IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
`
`orDEM
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`EFiled: Mar 17 2023 05:S4PEBT!
`Case No. 2023-0026-PAF uesJJ
`Transaction ID 69582709
`p~igleRi
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`REDACTED PUBLIC VERSION
`DATED: March 17, 2023
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`C.A. No. 2023-0026-PAF
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`) ) ) ) ) ) ) ) )
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`) ) ) ) ) ) ) ) ) ) )
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`ARTUR SCHABACK,individually on
`behalf of himself, and derivatively on
`behalf of Paxful Holdings, Inc,
`
`Plaintiff/
`Counterclaim-Defendant,
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`V.
`
`MOHAMEDAZAB YOUSSEF,
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`Defendant/
`Counterclaim-Plaintiff,
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`and
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`PAXFUL HOLDINGS, INC.,
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`Nominal Defendant/
`Nominal Counterclaim-
`Defendant.
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`DEFENDANT/COUNTERCLAIM-PLAINTIFF MOHAMED AZAB
`YOUSSEF’S ANSWER TO AMENDED AND SUPPLEMENTAL VERIFIED
`COMPLAINT AND VERIFIED AMENDED COUNTERCLAIMS
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`Defendant/Counterclaim-Plaintiff Mohamed Azab Youssef (“Defendant” or
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`“Youssef’), by and through his undersigned counsel, hereby responds to the
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`Amended and Supplemental Verified Complaint (“Amended Complaint’) filed by
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`Plaintiff/Counterclaim-Defendant Artur Schaback (“Schaback” or “Plaintiff”).
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`Defendantfiles this Answer to the Amended Complaint without waiverof any rights
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`EFiled: Mar 17 2023 05:54PM EDT
`Transaction ID 69582709
`Case No. 2023-0026-PAF
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`under the Rules of the Court of Chancery, including the right to amend or supplement
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`this Answer without leave of Court.
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`Defendant is simultaneously seeking dismissal of the Amended Complaint in
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`its entirety, as he did with Plaintiff’s original Verified Complaint (the “Original
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`Complaint”). To the extent Defendant answers any of the allegations in the
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`Amended Complaint, Defendant’s answers generally repeat his responses to those
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`allegations that have been carried over from the Original Complaint. By repeating
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`those responses to the allegations in the Original Complaint, Defendant is not
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`conceding that such allegations are part of the narrow claims that the Court ruled on
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`January 25, 2023, and again on February 23, 2023, were expedited, or that such
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`allegations or claims are not subject to Defendant’s motion to dismiss the Amended
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`Complaint in its entirety.
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`Defendant is not responding to any new allegations or claims in the Amended
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`Complaint in reliance upon the Court’s February 23, 2023 ruling that none of the
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`new allegations or claims in the Amended Complaint are part of the expedited phase
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`of this case, and because Defendant is simultaneously moving to dismiss such
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`allegations and claims. To the extent Defendant responds to any allegation or claim
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`in the Amended Complaint, Defendant’s responses are provided only on behalf of
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`himself and not any other person or entity.
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`Except for those allegations expressly admitted herein, Defendant denies each
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`and every allegation in the Amended Complaint, including those contained in the
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`Amended Complaint’s introductory paragraph, headings, footnotes, and/or any
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`documents incorporated by reference therein. Defendant’s use of the defined terms
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`in the Amended Complaint should not be interpreted as, and is not, an admission
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`that (i) Defendant agrees with Plaintiff’s characterization or use of the defined terms,
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`(ii) the defined terms are accurate, or (iii) the documents or items described by the
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`defined terms actually exist. Defendant uses these defined terms solely for purposes
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`of responding to the allegations of the Amended Complaint. Defendant further
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`responds to the specific allegations in the Amended Complaint as follows:
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`NATURE OF THE ACTION
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`1.
