In a dramatic turn of events, over two dozen former employees of Consensys, a major Ethereum infrastructure firm, have filed a lawsuit against Joseph Lubin, the company’s founder and CEO. The plaintiffs allege that Lubin broke a “no-dilution promise” he made back in 2015, leading to a significant loss in their equity shares. This has raised questions about corporate ethics, accountability, and the legal obligations of founders towards their employees.
Consensys was established in October 2014 by Joseph Lubin, who is also one of the co-founders of Ethereum. The firm quickly became a central part of the Ethereum network, developing and hosting numerous infrastructure projects. The promise of being at the forefront of the cryptocurrency revolution attracted many bright and motivated individuals to join the company.
The controversy centers around a document allegedly written by Lubin in 2015, in which he promised not to dilute the equity shares of Consensys employees. The plaintiffs argue that Lubin broke this promise, leading to their shares in the Swiss-based holding company, Consensys AG (formerly Consensys Mesh), becoming worthless. This happened when Lubin transferred assets, including the popular cryptocurrency wallet MetaMask, to a new U.S.-based entity in 2020.
The plaintiffs claim that they were kept in the dark about the negotiations and the asset transfer, while Lubin and a select few, along with investment bank JPMorgan, benefitted from the deal. JPMorgan, too, is named as a defendant in the lawsuit, with the plaintiffs alleging that the bank played a crucial role in the asset transfer and became an equity holder in the new U.S. entity.
A spokesperson from Consensys has dismissed the claims as “frivolous” and “meritless,” stating that the plaintiffs have already tried and failed to pursue their claims in a Swiss court. The spokesperson argued that the plaintiffs, who were never employees of Consensys Software (the new U.S. entity), are now attempting to “game U.S. courts” in an effort to profit from the success of others.
The case has now moved to the Supreme Court of the State of New York, where the plaintiffs are seeking damages across six separate causes of action. The amount of damages will be determined at trial. Despite Consensys’s claims that the lawsuit has no merit, the High Court of Zug in Switzerland has previously issued a judgment in favor of the plaintiffs, lending support to their allegations that Lubin breached his duties.
This lawsuit raises serious questions about the responsibilities and commitments of startup founders towards their employees. As more and more individuals opt to work for startups, lured by the promise of equity shares and the potential for significant financial rewards, cases like this highlight the risks involved.
The role of major financial institutions in these deals also comes under scrutiny, as the plaintiffs allege that JPMorgan played a significant role in the asset transfer that ultimately led to their shares becoming worthless.
The Consensys lawsuit serves as a stark reminder of the potential pitfalls of equity deals in startups. While the allure of being part of the next big thing in technology is undeniable, employees must be aware of the risks involved and ensure that they are adequately protected. As for startup founders, this case highlights the importance of upholding promises made to early employees, as failing to do so can lead to legal troubles and damage to one’s reputation.
The legal battle between the former Consensys employees and Joseph Lubin is far from over, and its outcome will be closely watched by startups and employees alike. Regardless of the result, this case serves as a cautionary tale about the importance of transparency, accountability, and fairness in employee equity deals.