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Alevo Group’s Convoluted Share Registration System

At the 2016 AGM a shareholder asked the Board of Alevo Group why the shares had been registered using the SIX SIS securities depository system. This was highly cumbersome, especially for non-Swiss shareholders, as it meant that they needed to have a correspondent bank hold the shares they had in Alevo Group, especially if they wanted to be able to exercise their voting rights. Chairman Jostein Eikeland was absent from the AGM (just like all previous AGMs), so the board replied that they did not know why the shares were registered in this complicated way (most private companies simply hold a share register, saving a lot of costs and simplifying the process).

At the founding of Alevo Group SA Jostein distributed some shares to management who in turn had to grant him the voting rights over those shares (the cashba modus operandi helps to explain why). Any transfer of shares was subject to board approval, and this continued until early 2016 when, as part of an ultimately failed fund-raising round aimed at Danske Bank, this stipulation was removed as it would not sit well with Danske’s clients. Jostein had set up the ground rules for others who wanted to trade in their shares had to follow, and which he should also follow?

In 2012 the then CFO had even asked Jostein why the shares were registered in this way, and was simply told that one of the (not specified) early shareholders had asked for the shares to be registered in such a way.

The report on how to launder money (which explained how Alevo facilitated this) that subsequently appeared sheds light on the real reason why this convoluted share registry was actually adopted.

Dormant shareholders’ rights: These rights relate to either so-called Dispo share or to depository shares. Dispo shares in Swiss parlance are share purchased through the banking system for which the beneficial owner has not filed a request for registration as a shareholder of the company. These shares do not vote at all, but they play a role for issues of quorum. Depository shares are registered shares endorsed in blank or bearer shares held by banks or other financial institutions in custody for their clients, for which they hold standard powers of attorney developed by the banks for their representation in the general meeting of shareholders. The standard powers of attorney used usually reflect the gist of the law on the subject. This template provides that, in the absence of instructions, the proxy will vote in favour of the motions of the board of directors.

This system appears to actually have been used so that those initial shareholders could avoid appearing in the shareholding registry and would instead benefit from the relative anonymity offered by the dispo shares. Additionaly, shares could be freely traded under the guise of this anonymity; one rule for the early investors, another for shares for management and subsequent investors. Another question that arises is whether or not Jostein even bothered to formally request permission from the board when he sold some of his own shares before 2016?

The Norwegian bank DNB had a depository share account that held a large proportion of the Alevo shares, and these shareholders were not registered in the Swiss share registry. A grey market in the shares of Alevo developed with many actors using shares in Alevo as security for grey market loans. Following suspicions of irregularities DNB eventually suspended all trading in Alevo shares in the summer of 2016.

On July 1, 2015 Switzerland enacted new rules to force unlisted companies to hold proper share registries of beneficial owners. In May 2017 Markus Alder even disclosed in front a judge in Norway that Alevo around 2015 was not even able to compile a proper shareholders’ register and didn’t really know who all the shareholders were, and how many shares they held.

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