ConsenSys Founder Accused of $39M Fraud Involving JPMorgan
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ConsenSys Founder Accused of $39M Fraud Involving JPMorgan

Majority shareholders have requested a special audit after alleging financial irregularities.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

ConsenSys AG (CAG), the company behind MetaMask and other blockchain projects, has to undergo a special audit after 35 of its ex-employees (making up more than 50% of the shareholders) requested legal action against the company on March 1. Although the company is headquartered in Brooklyn, New York, it also has a corporate office in Zug, Switzerland.

CAG’s shareholders are invoking article 697 of the Swiss Code of Obligations. But why would more than half of CAG shareholders want clarification via special audit?

According to a recent press release, they have reason to suspect that CAG’s founder, Joseph Lubin, managed the company in a highly irregular manner.

Joseph Lubin Accused of Financial Irregularities, JPMorgan Involved

As the founder of CAG, Joseph Lubin is the majority shareholder of both CAG and CSI. The latter stands for ConsenSys Software Incorporated (CSI), in charge of handling intellectual properties developed by CAG. This includes two of its most successful products, MetaMask and Infura, a tool for developing dApps on Ethereum blockchain.

CAG shareholders claim that these intellectual properties (IPs) were illegally transferred from CAG to the newly established CSI on August 14, 2020, resulting in the de-facto liquidation of CAG. Joseph Lubin allegedly asked for a $39 million offset loan in exchange for 10% of CSI ownership.

Dubbed “Project North Star”, the transaction gives JPMorgan, the world’s largest bank, a stake in both MetaMask and Infura.

Interestingly, the North Star symbolism used to describe this transaction relates to Polaris, the sky’s northern marker that historically gives people hope, lest they are lost in their journey. In this light, CSI’s intellectual property of MetaMask and Infura were used for CAG’s funding rounds, resulting in a $3.2 billion valuation.

Together with Frithjof Weinert, the director of CSI, Joseph Lubin acted as representatives during Project North Star. However, under Swiss law, dual representation is frowned upon.

Moreover, the plot thickens further as annual shareholder meetings of the company were illegally delayed. Mandated by Swiss law, the 2019 meeting was held in late 2021, while 2020 is yet to transpire. Some suggest that the reason for the delays was to obfuscate Project North Star’s transfer of IPs, as minority shareholders had no idea it took place. 

Furthermore, due to delayed shareholder meetings, Frithjof Weinert, the head of CSI, may not even be legally elected as the director of the IP company. Therefore, to bring the legal causality chain to its end, the entire Project North Star transfer may not be legally valid as well. However, the nullification of the dubious transfer will be decided by Swiss courts.

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What Does it Mean for MetaMask?

MetaMask wallet is not only open-source, available for transparent audits, but it is also a non-custodial wallet. Meaning, only the user has access to the crypto assets’ private key, in contrast to custodial crypto exchange accounts that hold users’ private keys.

With that said, the entire Ethereum ethos has been built alongside decentralization. Suffice to say, the involvement of JPMorgan in the ecosystem’s key cogs represents a severe erosion of that image, even if its stake is at only 10% of CSI.

This alone may turn users to other open-source solutions, expecting JPMorgan’s influence to eventually manifest. Interestingly, the world’s largest bank recently published Opportunities in the Metaverse report, outlining categories for growth, based precisely on building blocks like MetaMask.

Under the commercial infrastructure section, JPMorgan’s report describes single wallet user experience as:

– Web 2.0 traditional finance payment rails, virtual currencies and virtual assets

– Web 3.0 crypto, NFTs and digital assets

– Digital identity verifiable credentials, know your customer (KYC)/anti-money laundering (AML) compliance keys, and reputation points

– Multiple aliases to preserve privacy and enable digital freedom

Presently, this item list still remains intact. However, naysayers suggest that Joseph Lubin’s intention from the get-go was to bring the world of crypto into the Wall Street fold. The Financial Times even dubbed him as Wall Street’s crypto whisperer.

In that, Lubin was successful. Last April’s funding rounds for ConsenSys were led not just by JPMorgan, but also by Union Bank of Switzerland (UBS) and Mastercard. In the same month, Mastercard unveiled Carbon Calculator for customers’ purchases. 

With such a potential roadmap on the horizon for MetaMask, we may see a future in which a CBDC is the wallet’s main occupant, determining users’ purchasing habits, while MetaMask becomes decentralized in-name-only.

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