`This case concerns a series of egregious, unauthorized, and self-
`interested actions taken by Defendant Ray Youssef (“Ray” or “Youssef”) to
`manipulate the corporate machinery of Paxful, a peer-to-peer platform for buying
`and selling digital currencies, in clear breach of his fiduciary duties as the
`Company’s Chief Executive Officer (“CEO”) and one of the two directors on
`Paxful’s board of directors (the “Board”). Defendant Ogene, who was at all pertinent
`times Paxful’s highest-ranking legal officer, knowingly facilitated Youssef’s
`extensive fiduciary breaches that involve, among other things, the looting of the
`Company’s coffers.
`ANSWER: The allegations in the first sentence of Paragraph 1 contain Plaintiff’s
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`characterization of this action, to which no response is required. To the extent these
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`allegations require a response, they are denied, except Youssef admits that Paxful is
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`a peer-to-peer platform for buying and selling digital currencies and that he is
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`Paxful’s CEO and one of two directors on Paxful’s Board. The allegations in the
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`second sentence of Paragraph 1 are outside the scope of the expedited phase of this
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`action and, moreover, are subject to a motion to dismiss and, therefore, do not require
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`a response.
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`2.
`Schaback brings this Amended and Supplemental Verified Complaint
`in light of new facts demonstrating that, since Youssef and Ogene intentionally
`froze-out Schaback from all Company information specifically to avoid Schaback
`from discovering their misconduct, Youssef and Ogene engaged in a brazen
`unlawful
` that is ongoing.
`ANSWER: The allegations in Paragraph 2 are outside the scope of the expedited
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`phase of this action and, moreover, are subject to a motion to dismiss and, therefore,
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`do not require a response.
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`3.
`As the Court noted at the January 25, 2023 telephonic hearing, “[o]n
`September 14, 2022, Youssef proposed that he would buy out Paxful’s other
`stockholders for
`, collectively, or alternatively he proposed that the other
`stockholders could buy him out for
` The other stockholders did not
`accept either proposal.” Tr. at 6:9-14.
`ANSWER: The allegations in Paragraph 3 are outside the scope of the expedited
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`phase of this action and, moreover, are subject to a motion to dismiss and, therefore,
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`do not require a response.
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`4. Last week, on February 16, 2023, the Court-ordered and duly
`authorized neutral Company counsel provided Schaback with read-only access to
`the Company’s QuickBooks accounting files. Aided by that disclosure, which
`Youssef and Ogene had previously and deliberately denied Schaback, Schaback
`learned that Youssef and Ogene have taken roughly
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` to pay Youssef. They did so through a series of unauthorized,
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`6
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`unlawful, non-ordinary course self-dealing transactions to sham entities ultimately
`controlled by Youssef and his co-conspirators and to Youssef’s friends and
`associates. Those transactions continued – and indeed accelerated – in the run up
`to this litigation, and they continued apace after the entry of the Court’s Status Quo
`Order. Youssef and Ogene even continued transferring Company employees to new
`entities formed to house Paxful’s business – without involvement or participation
`of Schaback or the Company’s other stockholders. While Paxful remains a valuable
`Company,
` In the
`extreme circumstances presented, Schaback is constrained to request the prompt
`appointment of a Receiver for Paxful.
`ANSWER: The allegations in Paragraph 4 are outside the scope of the expedited
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`phase of this action and, moreover, are subject to a motion to dismiss and, therefore,
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`do not require a response.
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`5.
`Youssef has a long and storied history of illegal behavior, some of
`which has resulted in criminal convictions and jail time. Among other things, within
`the past few years he was convicted of drug trafficking (a felony) and served a
`sentence lasting several months in an Estonian prison. Since then, he has become
`demonstrably paranoid such that, for example, he is unwilling even to answer a basic
`interrogatory in this action concerning his residential address.
`ANSWER: The allegations in Paragraph 5 are outside the scope of the expedited
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`phase of this action and, moreover, are subject to a motion to dismiss and, therefore,
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`do not require a response.
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`6.
