Bitwise owes more than $500 million; compared to $400,000 in assets found so far, records show

Creditors claim more than $500 million is owed them by now-bankrupted Bitwise Industries and associated entities. Court filings this week show less than $400,000 in assets found so far, including several bank CDs that were used as collateral and the value of some furniture and equipment.

That’s a debt-to-assets ratio of more than 1,250 to 1.

With numbers like that, the likelihood is that many of the creditors – investors whose claims were supposedly secured by interest in the company and its assets, and those including many former Bitwise employees whose claims are unsecured – will receive little, if anything, as a result of the bankruptcy proceedings in Delaware.

A court-appointed bankruptcy trustee is still trying to sift through the financial rubble of Bitwise, to figure out how and why the 10-year-old company failed, and what assets there are that can be sold to raise money on behalf of creditors.

As that investigation continues, a Fresno-based bank is asking the court this week to allow it to seize more than $300,000 in certificates of deposit. And Jeoffrey Burtch, appointed by a federal judge in Delaware to shepherd the Chapter 7 cases of five separate Bitwise entities that filed for bankruptcy on June 28, earlier this month asked the court to authorize the sale of a cache of office equipment and vehicles from one of the company’s now-defunct enterprises in Bakersfield – potentially just a drop in the ocean of debt.

Bitwise Industries was founded in 2013 as a self-described “mothership” of technology entrepreneurship offering training in software coding and website development, subleasing space in its buildings to budding tech-related companies, and providing technology services to local businesses.

But the promising vision of co-founders Jake Soberal and Irma Olguin Jr. to foster a critical mass of technology companies in downtown Fresno – and over the past couple of years in other cities across the U.S. – came to an abrupt end over the Memorial Day weekend in late May. That’s when Soberal and Olguin announced to their entire workforce, about 900 employees nationwide, that they were being immediately furloughed.

Within days, Bitwise’s board of directors fired Soberal and Olguin, and within weeks the employee furloughs became permanent layoffs as the company’s collapse led to the bankruptcy filings.

In motions filed recently in the federal bankruptcy court in Delaware, trustee Burtch is asking Judge Mary L. Walrath to approve the sale of three vehicles that formerly belonged to Stria LLC, a document digitization business that BW Industries Inc. – a parent company of Bitwise – purchased in August 2022.

The proposed sale to Bakersfield’s Advanced Data Storage Inc. also includes an array of office chairs, furniture and supplies; computers, monitors and related equipment; copiers and printers; and more.

If the sale is approved by the court, it would only generate about $60,000 – that’s $30,000 for the three vehicles and $30,000 for the office equipment.

That stacks up against liabilities stated in bankruptcy petitions by BW Industries and associated entities of about $511.4 million, plus registered claims from other creditors including laid-off Bitwise employees that add up to more than $25.5 million.

BW Industries is one of five separate Bitwise entities that filed for bankruptcy, including Bitwise Industries Inc., BWRD LLC, Alpha Works Technologies LLC, and Bruces Bagels, Beverages and Bites LLC. Those companies are part of a complex web of at least 32 different limited liability companies, partnerships and corporations created by Bitwise co-founders and former co-CEOs Jake Soberal and Irma Olguin Jr. over the past 10 years.

Beyond the vehicles and equipment in Bakersfield, trustee Burtch indicated in court documents that there may not be much else in terms of assets or property that can be sold to help raise money for investors who hold secured claims, or hundreds of other creditors with unsecured claims against the companies.

“The Trustee’s investigation and evaluation of liens and security interests is ongoing, but it presently appears that the only unencumbered assets of significant value are the vehicles” that belonged to Stria, Burtch wrote in the motion.

Bank seeks to cash out certificates of deposit

Fresno-based Central Valley Community Bank this week asked the bankruptcy judge to allow them to seize more than $307,000 in Bitwise certificates of deposit to compensate the bank for the company’s default on letters of credit issued by another lender.

The CDs represent Bitwise’s security for two letters of credit in 2021 – one in April for more than $167,000 to lease 100 Apple MacBook Pro laptcop computers, and a second in June for the purchase of more Apple MacBook computers.

As a result of Bitwise’s financial collapse and default on its payments, lender De Lage Landen Financial Services, Inc. demanded payment from Central Valley Community Bank under the two letters of credit – amounts which were paid.

Now, the Fresno bank wants to cash out the certificates of deposit to make up for its payout on the letters of credit.

As part of his investigation into potential assets, Burtch asked for and received authorization from the bankruptcy court in August to issue subpoenas to Central Valley Community Bank and to San Francisco-based First Republic Bank for bank statements and signature cards for Bitwise and its associated entities.

“The trustee has learned of bank accounts that (Bitwise and affiliated entities) hold or held at Central Valley Community Bank and First Republic Bank,” Burtch wrote in court filings. “The trustee also has cause to believe that there may have been significant transfers of funds” between Bitwise Industries and its various associated companies in the months before the bankruptcy filing.

The bank account information is “critical” to assessing possible transfers of funds among Bitwise entities as well as examining allegations in civil lawsuits and bankruptcy court filings that Soberal and Olguin misled investors, board members and others and falsified financial records.

Burtch added that the banks were generally cooperative in providing documents for the Bitwise companies that filed for bankruptcy. but, he said, they had refused to provide information for other Bitwise entities that were not involved in the bankruptcy filings.

The court granted Burtch’s motion to subpoena the banks on Aug. 18.