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ConsenSys Blockchain Faces Lawsuit from Shareholders Alleging Financial Irregularities

According to the Swiss Code of Obligations, a group of 35 former ConsenSys AG (CAG) workers representing more than half of all known shareholders on March 1st, 2022, requested an audit according to art. 697a et seq. An investigation of CAG’s financial irregularities is the focus of a special audit. ConsenSys Software Incorporated (CSI) received a 10% stake in CAG in return for an offset of a $39 million loan from CAG’s founder Joseph Lubin on August 14, 2020, making it the new owner of CAG’s essential intellectual property and subsidiaries.

MetaMask and Infura, two of Ethereum’s most commonly used infrastructure tools, were acquired by JPMorgan Chase as part of the “Project North Star” deal, which was codenamed internally. CSI was able to obtain $3 billion in capital a year later, and the current round is expected to be valued at $7 billion. This intellectual property was leveraged to raise this money.

Both firms are owned by Joseph Lubin, who is the biggest shareholder. The minority owners of CAG were harmed by the deal, while Joseph Lubin personally reaped the benefits. During Project North Star, Joseph Lubin and Frithjof Weinert served as both CAG and CSI’s directors. Under Swiss law, dual representation is generally void, and in the United States, it is seen to demand further scrutiny. The transfer of assets from CAG to CSI is believed to be null and unlawful under Swiss law and presumably also under US law as a result of this dual representation.

CAG’s minority shareholders were unaware of the unlawful transfer of IP since yearly shareholder meetings, which are mandated by Swiss law, were illegally postponed after the shareholder meeting in 2018 (the meeting for 2019 took place in late 2021, the meeting for 2020 has yet to take place). It was unlawful to postpone shareholder meetings, therefore Frithjof Weinert’s re-election to the board of directors never happened. Because of this, Weinert is accused of being an ineligible director and the legality of the Project North Star transaction is questioned.

For more than a year, directors refused to answer questions from shareholders about the Project North Star acquisition because they were unaware of legal procedures to protect minority shareholders. When the directors were confronted with this issue in November 2021, Joseph Lubin said that CAG’s workforce will be cut from 160 at the end of 2020 to 90 in 2021 and 30 in 2022 in a “Informal Informational Event.”

The company’s peak of more than 1,200 employees in 2017 has been slashed by about 98 percent, leaving it a tiny fraction of its previous size.

According to the minority shareholders, the transfer of assets from CAG to CSI amounted to a de facto liquidation of CAG without the necessary approval of a shareholder meeting. The minority shareholders further claim that the directors of CAG were in violation of their obligation to act in the best interests of CAG in relation to Project North Star.

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