AI Financial Corp. (AIFC) is facing a severe liquidity crisis after a recent filing with the U.S. Securities and Exchange Commission (SEC) revealed the company cannot sell its $706 million WLFI token holdings. With rising operational losses and a $15 million loan from its affiliate, World Liberty Financial (WLFI), AIFC’s ability to survive the next year is in jeopardy.
Locked WLFI tokens threaten liquidity
Formerly operating as Alt5 Sigma, AIFC rebranded in April and shifted its focus to fintech services within crypto payment processing. As of April, the company holds 7.28 billion WLFI tokens—worth $706 million at current market prices—even though the original acquisition cost was estimated at $1.46 billion. Meanwhile, AIFC’s fintech operations generated only $4.7 million in revenue during the first quarter of the year.
The SEC filing makes clear that as of March 28, all 7.28 billion WLFI tokens are contractually locked and unsellable. Of these, 3.53 billion tokens are subject to a 12-month transfer restriction, while the remaining 3.75 billion require shareholder approval, bylaw amendments, and resale registration before they can be accessed or sold.
Liquidity crisis and financial risks
AIFC ended the quarter with just $10.5 million in cash, and its working capital deficit stands at $5.5 million. The company continues to Post losses from operations, raising doubts about its ability to continue as a going concern over the next 12 months under U.S. financial reporting rules.
In company filings, it is stated that “there is significant doubt about our ability to continue over the next 12 months when our largest asset cannot be liquidated.”
The $15 million loan AIFC received was secured directly by the WLFI token holdings. If the loan is not repaid, all of AIFC’s WLFI tokens will transfer to WLFI as collateral recovery.
Overlapping management raises governance concerns
The intertwined relationship between AIFC and World Liberty Financial complicates matters further, as both companies share key executives. Zac Witkoff chairs AIFC’s board and also serves as WLFI’s CEO and co-founder, while board member Zachary Folkman is another WLFI co-founder. WLFI itself holds 1 million common shares in AIFC, 99 million pre-funded preferred shares, and options for an additional 20 million shares, potentially enabling WLFI to control up to 46% of AIFC’s equity.
Internal controls and treasury mismanagement
Filings highlighted significant weaknesses in AIFC’s internal control systems. Documentation lapses in control procedures, misvaluations during company mergers, and accounting errors have caused inaccuracies in its 2024 financial statements, requiring restatement.
Uncertainty also persists over the appointment of an independent external manager for the WLFI token treasury. While crypto exchange Kraken briefly served as custodian last year, it stepped down after just 30 days without renewal and no replacement has been appointed since.
On Monday, AIFC’s shares on the New York exchange fell 9.6% to close at $0.91, reflecting mounting investor concerns.
