Curve Founder Says VCs Seek to Leverage “Hostile Crypto Climate” in U.S.-Based Lawsuit

ParaFi, Framework and 1kx accuse Curve Finance founder of fraud.

By: Jeremy Nation and Camila Russo Loading...

Curve Founder Says VCs Seek to Leverage “Hostile Crypto Climate” in U.S.-Based Lawsuit

Prominent DeFi VCs have been pursuing legal action against Curve Finance founder Michael Egorov in Switzerland for roughly the past three years. With a Swiss lawsuit still ongoing, they’ve recently raised the pressure with legal action in San Francisco.

Egorov said in a statement to The Defiant, the three VC firms involved, ParaFi Capital, Framework Ventures and 1kx, seeing they have so far been unsuccessful in Switzerland, are now trying their luck in the U.S., “perhaps to leverage the hostile crypto climate there.”

At the core of the matter lies investment in Curve Finance, one of the most successful DeFi protocols to date, with almost $3.5B worth of assets held in its smart contracts, and whose CRV token has a market capitalization of about $570M.

The VCs argue they are owed equity in Swiss Stake – Egorov’s company behind the development of Curve– and CRV tokens, in exchange for the investment of almost $1M. Egorov argues he doesn’t owe the VCs anything because he terminated the investment contract and, in the case of the U.S. lawsuit, because the jurisdiction of the agreement is in Switzerland.

The three VCs mentioned did not take their money back after Egorov said he was terminating their agreement. They requested an injunction against Egorov and Swiss Stake in mid 2020, which was granted and later dismissed. They then sued in Switzerland and in the U.S. in October 2022. Egorov responded to the San Francisco lawsuit last month.

Agreements matter

The investors’ attorney, Nima Mohebbi of Latham & Watkins, said that any notion that they’ve “lost” in the Swiss proceeding is “flatly untrue” as the “matter is in its early stages.” They “intend to hold Egorov to account for his conduct both in the U.S. and in Switzerland,” he said in an emailed statement to The Defiant.

“The bottom line is: after entering into an agreement and using our clients’ funds, Egorov refused to honor his promises and contractual obligations,” Mohebbi said. “Agreements matter. Our clients simply want what Egorov owes.

Swiss Lawsuit

In the Switzerland lawsuit, the VCs are accusing Egorov of breach of contract, stating that they sent $925,233.54 in USDC with the understanding that it would be used to finance business operations such as hiring staff, in exchange for equity and CRV tokens.

Instead, they allege that Egorov used those stablecoins to help fund Curve’s liquidity pools at launch, which helped the protocol succeed and also awarded Egorov with additional CRV, and that they never received their agreed upon equity or tokens.

Egorov argues that investors involved in the funding round didn’t send all the paperwork and  funds committed by the July 31, 2020, deadline, and therefore he was in his right to terminate the agreement on August 4, 2020.

Egorov’s attorneys at DLA Piper LLP say that instead of providing wallet information for a refund, investors immediately filed a suit against Egorov in Swiss courts, seeking numerous measures including enforcement of the investment agreement. The injunction was at first granted, but later a Swiss high court dismissed the case and reasoned that Swiss Stake had a right to terminate the investment agreement. The investors continued their Swiss litigation in a lawsuit filed in October 2022.

U.S. Lawsuit

Meanwhile, the U.S. lawsuit against Egorov, originally filed also in October, 2022 and amended in April, argues that Egorov committed fraud and misappropriated trade secrets. The lawsuit also argues the investors have a right to bring this action in California, as two of the VC firms are based there and as Egorov himself was based there when the conversations to invest in Curve started.

The fraud allegations stem from the fact that Egorov never transferred Swiss Stake shares and CRV tokens as agreed, and that the parties agreed that the funds would be used to grow Swiss Stake but were instead deposited in the Curve liquidity pools.

Investors complain that rather than follow through with plans to distribute governance tokens, Egorov elected to maintain a controlling share, and as such retains complete control of the platform.

Accelerated Launch

They argue that Egorov even “accelerated the launch of the DAO so that it could be created before Plaintiffs could seek any meaningful remedy for his fraudulent conduct.” At the time of the launch, the Curve team claimed an external developer had deployed the Curve contract for them and tweeted, “​DM to verify and lets (sic) get this party started!!” Investors argue it was actually Egorov behind the launch.

Investors also argue that the decision to incorporate a Swiss forum selection clause in transaction documents stemmed not from Egorov’s claim that Switzerland provided a friendlier regulatory framework, but rather, Egorov’s desire to skirt U.S. regulators and complicate any efforts to pursue claims against, said the filing.

A Motion To Dismiss

Egorov’s attorneys responded to the suit late last May, asking the court to “reject Plaintiffs’ thinly veiled forum shopping and enforce the forum selection clause,” which states that Switzerland is the jurisdiction that has power over the parties’ agreement. They say that the argument that the forum selection clause was the product of fraud lacks evidence.

They also argue that Swiss Stake was within its rights to terminate the contract with them as investors failed to fulfill their obligations, and that trade secrets Egorov is accused of misappropriating came from conversations in a Telegram chat group without any previously expressed expectation of confidentiality or non-disclosure agreement.

Both cases are still ongoing in what could be a process of several months.