`This case, however, focuses on actions taken in connection with recent
`schemes whereby Youssef sought and obtained unfettered domination and control
`over the Company and its assets. Indeed, with Ogene’s assistance, Youssef and his
`cohorts engaged in widespread embezzlement that if unchecked will leave the
`Company
`
`ANSWER: Youssef denies the allegations in the first sentence of Paragraph 6. The
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`allegations in the second sentence of Paragraph 6 are outside the scope of the
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`7
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`expedited phase of this action and, moreover, are subject to a motion to dismiss and,
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`therefore, do not require a response.
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`7.
`At the crux of Youssef’s scheme was a concerted campaign to freeze
`out Plaintiff Artur Schaback (“Schaback”), a co-founder, a board member, 50%
`holder of Paxful’s high-voting Class B common shares, and the Company’s Chief
`Operating Officer (“COO”). Specifically, the surreptitious scheme, initiated while
`Schaback was out on paternity leave, involved, (1) cutting off Schaback’s access to
`Company documents and systems; (2) firing key advisors and personnel known to
`support Schaback in the work that he did for Paxful’s benefit; and (3) hiring
`McDermott Will & Emery (“MWE”) to conduct a sham investigation (the “Sham
`Investigation”) into Schaback at the Company’s expense.
`ANSWER: Youssef denies the allegations in the first sentence of Paragraph 7,
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`except admits that Schaback is a co-founder of Paxful, a member of Paxful’s Board,
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`a 50% holder of Paxful’s Class B common stock, and Paxful’s COO. Youssef denies
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`the remaining allegations in Paragraph 7, except Youssef admits that Paxful retained
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`MWE to conduct an investigation into Schaback and his serial misconduct;
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`Schaback’s access to Paxful’s email, Slack, and other systems were suspended
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`pending the results of that investigation; his access to such systems was terminated
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`after the investigation; and Paxful’s product team was replaced for poor
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`performance.
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`8. When the Sham Investigation resulted in no finding of wrongdoing and
`his other attempts to bully Schaback failed, Youssef changed course. Youssef and
`Ogene sought cover for their extensive wrongdoing via an improperly noticed
`special Board meeting where Youssef and Ogene sandbagged Schaback with two
`items for approval: (1) a non-exclusive licensing agreement (the “Licensing
`Agreement”) whereby Paxful’s
` would be transferred to an
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`unregistered entity of dubious origin, and, relatedly, (2) Paxful’s
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`
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`Tellingly, Paxful provided no information to Schaback before the meeting and has
`continued to refuse to provide basic information regarding either the
`
` or the Licensing Agreement, including information that might reveal any
`personal interest or relationship that Youssef might have in or with the mysterious
`entity on the other side of the Licensing Agreement. The stockholders were not given
`the opportunity to vote on the Licensing Agreement and the majority of Paxful’s
`stockholders did not vote for the
`
`ANSWER: Youssef denies the allegations in the first sentence of Paragraph 8.
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`Youssef further denies the allegations in the second and third sentences of Paragraph
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`8, except Youssef admits that Schaback and Youssef (as Paxful’s two directors)
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`discussed the non-exclusive Licensing Agreement
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` at a
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`properly-noticed November 18, 2022 Board meeting and that, as reflected in an
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`audio recording of the Board meeting, the Board unanimously approved the
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`proposals to enter into the non-exclusive License Agreement
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`
`
` Youssef also denies the allegations in the fourth sentence of
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`Paragraph 8, except Youssef admits that no stockholder vote was taken on the non-
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`exclusive License Agreement
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`
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`9. With Schaback essentially barred from active participation on either the
`management or Board level since late 2021, Youssef has been behaving with erratic
`abandon, coming to “all hands” and other management meetings visibly under the
`influence of illegal substances and approving payments of hundreds of thousands of
`dollars in Company funds for both himself and a woman with whom he has indicated
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`he is in a romantic relationship –
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`ANSWER: Youssef denies the allegations in Paragraph 9.
