Over two dozen former employees of Consensys, the Ethereum infrastructure firm, have taken legal action against its founder and CEO, Joseph Lubin. The lawsuit alleges that Lubin violated a “no-dilution promise” he made in 2015, ultimately diminishing the equity shares of these former employees who played a pivotal role in the early days of the company.
The plaintiffs claim that Joseph Lubin enticed them to join Consensys in late 2014 with grand promises, including that the firm would be the “future of cryptocurrency” and the “crypto Google.” According to the lawsuit filed on October 19 in a New York Supreme Court, Lubin’s document at the time explicitly stated that he would not dilute employee equity shares, solidifying their commitment to the company.
“It is my intention that the percentage Consensys members receive will not be diluted by additional issuance,” the document reportedly stated. However, the plaintiffs argue that Lubin not only broke this promise but also profited from it, while they were left with nothing.
“He broke his word [and] he violated his legal commitments and duties. While Lubin got rich, Plaintiffs got nothing,”
they asserted.
The former employees, who held shares in Consensys AG, a Swiss-based holding company, further allege that the value of their shares plummeted when Lubin transferred assets, including the popular cryptocurrency wallet MetaMask, to a new United States-based entity in 2020. This transfer reportedly rendered their shares “worthless.”
Moreover, the lawsuit names JPMorgan as one of the seven defendants, asserting that the investment bank played a crucial role in negotiating the asset transfer and consequently became a new equity holder in the U.S. entity. The plaintiffs claim that they were left in the dark about these negotiations, and Lubin failed to bring them, his early employees, as equity holders in the new company.
Instead, they remained shareholders in a significantly less valuable entity that had been stripped of its assets. These allegations raise questions about transparency and equity management within the company.
Consensys faces lawsuit over equity dispute
In response to the lawsuit, Consensys issued a statement through a spokesperson, dismissing the claims as “frivolous.” The company accused the plaintiffs of attempting to capitalize on the U.S. legal system after their claims had allegedly made no progress in a Swiss court over the past two years.
“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 Consensys representative stated.
Notably, despite the assertion that the legal challenge had made no headway in Switzerland, the country’s High Court of Zug issued a judgment in favor of the plaintiffs, a development that the plaintiffs argue supports their position that Lubin breached his duties.
Consensys, founded in October 2014, predates the launch of the Ethereum blockchain by about nine months, playing a significant role in the development of infrastructure projects that underpin much of the Ethereum network.
The plaintiffs in this lawsuit are seeking damages across six separate causes of action, with the specific amount to be determined at trial. The case is poised to shine a spotlight on the responsibilities of founders and CEOs regarding equity promises made to early employees, raising broader questions about transparency and accountability in the blockchain and cryptocurrency space.
As the legal battle unfolds, it will be closely watched by industry insiders and legal experts, with potential implications for similar cases in the future. The cryptocurrency and blockchain space is rapidly evolving, and this lawsuit highlights the importance of upholding contractual commitments and ethical obligations as the industry matures.
