Thank you to everyone who has let me interview them and view extensive documentation. I’m attempting to take a mountain of information into a few bite-sized chunks. This is part 2 of a 2 part weblog focused on understanding TCR and Kaleyra.

What kicked this off was the post The Campaign Registry and Foreign Ownership: A Matter of National Security, which acted like a lightning rod for much support and information. We followed up on Monday with Understanding TCR and Kaleyra Part 1, which drew in further support and information.

In Part 2 I focus on the fitness of Kaylera to own TCR. I have had so much information presented to me, it could cover tens of posts. Rather I’m going to focus on a few points that are supported by publicly available information:

• ‘Can’t catch me’ defense
• GigCapital SPACs
• Sarbanes Oxley Concerns
• Failure to report to federal regulatory authorities and failure to pay millions of dollars’ worth of Universal Service Fees; and
• CFIUS problems.

‘Can’t catch me’ defense

One point raised several times by people reading The Campaign Registry and Foreign Ownership: A Matter of National Security post is jingoism. In answer to that check out Kaleyra’s 2022 10-K at top of Page 34: Risks Related to Kaleyra’s Corporate Structure and Securities:

Stockholders of Kaleyra may not be able to enforce judgments entered by U.S. courts against certain of its officers and directors.

Kaleyra is incorporated in the State of Delaware. However, some of our directors and executive officers reside outside of the U.S.. As a result, stockholders of Kaleyra may not be able to effect service of process upon those persons within the U.S. or enforce against those persons judgments obtained in U.S. courts.

Kaleyra 2022 10-K filing

So you can form a US corporation from abroad, and not be held accountable for breaking laws because you reside outside of the U.S. That’s news to me, though sadly unsurprising given everything I’ve learned. I call it the ‘can’t catch me’ defense.

GigCapital SPAC

To those that read my weblog, you’ll know I’m rather circumspect on SPACs given everything I’ve seen over the past 3 years. For example, Hometown Deli in Paulsboro, New Jersey with annual sales of $40k went public in a SPAC and raised $100M.  

One of the GigCapial SPACs, GigCapital3 is being investigated by Stanford Law Professor Michael Klausner. Check out this article “A Sober Look at SPACs” written by Michael Klausner, Michael Ohlrogge, and Emily Ruan. GigCapital is also the SPAC behind Kaleyra going public.

In one court case Michael Klausner developed a financial model that argues the true value of SPAC shares are much lower than $10-a-share. He brought the court case in August 2021 against GigCapital3. 

In the GigCapital3 case, the sponsor’s initial $25,000 investment had an implied market value at the time of the merger worth $39 million, a 155,900% return, Klausner argued.

The court’s ruling accepted Klausner’s calculations. Part of the information GigCapital3 shareholders didn’t receive was that the shares the SPAC used to purchase Lightning eMotors were worth around $5.25 per share, not $10.

“If GigCapital3 had less than $6 per share to contribute to the merger, the proxy’s statement that GigCapital3 shares were worth $10 each was false, or at least materially misleading. Moreover, GigCapital3 stockholders could not logically expect to receive $10 per share of value in exchange.”

Here’s the court’s response rejecting a motion to dismisss the case against GigCapital3. The tide may finally be turning on SPACs. Though SPACs are run by exceptionally smart people, who are able to use and stay within the law to make loads of money for themselves. What they leave behind in the company afterwards is another matter.

The scam goes beyond the bad deal that the SPACs are for the investors and the public.  The GigCapital “family” of SPACs contains a huge second layer of scam involving Wilmington Trust. Here are the credit financings:

Credit Facility                                                                                 Wilmington Signer

ZEV GIG3 Wilmington $100M May 6, 2021 7.5% due 2024         Quinton DePompolo

KLR GIG1 Wilmington $200M June 1, 2021 6.125% due 2026    Quinton DePompolo

UPH GIG2 Wilmington $160M June 9, 2021 6.25% due 2026     Quinton DePompolo

BBAI GIG4 Wilmington $200M Dec 7, 2021 6.0% due 2026         Quinton DePompolo

It’s an unusual coincidence that four companies in completely different industries all need the same order of magnitude of funds at the same time. The only common denominator is Avi Katz/GigCapital and Quinton DePompolo/Wilmintgon Trust. The usage of funds was unusual too.  

Kaleyra used the funds to buy mGage (a business division of Vivial Inc, not a whole company) that was worth less than $100M for over $200M.   Big Bear used about $120M of the funds (that were coincidentally raised on the IPO date) to fund a forward stock purchase agreement for the SPAC stockholders at a well above market price.   