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`
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`10. Throughout this entire debacle, Youssef and Ogene have acted
`intentionally to exclude Schaback from access to systems or records that would have
`revealed their disloyal conduct and enabled Schaback to make informed decisions
`as either a COO or as a co-director or to participate meaningfully (if at all) in Board,
`stockholder, and management meetings.
`ANSWER: Youssef denies the allegations in Paragraph 10.
`
`11. As demonstrated herein, Youssef’s and Ogene’s troubling actions were,
`and continue to be, taken without corporate authority, violate Youssef’s and Ogene’s
`fiduciary duties of loyalty and care, and pose an imminent threat of irreparable harm
`to the Company and its stockholders.
`ANSWER: Youssef denies the allegations in Paragraph 11.
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`PARTIES
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`12. Plaintiff Schaback is an individual domiciled in Miami, Florida. He co-
`founded Paxful in 2015 with Youssef, serves as a member of the Paxful board of
`directors (the “Board”), and serves as Paxful’s COO.
`ANSWER: Youssef is without knowledge or information sufficient to form a belief
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`as to the truth of the allegations in the first sentence of Paragraph 12, and on that
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`basis Youssef denies those allegations. Youssef admits the allegations in the second
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`sentence of Paragraph 12.
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`13. Defendant Youssef has gone by numerous aliases. He was born Rayam
`Azab Youssef and changed his name to Ray Savant in 2010. In 2012, he changed his
`name yet again to Mohamed Youssef. He co-founded Paxful in 2015 with Schaback.
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`10
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`In addition to serving as a member of Paxful’s two-member Board, he serves as
`Paxful’s CEO. He currently resides in Dubai, United Arab Emirates.
`ANSWER: Youssef denies the allegations in the first sentence of Paragraph 13.
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`Youssef admits the allegations in the second, third, fourth, fifth, and sixth sentences
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`of Paragraph 13. With respect to the allegations in the second and third sentences
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`of Paragraph 13, Youssef further states that he changed his name to Ray Savant as a
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`stage name in connection with Mixed Martial Arts and boxing events in which he
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`participated, and then changed his name to Mohamed Youssef for religious reasons.
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`14. Defendant Ogene is Paxful’s highest-ranking legal officer whose title
`became Chief Legal Officer effective January 1, 2023 reporting to Youssef. At all
`pertinent times, Ogene reports solely to Youssef, to whom he is completely
`beholden. Schaback recently learned that Youssef on his own approved an increase
`in Ogene’s salary from
` to
` effective January 1, 2023 (it is
`impossible for Schaback to determine based on Company information received thus
`far whether Ogene also received a bonus and if so, how much). In addition to his
`employment relationship with Paxful (solely through Youssef), Ogene has a material
`undisclosed self-interest
`in Youssef’s unlawful self-dealing dealings and
`transactions described herein. Moreover, upon information and belief, Ogene
`expects continued lucrative employment in Youssef’s
`
`
`ANSWER: The allegations in Paragraph 14 are outside the scope of the expedited
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`phase of this action and, moreover, are subject to a motion to dismiss and, therefore,
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`do not require a response.
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`15.
`In light of other facts confirming Ogene’s decision to join in Youssef’s
`unlawful self-dealing
` and the false pretense in which he holds
`himself out as a paragon of integrity in this swamp, Ogene’s history prior to Paxful
`is of great concern.
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`ANSWER: The allegations in Paragraph 15 are outside the scope of the expedited
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`phase of this action and, moreover, are subject to a motion to dismiss and, therefore,
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`do not require a response.
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`16. Ogene has already knowingly participated in and been a front man for
`unlawful business schemes exploiting his position as a lawyer.1
`ANSWER: The allegations in Paragraph 16 are outside the scope of the expedited
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`phase of this action and, moreover, are subject to a motion to dismiss and, therefore,
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`do not require a response.
