Tezos leaders to tout cryptocurrency project in Vegas as promoters fight

LAS VEGAS (Reuters) - The creators of an embattled technology project called Tezos, which raised $232 million in one of the largest “initial coin offerings” ever, are scheduled to make their first public appearance on Tuesday since a dispute between them and the head of a Swiss foundation that controls the money became public.

Arthur and Kathleen Breitman, the project’s two founders, are set to appear at a financial technology conference in Las Vegas.

After Reuters reported last week on divisions over control of the project, which raised money to create a network for transactions by offering a new type of digital currency, Tezos' organizers issued conflicting statements. The coins, called "Tezzies," do not yet exist, but contracts on their future value have fallen sharply. (reut.rs/2yGk6IT)

The battle pits the Breitmans against Johann Gevers, the president of a Swiss foundation that the couple helped establish to handle the coin offering and develop the underlying computer network.

Under Swiss law, the Zug-based Tezos Foundation is independent, but the Breitmans have been attempting to oust Gevers, accusing him of conflicts of interest.

Shortly before Reuters published its report last week, the Breitmans posted a statement online saying Gevers “has been suspended.”

On Tuesday, a spokesperson for the Breitmans said they had been notified that “a majority of the board has asked Johann to be relieved of his operational duties and, to the best of their knowledge, he has been.”

But two of the foundation’s three board members, Guido Schmitz-Krummacher and Gevers himself, told Reuters he cannot be suspended without holding a board meeting, which requires 30 days’ notice. A spokesman for Switzerland’s Federal Department of Home Affairs, which oversees the agency that supervises foundations, confirmed the process.

The third board member, Diego Olivier Fernandez Pons, declined to comment via email.

The dispute has highlighted the risks in the current frenzy over initial coin offerings (ICOs) which have raised more than $2 billion this year. ICOs are an unregulated means of crowdfunding in which a new cryptocurrency is sold to investors in exchange for legal tender or other cryptocurrencies such as Bitcoin to raise funds for startup companies.

In the Tezos fundraising, participants were told they were not making an investment, but a “non-refundable donation” to the Tezos Foundation, which is seeking not-for-profit status.

Regulators around the world have been giving closer scrutiny to ICOs, with the U.S. Securities and Exchange Commission (SEC) stating in July that some of the coins, also called tokens, may be considered securities subject to federal rules and regulation.

A spokeswoman for the SEC declined to comment about Tezos. Swiss financial regulators also declined to comment.

Tezos organizers say its coins cannot be issued until the underlying technology operates. In their online post, the Breitmans said their “current best estimate” for the launch is next February, but it will only happen when the computer network is ready.

While the foundation holds all the ICO funds, the Breitmans still control the Tezos source code through a Delaware company called Dynamic Ledger Solutions Inc (DLS). The Tezos Foundation is supposed to acquire DLS, but when that will happen is unclear.

According to the Breitmans, DLS shareholders have up to two years to exercise a contractual option to sell their shares to the foundation. That period begins two months after the network launches. If the option is not exercised, the foundation can buy DLS for up to a year.

Those stipulations, which were not disclosed to the ICO participants, mean it could take more than three years to complete the sale.

In theory, Tezos would be able to log and process all kinds of transactions in a faster and more secure way than most current systems, using a technology called blockchain that underpins other digital currencies, such as bitcoin.

Some banks and other financial technology companies are also developing blockchain for use not only for cryptocurrency trading but for mainstream financial transactions.

Several entrepreneurs and investors in the blockchain industry say Tezos’ technology has potential because it would be easier to upgrade and possibly more secure than other blockchains.

But given the controversy, Tezos may encounter trouble attracting large firms to use its network, said Christine Duhaime, an attorney in Toronto who specializes in financial technology.

“Banks are concerned about reputational risks and Tezos’ very public dispute, especially as it involves concerns over an ICO, may mean that they are now too much of a reputational risk for banks,” she said.

Several contributors to the Tezos fundraising interviewed by Reuters expressed concern about the dispute between the Breitmans and Gevers, but most said they were still hopeful the project will succeed.

Emin Gun Sirer, a Cornell University associate professor in the computer science department who is a Tezos technical adviser, said he continues to believe the network is still “technically sound.”

“I hope that they can sort out their issues and start delivering on it,” he said.