California company’s CEOs used buildings they didn’t own as loan collateral, FBI says. How scam worked

As Fresno-based technology company Bitwise Industries hopscotched its way across downtown Fresno and into several other California cities, the firm was apparently accumulating an array of real-estate assets that would later prove to play a key role in civil and criminal fraud allegations against its co-founders.

Bitwise’s brand was prominently displayed on many of its properties, but what was less known publicly is that most of the company’s California real estate was not wholly owned by the company. Instead, Bitwise either partnered with other backers as a minority owner or was merely a tenant leasing the buildings.

Among the key allegations in a federal criminal complaint unsealed earlier this month against Bitwise co-foundersJake Soberal and Irma Olguin is that the pair used five buildings in Fresno, Bakersfield and Oakland – in which Bitwise held only a 5% ownership stake – as collateral for loans. An FBI agent’s affidavit also stated that Bitwise listed some of the buildings for sale.

They’re also accused of forging board members’ signatures to secure loans.

“The defendants persuaded a lender to loan them over $20 million by putting up Bitwise’s buildings as collateral,” said federal prosector Phillip Talbert, U.S. Attorney for the eastern district of California. “In fact, the defendants had sold those buildings to someone else, and Bitwise no longer owned them, and therefore could not use them as collateral for a loan.”

The federal charges are part of the fallout from the financial collapse of Bitwise Industries over the Memorial Day weekend earlier this year, when Soberal and Olguin publicly announced that Bitwise was putting its entire workforce of about 900 employees and apprentices on immediate furlough. Soberal and Olguin were fired by Bitwise’s board of directors several days later, and the company filed for bankruptcy at the end of June.

One of the buildings is the former State Center Warehouse on R Street between Ventura and Inyo streets in downtown Fresno – which itself was at the center of a 2022 breach of contract lawsuit against Bitwise by its former ownership partners.

The other California properties caught in the legal morass are, according to Fresno County Superior Court records:

• The former Oakland Technology Exchange West building in west Oakland.

• A trio of side-by-side-by-side buildings on 18th Street between G and H streets in downtown Bakersfield.

Unraveling a tangled web

In early 2017, Soberal touted grand plans for the State Center Warehouse, owned by a partnership called Bitwise at State Center LLC, comprising Fresno developer William Dyck, Paul Quiring of Quiring Construction, Eric Wilkins of Wilkins Enterprises, and Bitwise’s Soberal. The 1918 building is listed on Fresno’s Local Register of Historic Resources and was to undergo a series of renovations to make it suitable for Bitwise to occupy and sublease space to other tenants.

Five years later, the partnership was fractured, culminating in a breach of contract lawsuit against Soberal and Bitwise over the fate of the building.

In November 2019 and December 2020, Soberal – as Bitwise’s co-CEO – signed off on a lease and, later, a lease addendum, for Bitwise to lease the building from the partnership for 20 years. Soberal also signed off on both documents as a member of the landlord partnership.

The State Center warehouse was to be the fourth Bitwise building in downtown Fresno, joining the company’s South Stadium building at Van Ness Avenue and Mono Street; the Bitwise Hive at Ventura and Santa Fe streets; and Bitwise 41 at Ventura and R streets.

But by late 2021, after the city of Fresno issued a “safe to occupy” permit for the State Center building, the relationship between Bitwise and the other partners was strained. The breach of contract lawsuit filed in January 2022 by Dyck, Quiring and Wilkins alleged that Bitwise refused to take up occupancy and begin paying rent, asserting that there was no valid lease agreement between the parties.

Bitwise also breached the contract by failing to pay for utilities, taxes and other expenses, and by not insuring the property, the lawsuit stated.

That lawsuit was eventually settled out of court and dismissed in July 2022. While court documents did not disclose the terms of the settlement, it apparently revolved around BW Industries Inc. – the parent company of Bitwise Industries – buying the building from the landlord partnership. The sale, estimated in a public records database at $22.3 million, was recorded on July 21, 2022, the same date that the lawsuit was dismissed.

According to court records, that also coincides with the time period in which NICbyte LLC, a Texas company, entered into a joint venture with BW Industries and a subsidiary, Wishon Row, to purchase the State Center Warehouse, as well as the Bitwise properties in Bakersfield and Oakland. The day after the contract was signed for BW Industries to purchase the Fresno warehouse from the landlord company, BW Industries immediately resold the building to 747 R Street LLC, the entity established under the NICbyte/Wishon Row joint venture to own the Fresno building. Court records show that the price paid was $21.5 million.

A tortured relationship with NICbyte

In court records, NICbyte states that it contributed a total of almost $35.5 million for a 95% stake in its joint venture with Bitwise and each of the Bitwise buildings in Fresno, Oakland and Bakersfield.

Under the terms of the joint venture, Bitwise subsidiary Wishon Row LLC was the manager of the five properties, and BW Industries was the master tenant at each property. But in a lawsuit filed at the end of May 2023 against Soberal, Olguin and Bitwise, NICbyte alleges that Soberal and Olguin withheld key information about Bitwise’s financial condition, which was already deteriorating when the joint venture was formed.

“In order to induce NICbyte to enter into this joint venture and invest approximately $35 million (Soberal and Olguiln) made false representations regarding their financial status and falsely promised to provide financial records and regular financial reporting,” the lawsuit states. “NICbyte now knows — but did not know then — that Olguin and Soberal never intended to provide the promised financial records and reporting because they were intentionally concealing their financial misdealing and fraudulent activity from NICbyte.”

The lawsuit alleges that Wishon Row took out unauthorized loans for millions of dollars against the properties without approval by NICbyte; listing four of the properties for sale without NICbyte approval; and failed to provide required financial reporting and bank statements for 2023.

The suit adds that NICbyte only learned of Bitwise’s loans, sale listings and its actual financial condition on May 26 – just days before the company-wide furlough of Bitwise employees was announced.

The listing price for the Oakland property reportedly was just over $9 million. The Fresno and Bakersfield properties were packaged together with no specified asking price. Both listings called for the buildings to be fully leased back to Bitwise Industries.

NICbyte has since taken full control of its various Bitwise buildings, and in addition to its lawsuit against the company is also suing one of the lenders that made the loans for which the buildings were put up for collateral without NICbyte’s authorization.

In two separate court filings, four former Bitwise board members – Mitchell Kapor and Paula Pretlow, and Joseph Proietti and Ollen Douglass – accuse Soberal and Olguin of forging their signatures on documents used to obtain the unauthorized loans.

Soberal and Olguin acted without the knowledge or approval of the Bitwise board to obtain the loans and to list properties for sale, Proietti and Douglass allege in a suit filed in October in Fresno County Superior Court.

“Most damning is the fact that the written consent of the directors (to authorize about $20 million in loans against the properties) was never actually presented to the board,” the lawsuit states. “Instead, the board members’ electronic signatures appear to have been illegally forged” by Soberal and Olguin.