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`17. According to publicly available information, in 2010, Ogene joined a
`business called InfiLaw Corporation, for which he was a senior executive, officer
`and principal for almost ten years (until mid-2019). On Ogene’s LinkedIn biography
`he writes he was “First General Counsel for a private equity-owned education
`management company.” That is the position he has held for the longest duration in
`his whole career.
`ANSWER: The allegations in Paragraph 17 are outside the scope of the expedited
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`phase of this action and, moreover, are subject to a motion to dismiss and, therefore,
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`do not require a response.
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`18. Basically, Ogene agreed to earn a living in a position of executive
`responsibility at fraudulent for-profit law schools widely reported to have harmed
`their students and the legal community in general.
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`
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` At times, he has gone just by Chidi Ogene (omitting his first name).
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`ANSWER: The allegations in Paragraph 18 are outside the scope of the expedited
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`phase of this action and, moreover, are subject to a motion to dismiss and, therefore,
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`do not require a response.
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`19. According to reporting by The Atlantic, InfiLaw was created in 2004 by
`Sterling Partners, a Chicago-based private-equity firm, specifically to exploit relatively
`unqualified law student candidates. 2 The business model was to leverage (a) the
`demand created by relatively unqualified prospective law students who would not be
`accepted to most law schools, and (b) the widespread availability of U.S. Department
`of Education-backed student loans from which prospective applicant/customers
`could pay law schools to fund a “legal education.”
`ANSWER: The allegations in Paragraph 19 are outside the scope of the expedited
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`phase of this action and, moreover, are subject to a motion to dismiss and, therefore,
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`do not require a response.
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`20.
`Jude Chidi Ogene was the public face for their marketing efforts. As
`reported in an article titled “The Law-School Scam”, “InfiLaw purchased Florida
`Coastal in 2004, and then established Arizona Summit Law School (originally known
`as Phoenix School of Law) in 2005 and Charlotte School of Law in 2006.” Among
`other positions in this role, Ogene agreed to be the front person for Florida Coastal law
`school. 3 Florida Coastal became the subject of American Bar Association and
`Department of Education investigations, and then stopped offering classes. After his
`stint at Florida Coastal, his private-equity sponsor named him President of the
`Charlotte School of Law, a school that subsequently was put on probation and then
`banned by the ABA, leading to hundreds of law students bringing suit for fraudulent
`and deceptive trade practices. 4 Just as Ogene did for his former private equity
`
` 2
`
` Paul Campos: https://www.theatlantic.com/education/archive/2015/10/law-
`school-scam-getting-worse/412159/
`3 See, e.g., https://www.jaxdailyrecord.com/news/2013/jun/05/florida-coastal-
`names-chidi-ogene-interim-dean/.
`4 See, e.g., https://www.wsoctv.com/news/local/attorneys-file-lawsuits-for-150-
`plus-students-against-charlotte-school-of-law/489667217/.
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`sponsors5, he is now doing for Defendant Youssef: acting to put a good face on
`inherently unlawful and unsustainable fraudulent practices.
`ANSWER: The allegations in Paragraph 20 are outside the scope of the expedited
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`phase of this action and, moreover, are subject to a motion to dismiss and,
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`therefore, do not require a response.
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`21. Nominal Defendant Paxful Holdings, Inc. is a corporation incorporated
`under the laws of the State of Delaware. When he last had any basic insight into the
`business, Paxful was a peer-to-peer bitcoin marketplace used by millions around the
`world. Paxful had four offices and employs over 200 people. Paxful’s technology and
`operations were largely built and supervised by Schaback. Since then, Defendants
`Youssef and Ogene have engaged in hidden, surreptitious self-dealing
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`transactions.
`ANSWER: Youssef admits the allegations in the first sentence of Paragraph 21.
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`Youssef denies the allegations in the second and third sentences of Paragraph 21,
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`except Youssef admits that: Paxful is a peer-to-peer bitcoin marketplace; since its
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`founding, more than $5 billion dollars has been traded on Paxful’s platform by over
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`twelve million users; and Paxful has four offices and employs over 200 people. The
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`allegations in the fourth and fifth sentences of Paragraph 21 are outside the scope of
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`the expedited phase of this action and, moreover, are subject to a motion to dismiss
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`and, therefore, do not require a response.
