Tezos in Turmoil as Project Faces In-Fighting, Token Distribution Delays

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Came for the Tokens, Stayed for the Drama

Tezos launched its ICO in July, 2017, and after raising $232mln, it became one of the most successful ICOs of the year, second only to Filecoin.  At press time, it’s up 780% from its ICO price going for $4.16.  Problem is, ICO participants can’t access their tokens.  Sure, they’ve nearly recorded a ten-bagger from their original investment, but XTZ’s current price is based on pre-launch futures–not actual token trades.

Why is that, you might ask?  A lawsuit here or there, administrative difficulties, and a whole mess of in-fighting.

Tezos isn’t Up to Snuff with the United States SEC

Since its ICO ended, Tezos has been slapped with at least six class-action lawsuits, which generally charge Tezos with violating federal security laws and defrauding their contributors.

The first of these lawsuits came last November from the Superior Court of California’s San Francisco branch on behalf of Andrew Baker, a Tezos ICO participant.  Among others, Taylor-Copeland Law filed the class action against Arthur and Kathleen Breitman, the project’s founders, and Tezos Foundation president Johannes Gevers.  The suit accuses the defendants of selling unregistered securities and committing securities fraud.

Subsequent lawsuits echo these same accusations, including one in December and another in November of 2017.  Filed on November 13th, one lawsuit out of Florida argues, “[as] a result of Defendants’ fraud, false representations and violation of federal and state securities laws in connection with the Tezos ICO, Plaintiff and the Class Members state their demand that the [ICO] Contract be rescinded and canceled” on the basis that “it appears [participants] cannot, and potentially will not, see any return on their investments.”

By and large, the lawsuits’ defendants are the Breitmans, Gevers, the Tezos Foundation, and Dynamic Ledger Solutions Inc., the Breitmans’ Delaware-based company.

As Lawsuits Loom, In-Fighting Abounds

While Tezos is looking down the barrel of legal trouble, it’s also deeling with its own unfortunate skirmishes.

This in-fighting dates back to October between company founders Arthur and Kathleen Breitman and Johnnes Gevers.  In the project’s infancy, the Breitmans hired Gevers to run the Tezos Foundation.  Based in Switzerland, the Foundation is charged with managing ICO and project funding.

But a month before their run-in with legal issues, the Breitmans demanded that Gevers step down as the chairman of the Foundation’s board.  Responding to the move, Gevers argues that “the Breitmans have attempted to bypass the Swiss legal structure and take over control of the foundation, and have acted destructively, causing months of delays in the Tezos project,” according to a Wall Street Journal article.

In an email quoted by Fortune, Kathleen Breitman fired back at these claims, accusing Gevers of sabotaging the project and mishandling funds for self-gain:

“Gevers has acted as a roadblock to the mission of the Foundation—to launch the Tezos network and support the Tezos ecosystem. Johann consistently failed to meet deadlines, was unwilling to hold or attend council meetings, and failed to hire employees to help launch the network or pay people he committed to paying, and was constantly unavailable to handle foundation matters…[sic]ohann attempted to pressure the other members of the foundation council to award him a contract that would, among other things, grant himself a bonus worth $1.5 million at then-current valuation of the Tezos token. He misrepresented this as being worth only $300,000. After Arthur and Kathleen brought this behavior and a number of other issues to the attention of the council, the Tezos Foundation suspended Johann from his operational role.”

At the request of a 46-paged legal letter sent by the Breitmans’ attorney to Guido Schmitz-Krummacher, one of the Foundation’s three board members, the Foundation launched an investigation into the accusations.  And according to Schmitz-Krummacher, they found nothing.

“Until today, I do not have any result which substantiates or supports the accusations made in the letter in such a way that it would provide – according to the legal rules for foundations – an important reason for dismissing Johann Gevers,” he said in an interview with Reuters.  Moreover, these “results didn’t please the Breitmans,” he revealed, stating, “they tried in various ways to threaten me and put me under pressure.”

Schmitz-Krummacher claims that the Breitmans are conducting a witch-hunt against Gevers, one that has created “catastrophe” for the whole project.  “Tezos might be delayed or not achieved, especially if the conflict is ongoing,” he believes.

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Tezos Community Sides with Breitmans, Adding Fuel to the Fire

We’re about a month into 2018 and the melodrama hasn’t reached its finale.

Following the investigation, Schmitz-Krummacher has resigned from the Foundation, citing “destructive activities” such as blackmailing that hinder the board from governing properly.  Given the Tezos community’s loyalty to the Bretimans, one wonders if these “destructive activities” may have come from the Tezos community.

Certain members have at least proven their distate for Gevers.  Coinciding with a closed-door meeting between the Breitmans and Gevers at a St. Moritz’s conference, some community members wrote an unflattering 17-page long bio of the man.

The document, which Finews labeled as a smear campaign, looks into Gevers’ professional history in order “to shed some light on how the Tezos Foundation has ended up in such an awful state with him at the helm.”

This document was potentially stoked by a tweet Gevers posted following the St. Moritz meeting.  Some have speculated that this tweet reveals Gevers’ intention to hijack the Foundation and govern without the Breitmans consent.

In their end-of-the-year update, the Breitmans petitioned their community of investors and developers for support in light of the project’s trials and tribulations.

Some Takeaways

It’s important to understand that, while the Breitmans have control over their project’s code and development, Gevers and the Foundation have control over its finances.  Thus, this tug-of-war for control stalls both sides.  Without access to the Foundation’s coffers, the Breitmans cannot move forward with development; without the Breitmans’ trust, the Foundation–and Gever’s efforts to govern–are meaningless if no progress is being made on the project.

Good news is, investor funds are safe yet frozen until this dispute is resolved, but that’s likely little consolation to contributors who have been waiting for over half-a-year for their tokens to be distributed.

The Breitmans have assured community members that tokens will be available come February, but before this happens, Schmitz-Krummacher has to be replaced, and Gever and the Breitmans need to reconcile their dispute.

With all the mud-slinging, legal proceedings, and off-the-record meetings, it’s difficult to say where the blame falls in this month-long conflict.  In the thick of it, vocal community members seem to trust Tezos’ founders.  An online petition speaks for those trusting members, holding that they “are gravely concerned about Mr. Johann Gevers and his failure to realize the purpose of the Tezos Foundation.”

As his resignation and comments suggest, Schmitz-Krummacher sides with Gevers, believing that the Bretimans are none too innocent in the company’s misfortune.  At least on the project’s subreddit, investors and Tezos-diehards are not convinced.  The subreddit persists as a hotbed of support for the Breitmans.

There’s plenty here to get lost in, so do some extra digging, get multiple perspectives, and come to your own conclusion about what all of this means for the actors involved and the future of Tezos.  As it stands, it’s a rocky start to what quickly became one of the most promising projects in the space, so its easy to understand why tensions are high and opinions strong regarding these inauspicious developments.




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