According to a recent filing with the U.S. Securities and Exchange Commission (SEC), AI Financial Corp. (AIFC) cannot sell the $706 million worth of WLFI tokens it holds in its vault, and this seriously threatens the company’s liquidity position. The company also received a $15 million loan as a related party from World Liberty Financial (WLFI) and is facing operational losses and negative working capital.
Locks on the WLFI Treasury
While the company previously operated under the name Alt5 Sigma, it changed its name to AI Financial in April and began offering fintech services in the field of crypto payment transactions. According to the update in April, the institution holds 7.28 billion WLFI tokens in its vault; The value of these assets is 706 million dollars. However, the total cost of the tokens was approximately $1.46 billion. Fintech revenue in the first quarter of the year was only 4.7 million dollars.
In the SEC filing, it was stated that all 7.28 billion WLFI tokens were contractually locked and unsellable as of March 28. While 3.53 billion of these tokens cannot be transferred for 12 months, the remaining 3.75 billion are subject to additional conditions; these require processes such as shareholder approval, bylaw changes and resale registration.
Liquidity Crisis and Financial Statement
AI Financial closed with just $10.5 million in cash at the end of the quarter. In addition, there is a risk that the company will not be able to continue its operations in the next year, as there is a working capital deficit of $ 5.5 million and continuous operational losses. According to US Financial Reporting Standards, the “continuing activity suspicion” warning came to the fore in this context.
The company documents stated that “while we do not have the opportunity to liquidate our largest asset, there is a serious suspicion that we may not be able to survive the next 12 months.”
The collateral for the $15 million loan provided to the company was directly WLFI tokens. Although the assets in question are shown as collateral, if the loan is not repaid, all tokens are transferred to WLFI.
Related Companies and Management Confusion
The relations between AI Financial and World Liberty Financial create another complexity. Because the managers of the two companies overlap to a large extent. Zac Witkoff, chairman of AI Financial, is also the CEO and co-founder of WLFI. Board member Zachary Folkman is also a co-founder of WLFI. WLFI owns 1 million common shares in AI Financial and also holds 99 million pre-funded preferred shares and options for an additional 20 million shares. This means the company could potentially control around 46% of AI Financial.
Internal Control Weaknesses and Governance Issues
It was also noted in the application documents that there were serious deficiencies in the company’s internal control processes. These included failure to properly document the internal control framework, valuation errors related to business combinations, and accounting errors that required correction of 2024 financial statements.
Additionally, uncertainty remains regarding the appointment of an external independent portfolio manager for the WLFI token treasury. Kraken, who served as trezorer for a short time last year, only served for 30 days and did not receive a renewal. Afterwards, no external manager was appointed.
AIFC’s shares in New York closed at $0.91 on Monday; This represents a 9.6% drop in one day.