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` 5
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` See, e.g., Joe Patrice, “The Most Reprehensible Thing Charlotte Law Has Done
`and That’s Saying Something.” available at https://abovethelaw.com/2017/02/the-
`most-reprehensible-thing-charlotte-law-has-done-and-thats-saying-something/ (last
`checked Feb. 20, 2023) (“Charlotte School of Law has committed its share of
`villainy...” and continuing re: more reprehensible actions).
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`JURISDICTION
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`22. This Court has subject matter jurisdiction over this action pursuant to 8
`Del. C. § 111 and 10 Del. C. § 341.
`ANSWER: The allegations in Paragraph 22 contain conclusions of law to which no
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`response is required. Youssef does not contest that this Court has subject matter
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`jurisdiction over this action.
`
`23. This Court has personal jurisdiction over Youssef pursuant to 10 Del.
`C. § 3114, because he is a director and officer of Paxful, a Delaware corporation.
`ANSWER: The allegations in Paragraph 23 contain conclusions of law to which no
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`response is required. Youssef does not contest that this Court has personal
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`jurisdiction over him for purposes of this litigation.
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`24. This Court has personal jurisdiction over Ogene pursuant to 10 Del. C. §
`3114(b) because, at all times pertinent hereto, he has acted as Paxful’s chief legal
`officer. Ogene also has voluntarily participated in this action, including by filing
`materially false affidavits with the Court.
`ANSWER: The allegations in Paragraph 24 are outside the scope of the expedited
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`phase of this action and, moreover, are subject to a motion to dismiss and, therefore,
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`do not require a response.
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`25. This Court has jurisdiction over Paxful under 8 Del. C. § 321.
`ANSWER: The allegations in Paragraph 25 contain conclusions of law to which no
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`response is required. Youssef does not contest that this Court has jurisdiction over
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`Paxful for purposes of this litigation.
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`26.
`In addition, Paxful’s Certificate of Incorporation provides that the Court
`of Chancery of the State of Delaware “shall be the sole and exclusive forum” for “any
`action asserting a claim for breach of a fiduciary duty owed by any director, officer,
`employee or agent of the Corporation to the Corporation or the Corporation’s
`shareholders,” “any action asserting a claim arising pursuant to any provision of the
`Delaware General Corporation Law, [the] Certificate of Incorporation or the bylaws of
`the Corporation,” or “any action asserting a claim governed by the internal affairs
`doctrine.” See also 8 Del. C. §§ 109(b), 115.
`ANSWER: The allegations in Paragraph 26 purport to refer to and describe Paxful’s
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`Certificate of Incorporation, a document to which Youssef respectfully refers the
`
`Court. To the extent the allegations in Paragraph 26 are inconsistent with the terms
`
`of the Certificate of Incorporation, they are denied.
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`SUBSTANTIVE ALLEGATIONS
`
`The Founding of Paxful
`A.
`27. Schaback and Youssef met in 2014 at a bitcoin walkup center in the
`financial district of New York City. The pair began to work together in cafes and
`apartments in New York where they developed a peer-to-peer marketplace for digital
`currencies.
`ANSWER: Youssef admits the allegations in Paragraph 27.
`
`28. Built from that, Paxful was co-founded by Schaback and Youssef in
`2015. Paxful’s mission is to “empower the forgotten four billion unbanked and
`underbanked, so they have control of their money in a way they’ve never had
`before.”6 As of August 27, 2021, more than $5 billion dollars had been traded on
`Paxful’s platform and the platform had over six million users.
`
`ANSWER: Youssef admits the allegations in Paragraph 28.
`
`
`
`
`
`16
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` https://paxful.com/about
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`29. Paxful currently has over 200 employees. The employees tasked with
`Paxful’s development, products and user interface are based in Tallinn, Estonia,
`whereas Paxful’s compliance, legal, sales, and marketing team is located in New
`York, New York.
