Tezos argument

After a $230 Million ICO, The Tezos Project is Entangled In Bitter Legal Dispute

Only three months have passed since the Tezos Project finished their record-breaking Initial Coin Offering (ICO) with a $232 million result. Even after their widely praised ICO success, the revered Tezos project leaders are burdened by a heated dispute, according to a recent report by Reuters.

The Tezos’ founders, Arthur and Kathleen Breitman are in a battle against Johann Gevers, the president of the Swiss foundation whose role was to manage the Tezos ICO and to assist in the development and promotion of the Tezos network. The foundation that Gevers runs has only 3 board members, including himself.  The letter that the Breitmans sent went not only to Gevers but also to his 2 other board members.

According to Swiss law, Gevers should operate his foundation independently. Even so, the foundation is holding all the funds from the ICO, which grew to over $400 million in value thanks to the accentuated increase in the price of Bitcoin and Ether.

Now, the Breitmans, who are still in control of the source code through a company based in Delaware, have taken  action to get Gevers out of the picture.

An attorney for the Breitmans sent shocks through the foundation when a 46-page letter was delivered on Sunday to the two other members of the three person board at the foundation.

The letter demanded an immediate removal of John Gevers and requests a more of a “substantial role” to be assigned to Arthur and Kathleen Breitman. They propose a restructure that would impose limitations in the responsibilities of the foundation.  The 46-page document includes pointed comments accusing Gevers of “self-dealing, self-promotion and conflicts of  interest”.

Gevers told Reuters he will not step down.

“As Arthur has done to others before me, this is an attempted character assassination.It’s a long laundry list of misleading statements and outright lies.” Johann Gevers commented

Gevers also said his own board was acting illegally by asking him to step aside for a month while they investigate.

In response to these shocking developments, Gevers informed Reuters that he has filed a complaint with Swiss regulators about the email request he received asking him to step aside. Reuters reports increase the discomfort, saying:

“A spokesman for Switzerland’s Federal Department of Home Affairs, which oversees the agency that supervises foundations, told Reuters that asking a board member to step aside must be done at a board meeting, not via email.”  

Gevers emphasized how the Breitmans are trying to take control over the foundation as if it was their own private entity.  He further asserts that the Breitmans are attempting to bypass the foundation’s legal structure, and interfering with management and operational day to day work resulting in costly delays in finishing the Tezos project for a much awaited launch of their actual product.

“They’re unnecessarily putting the project at risk,” Gevers said.

In a written statement received by Reuters, the Breitmans repeated the accusations found in the legal letter Gevers received.

They stated that their priority “remains the successful launch of the Tezos network.”

The launching of the Tezos network along with its coin release, has been delayed without a rescheduled date on the calendar.  Tezos contributors are still empty handed, and although it comes as a painfully suspenseful blow, contributors agreed to terms of use during the Tezos initial coin offering where it is plainly written that there’s no guarantee that the ICO participants will ever get a single token.

Despite the bitter actions against him, Gevers stays committed to resolving the squabble. When one recognizes governance as one of the main selling points for the Tezos ICO, the recent situation can be seen as highly ironic, given that the project itself is already having governance issues prior to the launch of the actual blockchain.

Disturbing Details: Donations VS Investments

The fundraiser’s terms, which all participants were made to agree to before sending any money called their contributions “a non-refundable donation” and not a “speculative investment”.  Clearly this could mean disastrous results for those hoping to turn a profit if things crumble at the Tezos virtual palace.

If contributions are deemed a donation, instead of an investment, the money raised might not fall under jurisdiction of financial regulators in the United States. This means that people who contributed may be turned away, their funds gone, without recourse if  the situation escalates.

Other Business Activities

The U.S. Financial Industry Regulatory Authority (FINRA) mandates registered securities professionals to provide notice expressed in writing to their employer if they conduct outside business activities when there is “reasonable expectation of compensation.” According to FINRA records, Breitman was registered at the same time as writing his Tezos white paper as it was released in 2015 that outlined a specific salary for Breitman- which he did not report as “other business activities.” His employer at the time was Morgan Stanley who declined to comment.

For the Tezos empire, it is disappointing that what appears to be a flare up of personality conflicts at the top of the leadership tower may ultimately sink the ship. Scrutiny continues, undoubtedly.