Judge Rules in Favor of Shareholder Votes To Approve or Reject Transaction That Founded ConsenSys Software Inc. - Arthur Falls
NEW YORK, Dec. 20, 2022 /PRNewswire/ -- On the 16th of November 2022, A Judge of the Cantonal Court of the Canton of Zug, Switzerland, ruled in favour of a group of shareholders who requested a vote to approve or reject the transaction that transferred assets: Metamask, Infura, Truffle, Codefi, Pegasys, and a range of regional consulting businesses from ConsenSys AG, to ConsenSys Software Inc.
Over the past 2 years, ConsenSys Software Inc. has raised USD 715 Million primarily on the basis of its ownership of these assets.
Quote from the Judge’s ruling (link below) :
“it does not seem outright absurd [to suggest] that the board of directors was in a conflict of interest when signing the SCA [Sales & Contribution Agreement that transferred the assets] . . . Therefore, the item on the agenda [a shareholder vote] is to be submitted to the general meeting for a resolution.” - Translated from the Swiss original by Google Translate
Regardless of the outcome, once the vote takes place, the transaction will become the subject of a shareholder meeting resolution. Under Swiss law, resolutions can be challenged in court. This will enable the shareholders to legally claim that the most valuable assets of ConsenSys Software Inc. were not validly transferred and are in fact still owned by ConsenSys AG.
A concurrent shareholder request for a special audit of the Sale & Contribution Agreement is expected to be ruled on in the coming weeks. This request was made in March 2022, however, repeated challenges by ConsenSys AG have delayed the ruling. If successful, the audit is expected to further strengthen the shareholder’s legal position.
“Many team members took massive pay cuts in exchange for a generous equity package. Some staff deliberately chose not to purchase Ethereum between 2015 and 2017 because they felt they were effectively investing in the ecosystem through the ConsenSys equity they were vesting.” - Arthur Falls, shareholder, ex-employee.
- ConsenSys AG was founded in 2014 by Joseph Lubin.
- Equity was awarded to a large number of employees in exchange for reduced salaries.
- A sales and Contribution agreement executed in 2020 transferred a large number of assets from ConsenSys AG to a newly created entity, ConsenSys Software Incorporated, without shareholder notification.
- ConsenSys Software Inc. subsequently raised three investment rounds totalling USD 715 Million from both individual and institutional investors with a reported final valuation of USD 7 billion.
- The shareholders argue that because Joseph Lubin was a Director of both ConsenSys AG and ConsenSys Software inc, and Joseph Lubin was the majority shareholder of both companies, he acted under a conflict of interest.
- Joseph Lubin contends that he was not the director of ConsenSys Software Inc. at the time the agreement was signed.
- That Joseph Lubin was the majority shareholder of both companies is undisputed. This may contribute to a conflict of interest.
- The Shareholders also contend that the other director of ConsenSys AG, Frithjof Weinert, was not validly elected by shareholders at the time of the transaction due to an illegal 2 year cessation of annual general shareholder meetings and so was not able to conclude the transaction for ConsenSys AG.
List of investors in ConsenSys Software Inc.
March 15, 2022 - $450 Million Round - $7 Billion Valuation
- Third Point
- C Ventures
- Marshall Wace
- Parafi Capital
November 17, 2021 - $200 Million Round - $3.2 Billion Valuation
- Coinbase Ventures
- Marshall Wace
- Third Point
- ParaFi Capital
- Think Investments
- Dragonfly Capital
- Electric Capital
- Spartan Group
- DeFiance Capital
- Animoca Brands
April 13, 2021 - $65 Million - Unknown Valuation
- J.P. Morgan
- Protocol Labs
- the Maker Foundation
- The LAO
- Alameda Research
- CMT Digital
- Greater Bay Area Homeland Development Fund
- SNZ Holding
- NGC Ventures
- Quotidian Ventures
- Liberty City Ventures
A PDF of the ruling can be found here. An original copy can be requested from the Cantonal court of Zug.
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SOURCE Arthur Falls