

Shareholders of Toronto-based WonderFi are calling for “urgent change” to the cryptocurrency firm’s board of directors, claiming that the Toronto Stock Exchange-listed company has underperformed despite a strong crypto market in part due to the makeup of its board.

In response, WonderFi has alleged that one of the firms behind these claims is “engaged in an attempt to gain control of WonderFi without paying a premium to shareholders.”

WonderFi claimed Mogo is seeking control “without paying a premium to shareholders.”

Yesterday, Miami’s Kaos Capital issued a statement indicating that the hedge fund management firm, Vancouver-based FinTech company Mogo, and other investors (a group Kaos said collectively represents 22 percent of WonderFi’s shareholders) are demanding that WonderFi’s “entrenched and disorganized” board be replaced.

“As the cryptocurrency market rebounds, WonderFi is uniquely positioned to leverage its position as the only fully regulated crypto exchange in Canada,” Kaos CEO Adam Arviv argued in a statement. “Strong leadership is imperative to capitalizing on this opportunity and the current board has not shown itself to be capable or engaged enough to lead the way.”

Kaos said it plans to nominate five individuals to the WonderFi board ahead of the crypto company’s May 21 annual general meeting. Mogo also published a statement of its own yesterday announcing that it has nominated experienced tech and financial executive Christoper Payne for election to WonderFi’s board as an independent director. The two firms plan to support each other’s nominees.

In a press release issued today in response to these statements, WonderFi confirmed receipt, alleged that Mogo is seeking control of WonderFi without the need to pay a premium to shareholders, and sought to reaffirm the company’s commitment to creating value and engaging with its investors.

“WonderFi’s board is committed to acting in the best interests of the company and all of its stakeholders and regularly engages with shareholders as part of the company’s efforts to drive sustainable long-term value,” stated WonderFi. “The coordinated action between Kaos Capital and Mogo comes as no surprise to the board. It appears to be part of a years-long attempt by Mogo to gain control of WonderFi (and its predecessor, Coinsquare) without paying its fellow shareholders a premium.” 

RELATED: WonderFi to acquire Australian crypto trading licence as “solid foundation” for international expansion

According to WonderFi, “Mogo introduced Kaos to WonderFi to further its longstanding goal of gaining control without paying a premium.” WonderFi said Mogo’s actions have led its board to create a special committee dedicated to addressing the issues created by Mogo and investigating Mogo and Kaos’ activities, including whether either firm has breached their legal obligations.

“Notwithstanding any representations to the contrary, Kaos, with the support of Mogo, has approximately 14 percent of WonderFi’s shares committed to vote for its unnamed nominees, according to a securities filing made by Mogo,” WonderFi stated.

Kaos currently holds less than one percent of WonderFi’s stock, while Mogo holds 13 percent ownership interest in WonderFi, making it one of the crypto firm’s largest shareholders. The company obtained this stake through WonderFi’s acquisition of Coinsquare.

For its part, WonderFi noted that Mogo is much smaller than WonderFi comparatively speaking: “As of yesterday, Mogo’s total market capitalization was roughly equivalent to the total cash, digital assets, and investments held on WonderFi’s balance sheet, and Mogo’s total market capitalization is less than one-third of WonderFi’s total market capitalization.”

RELATED: WonderFi-owned Bitbuy acquires customers of fellow regulated Canadian crypto exchange Bitvo

Kaos laid out several reasons behind its push to change WonderFi’s board, including “significant underperformance” of WonderFi’s stock price amid a recent bull run in the price of Bitcoin and other digital assets, and “missed opportunities to capitalize on [WonderFi’s] position as the only fully regulated crypto exchange in Canada.”

At press time, WonderFi is trading at $0.31 CAD per share, slightly below where it began this year at $0.32. While that drop does not appear significant, Kaos claimed that WonderFi’s stock exhibited a “notable downward variance” when compared to the growth of other crypto firms, such as Coinbase and DeFi Technologies, among others. 

“The company’s missteps lie not only in its financial performance but also in its investor relations strategy, which has favoured issuing superficial press releases over substantive engagement with shareholders,” Kaos claimed. Kaos also lamented what it described as WonderFi’s “poor track record of capital allocation.” 

WonderFi has either wholly acquired or purchased assets from five of Canada’s 11 regulated crypto exchanges, including Bitbuy, Bitvo, Coinberry, Coinsquare, and CoinSmart. Earlier this month, WonderFi reached a deal to purchase a company registered to provide crypto trading services in Australia.

RELATED: WonderFi, Coinsquare, CoinSmart merge as landmark Canadian crypto deal closes

Following these acquisitions, WonderFi has laid off staff and migrated Bitvo, Coinberry, and CoinSmart’s users to the Bitbuy brand, which it continues to operate alongside Coinsquare, in a push to cut expenses and achieve economies of scale. WonderFi claimed it has reduced costs by 60 percent following its 2023 merger.

WonderFi CEO Dean Skurka recently told BetaKit that WonderFi plans to bring Bitbuy and Coinsquare’s more than 1.6 million clients to a single platform in the coming months. At the time, Skurka said he believed that WonderFi had “done a really good job at consolidating the Canadian [crypto] market” through its acquisitions.

Kaos begged to differ with this description. It argued that the “haphazard integration” of WonderFi’s acquired companies and the existence of multiple brands under the WonderFi banner have created market confusion. Kaos called WonderFi’s latest acquisition in Australia another example of a “misguided go-forward strategy that has confused investors.” Kaos said these issues are compounded by “a lack of product strategy and fragmented brand positioning.”

Kaos called WonderFi’s latest acquisition in Australia another example of a “misguided go-forward strategy that has confused investors.”

Since 2021, WonderFi has seen considerable changes to its leadership team, another factor that Kaos cited as a justification for proposing changes to the board. In the last two years alone, WonderFi has lost a CEO, two CFOs, a CSO, and multiple directors. In January, Coinsquare president Eric Richmond departed for a role at Montréal-based WonderFi competitor Shakepay as general counsel and head of business development. 

“This whirlwind of personnel shifts at the executive level has raised concerns regarding the company’s strategic trajectory and governance practices,” Kaos’ statement reads.

WonderFi released its latest earnings report yesterday, indicating that it generated $12.9 million in revenue in Q4 2023, a quarterly increase of 30 percent, and positive earnings before income, taxes, depreciation, and amortization of $6.7 million, months ahead of its internal projections—and a strong improvement compared to the third quarter of last year, when it lost $7.5 million by this metric. Amid the ongoing rise in crypto asset prices, WonderFi’s total client assets recently surpassed $1.5 billion, an increase of almost 50 percent since the end of 2023.

“WonderFi’s management team believes that the strength and quality of WonderFi’s financial and operational performance will improve the visibility of the company with new and existing investors,” said WonderFi. “The company will continue its efforts to broaden investor awareness and understanding of the unique value proposition that WonderFi can offer investors.”

Feature image courtesy WonderFi.