Mail.ru to buy Playkey, which failed to meet its ICO commitments to investors

The Mail.ru Group holding will acquire the cloud gaming service Playkey by the end of 2021. Four years ago Playkey raised $10.5 million in an ICO and did not fulfil the obligations promised to investors, reports Forbes.

The founder of Playkey is a 36-year-old Perm-born Egor Guryev. The service, through which users can play computer games via cloud servers, he launched in 2015 with colleagues from the telecom operator ER-Telekom, Alexey Lykov and Vadim Andreev.

In 2017, the partners decided to launch a decentralized platform that would connect gamers with owners of powerful personal computers and mining farms. The company aimed to cut costs of renting and leasing professional servers. They planned to pay for the services of equipment owners in cryptocurrency.

The management company of Playkey is LLC “Gaming Solutions”. Guryev’s stake in the ownership structure, according to Properm.ru, is represented by Slovak PLAYKEY HOLDING.

To conduct the ICO, Guryev registered a separate tokenizing company on the Cayman Islands. The service issued 60 million PKT tokens.

Following the token sale in November 2017, Playkey attracted $10.5 million in Bitcoin and Ethereum. The funds were contributed by more than 2,000 private investors from various countries, as well as three funds — Uncharted Capital, Allrise and G2H2 Capital. The latter invested $1 million each.

According to the white paper, the company was to present a decentralized platform in 2018. The tokens were to be the sole means of paying for gaming time and games on Playkey.

“The PKT currency will be used as the unit of account for all transactions in the Playkey ecosystem and as the basis for interacting with other digital services”, – the document states.

According to Guryev, the team launched the platform in March 2019. But, according to correspondence in the Russian Telegram investor-support chat, by May 2020 the platform was still at the minimum viable product (MVP) stage and was being refined. Investors believe that this is why the token price has not risen.

They also reported that Playkey did not launch a promotional campaign for the platform.

In May 2021, Mail.ru Group announced its purchase of Playkey: by the end of the year the holding would acquire 100% of the service. A source familiar with the deal terms told Mail.ru Group that the group was interested in Playkey’s technology. It would allow the holding to develop its own cloud gaming service, MY.GAMES Cloud, launched in 2020.

The parties did not disclose the deal value. Co-founder of the competing Loudplay service Vitaly Starodubov estimates it at $14–17 million.

A source at Mail.ru Group says the company does not plan to develop a decentralized platform. Investors should direct claims to the legal entity that conducted the ICO — in the deal, it has no involvement, and the acquired asset has no obligations to it.

“Mail.ru Group will develop My.Games Cloud on traditional infrastructure. Issues and claims regarding the ICO and the spending of funds by token holders should be directed to the company that conducted the ICO — there is no deal with it, and the obligations of the acquired asset do not extend to it.”

In ForkLog, Playkey investor Pavel Parshikov said that the group of affected token holders has collected all available information about the ICO, including the white paper and screenshots of communications with project managers. They plan to prepare a pre-litigation demand to Egor Guryev outlining fraudulent actions.

“It was Guryev who promised token use and, in his own name, said that the company was conducting an ICO. Going after the company that ran the token sale will not work here. The beneficiaries are specific individuals — they are the ones to answer for,” Parshikov noted.

The investor estimates his own missed gains at $20,000, based on nearly 20,000 PKT tokens he owns.

“I hope that soon Mail.ru will state that the decentralized platform and the PKT-based settlement scheme pose no risk, or that there will be a buyback and burn of tokens at ICO price,” he added.

In the Playkey decentralized platform white paper [available to ForkLog], there is a disclaimer:

“No information contained in this document should be construed as an offer to enter into a contract with any company or person mentioned herein. […] All actions based on information in this document are performed at the risk and discretion of the person executing them. Playkey and its affiliates bear no responsibility for the consequences of such actions.”

From a legal standpoint, the situation around Playkey is highly ambiguous, says Yuri Brisov, a member of the Legal Support Commission for digital economy of the Moscow branch of the Russian Lawyers Association.

“First, the disclaimers used by ICO organizers do not work in 90% of cases. This was demonstrated by American courts in the MakerDAO case, Tezos, which was touched upon briefly in the TON case. Practice shows that no matter how extensive the disclaimer a company uses, ICO participants always have the right to sue and often achieve positive results,” he explained in a ForkLog commentary.

Brisov stressed that the legality of such disclaimers for the initial placement of utility tokens is unclear:

“Playkey did not register an offering prospectus on an exchange. If we are talking about a crowd sale, then disclaimers basically do not play a major role, as they conflict with consumer protection law. Therefore, the suit is likely to be heard in court and the disclaimer will not help.”

Questions also surround which legal entity would be the defendant in the suit.

“If Mail.ru bought the company with all its assets and liabilities, they would be liable. The other question is that they probably anticipated such lawsuits and obtained insurance from the sellers,” Brisov said.

Such indemnity exists under both Russian and English law, the lawyer said. It gives the buyer the right to “shift” lawsuits to the seller for pre-agreed risks. Sometimes part of the deal amount is placed in a dedicated account and paid to the seller only after a defined period in which no one sues the acquired company.

“Lawyers at Mail.ru could not overlook such an obvious risk, so Mail.ru can probably feel secure,” added Yuri Brisov.

At the same time, the founders of Playkey could face equal risk:

• claims against each of them as private individuals;
• claims against the company that conducted the ICO;
• monetary claim from Mail.ru following a successful suit.

“There are many chances that investors’ claims will be satisfied, since the ICO for utility tokens was supposed to deliver a service for which money was paid. And here, the service was not actually delivered to the participants,” the lawyer concluded.

Moscow Digital School lecturer Roman Yankovsky believes that in a civil suit it will be difficult to hold the Cayman-registered company accountable if it is not formally connected to the Playkey founders.

“In some countries, there are specialized organizations that pursue such founders and impose fines, for example the US Securities and Exchange Commission (SEC) in the United States. In Russia there is no such service to protect investors’ rights. Of course, there are authorized bodies under the Bank of Russia, but these are symbolic posts with no real powers,” the expert said.

Nevertheless, investors have a chance to bring the Playkey founders to criminal liability, Yankovsky added. It would be possible if there is a proven case of intentional fraud — if it is proven that the team raised money for a project they did not intend to implement.

“Deceived investors can turn to law enforcement. They would not need to untangle the chain of legal entities and could bring to account the specific individuals who stood behind these companies.”

According to Yankovsky, any investor suit would deal Playkey a substantial reputational blow.

“When you are facing court proceedings, it becomes much harder to secure investments. And it is remarkable that Mail.ru began cooperating with this company, because such reputational costs can be very significant,” he concluded.

ForkLog requested comments from Mail.ru Group but received no prompt response. The editors also sent inquiries to major Playkey ICO investors — Uncharted Capital, Allrise and G2H2 Capital.

In late May, 50 investors from the Disruptive Era Fund filed a lawsuit against companies linked to the blockchain platform Telegram Open Network (TON). They invested a total of $72.1 million in the project.

Subscribe to ForkLog news on Telegram: ForkLog Feed — full news feed, ForkLog — the most important news, infographics and opinions.