Over two dozen former employees of the Ethereum infrastructure firm ConsenSys have filed a lawsuit against the company’s founder and CEO, Joseph Lubin.
They allege that Lubin breached a “no-dilution promise” made in 2015, ultimately diluting their equity shares and leaving them with shares of significantly diminished value.
According to the lawsuit filed on Oct. 19 in a New York Supreme Court, Lubin orchestrated the transfer of critical assets, including the widely-used crypto wallet MetaMask, to a new U.S.-based entity in 2020. This move effectively devalued the shares held by the early employees.
The lawsuit names investment bank JPMorgan as one of the seven defendants, asserting that the bank played a pivotal role in negotiating the asset transfer and subsequently became a new equity holder in the U.S.-based entity.
At the heart of the lawsuit lies an alleged document in which Lubin vowed not to dilute employee equity shares. The document reportedly stated, “It is my intention that the percentage Consensys members receive will not be diluted by additional issuance.” However, the plaintiffs argue that Lubin not only broke this promise but also personally benefited from the dilution, leaving them with little to show for their contributions to the company.
The former employees, who held shares in the Swiss-based holding company Consensys AG (formerly Consensys Mesh), claim that the shares became “worthless” after the asset transfers. In response to the allegations, a ConsenSys spokesperson dismissed the claims as “frivolous,” asserting that the plaintiffs are attempting legal action in the U.S. after unsuccessful attempts in a Swiss court.
The spokesperson further stated that they 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 former employees joined an early iteration of ConsenSys founded by Lubin in Brooklyn in 2014. They agreed to lower pay in exchange for promised equity in the company. The present version of ConsenSys has secured a minimum of $726.7 million from investors and holds a valuation exceeding $7 billion, as stated in the lawsuit.
This lawsuit is not the first legal battle involving Lubin and ConsenSys. In January 2023, the High Court issued a judgment in favor of the plaintiffs, ordering the appointment of an auditor to investigate the alleged fraudulent transfer and the valuation of the transferred assets.
The plaintiffs are pursuing damages across six separate causes of action. The exact amount of damages will be determined at trial.