The ZEV and UPH stories could be equally is bad. The other common theme for all of these companies is that they are now dead penny stocks.  BBAI got a temporary bounce from being mistaken as an “AI” company but is on the way back to penny status.  Even Jim Cramer, when asked about Big Bear on his lightning round, said “Sell Sell Sell” as fast as he could.

Sarbanes Oxley Concerns

You can read the full case text of Pulzone v. Kaleyra, Inc here.  The Buc/Kaleyra Finance team raised Sarbanes Oxley concerns on reporting of closing costs in Oct ‘19 and were fired without cause in Dec ‘19.

Here’s a excerpt from the case text

At the time the merger was announced, GigCapital had approximately $145 million in cash on hand. Thereafter, and prior to the merger, many GigCapital shareholders exercised their right to redeem shares for cash, leaving GigCapital with only $40.8 million in cash.

Before the merger, Defendant Calogero also entered into a series of forward share purchase agreements, which left GigCapital with only $2.3 million in cash. This cash deficit threatened Kaleyra’s upcoming merger with GigCapital.

Plaintiffs believed that this cash shortfall was material information that had not been disclosed in proxy statements as required by federal securities law. On multiple occasions, Plaintiffs expressed their concerns to Calogero. Specifically, the Complaint alleges that Hsiao and Pulzone participated in a conference call with Calogero in September 2019, during which Hsiao and Pulzone shared their concerns with Calogero and also shared financial information collected by Canter with Calogero. Pulzone and Hsiao continued to share concerns with Calogero about the proxy statements throughout October 2019, and Hsiao even contacted an SEC commissioner for advice about the contents of the proxy statements.

On December 12, 2019, all three plaintiffs were fired. Pulzone was not offered compensation or severance payments, which in her view were required by her employment contract.

Case text of Pulzone v. Kaleyra, Inc

Failure to report to federal regulatory authorities and failure to pay millions of dollars’ worth of Universal Service Fees

There does not appear to be a FCC filer ID for Kaleyra, as of Aug 27 2023. I was unable to find any recorded registrations at the FCC for Kaleyra, Buc Mobile or mGage. Is Kaleyra even compliant with the regulations imposed on other US CPaaS such as the Robocall Mitigation Database-RMD? 

While investigating FCC registration it also appears Kaleyra have not completed the International Section 214 license is a license from the Federal Communications Commission (FCC) that allows a person or entity to provide telecommunications services between the United States and an international destination. The license ensures that the U.S. market is protected from anti-competitive behavior by carriers with market power in a foreign country.

In September 2022 Kaleyra was claiming “10 million calls in the last month” with Google Verify. Checking their voice API documentation they do claim “including all tier-1 US carriers.” On Verified calls they claim availability “in the U.S., Mexico, Brazil, Spain and India, with additional countries to follow.” 

For a publicly listed company to be providing voice services in the US and not be paying into the USF after the issue was highlighted by an exec 2 years ago should be of concern to the FCC. The Universal Service Fund (USF) is a government program that supports telecommunications access and affordability in rural and low-income communities.

CFIUS Concerns

See Rick Joyce’s concerns in The Campaign Registry and Foreign Ownership: A Matter of National Security.

I just want to restate, Rick Joyce was the Chief Counsel for cybersecurity and communications at the U.S. Department of Homeland Security/U.S. Coast Guard, and held the Nation’s highest security clearance, Top Secret/Secured Compartmented Information. Rick is as heavyweight as it comes in communications security. We should all take his concerns seriously.

Commentary

The concerns with Kaleyra owning TCR have little to do with nationalism, and everything to do with a company listed on the New York American Stock Exchange (NYSE American) falling short of what is expected in compliance with the law. My advice remains, try to avoid doing business with companies that have gone public through SPACs. 

To everyone outside the US looking at this and thinking its a US issue, it’s coming your way given telcos copy one another. Look at stir/shaken, and all the other problems we see in business calling from third party Analytic Engines. As Numeracle explains in a 40 page FCC comment, https://www.fcc.gov/ecfs/document/108102252803712/1.

What I have learned over the past few days has left me feeling sick to the pit of my stomach. People trying to do the right thing have been fired and discredited. When they bring legal action its delayed and deferred, the company is just waiting them out. I feel like a horrifically surreal The Twilight Zone episode has been described to me. There is so much more that can be shared. Action is urgently required.

To everyone in TCR, Kaleyra, and the industry; please comment, we want a broad industry discussion. Everything presented in this post is referenced to publicly available documentation.

Check out other articles in this series:

Messaging Monopolies

Understanding TCR and Kaleyra Part 1

The Campaign Registry and Foreign Ownership: A Matter of National Security