Bitwise employees will suffer the most in tech company bankruptcy, Fresno mayor says

Tim Sheehan
·7 min read
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The Chapter 7 bankruptcy petition filed Wednesday by Bitwise Industries in Delaware was predictable given what outwardly appeared to be the sudden financial implosion of the Fresno-based technology company, Fresno Mayor Jerry Dyer said Thursday.

“I was not surprised by the bankruptcy filing,” Dyer told reporters Thursday afternoon. “I thought that was going to be coming sooner or later. It came sooner.”

Wednesday’s bankruptcy filing by Bitwise, the 10-year-old Fresno-based technology training, services and real estate firm, came almost one month to the day after now-former co-CEOs Jake Soberal and Irma Olguin Jr. abruptly announced to employees that the entire workforce – estimated at about 900 nationwide, including about 400 workers in Fresno – was immediately being furloughed.

Dyer said he believes, however, that company insiders likely knew that the fiscal wheels were falling off well before that stunning announcement.

“I’ve got to believe that with Bitwise, the early warning signs were a long time ago,” he said, “and what we got to see (since May 29) was the end result, and it happened all of a sudden.”

Bitwise Industries was launched in 2013 as a self-proclaimed “mothership” of technology innovation in Fresno, led by a pair of charismatic co-founders in Soberal, an intellectual-property attorney who was raised in Clovis, and Olguin, reared in a rural farm-labor family in Caruthers before attending college in Ohio to become a software engineer.

And it was a company with a cause that Dyer said appealed to a range of investors, government agencies and employees – one of reaching out to underserved communities and providing training and opportunities for people often left behind. The company proclaimed itself – and was often hailed by others – as a champion of racial, economic and LGBTQ+ diversity in Fresno and within the technology industry.

But over the past year, cracks were appearing in Bitwise’s financial foundation:

The city of Fresno itself is among the creditors noted in Bitwise’s bankruptcy filing. The city last year approved a $1 million grant from its share of federal pandemic-recovery funds for Bitwise to develop a “digital empowerment” program to help small businesses in the city learn how to leverage technology for their enterprises. The first $500,000 was paid to Bitwise, with the second half to be paid upon proof of completion of the project.

Dyer said Bitwise had provided reports to the city accounting for its use of $120,000 on the project. But the mayor added that he holds out little hope for recovering the remaining $380,000. “We’ll be in a long line with a lot of other people who are owed a lot more money than we are,” he said. “Although we hate to lose any money, we’re fortunate that the amount wasn’t much more.”

The once-vibrant Bitwise Industries website now is barren, save for a pair of links to press releases: one announcing the termination of Soberal and Olguin on June 2, the other announcing the company’s bankruptcy filing.

Employees get the short end in bankruptcy

“There’s a lot of tragedies in this story,” Dyer said. “One of them is that both Jake and Irma were home-grown. ... People started believing in them (and) the American dream that two people could start up a tech company in Fresno and be successful.”

“The other part of it is the employees really believed in the company and the services they were providing, as well as the cause,” he added. “You have investors out there, not only were they investing in a product, they were investing in a cause.”

The earnestness of that cause “is what hurts so much, to wonder if, was it from the outset nothing more than some disguise,” Dyer said, “or were they really intending on helping people and then the machine fell apart?”

Sources, who spoke on condition of anonymity, told The Fresno Bee that the Federal Bureau of Investigation has launched a criminal investigation into Bitwise and its leadership. Those sources were not in a position to describe the kinds of potential crimes or particular individuals under investigation.

The Chapter 7 bankruptcy filing appears to put up an immediate shield, at least in the short term, against the slew of civil lawsuits confronting Bitwise as a company and Soberal, Olguin and other Bitwise leadership as individuals. Olguin and Soberal were terminated from their positions as co-CEOs on June 2.

The filing does not, however, forestall criminal investigations by both federal and state agencies into the company’s financial dealings.

“I think what this filing says is that it’s all about the money. It’s never really been about the employees, or at least that hasn’t been demonstrated,” Dyer said. “So it is about the process of liquidating assets now and paying back some of the creditors and protecting themselves from other creditors.”

“And the employees unfortunately are the ones who are going to suffer the most,” he added.

Court documents associated with the bankruptcy petition indicate that Bitwise’s parent company, BW Industries Inc. – along with associated enterprises Bitwise Industries Inc., BWRD LLC, Alpha Works Technologies LLC, and Bruce’s Bagels, Beverages and Bites LLC – collectively owe hundreds of creditors at least $189 million, and possibly much more.

That doesn’t include employees, many of whom reportedly had their final paychecks on May 26 bounce when they tried to deposit them in their bank accounts.

While Soberal and Olguin placed the number of employees nationwide at about 900 in Bitwise locations in California, Colorado, Illinois, New Mexico, New York, Ohio and Texas, notices filed with various state employment agencies by Bitwise board member and interim president Ollen Douglass on June 14 indicated that the mass layoffs applied to 625 employees across the country.

Nothing in the bankruptcy filing sheds light on the disparity between the number of employees asserted by Soberal and Olguin and those detailed by Douglass two weeks later.

In fact, one court document detailing payments made by Bitwise to creditors within 90 days before the bankruptcy filing shows what appear to be May 26 payroll payments, labeled as “employee reimbursements,” for 213 employees amounting to a total of almost $843,000. For most of the employees, the document suggests that payroll was twice each month.

The average amount per employee of those May 26 payments was just under $4,000. Notable among them were payments to then co-CEOs Soberal and Olguin, and Bethany Mily, the company’s president. Soberal was to receive about $18,725; the payment to Olguin was listed at $12,152; and Mily was listed at $10,661.

Unsecured loans since May 1 total more than $16 million

In what appears to have been a desperate scramble for cash to keep the company afloat, Bitwise approached numerous investors between May 1 and May 17, less than two weeks before the furlough announcement.

Court documents show that the company received 18 unsecured loans amounting to more than $16.3 million in debt during that period. The largest of those creditors is Startop Investments LLC in Wyoming, owed nearly $11.4 million.

But at least half of those unsecured loans originated from investors in Fresno, including $1.15 million from Fresno businessman Roger Glaspey and $575,000 from local commercial developer Ed Kashian.

Dyer said that as he looked through the list of creditors in the bankruptcy filing, he saw the names of friends who were investors. He also said he was told that Bitwise had been looking for large short-term loans with high return on investment. “They were asked to provide six figures or more as a loan,” Dyer recounted, “and that loan was going to be for about 60% return on investment for a 90-day period.” Some would-be investors were offered shares in the company for 60-and 90-day loans.