ConsenSys Shareholders Win Battle in War for Critical Ethereum Infrastructure

A Swiss court judge has granted shareholders of Ethereum development studio ConsenSys the ability to vote on a transfer of assets — including MetaMask — they allege was illegal. 

The decision came last month, about eight months after a group of 35 shareholders requested an audit of the company and to investigate the dealings of its founder Joseph Lubin.

That audit request is expected to be ruled on in the coming weeks, according to a shareholder statement published Tuesday.

Arthur Falls, a former employee of the Ethereum software company, alleged in March that in August 2020, ConsenSys AG (CAG) — also known as ConsenSys Mesh — illegally transferred intellectual property and other assets into ConsenSys Software Inc. (CSI). 

The transfer was in exchange for 10% ownership of CSI and an offset of a $39 million loan by Lubin, according to Falls — the director of media for ConsenSys Systems from February 2016 to September 2017.  

Falls said: “Internally code named ‘Project North Star,’ the transaction resulted in legacy financial institutions such as JPMorgan Chase acquiring an influential stake in MetaMask and Infura, two of the most widely used infrastructure tools in Ethereum.”

The transferred assets — which also included Truffle, PegaSys and Codefi — were valued at $46.6 million as of June 30, 2020, according to documents reviewed by Blockworks in March.

The transfer was executed in a “deliberate and premeditated fashion” without seeking shareholder input, Falls had told Blockworks.

A ConsenSys spokesperson denied the allegations at the time. The representative said that the transfer of assets from CAG to CSI was “conducted properly,” adding that accounting firm PwC conducted an independent valuation.

Once the shareholder vote on this asset transfer takes place, it can then be challenged in court, according to the shareholders’ statement on Tuesday.

Falls and a ConsenSys spokesperson did not immediately return a request for comment.

Shareholders paid in equity

Employees claim they were given equity in ConsenSys in exchange for reduced salaries. The alleged illegal transfer of assets to ConsenSys Software, a separate entity, essentially devalued that equity, they argue.

The group of shareholders is also claiming to the court that because Lubin was a director and the majority shareholder of both CAG and CSI, he acted under a conflict of interest. 

Lubin contends he was not the director of CSI when the agreement was signed.

“Many team members took massive pay cuts in exchange for a generous equity package,” Falls said in a statement. “Some staff deliberately chose not to purchase Ethereum between 2015 and 2017 because they felt they were effectively investing in the ecosystem through the ConsenSys equity they were vesting.”

CSI went on to raise more than $700 million from investors in three funding rounds after the asset transfer, the shareholders say.

JPMorgan, Mastercard and UBS were among the investors in the $65 million funding round completed in April 2021. 

The most recent round in March amounted to $450 million from investors including ParaFi Capital, SoftBank, Temasek and Microsoft, giving the company a valuation of more than $7 billion.


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Source: https://blockworks.co/news/consensys-shareholders-win-battle-for-ethereum-infrastructure