Crypto Company ConsenSys Under Fire; Shareholders Demand Audit

Crypto Company ConsenSys Under Fire; Shareholders Demand Audit

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Shareholders have filed a request for a multi-billion dollar audit to investigate claims of serious irregularities by board members at ConsenSys. 

Former Employees Claim Breach In Project North Star

The request has been filed by a group of 35 former employees, who represent over 50% of all known ConsenSys AG (CAG) shareholders, claiming that the board has failed in its fiduciary duties. The filed audit request is under article 697a et seq. of the Swiss Code of Obligations.

The irregularities mainly refer to the codenamed “Project North Star,” which includes the illegal transfer of fundamental intellectual property and subsidiaries from CAG to the newly created entity, ConseSys Software Incorporated (CSI). This transaction also had an exchange of 10% ownership of CSI and an offset of a $39 million loan by founder Joseph Lubin. Since Lubin was the majority shareholder of both companies, this transaction benefitted him personally, at a loss to the minority shareholders. The project also saw both Joseph Lubin and Frithjof Weinert acting as directors at both CAG and CSI, which is considered invalid and warrants special investigation under Swiss law. The dual representation nulls the asset transfer from CAG to CSI under both Swiss and US laws. 

Assets Transferred Without Shareholders Knowledge

The assets under question include products like Infura, MetaMask, Truffle, PagaSys, Codefi, and subsidiaries in France, UK, Ireland, Australia, and Hong Kong. The total valuation of all transferred assets has been estimated at around $46.6 million. 

A spokesperson from CAG denied the claims by the shareholders, stating, 

“[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, Mesh looks forward to formally refuting the allegations and accusations in Swiss courts.”  

Shareholders Kept In The Dark

Delayed annual shareholder meetings kept minority shareholders in the dark regarding the transfer of this intellectual property. Furthermore, Weinert was never re-elected to the board of directors due to the delayed schedules. Therefore, his authorization of the Project North Star transaction is considered legally invalid. Shareholders have also claimed that all requests for information related to the project were denied for over a year till the minority shareholders started seeking legal channels to enforce their rights. Following this, the directors began reducing staffing numbers from 1,200 in 2017 to a measly 30 by 2022. The shareholders have claimed that Project North Star directly violates the duty of the directors to act in the best interests of CAG. The shareholders are currently fighting for the IP to be returned to the CAG. They are filing for the audit through the Swiss court system. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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