UPDATE (22nd December 12:13 GMT): Andrew Laurus contacted CoinDesk to say that, as of 21st December, he surrendered his shares in Alpha Technology Ltd and is no longer a shareholder, nor has any role or connection to the company.
Manchester-based mining outfit Alpha Technology has missed its July delivery target, stating that technical problems and a dispute with PayPal have caused delays.
Alpha Technology, which began taking pre-orders for its ASIC miners in January this year, now says it aims to deliver by September.
“We may have perhaps overpromised,” Alpha Technology’s 23-year-old managing director Mohammed Akram wrote on the company’s blog.
The announcement, which comes after months of updates about Alpha Technology's progress, has done little to appease customers, some of whom are now complaining the company is not responding to requests for refunds.
One Alpha Technology customer, Texas native David Sutherland, said the delay will make it impossible to get a return on his initial investment.
“By September, unless Alpha Technology once again promises a vastly increased hashrate for our same investment, there will be no way to see a return on the investment. All one has to do is look at the amount to be paid and the hashrate promised,” he said.
Sutherland said he is now contacting other Alpha Technology customers to begin civil action in the UK to get his money back:
“I give them credit for trying, they seem like a good bunch of people trying their best, but I think the lack of experience in dealing with the process of ASIC manufacturing and implementation really hurt them.”
Speaking to CoinDesk, Akram said that the company had the necessary funds to ship all the hardware its customers had ordered, and that its initial terms of sale stated products might not ship until the end of Q3 (September). He rejected the suggestion that the team was inexperienced and said that the company had always been clear about its refund policy and funding model, saying:
"This is a pre-order model and most of the pre-order money was used to fund the project, we have always made this clear from the start. If the customers did not agree with this model and did not agree with the terms, then I feel they should not have ordered."
He said the delay was due to the company not being able to access customer funds on PayPal.
“We did expect to ship this month, even with the technical error which occurred during tape-out. [We] would have corrected the issue much quicker if we had access to PayPal funds,” said Akram.
“We have had an investor on board to help correct this issue, plus with our other sources of funding, it is now enough to take us from tape-out to mass manufacturing to shipping.”
“The delay is purely down to PayPal,” he said, adding that the company has decided to offer its first-batch customers shares in Alpha Technology, in addition to their miner.
"Any future mining operations and any future batches we do, our customers will gain a share of the profits via dividend distributions," said Akram, promising further details of the deal "soon".
A promising start
Founded in April 2013 by Mohammed Mubasher Akram as Cheshire Technology Limited, Alpha Technology held promise as a different type of mining outfit.
The company posted its address and phone number online and only asked for a 30% deposit on pre-orders, unlike the 100% deposit required by other mining companies.
In July 2013, the company shed the Cheshire Technology name and legally changed address from Stockport to a Manchester address shared by Akram’s father’s accounting company – M. Akram and Co. That summer the company’s blog was regularly updated with news of technical progress.
Akram, who holds a Masters of Engineering degree in electrical and electronic engineering but declined to name the university or other details, was gearing up for a launch in early 2014. In late December, he announced pricing details for the company's mining hardware and an estimated shipping date between April and September 2014 (Q2–Q3).
“Our goal is to improve significantly on our shipping estimates of Q2/Q3,” he wrote on the company’s blog on 24th December 2013.
Already the company’s refunds policy was attracting criticism. Depending on the time elapsed from your purchase, the company would refund less and less of your initial deposit and charge a £70 fee in all cases. Consumers in the UK have the right to a full refund if a product is not fit for purpose.
“This refund policy is fair as we are not taking 100% upfront,” said Akram in the same post.
By 2nd January the company was almost ready to begin sales. It released a video on YouTube, which now has almost 30,000 views, showing a demonstration of their mining hardware.
Money rolls in
Two days later, pre-orders opened. Customers could pay with PayPal, bank transfer or bitcoin. Just four days after that, on 8th January, the company was already nearing its target for the first batch of hardware and announced it would close its first-batch of pre-orders on 10th January.
At this stage, Akram was “targeting the end of Q2 [June] as our delivery date,” and released a roadmap that placed 15th July as the end date for the completed hardware.
Two months on and the first rumblings of trouble began to surface. The company announced it would take further pre-orders on 28th March but also noted that it would no longer take payments via PayPal, writing that PayPal had not been as "friendly and receptive as we had hoped to not only our project but cryptocurrency in general”.
