What’s Going on with Peer to Peer Lender Grupeer?
by JD Alois
A couple of months ago Grupeer, a peer to peer lender ostensibly based in Latvia, shut-down all lending and allegedly halted all investor redemptions. In multiple statements, Grupeer management claimed the COVID-19 pandemic had harmed its ability to operate.
At the end of March, Grupeer founder and CEO Alla Kisika stated:
“… we are forced to inform you that in the current circumstances it is not possible for us to continue operations as before with an objective cause out of our control. Therefore, we hereby notify you that all payments to investors of Grupeer are currently suspended due to emergency state declared in European Union and worldwide regarding COVID-19 pandemic crises.”
Later in April, Grupeer asked for “understanding and reasonable behaviour” from platform investors as allegedly some investors had made threats directed towards the company.
Investors, of course, just want their money back.
Kisika later returned to the company blog to ensure investors that “Grupeer plans to continue to work hard to overcome all difficulties.” But due to the Coronavirus, the “process will be much more complicated than expected.”
At the end of April, Grupeer predicted that platform “stabilization” may take up to two years. The company urged investors “not to lose trust in the platform’s continued operations and the safety of their investments.”
Earlier today, Grupeer made another announcement claiming they had “resolved technical issues regarding balance status in the Investor’s cabinet.” Kisika stated:
“The investors who tried to withdraw financial means from their Grupeer’s account after 31st of March might have experienced the issue. It was caused by the error with a link from Grupeer platform systems to financial tools and bank accounts, which are frozen. In the next few days we will restore information of the balance status that was effective till 31st of March, 2020. However, for the projects that have been completed after 31st of March full calculations and procedure of withdrawals will be available in June along with the action plan for the investors.”
On May 20th, Kisiki posted an apology of sorts on YouTube that attempted to provide exculpatory reasons as to why Grupeer has struggled to maintain operations. Grupeer expects to announce an action plan for the repayment of investments at some point in June.
On the other side of the equation are the borrowers and lenders. The lenders (investors) are not very pleased, as one would expect. Enter the Grupeer Armada.
A website has been created that is seeking to coordinate any action that may be taken against Grupeer and its principles. According to the website, investigations allege that the P2P platform is a scam. To quote the allegations posted by the Armada:
- “Grupeer’s management has blamed withdrawal delays on loan originators failing to transfer payments. However, several originators have assured investors that they had made all payments to Grupeer on time.
- Even if loan originators had not transferred payments to Grupeer, it should not have affected requests to withdraw money available in users’ account balance. By law, Grupeer was not authorised to display money in users’ account balance unless it was present in Grupeer’s bank accounts.
- Email correspondence between Grupeer and loan originator PlanetaCash reveals suspicious ties: The same person, Fedor Kuzmin, seems to represent both parties, and they coordinate the addition of an “internal” loan originator
- Three of the loan originators (Monetria, Lion Lender and Epic Cash) were actually subsidiaries of PlanetaCash. This information had not been disclosed to investors. These companies, whose supposed loans were listed on Grupeer, do not have a lending license.
- At least two other originators deny listing loans on Grupeer or receiving money from Grupeer.”
There is additional information publicly available on the Armada website.
The Armada is advocating legal action on behalf of impacted investors with a core group of Armada members helping to coordinate the move. With the exception of an individual called “PeerDuck,” who apparently has experience in detecting scams, each individual has been impacted by the shutdown of Grupeer. PeerDuck is active on Twitter commenting on the shortcomings of various peer to peer lenders. An interview from April claims the Duck has helped to previously “bring down 4 P2P sites”.
For individuals inclined to pursue legal action, the Armada is expecting to be funded with 1.8% of an investor’s claim with a minimum of 25 euros. It was not immediately clear how many investors have agreed to participate in a joint lawsuit.
Crowdfund Insider reached out to the Latvian securities regulators for comment on the Grupeer saga and a representative had this to say:
“According to information at the Commission’s disposal, the owner of Grupeer platform and responsible for its operation is the company Grupeer Limited which is registered in Ireland. Despite the fact that this platform was established in Latvia, it was and has been legally transferred to Ireland and its supervision does not fall within the competence of the Commission. In order to operate in Latvia, the Grupeer must obtain an appropriate investment brokerage license, currently, the Grupeer operates in accordance with Irish national regulations.
The Commission would like to point out that no licence (permission) to provide financial services in Latvia has been granted to Grupeer Limited (Ireland). The Commission supervises only licensed market participants who have received a license to provide financial services in Latvia. In case you had suffered losses or suspect fraud, please contact the State Police.”
We have not yet had the chance to reach out to the Irish authorities.
This is an unfortunate twist in the Grupeer odyssey. In the US, regulators have a tendency to pursue enforcement actions regardless of where the entity is domiciled as long as a US citizen has been impacted by securities fraud. An action by the US SEC may be joined by a separate criminal action by the Feds. A fairly frequent occurrence. The Latvian regulators do not seem to be so inclined even with Grupeer operating within the country’s borders.
The Grupeer saga may be emblematic to the shortcoming of, or lack of, proper regulation. For Fintech services to grow and succeed anywhere, it is necessary to have a regulated environment that provides bright-line rules for operators offering financial services. Ecosystem participants must have confidence in the system to commit their capital. This is only accomplished by establishing a well-thought-out regulatory regime – not easy – but necessary. This holds true for Latvia and every other country. In the UK, it is a requirement for P2P platforms to have a wind-down procedure in place in case something goes wrong.
Other industry participants are not unaware of the black eye platforms like Grupeer, and others, have given to the P2P industry.
Recently, the Alternative Financial Services Association of Latvia released “Latvia’s Crowdfunding Industry Guidelines.” The aspiring SRO seeks to provide industry rules to foster a more transparent and sustainable sector of finance. Twino, a Latvia-based peer to peer lender, was the first operator to adhere to the guidelines developed by the Association. It is not clear if other Association members have yet agreed to the terms. But perhaps, the Association’s move was in response to Grupeer and the recognition that one bad apple can spoil the batch.