Ethereum co-founder Joseph Lubin taken to court for $13 million for failed ConsenSys spinout Token Foundry
ConsenSys founder and Ethereum co-founder Joseph Lubin was summoned to court in a $13 million lawsuit connected to failed ConsenSys spinout Token Foundry. Charges levied against Lubin by the startup’s former CEO, Harrison Hines, include fraud, unjust enrichment, and breach of contract.
Joseph Lubin appeared in court this month, according to a court summons filed in June. The lawsuit is related to Token Foundry, a startup founded in 2017 that initially set out to create a “safe and fair” way to participate in ICOs—just as interest in the mostly unregulated fundraising method hit its stride.
However, it seems Token Foundry flopped. The platform completed four offerings since its inception, one of which failed to meet its minimum funding threshold. To date, the platform raised approximately $48 million from investors.
For comparison, Russian-run competitor ICOBox, which was also founded in 2017, has thus far facilitated over 100 ICOs and claims to have raised over $650 million for clients over a similar timeframe. The firm charges 40 Bitcoin plus 3 percent of token sales revenue per ICO, suggesting that the service is (or at least was) lucrative.
Token Foundry torn apart by internal conflict?
Token Foundry appears to have been crippled by internal conflict. According to reports from CoinDesk, Harrison Hines left ConsenSys in August of 2018, just four months after the project was announced publicly. Now, Hines is seeking $12.8 million in monetary damages plus $405,000 in unpaid profits from Lubin. Something went awry.
In February, one source with knowledge of the situation, on condition of anonymity, told CoinDesk:
“There’s no one left at Token Foundry—anyone still employed under that banner actually works on ConsenSys Digital Securities. They just haven’t killed the brand yet because it’ll be a bad look.”
Meanwhile, Hines himself told CoinDesk, “I’ll never start a company again that someone else has control of,” likely referencing Joseph Lubin’s controlling stake in each of the “spokes” of ConsenSys. According to CoinDesk, Token Foundry was gutted of most of its original employees and founding team.
Cleaning up the ConsenSys conglomerate
As Forbes described in December 2018, Lubin created ConsenSys as a global “organism” meant to build applications and infrastructure for a “decentralized world.” The crypto-conglomerate created dozens of spinouts, or “spokes” in an attempt to capitalize on the first-mover advantage in many of these unexplored decentralized applications. Most of these projects were largely funded out of Lubin’s billion dollar Ethereum fortune with little regard for profitability or feasibility.
In December of 2018, during the trough of the bear market, Lubin announced “ConsenSys 2.0,” placing greater emphasis on “greater efficiency, accountability, and attention to revenue.” Projects and employees that were underperforming were axed.
Following the announcement, ConsenSys laid-off 13 percent of its staff. Many critics sounded the alarm, linking the demise of ConsenSys to the downfall of the markets overall. Bitcoin hit its historic low of $3,237 within a week of the layoffs.
The fate of Token Foundry
Impaired by U.S. securities law, it is possible that Token Foundry was unable to compete with its less regulated counterparts. Since Hines’ departure, Token Foundry was rolled into ConsenSys Digital Securities, a corporation registered with the self-regulatory securities agency FINRA.
Yet, it is possible Token Foundry’s failure is indicative of more systemic issues at ConsenSys. So far, the conglomerate has an underwhelming track record with its fifty or so spinouts. Even the most successful of which, such as MetaMask, Truffle, and Kaleido, are still deep in unprofitability, according to a source knowledgeable about the situation.
Perhaps Token Foundry will have more success in its new business model. Finding “new ways to conduct cryptocommerce” via subscriptions—and maybe even token issuances, regulations be willing.