Shareholders of prominent Toronto-based crypto firm Ether Capital are pressuring its board to wind up the company and distribute its assets to investors, The Logic has learned.

The shareholder pressure comes in the wake of a strategic review announced last week, and a CEO shakeup that will see co-founder Som Seif take on the top job at Ether Capital on an interim basis in January, while remaining CEO of the well-known Bay Street firm Purpose Investments. 

Tension has mounted for months among Ether Capital’s high-profile directors and investors because the company’s share price has been persistently lower than the value of the crypto it holds in its treasury, by an average of around 40 per cent.

One employee of an investment manager with a small stake in Ether Capital, whom The Logic agreed not to name because they weren’t authorized to speak to the media, predicted shareholders will eventually try to remove the board if the strategic review doesn’t end in a redistribution of capital or other significant pivot.

“Eventually there’s going to be conflict here if someone doesn’t do the right thing,” they said. “People on the board have to be careful how they handle this, because it’s going to affect their reputations.”

One Ether Capital director has already resigned over this very concern. In an email to the board on June 10, a copy of which The Logic obtained, Maverix Private Equity founder and managing partner John Ruffolo said he was stepping down after the company concluded a previous strategic review with a decision to focus on cutting costs, staking the Ether in its treasury and buying back shares, rather than winding down the company or converting its holdings into a mutual fund.

“I could not with a clear conscience ultimately agree with the decision taken as it does not maximize shareholder value, in my view,” Ruffolo wrote in the email. He declined The Logic’s request for comment.

Seif also declined to comment. Ether Capital board directors Colleen McMorrow, Cam Di Prata, Liam Horne and Boris Wertz did not respond to requests for comment.

Brian Mosoff, Ether Capital’s outgoing CEO—who will remain as a director after Seif replaces him on Jan. 1, 2024—said there is currently no rift among the board. Disagreement among directors and shareholders about a company’s direction is normal, he said.

A board without debate “wouldn’t be a healthy board,” Mosoff said. He said “there’s a spectrum of opinions” among shareholders about how to address the company’s discounted share price to the value of its crypto holdings.

Ether Capital raised $42.2 million when it went public on the exchange now known as Cboe Canada in April 2018, using about 90 per cent of its capital to buy Ether, the native cryptocurrency of the Ethereum protocol. The company combined heavy hitters from the worlds of crypto and Bay Street and was, at the time, one of the only regulated options for Canadian retail investors to gain exposure to Ethereum.

The company developed a strategy of deploying its Ether to invest in projects that would help Ethereum realize its ambition of becoming a “world computer,” making tech giants obsolete by powering the internet, software applications and even a new form of blockchain-based corporations, all in a decentralized manner that would be impossible for a government to shut down. In the most bullish case for this investment thesis, Ether Capital would become massively valuable, holding a significant stake in the companies and cryptocurrency powering an Ethereum-based economy.

Things haven’t worked out that way. Ether Capital went public at what turned out to be the beginning of a prolonged bear market for crypto that took the value of the company’s stock down with it, plummeting almost 90 per cent between April 2018 and March 2019. 

The bull market of 2021 revived the value of both Ether Capital and Ethereum, but crypto winter returned the following year. The price of Ether started rising, but Ether Capital’s shares didn’t rise at the same pace.

When the company announced its latest CEO shakeup and strategic review last week, its share price had increased 62 per cent since the end of 2022. By any normal measure, that’s a fantastic rate of return—but the price of Ether had increased about 82 per cent year to date, meaning investors would have done better buying and holding the underlying asset.

Buying and holding Ether has become significantly easier and less risky for Canadian retail investors since Ether Capital launched. Today, the company is competing with ETFs, funds and regulated crypto-trading platforms that don’t share the same tax, staffing and liquidity challenges that have contributed to the discount between Ether Capital’s share price and the value of its treasury.

Elliot Grundmanis, an Ether Capital shareholder who has been trying to organize his fellow investors to pressure the board over the issue, said the company has had more than enough time to search for an operating business model that would earn shareholders a better rate of return than redistributing its Ether holdings to them. He said he has little faith the company can find a way to generate better returns for shareholders than the significant gain they could get by winding it up.

“If you have a good business idea, you’re going to get capital for it,” he said. “These guys are trying to do the reverse. They’re trying to shoehorn capital into a business idea.”