A nasty legal battle in Delaware between Paxful’s co-founders, Artur Schaback and Mohamad (Ray) Youssef, may have been the underlying cause for the Bitcoin marketplace’s abrupt collapse on April 4.
According to court records, Schaback and Youssef, who founded Paxful in 2015 with a common enthusiasm for Bitcoin $28,054, are now fighting the company’s management, with various claims leveled against one other. Among the claims include theft of corporate cash, money laundering, and evasion of US sanctions against Russia.
Schaback served as Paxful’s chief operating officer until February 2022, when he allegedly was barred from participating in the company’s operations due to disagreements with Youssef, Paxful’s CEO, about the marketplace’s future and operations, including disagreements about “the legitimacy of ever-increasing expenditures to undisclosed entities.”
According to Schaback’s complaint allegations, a significant amount of Paxful’s Bitcoin has been moved to a Turkish organization named “EMiR,” which he argues is not a legal software firm. “It lacks a website that promotes software or web development services, and its physical address […] appears to belong to a clothing company.”
Dekslektika, a St. Petersburg, Russia-based firm controlled by former Paxful directors, is said to be a subcontractor receiving payments from EMiR. According to court documents, those organizations were accused of orchestrating “massive non-ordinary-course transactions” that began after Schaback was barred from participating in the company’s activities. According to the lawsuit, “there is no legitimate business purpose for these transfers.”
Youssef called the assertions “ridiculous” in remarks to Cointelegraph. The allegations, he claims, are around salary payments to a Turkish engineering firm that works with Paxful. “With these accusations, he [Schaback] blocked these salary payments to our engineers, claiming they were fake and that they were performing no such services.” He engaged in an outrageous game of chicken until the entire team of 80 engineers went on strike. […] Mr. Schaback was obliged to confess that this was a significant error and granted these engineers’ back pay at a board meeting,” Youssef added.
According to Youssef, his co-founder’s legal methods “bordered on terrorism” and cost Paxful numerous staff and directors. “His accusations were so slanderous that we lost our general counsel, CTO, CISO, vice president of finance, and vice president of human resources.” “He even went after our law firm, McDermott Will and Emery, one of the most respected law firms in the country, demanding that they be removed from representing us in Delaware,” he told Cointelegraph.
Youssef stated that it was difficult to keep Schaback at Paxful due to his team’s impending departure. “Artur and I were homeless in NYC for a time while we were building Paxful.” He hailed from a working-class household like mine, and we shared many interests. He worked hard at first and offered value. I admired how he looked after his family. He began to transform around the year 2018. I stood in for him, but when the entire ELT threatened to quit, I had to face the uncomfortable reality that he had changed and was no longer who I thought he was.”
In an interview with Cointelegraph, Schaback stated that Youssef took unilateral action on April 4 to shut down Paxful. “Mr. Youssef’s actions were intended to consolidate power in a jurisdiction other than the United States, as well as to exclude me and other shareholders from his plans.”
Schaback stated that he has limited access to corporate information and has not been involved in day-to-day operations for the past 18 months. “Mr. Youssef and I had fundamental disagreements about Paxful’s product direction and corporate governance, and his current actions show that his goal all along was to remove Paxful from US jurisdiction due to regulatory pressure.”