`ANSWER: Youssef admits the allegations in Paragraph 29.
`
`The Roles and Responsibilities of Schaback and Youssef at Paxful
`B.
`30. Paxful has a two-member Board and, from Paxful’s inception,
`Schaback and Youssef served as the two co-directors on the Board. In addition to
`serving on the Board, Youssef serves as the Company’s CEO and Schaback serves
`as the Company’s COO. See Paxful’s Action Taken by Unanimous Consent of Board
`of Directors in Lieu of an Organizational Meeting dated June 5, 2019 (attached
`hereto as Exhibit A).
`ANSWER: Youssef admits the allegations in the first and second sentences of
`
`Paragraph 30. The allegations in the third sentence of Paragraph 30 purport to refer
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`to and describe a June 15, 2019 Board consent, a document to which Youssef
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`respectfully refers the Court. To the extent the allegations in the third sentence of
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`Paragraph 30 are inconsistent with the terms of the June 5, 2019 Board consent, they
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`are denied.
`
`31. As CEO, Youssef holds day-to day “authority for management of
`business, affairs and operations of the Corporation subject to the authority of the
`Board of Directors . . .” Paxful Bylaws at § 6.2 (attached hereto as Exhibit B). As
`COO, Schaback is responsible for overseeing the day-to-day operations of the
`Company. See Exhibit A at § 15.
`ANSWER: The allegations in Paragraph 31 purport to refer to and describe Paxful’s
`
`Bylaws and a June 15, 2019 Board consent, documents to which Youssef
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`respectfully refers the Court. To the extent the allegations in Paragraph 31 are
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`inconsistent with the terms of these documents, they are denied.
`
`32. Youssef, as CEO, does not have the authority to terminate the COO,
`rather, the COO can only be removed by the majority vote of the Board. Paxful’s
`Bylaws provide that “[t]he officers of the Corporation shall hold office until their
`successors are elected and qualified or until their earlier death, resignation or
`removal . . . Any officer elected or appointed by the Board of Directors may be
`removed at any time, with or without cause, by the affirmative vote of directors
`having a majority of the total votes of the total number of directors constituting the
`entire Board of Directors.” Exhibit B § 6.5(a).
`ANSWER: The first sentence of Paragraph 32 contains conclusions of law to which
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`no response is required. The allegations in Paragraph 32 also purport to refer to and
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`describe Paxful’s Bylaws, a document to which Youssef respectfully refers the
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`Court. To the extent the allegations in Paragraph 32 are inconsistent with the terms
`
`of the Bylaws, they are denied.
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`Stock Classifications, Voting Power and Corporate Governance
`C.
`33. There are two different classes of Paxful stock, Class A and Class B.
`Schaback and Youssef each hold roughly 45% of the Class A stock and 50% of the
`Class B stock. The remainder of the Class A stock is held by three individual
`stockholders.
`ANSWER: Youssef admits the allegations in Paragraph 33.
`
`34. Pursuant to Paxful’s Charter (attached hereto as Exhibit C), Paxful’s Class
`B stockholders—Schaback and Youssef—have super-voting rights. Specifically,
`Paxful’s Charter provides that “each holder of Class A Common Stock shall have the
`right to one (1) vote per share . . . and each holder of Class B Common Stock shall have
`the right to ten (10) votes per share.” Exhibit C at § 4.2.1.1.
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`ANSWER: The allegations in Paragraph 34 purport to refer to and describe Paxful’s
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`Charter, a document to which Youssef respectfully refers the Court. To the extent
`
`the allegations in Paragraph 34 are inconsistent with the terms of the Charter, they
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`are denied.
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`35. Class B stockholders also are entitled to certain protections including a
`requirement that a majority vote of Class B stockholders is necessary for, among other
`things, “acquisitions, sales and liquidation/dissolution.” Exhibit C at § 4.2.1.3.
