ConsenSys AG (CAG), the corporation backing MetaMask and additional blockchain projects, is required to have an extensive audit after 35 ex-employees asked for legal action against it in March. ConsenSys is based in New York City, but there also is an office in Switzerland.
CAG’s biggest shareholders have asked for article 697 of the Swiss Code of Obligations, which is what triggered the audit request. But what has happened that made almost half of shareholders ask for more information in the audit?
Lubin Suspected Of Fraud Involving JPMorgan
Lubin is the company founder and hold’s most of its shares. He also holds most shares for his related company ConsenSys Software Incorporated (CSI). The latter firm handles the intellectual properties that CAG develops. This includes Infura and MetaMask, which are innovative tools to create dApps on the Ethereum blockchain.
According to CAG shareholders, the intellectual properties in question were transferred illegally from CAG to CSI in August 2020. This led to CAG being liquidated, with Lubin asking for a $39 million loan while offering 10% ownership in CSI.
This was called Project North Star, and the transaction enabled JPMorgan to have a stake in Infura and MetaMask. CSI’s IP involving MetaMask and Infura was instrumental in the funding of CAG and led to a $3 billion valuation.
Lubin and CSI Director Frithjof Weinert were representatives during North Star. But dual representation isn’t encouraged under Swiss law.
More Troubling Details Revealed Regarding Shareholder Meeting
A recent report noted there were illegal delays in a mandatory shareholder meeting. The 2019 meeting wasn’t held until late 2021 and the one for 2020 hasn’t been held at all. Some believe the meeting was tardy because the owner wanted to hide the transfer of IPs by Project North Star. Whether that is true can’t be said at this point, but the Swiss court should settle the matter soon.
Also, Weinert may not even be able to be elected the leader of the IP firm. So, the transfer to Project North Star may not be legal, either. That said, whether the transfer will be nullified must be decided by courts in Switzerland.
Requests from shareholders about Project North Star were denied for more than a year. This was until company directors found out about legal maneuverings to enforce rights for people who were minority shareholders.
That was the reason directors held an informal meeting in late 2021 where Luba said staffing at CAG was being cut to 90 by the conclusion of 2021. This was a reduction of at least 70 people. This will be cut to only 30 in 2022. This is a 98% reduction of staff from more than 1200 five years ago.
Minority shareholders argue that transferring assets to CSI led to CAG being essentially liquidated. And the shareholder meeting that was required didn’t happen. It certainly looks as if the delay in the shareholder meeting could have been to conceal something from shareholders. However, this has not been proven.
ConsenSys Mesh head of marketing Diana Richter noted that their company refutes many of the allegations that have been outlined above. She said that the operating environment and business fundamentals have changed tremendously since the transaction happened.
Another company spokesperson said the allegation of fraud is a ‘desperate attempt’ to litigate the case in the press when there is no way to move it forward in court. He added that the group is only 50% of the total shareholders and just 12% of the company shares.
It is estimated it will take 90 days for the Swiss court to review the transaction and name the auditor.
Implications For MetaMask
Many are asking what all this means for the future of MetaMask. The wallet is open source and can be easily audited. However, the wallet is non-custodial, so users can only access the assets with the private key.
This is different than custodial crypto exchanges that hold private keys belonging to users. However, the Ethereum product always has been designed with decentralization in mind. JPMorgan being involved in the ecosystem erodes this vital image, even if the financial giant only has a 10% CSI stake.
This fact could make users explore other solutions because they suspect JPMorgan will have a heavy influence. It’s interesting to note that the biggest bank in the world recently published a Metaverse report that detailed growth opportunities because of MetaMask and other essential building tools.
MetaMask is the most used Ethereum wallet and it took five years to develop it and has been on market for four. It looks strange to many experts that MetaMask was only valued at $4.4 million when the unusual transaction happened.
CSI raised more than $60 million in one month of 2021 from large investors, such as UBS, Mastercard, and JPMorgan, and the company also raised $200 million last November.
Today, MetaMask has 21 active monthly users. Company leaders said last week they intend to bring more users into the wallet with NFTs or non-fungible tokens.
One industry observed noted that the employees who built and marketed the software took a reduction in pay so they could have a piece of the financial pie later. But that piece has been taken away by the questionable transaction.