Bitwise slammed with lawsuits. One accuses the Fresno company of running a Ponzi scheme

A lawsuit filed in Fresno County Superior Court last week by a Chowchilla agribusiness firm accuses Bitwise Industries of running “nothing more than a classic ponzi scheme” as one of its former co-CEOs scrambled to raise cash for the flagging company.

It’s one of five cases pending in Fresno County courts against Bitwise, its former co-CEOs Jake Soberal and Irma Olguin Jr., and other company leaders in the wake of its apparent financial collapse at the end of May. The Fresno-based company provided technology apprentice training, web and software support for businesses and leased space in its buildings to technology entrepreneurs and other businesses.

Other cases pending in Fresno County Superior Court include one alleging violations of California’s WARN (Worker Adjustment and Retraining Notification) Act, which requires companies to provide 60 days advance notice of any mass layoffs or terminations. That complaint, filed on June 7, was filed as a class-action lawsuit.

Bitwise announced on May 29 that it was immediately “furloughing” all of its workers in California and nationwide, but didn’t file any WARN notices in California or other states where it operates until Wednesday, when employees were notified by email that their jobs were being terminated permanently.

An additional lawsuit filed in the U.S. District Court in Fresno accuses Bitwise and its leaders of also violating the federal WARN Act for advance notice of layoffs or terminations.

Neither Soberal nor Olguin, both of whom were fired from their positions as Bitwise co-CEOs on June 2, responded to a request from The Fresno Bee to address the lawsuits confronting them.

Court records indicate that no responses have been filed by Bitwise or other defendants in any of the pending lawsuits in either the local superior court or in the federal court.

The legal woes could keep adding up from investors and others – and might not stop at civil lawsuits.

“I wouldn’t be a bit surprised if there wasn’t some kind of federal criminal investigation that follows as well,” Fresno Mayor Jerry Dyer told reporters on Wednesday.

Agri-Capital lawsuit against Bitwise

Attorneys for Agri Capital Inc., a Chowchilla-based lender, allege that Soberal reached out to the lender’s chief financial officer Jim Maxwell by email on April 25 and spoke by phone later that day to say that Bitwise “urgently needed to raise $5 million” by April 28, to repay tax credit refunds owed to another company.

Soberal allegedly told Jim Maxwell that the U.S. Internal Revenue Service had “errantly deposited the (tax) credits into Bitwise’s bank account in 2023” when they should have gone directly to the other company.

Maxwell and his son, Brian Maxwell – manager of CA AG LLC – had both been investors in Bitwise-related companies since about 2019, the suit states.

Agri Capital agreed to loan Bitwise $1 million based on security agreements in which Soberal and Olguin pledged their shares in Bitwise’s parent company, BW Industries, as collateral, according to court documents. Additionally, CA AG provided a $500,000 loan to BW, for which then-BW president Bethany Mily pledged her company shares as security.

Less than three weeks later, on May 16, the lawsuit alleges, an associate of Jim Maxwell sought his opinion on a potential $2 million loan to Bitwise.

“The associate stated that he was in communication with Soberal and the monies loaned would be secured by Soberal’s and Olguin’s personal stock shares in Bitwise,” the complaint states. Those stock shares were “the same shares which Soberal and Olguin represented and warranted to (Maxwell) would be pledged to them as collateral for their loan exclusively.”

Additionally, the suit alleges that Soberal had earlier boasted that Bitwise had $65 million in cash in its bank accounts, but added that the money could not be used to repay the owner of the tax credits because another major investor, Goldman Sachs, required that Bitwise maintain that for liquidity purposes. In telephone call on May 29 – the same day that Bitwise furloughed its entire workforce – the lawsuit states, Soberal told Maxwell that the $65 million “was now ‘mostly gone’” and had been used to “repay other investors.”

“As it turns out, (Bitwise’s) ‘business plan’ was nothing more than a classic ponzi scheme rooted in the fraud and deceit by which its top officers, with Board of Director endorsements, solicited money by crafting a false narrative of financial fortune and stability to lure in unsuspecting investors who believed in the company’s mission,” the lawsuit alleges.

The tax credits for which Soberal is accused of seeking loans to repay were the subject of a previous lawsuit in a federal court in New York. In that case, plaintiff 1861 Acquisition sued Bitwise and Soberal for fraud, alleging that the IRS had issued tax credit refunds of about $6.2 million as paper checks to Bitwise, and that Bitwise had deposited those into its bank account rather than forwarding the payments to 1861 Acquisition as called for in its contract.

The 1861 Acquisition federal lawsuit was settled on May 1, according to court documents in that case.

After learning about Bitwise’s other legal problems, the Maxwells, Agri Capital and CA AG issued a June 1 demand to Bitwise for repayment of their loans by June 8.

In addition to Bitwise Industries, Soberal and Olguin Jr., the Agri Capital lawsuit also names as defendants Mily and Bitwise board members Mitchell Kapor, founder of Lotus Development in the early 1980s and now a partner in Kapor Capital; Joseph T. Proietti, founder and president of investment firm BNP; former investment executive Paula Pretlow; and Ollen Douglass, a former executive with Motley Fool Ventures, CEO of consulting firm Hanover Street Advisors and interim president of Bitwise.