Crowdfunded projects have long had trouble with PayPal, which often declines to release funds until a product ships. For crowdfunding projects that rely on pre-funding to complete development of their product, this can cause serious cash flow problems.
Alpha Technology made no mention of having any such issues, reassuring customers that the shift was “purely a behind-the-scenes business change”. Indeed the 27th March blogpost said the company's “imminent release is hampering competitor sales”.
The company did not have cash flow problems when it stopped accepting PayPal payments, Akram told CoinDesk, saying the problems only arose "recently when we need to correct [technical] issues".
On 5th April, Akram’s older brother, Mohammed Jafar Akram had his directorship of the company terminated. He had been appointed on 29th December 2013, shortly before the launch of pre-orders in January. On the same day, their father, Muhammad Akram, resigned as a director, after being appointed a month earlier.
At some point between 30th November 2013 and 11th July 2014, former Lehman Brothers bonds salesman Andrew Laurus invested in the company.
According to Alpha Technology's July 2014 annual return, Laurus now owns 10% of Alpha Technologies Limited, with managing director Akram owning the other 90%.
Akram said that his father and brother had been involved in the company in order to help get the business up and running, and left when their skills were no longer needed. He declined to say when Andrew Laurus invested in the company or how much he paid for his 10% stake.
"Laurus is an asset to the organisation with respect to the large projects he's previously been involved in and the contacts and experience he brings to the table," said Akram.
Laurus was previously cited in an August 2013 The Wall Street Journal article that claimed currency trader Joe Lewis was investing $200m in bitcoin mining company Avalon.
"The bitcoin deal was put together by Andrew Laurus, a former government bonds salesman at Lehman Brothers who is also an investor in the [Phoenix Fund]," the article read.
The story later turned out be false.
Spoke to Joe Lewis this morning who says of reported Bitcoin investment: "Completely Untrue". Tells me he's "Never heard of Phoenix Fund"
— Scott Wapner (@ScottWapnerCNBC) August 5, 2013
CoinDesk has reached out to Laurus, but did not receive an immediate response.
Issues finally surface
As late as the end of May 2014, Alpha Technologies was still pointing to July as the shipping date, though it had begun to make alterations to the final product, removing Wi-Fi connectivity and the LCD screen in an effort to make a “back-to-basics” miner. At the same time, Alpha Technologies promised a massive jump in the hashing power of its products, from 90Mh/s to a "minimum" of 250Mh/s for its high-end miner.
Some customers responded with scepticism, claiming the increase was a cynical bid to keep customers on board, a claim Alpha Technology has strongly denied.
Akram told CoinDesk that it was not until the end of June and beginning of July that they "became aware of the full extent of the problem delay" and that before that point they believed they could still meet the July deadline.
No further announcements were made on the company’s blog until 20th June, when Alpha Technology apologised for not responding to emails – “We will be up to date on our emails within a matter of days” – and warned customers posts on the forum would be deleted if they concerned orders: “We cannot discuss orders on a public forum.”
It would be almost another month before the next update. The company's 15th July announcement that customers could now pay with credit card included an admission that the July shipping date would be missed.
“We are aware it is half way through July (and passed our best case scenario date) and hope to be able to give you a shipping date as soon as possible so stay tuned,” the statement read.
With yesterday’s announcement, that shipping date has now been given.
The company has again rejected claims that its refund policies contradict UK law, saying that consumer laws don’t apply to what it argues are business purchases.
“As far [our policy] contradicts with consumer laws; this is not possible as such regulations only apply to consumer products,” the 28th July blogpost reads.
It goes on to say that its sales are classed as “business purchases” due in part to the fact that its hardware “can only be used for mining cryptocurrencies which is legally a business practice and a taxable activity according to HMRC.”
The HMRC decision the blogpost references to support its argument was released on 3rd March 2014, almost two full months after Alpha Technology opened pre-orders in early January.
"Our legal advisers have advised us this from the start, long before HMRC released their brief," said Akram. "These mining machines are effectively money making machines [...] our legal team and we are positive that there is no other way to look at this, they are what they are."
He added that their argument did not solely rely on HMRC's tax position, saying that Distance Selling Regulations (DSR), which cover the sale of goods online, were a "legal matter".
With some disgruntled customers now saying they may take civil action against Alpha Technology, that legal matter may well be resolved in a court.
Image credit: Litecoin Talk user wndsr