An Innovative Anti-bribery Commitment

Sara Jane Ho, an investor and Harvard Business School MBA class of 2012 alumna, began reading the recent business combination disclosure from the NASDAQ-listed Draper Oakwood Technology Acquisition (DOTA). DOTA listed nearly a year earlier on September 19, 2017, as a "blank check" or special purpose acquisition company (SPAC).1Firms like DOTA raise funds in public listings to search for companies to acquire and take public. Such funding models have grown exceedingly popular, with 25 new SPACs listing on the NASDAQ in 2017 alone.2

Ho was attracted to DOTA because it was sponsored by the legendary venture capitalist Tim Draper, who had previously invested in such companies as Skype, Hotmail, Tesla, and Baidu. On a day-to-day basis, DOTA was led by founder and CEO Aamer Sarfraz. Much like Draper, renowned as a maverick investor, Sarfraz had achieved prominence by investing where others shied away, most notably through his Indus Basin Holding, which focused on agriculture, mineral exploration, defense, and oil and gas investments in Pakistan.3

On September 17, 2018two days before the original date to consummate a dealDOTA filed its preliminary proxy statement for its business combination. DOTA's target: Reebonz, an online luxury goods platform based in Singapore that operated across the Asia-Pacific region including in Malaysia, Thailand, Indonesia, and China. Ho continued reading when halfway through the 500-page filing in Reebonz's financial statements one paragraph caught her attention.

The holders of the Series C and Series D Preference Shares have the option to demand redemption upon the commencement of an investigation (i) of a corruption or bribery event by any regulatory, governmental body or agency into any entity within the group or the founder; or (ii) into any representation, warranty, covenant, undertaking or other term relating to compliance with the Foreign Corrupt Practices Act of 1977 or the UK Bribery Act given by or in respect of any entity within the group or the founder at a redemption price of 200% of the original issuance price plus all declared but unpaid dividends, proportionally adjusted for any recapitalizations, share combinations, share dividends, share splits.

Effectively, Reebonz was offering some investors the opportunity to redeem shares for twice the original purchase price if either the US or the UK government initiated an investigation for bribery against any part of the organization or Reebonz's founder.4Ho understood the significance of the redemption option after witnessing the myriad of ways that firms and their managers could become enmeshed in bribery probes, especially when operating in high-growth emerging markets.

Ho thought that this was certainly a way to "walk the talk" when it came to making a strong anti- bribery commitment, but Ho also wondered if this was an offer that the leaders at Reebonz could comfortably make. Ho thought about some of the other companies she had invested in, where executives had expressed strong commitments to abide by the US Foreign Corrupt Practices Act and the UK Bribery Act. Ho began wondering if they too should offer investors a similar commitment to anti-bribery.

1. Why is the founder of Reebonz making this commitment?
2. What are the risks associated with providing this redemption option?
3. Do you believe other companies should offer similar commitments to their investors? Justify your answer.