Shalini Nagarajan

Several former Consensys employees have sued co-founder Joseph Lubin, alleging he deprived them of their stock awards&#8217; value.



The lawsuit, filed Thursday, accused Lubin of allegedly luring highly skilled professionals into leaving stable jobs with the vision of building a &#8220;crypto Google&#8221; and assuring them significant rewards for their risk.&nbsp;



This promise, the plaintiffs claimed in the lawsuit, went unfulfilled, leading to their legal action. The complaint was filed Friday in a New York state court.



The lawsuit claims Lubin attracted the early employees with the promise of a solid stake in Switzerland-based Consensys AG, but allegedly didn&#8217;t follow through.&nbsp;



“The idea was that Consensys — and its projects and [<a href="https://blockworks.co/tag/intellectual-property">intellectual property</a>] — would be owned by all employees. Especially early employees,” lawyers for the plaintiffs wrote.



Lubin allegedly drained the core assets from the original <a href="https://blockworks.co/tag/consensys">Consensys</a> hub, funneling them into a new entity called Consensys Software (CSI), still under his control.&nbsp;



This maneuver effectively sank the value of the shares belonging to this initial team, rendering them almost worthless, according to the <a href="https://iapps.courts.state.ny.us/nyscef/ViewDocument?docIndex=o_PLUS_Rl1RtTIENwlGHZo2yB1g==">lawsuit</a>.



“Yet Lubin did not bring over many of his early employees—the Plaintiffs here—as equity holders in the new company. Instead, they continued to hold shares in the far less valuable entity that had been stripped of its assets,” the lawsuit said.



This plan is said to have included perks for <a href="https://blockworks.co/tag/jpmorgan">JPMorgan</a>, securing the bank a board position and a stake in the new entity.



Playing a “pivotal part” in Lubin&#8217;s strategy, JPMorgan, through its then-blockchain lead Umar Farooq, allegedly engaged in months of discussions with Lubin ahead of the scheduled transfer of assets, the suit said.



Blockworks has reached out to JPMorgan for comment.



Read more: <a href="https://blockworks.co/news/genesis-gemini-nyag-lawsuit">New York AG sues DCG, Gemini and Genesis in ‘sweeping lawsuit’</a>



The lawsuit bears resemblance to an earlier Swiss court case that wasn&#8217;t successful for the ex-employees, a Consensys spokesperson told Blockworks.



“Plaintiffs now believe their meritless claims stand a better chance of yielding a pay day if they game US courts and entangle Consensys Software and other unrelated parties in litigation,” they added.



“We fully expect that the plaintiffs, who were never employees of Consensys Software, will soon find this gambit is another fruitless attempt to enrich themselves from the success of others.”



The plaintiffs seek to secure damages from Lubin and Consensys in an amount to be determined at trial.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

ConsenSys

Ethereum co-founder Joseph Lubin faces new legal fight over employee equity 

Ben Strack

<div id="highlights-block_621fc1bc40713" class="highlights">
 <ul>
 <li>Thirty-five shareholders have filed a request with Swiss courts to investigate the transaction</li>
 <li>A ConsenSys spokesperson refuted the allegations as “factually inaccurate”</li>
 </ul>
 
</div>



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).&nbsp;



The transfer was in exchange for 10% ownership of CSI and an offset of a $39 million loan by Lubin, Falls said in a <a href="https://www.prnewswire.com/news-releases/blockchain-company-consensys-faces-multi-billion-dollar-audit-as-shareholders-claim-board-breaches-fiduciary-duties---attributed-to-arthur-falls-301493433.html" target="_blank" rel="noreferrer noopener">statement</a> 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.&nbsp; “[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.”&nbsp;&nbsp;



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.&nbsp;&nbsp;&nbsp;



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.&nbsp;



“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 <a href="https://cms.blockworks.co/onboarding-the-next-wave-of-metamask-users-through-nfts/" target="_blank" rel="noreferrer noopener">recently told Blockworks</a> 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.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Joseph Lubin

Newsletter

Blockworks Research