mgt capital credibility coffinSummary

  • We believe we’ve uncovered the most damning reason that MGT Capital Investments Inc. (AMEX:MGT) has given us to be short and skeptical
  • MGT just disclosed that Future Tense Secure Systems, a company that is eligible to receive millions in stock and hundreds of thousands in cash from MGT is 33% owned by McAfee’s wife
  • Eligibility for discretionary bonuses essentially allows MGT, with Board approval, to cut checks to McAfee’s wife at will
  • It was also disclosed Future Tense owns 23% of Demonsaw and 50.4% of D-Vasive, companies that will potentially receive tens of millions in stock as part of a “buyout” despite having assets of about $5,000
  • McAfee’s wife — and we believe it is reasonable to say McAfee by proxy of his wife – stands to benefit significantly from shareholder cash

The Most Damning Evidence Against MGT Capital Yet

This article will provide what we believe to be the most damning reason the company has given us to be short thus far. If investors had any doubt as to whether or not questionable transactions were taking place at MGT Capital, yesterday’s preliminary proxy amendment filing should confirm those suspicions.

On May 9, 2016 John McAfee and Future Tense Secure Systems, Inc. entered the MGT Capital story through potential execution of a consulting agreement (APA) which we believe may have been part of the motivation for the pump campaign. What this agreement doesn’t show is Janice Dyson — McAfee’s wife — would later be disclosed as part owner of Future Tense, a company that would be granted “base compensation”, “value bonuses” and also “discretionary bonuses” that can be awarded “as the board may determine”.

Among other things, this May 9th 8-K provides language on bonuses for management consultant Future Tense Secure Systems, Inc. if the stock gets pushed over certain levels (hereinafter referred to by Geo as “the stock pump bonus”). In addition, if the Board approves of it, discretionary bonuses can been issued basically at any time. With the disclosure of Dyson’s interest in Future Tense made public in the proxy amendment yesterday, this seems carte blanche for MGT to cut checks of shareholder cash to McAfee’s wife. His wife’s company has already received a $250,000/year base compensation and “value bonuses” as predicated by the terms of this agreement:

a. Base Compensation. The Company shall pay the Consultant base compensation (the “Base Compensation”) at the annual rate of $250,000 (U.S.) payable in equal installments to be made no less often than monthly. The Consultant’s Base Compensation may be increased by the Board of Directors (the “Board”). Once increased, such increased amount shall constitute the Consultant’s Base Compensation.

b. Discretionary Bonus. The Consultant shall be eligible to earn a cash and/or equity bonus as the Board may determine, from time to time, based on meeting performance objectives and bonus criteria to be mutually identified by the Consultant and the Board. Such objectives and criteria may be based on a favorable sale or merger of the Company, in additional to operating metrics.

c. Value Bonuses. If, during the first twelve (12) months of the initial Term of this Agreement, the volume weighted average price (“VWAP”) of the Company’s common stock is equal to or greater than $1.00 for each of ten (10) consecutive trading days on the NYSE MKT exchange, then Consultant shall be entitled to receive a cash bonus in the amount of $250,000 to paid within thirty (30) days of such triggering event. If, during the first twelve (12) months of the initial Term of this Agreement, the VWAP of the Company’s common stock is equal to or greater than $2.00 for each of ten (10) consecutive trading days on the NYSE MKT exchange, then Consultant shall be entitled to receive an additional cash bonus in the amount of $350,000 to paid within thirty (30) days of such triggering event.

How Long Has Dyson Owned 33% of Future Tense?

A newly disclosed related party transaction, disclosed on 8/8/2016 starts to offer clarity on what may be going on. It essentially shows MGT transferring tens of millions of dollars in company stock to John McAfee’s wife via corporate entities that own companies MGT is trying to buy! We believe this to be the most egregious act of pocketing shareholder cash we have seen in the MGT Capital saga thus far and we believe this is the best cause we have seen yet for regulators to take note and halt MGT to make sure all is on the up and up.  Conveniently, this related party transaction was not disclosed during the MGT Capital pump, possibly helping Future Tense’s chances of cashing in on stock performance bonuses. It is unclear whether Dyson had this interest in Future Tense prior, or if it is a new interest.

We have published two earlier articles in our series on MGT Capital Investments so far. Each article laid out reasons that we are extremely skeptical of the company and why we are currently short MGT stock.

In our first article, we explored paid promotions surrounding the company’s stock and the background of two suspect MGT investors who had ties to previous pump and dumps.

In our second article, released just days ago, we explored the mechanics behind MGT issuing over $100 million worth of stock for two companies that have assets of just $5000. We were left baffled by how and why such a transaction could take place, but today we believe we have an answer.

In a preliminary proxy amendment that was filed yesterday, this astonishing related party transaction was disclosed:

As discussed above, upon the closing of the transaction contemplated under the APA, John McAfee will be appointed as the Company’s Executive Chairman of the Board of Directors and Chief Executive Officer. Janice Dyson, the wife of Mr. McAfee, owns 33% of the currently outstanding shares of common stock of Future Tense Secure Sytems, Inc., which in turn owns 50.4% of the outstanding shares of common stock of D-Vasive. Further, Future Tense Secure Systems, Inc. owns 23% of the membership interest of Demonsaw.

Why is this important?

Recall, we pointed out in our last article that MGT seeks to issue near $130M worth of stock to purchase D-Vasive/Demonsaw. In return for shareholders approving to issue stock that would dilute the current O/S count by 191%, they would get a “company” with $5,129 in assets and $9,611 in annual revenue. (Numbers NOT in thousands).

Even though MGT is disclosing this related party transaction, it appears to simply be McAfee proposing an issuance of tens of millions of dollars in stock to his own wife.

This Should Alarm Regulators

This represents one of the most blatant and alarming measures to pocket shareholder value we have seen questionable companies take over our eight years of investigating companies we believe are pump and dumps.

This simply adds another reason for skepticism surrounding MGT Capital and we believe this could be the “nail in the coffin” when it comes to whether not there winds up being a regulatory investigation into the company.

As we said in our first article, the circus needs to stop. We remain short MGT.