One of the year’s biggest initial coin offerings, a $232 million token sale by Tezos, is embroiled in a management fight that is threatening the deal and highlighting the risks in this red-hot corner of finance.

Tezos’s fundraising in July at that point was the largest initial coin offering, a new type of rapid fundraising that has captured imaginations and rivaled venture capital for technology startups. But a battle between the founders of the company and the head of the Swiss foundation they installed to give it more independence has put most trading of Tezos coins on ice, possibly until early next year.

That could alarm investors who were hoping that Tezos might catch on quickly. Sales of digital tokens like Tezos coins have concerned regulators and become a sign for some investors of a bubble in the cryptocurrency world.

The costly battle at the company will be an early test for the coin market, which has raised $2.3 billion this year, about seven times the amount raised in all years before 2017.

Bitcoin pioneered the cryptocurrency movement, but after eight years, the virtual currency is still struggling to find mainstream acceptance. Author and WSJ Moneybeat reporter Paul Vigna joins Lunch Break's Tanya Rivero to discuss why many people talk about bitcoin, but most don't use it. Photo: Bloomberg (Originally published April 12, 2017)

The money has poured in due to enthusiasm for virtual currencies such as bitcoin and open-ledger “blockchain” technologies that are often tied to the offerings. The largely unregulated coin offerings in turn have helped push the value of bitcoin and some other virtual currencies to record highs.


But the Tezos deal highlights some of the drawbacks of initial coin offerings, also known as ICO s: untested management, opaque structures and little transparency into what anyone involved wants to do with the huge sums they are raising.

The fight at Tezos is between the husband-and-wife team that started the deal and the founder of the nonprofit foundation they tapped to control the project.

“There’s a lot to regret here,” says Kathleen Breitman in an interview this week. She and her husband, Arthur, run the primary company developing Tezos, which wants to improve blockchain ledger technology through software. “We made a lot of mistakes. The best I can do is put my head down and work on the code.”

A lawyer representing the Breitmans on Sunday sent a nine-page letter to the foundation’s board, demanding that its founder and president, Johann Gevers be removed, or they would withdraw their support from the project.


Mr. Gevers, in an email, wrote that “the Breitmans have attempted to bypass the Swiss legal structure and take over control of the foundation, and have acted destructively, causing months of delays in the Tezos project.”

He has alleged the Breitmans’ involvement in his work “was incompatible with the needed independence of the foundation,” according to a separate letter from a Breitman lawyer, which referenced a Sept. 21 meeting at which Mr. Gevers made the claim.

The Breitmans, in their late 20s at the time of the offering, had done stints at major firms. He had worked at Goldman Sachs Group Inc. and Morgan Stanley, while she had spent time at hedge-fund manager Bridgewater Associates and consulting firm Accenture. Ms. Breitman also worked as a fellow on The Wall Street Journal’s editorial page during the summer of 2011.The couple control Dynamic Ledger Solutions Inc., which, according to Tezos’s website, “owns all of the Tezos-related intellectual property.”

Arthur Breitman speaks at an event in London. Photo: handout/Reuters

The Breitmans contend they used a Swiss foundation to boost the company’s independence and add checks and balances in its early period. Eventually, the plan is for the Breitmans to sell their company to the foundation for about $20 million.


But how much control the Swiss foundation has over the company’s direction has led to a dispute that has put trading of Tezos tokens held by investors in limbo while also putting some of the technology on hold as well.

The Tezos tokens, nicknamed tezzies, have yet to begin formally trading, though some trades are taking place in a less liquid prelaunch market. The formal start of trading is tied to the release of the production version of the Tezos platform. That has been delayed by the fight and might not come until February, more than six months after the money was raised this past July, Ms. Breitman said.

The money that was raised in the deal is currently with the foundation in a bank account, Ms. Breitman says. The proceeds are in the process of being converted from virtual currencies—bitcoin and Ethereum—into government-backed currencies.

The offerings are in many ways more akin to crowdfunding efforts than securities offerings, although the Securities and Exchange Commission has said it would review exactly what an offering is on an individual basis. The coins sold by companies in most cases aren’t equity in a firm. Rather, they are tokens that can be used at a future date to purchase services or products a company intends to produce.


Corrections & Amplifications

An earlier version of a photo caption that accompanied this article incorrectly referred to the tokens pictured as bitcoin and litecoin. The tokens pictured are bitcoin and ethereum. (Oct. 18, 2017) Also, an earlier version of this story misspelled the last name of Johann Gevers. (Oct. 19, 2017)

Write to Paul Vigna at paul.vigna@wsj.com