Founded in 2015, Paxful was once a popular bitcoin marketplace in Africa and other emerging markets. With over 200 employees, the company was led by co-founders Ray Youssef and Artur Schaback. However, the company closed down due to "key staff departures" and "regulatory challenges," following several legal issues between the founders.
Former employees allege lapses in management professionalism, favoritism, and erratic dismissals plagued the company. Schaback is now suing Youssef in Delaware Chancery Court, accusing him of cutting off access to company resources and planning to avoid international sanctions on transactions in Russia. Youssef, on the other hand, claims Schaback was fired for incompetence and bad behavior. Schaback has requested the court to appoint a custodian to assume control of Paxful's assets.
The two founders first met at a 2014 Bitcoin event and established Paxful with a business model involving exchanging cash or gift cards for bitcoin. Initially serving a sex worker customer base, the company experienced explosive growth and aggressively expanded into markets like Nigeria, Kenya, Russia, and Sri Lanka. Schaback and Youssef each owned 50% of Paxful's Class B common stock.
As the company grew, lavish spending and abrupt firings became commonplace at Paxful. The founders began to disagree during this growth phase, and tensions escalated. Paxful Inc. reported net profits of $5.47 million in 2018 and $3.63 million in 2019.
Schaback alleges that Youssef's behavior became erratic while he was on paternity leave, and accusations of drug use during virtual meetings have been made against Youssef. Schaback claims that he returned to the office on January 31, 2022, to find significant changes and his access to company resources like email, Slack, and his credit card cut off. His COO title had also been removed.
Youssef suggested that Schaback accept a lesser role, which Schaback rejected. Subsequently, Schaback brought in unqualified auditors, who were allegedly his friends. In response, Paxful conducted an internal investigation into Schaback's conduct, which he refused to cooperate with. Youssef described the situation as a "horrible divorce," while Schaback claims the investigation was a sham and accuses Youssef of misappropriating resources.
Disputes arose over whether Schaback's suspension was authorized by the board. The investigation closed with no evidence against Schaback; however, he remained an officer and director of the company. Schaback alleges that Youssef tried to erase him from Paxful's history, sent payments to a romantic partner for "media consulting," and made transfers to Russia-based entities to avoid sanctions. Youssef denies these accusations and states that Paxful divested from Russia and CIS countries.
Youssef's attempt to buy out other shareholders was rejected, and Schaback claims that Youssef tried to bully him into selling shares. Youssef announced his "victory" on Twitter, while Schaback filed complaints in court. Youssef is now promoting alternatives to Paxful, while Schaback hopes to revive the company post-lawsuit. Paxful's two-member board structure may have contributed to the deadlock, highlighting the pitfalls of such a corporate structure.
Juliette Twain: Jun 19, 2023 11:48:10 AM
