Crypto Company ConsenSys Under Fire From Shareholders Demanding Audit
Movement of company subsidiaries and products into separate entity is breach of fiduciary duties, former employee alleges
- Thirty-five shareholders have filed a request with Swiss courts to investigate the transaction
- A ConsenSys spokesperson refuted the allegations as “factually inaccurate”
ConsenSys, the Ethereum developer overseeing the cryptocurrency wallet MetaMask, is facing allegations that its founder illegally shifted valuable assets to a new company.
A group of 35 shareholders are asking a Swiss court to conduct an audit of the company and to investigate the dealings of its founder, Joseph Lubin.
Arthur Falls, a former employee of the Ethereum software company, alleges 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, Falls said in a statement Tuesday. Falls was the director of media for ConsenSys Systems from February 2016 to September 2017.
Lubin and Frithjof Weinert acted as directors at both Switzerland-based CAG and US-based CSI at the time, according to the statement. Shareholders expect the asset transfer to be void under Swiss and US law due to the alleged dual representation.
The transfer was executed in a “deliberate and premeditated fashion” without seeking shareholder input, Falls told Blockworks. Falls is one of 35 CAG shareholders that have filed a request with Swiss courts to perform a special audit to investigate the transaction.
“[ConsenSys] Mesh refutes the allegations underlying the legal action as well as those contained in the factually inaccurate press release that was self-authored by one of the former employees,” a company spokesperson told Blockworks. “Mesh looks forward to formally refuting the allegations and accusations in Swiss courts.”
The assets transferred from CAG to CSI — including products Infura, MetaMask, Truffle, PegaSys and Codefi as well as subsidiaries in France, the UK, Ireland, Australia and Hong Kong — were valued at $46.6 million as of June 30, 2020, according to documents reviewed by Blockworks.
Infura was valued at $14.5 million at the time of the transfer, and Metamask was deemed to be worth $4.4 million, the documents state.
“Metamask is by far the most widely used Ethereum wallet, and it had been in development for five years at the time and in the marketplace for over four,” Falls told Blockworks. “So, it’s really, really hard to imagine that it would be worth only $4.4 million.”
ConsenSys raised $65 million in April 2021 from investors such as JPMorgan, Mastercard and UBS. The company raised an additional $200 million in November, bringing its valuation to $3.2 billion.
Around the time of the latest raise, ConsenSys said MetaMask had roughly 21 million active users each month. Company executives recently told Blockworks that ConsenSys was looking to onboard the next tens of millions of users into MetaMask through non-fungible tokens (NFT)s.
“The people who put the work into building the software and marketing the software, they took a pay cut to do it in exchange for a piece of the pie,” Falls said. “And now that’s been taken away.”
The ConsenSys spokesperson said that the transfer of assets from CAG to CSI was “conducted properly,” noting that accounting firm PwC conducted an independent valuation.
“The business fundamentals and operating environment are entirely different today than at the time of the transaction, though the group would like to apply a valuation that might be achieved today to a set of projects that were pre-monetization during the darkest days of Covid when the transaction took place,” the representative said.
The Swiss court will review the audit request over the next three months and rule whether it warrants more scrutiny. The group of shareholders is prepared to litigate, according to Falls.
“We want to reverse the transaction,” Falls said. “We want the intellectual property to be removed from CSI and returned to CAG. That’s our goal.”
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