A group of 35 shareholders of Ethereum giant ConsenSys AG (CAG) have filed for a special audit of a 2020 deal that saw JPMorgan Chase acquire an “influential” stake in two of its flagship products.
The former employees — who represent more than half of all CAG shareholders — want an investigation into the matter which allegedly saw:
“… fundamental intellectual property and subsidiaries illegally transferred from CAG into a new entity, ConsenSys Software Incorporated (CSI).”
This was in exchange for a 10% stake in the new entity and a $39 million loan by ConsenSys chief and Ethereum billionaire Joseph Lubin, according to a press release issued Wednesday.
The deal, known within CAG as Project North Star, resulted in financial institutions (JPMorgan) winning a significant slice in the company’s lucrative intellectual property (IP), specifically MetaMask and Infura.
Both crypto wallet MetaMask and node network Infura persist as arguably the Ethereum ecosystem’s most critical infrastructure.
Turns out, Wall Street fat cats JPMorgan directly profits from — and even controls — that infrastructure.
Not exactly what Satoshi Nakamoto envisioned when he embedded “Chancellor on brink of second bailout for banks” in Bitcoin’s genesis block.
Indeed, Project North Star has proven incredibly lucrative for CSI shareholders like JPMorgan. A year after the transaction, the IP in question was used to raise funds for CSI at a valuation of $3 billion.
After a current round, the ConsenSys spin-off CSI is expected to hit $7 billion.
Original CAG insiders reckon the deal was “to the detriment of the minority shareholders of CAG and to the benefit of Joseph Lubin personally.”
Ethereum co-founder Lubin is the majority shareholder of CAG and CSI. Forbes values Lubin’s fortune between $1 billion and $5 billion.
Ethereum infrastructure deal may be invalid after ConsenSys directors skipped meetings
The former ConsenSys employees are invoking an article of the Swiss Code of Obligations which, if successful, may render the deal void.
At the time of the transaction, both Lubin and board member Frithjof Weinert were directors of both CAG and CSI. Unfortunately, under Swiss and US law, dual representation in a situation like this is not allowed.
The shareholders are also flagging the fact that required annual shareholder meetings had to be delayed by two years, meaning they had no idea the illegal deal even happened.
Because these meetings never took place, Weinert was supposedly never officially re-elected to the company’s board and so was in no position to authorize Project North Star.
In lieu of these shareholder meetings, Lubin hosted an “informal informational event” in late 2021 at which CAG staff were informed their numbers would be slashed from 160 to 30 by the end of this year.
This, coupled with movement of lucrative assets (MetaMask and Infura) from CAG to CSI meant “a de-facto liquidation of CAG, without the required consent of a shareholder meeting,” according to the shareholders’ press release.
This was, plaintiffs say, in breach of the directors’ duty to act in the company’s interests, considering it left shareholders holding equity in a company that didn’t actually own that much.
The shareholders asked anybody who holds or was promised CAG shares to contact them, vowed to “help all those who have been harmed,” and said they’re ready for upcoming court battles.
For what it’s worth, a ConsenSys Mesh (CAG) spokesperson told CoinDesk the company refutes the details the shareholders’ press release, saying:
“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.”
They also said CAG was prepared to immediately file further actions once a Swiss auditor responds to the case.
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Edit 07:32 UTC, Mar 5: Included statement from ConsenSys AG via CoinDesk in the final paragraphs.