Bitwise board members Kapor, Proietti, Pretlow and Douglass are accused in the lawsuit of negligence and breach of duty in their supervision of Soberal, Olguin Jr. and Mily.

“Given the multiple pending lawsuits against Bitwise … it should have been apparent to the Board defendants that Bitwise’s officers persistently engaged in a pattern of wrongful and fraudulent activity,” the lawsuit states.

The lawsuit seeks not only repayment of the $1 million Agri Capital loan and the CA AG $500,000 loan, plus interest, but also triple damages totaling more than $5 million.

Other pending lawsuits against Bitwise

NICBYTE LLC: Texas company NICbyte LLC filed suit on May 30 against Bitwise and associated entities over ownership of the former State Center Warehouse building on R Street in downtown Fresno as well as buildings in Oakland and Bakersfield. That case, filed in Fresno County Superior Court, asserts that NICbyte has a 95% ownership stake in the various properties.

Despite only having a 5% stake, the suit alleges that Bitwise borrowed almost $30 million in loans using the buildings as collateral, and also listed four of the five properties for sale without legal authority to do so. A Fresno judge issued a temporary restraining order on May 31, ordering Bitwise to cease efforts to sell the buildings and freezing bank accounts associated with Bitwise subsidiaries for each of the buildings.

An amended complaint was filed earlier this week, adding Soberal and Olguin Jr. as individual defendants in the case.

CATALYST COMMUNICATIONS INC.: Fresno-based marketing firm Catalyst Communications Inc. filed suit against Soberal and BW Industries on June 1, accusing Soberal of fraud and asking a judge for damages to freeze the company’s bank accounts and turn over all financial books and records.

The lawsuit alleges that Soberal reached out to Catalyst CEO Mark Astone on May 10, 2023, to seek a $200,000 loan, based on representations that BW Industries was earning more than $200 million in annual revenue and had $65 million in cash in the bank.

The complaint also asserts that Soberal’s statements about Bitwise’s financial strength were false and “intentional misrepresentations made in order to induce (Catalyst) to fund the $200,000 loan.” Those representations, the complaint adds, “constitute the type of willful and malicious fraud so as to justify an award of punitive damages ….”

FEDERAL CLASS-ACTION WARN LAWSUIT: A New York law firm filed suit in the U.S. District Court in Fresno on June 6 as a class-action case accusing Bitwise Industries, subsidiary AlphaWorks Technologies LLC, and Soberal and Olguin of violating the federal WARN Act requiring 60-day advance notice to workers of layoffs or terminations. It also alleges violations of California state labor codes and wage laws. The three lead plaintiffs include Bitwise’s director of operations in Buffalo, New York; a Maine resident working remotely and reporting to the Bitwise headquarters in Fresno; and a payroll and compliance accountant in Fresno.

CALIFORNIA CLASS-ACTION WARN LAWSUIT: Fresno attorney Roger Bonakdar filed a lawsuit on June 7 in Fresno County Superior Court as a class-action case on behalf of Bitwise employees, accusing the company, Soberal, Olguin Jr. and Bitwise board members of violating California’s WARN Act. It also accuses the company of other labor law violations including unfair business practices; failure to pay wages, to maintain acurate records or furnishing wage statements, and negligence.

The complaint asserts that over the objections of Soberal and Olguin Jr., the other four Bitwise board members – Kapor, Pretlow, Proietti and Douglass – met on about May 28 and made the decision to terminate all of Bitwise’s employees.

“Apparently, to buy time, defendants had messaged the terminations as a ‘furlough’ to both mislead the public and the Bitwise employees,” Bonakdar wrote in the lawsuit.

On Wednesday, the same day that employees were told their jobs were being permanently terminated and more than two weeks after the company announced the immediate “furloughs,” Bitwise interim president Douglass sent WARN notices via email to employment officials in California and at least six other states of the mass layoffs.

CHASE CARTER AND JACKIE CARTER: Chase Carter of Madera County and Jackie Carter of Riverside County filed suit in February 2023 against Bitwise Industries, Soberal, Olguin and two other Bitwise officers, Landon Brokaw and Billy Atkins. The defendants are accused of breach of contract and fraud.

The lawsuit asserts that Chase Carter, with financial backing from Jackie Carter, founded a real-estate tech company called Listing Alert in 2018, and hired Bitwise to build a corresponding technology app.

The complaint alleges that Bitwise and its officers approached Chase Carter about entering a joint venture for ownership of the app in exchange for an investment of $2 million. But, the lawsuit adds, Bitwise and the defendants used a seven-month period to validate whether the app would be profitable to instead “develop a plan to oust plaintiffs from the company in order to take 100% ownership of the company and Listing Alert and keep app profits for themselves.”

As part of the joint venture, Chase Carter was offered a position as Listing Alert’s business development manager, the lawsuit states, adding that Chase Carter was fired from that position in August 2021, less than a month before he would be able to exercise a 20% option in the new company to bring his stake to 44%. In addition, the suit alleges that the $2 million investment never materialized.