`ANSWER: The allegations in Paragraph 35 purport to refer to and describe Paxful’s
`
`Charter, a document to which Youssef respectfully refers the Court. To the extent
`
`the allegations in Paragraph 35 are inconsistent with the terms of the Charter, they
`
`are denied.
`
`36. Paxful’s Bylaws provide that “the business and affairs of the
`Corporation shall be managed by or under the direction of the Board of Directors,
`which may exercise all such powers of the Corporation and do all such lawful acts
`and things, subject to any limitation set forth in the Certificate of Incorporation or as
`otherwise may be provided in the Delaware General Corporation Law.” Exhibit B at
`§ 3.1. The Bylaws also provide that the Board has authority to fix the compensation
`of directors. Id. at § 3.6.
`ANSWER: The allegations in Paragraph 36 purport to refer to and describe Paxful’s
`
`Bylaws, a document to which Youssef respectfully refers the Court. To the extent
`
`the allegations in Paragraph 36 are inconsistent with the terms of the Bylaws, they
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`are denied.
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`37. There is a two-thirds director vote requirement for the Board to act.
`Exhibit B § 4.5. Thus, as Schaback and Youssef are the only directors, both directors
`must vote to approve an action for it to be valid.
`ANSWER: The allegations in Paragraph 37 purport to refer to and describe Paxful’s
`
`Bylaws, a document to which Youssef respectfully refers the Court. To the extent
`
`the allegations in Paragraph 37 are inconsistent with the terms of the Bylaws, they
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`are denied.
`
`38. Youssef, as CEO, or Schaback and Youssef together, as co-directors,
`have the authority to call a special meeting of the Board. Exhibit B § 4.2 (emphasis
`added). In order for a special meeting of the Board to be properly noticed, the notice
`must, among other things, “describe the purpose of the special meeting.” Id.
`ANSWER: The allegations in Paragraph 38 purport to refer to and describe Paxful’s
`
`Bylaws, a document to which Youssef respectfully refers the Court. To the extent
`
`the allegations in Paragraph 38 are inconsistent with the terms of the Bylaws, they
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`are denied.
`
`D.
`
`Schaback Goes on Paternity Leave and Youssef’s Behavior
`Becomes Increasingly Erratic
`39.
`In October 2021, following the birth of Schaback’s first child, Youssef
`suggested that Schaback take an extended paternity leave. Youssef made this
`suggestion to facilitate his plan to assert control over Paxful.
`ANSWER: Youssef denies the allegations in Paragraph 39, except admits that
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`Schaback took an extended paternity leave beginning in October 2021.
`
`40. During Schaback’s paternity leave, Youssef’s behavior became
`increasingly erratic.
`ANSWER: Youssef denies the allegations in Paragraph 40.
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`41. Glassdoor, a free digital platform that gathers information and reviews
`from employees or former employees about companies – including reviews about
`management – contains several Paxful employee reviews suggesting that, at and
`around the time period that Schaback was on paternity leave, Youssef attended
`management meetings and made executive decisions while under the influence of
`unspecified substances.7 Specifically, the following reviews relating to Youssef’s
`drug use appeared on the Glassdoor website while Schaback was on paternity leave:
`
`In October 2021, a Glassdoor reviewer claimed Youssef is “often
`intoxicated” in global meetings and “doesn’t hold back when it
`comes to [criticizing] ex-employees.”8
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`
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`
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`In November 2021, a separate user claimed Youssef regularly held
`all-hands meetings “under the influence of drugs.”9
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`In December 2021, an anonymous reviewer on Glassdoor.com user
`stated that Youssef was “constantly” high on drugs in meetings.10
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`ANSWER: Youssef is without knowledge or information sufficient to form a
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`belief as to (i) the truth of the allegations in Paragraph 41 (including footnotes 7-
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` 7
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` Youssef has a history of illegal drug use and trafficking. In February 2017, Youssef
`was arreste