Falls moving "cautiously" on operating license application for cryptocurrency mining facility

Feb. 25—The attorney for a cryptocurrency mining facility in the Falls is pressing city officials for a public hearing on his client's attempt to gain a license to operate under the requirements of an amendment to the city's zoning code that governs high-energy use industries.

At the same time, the attorney for another cryptocurrency miner has subpoenaed Mayor Robert Restaino in a bitter ongoing lawsuit filed by the city to shut down his client's operation and collect what is currently close to a $1 million fine.

William Rossi, an attorney representing BlockFusion, which was operating a cryptocurrency mining facility in the Falls at an old industrial site on Frontier Avenue made an unscheduled appearance at the Falls Planning Board meeting on Wednesday night to pointedly ask about the status of his client's application for an operating permit.

BlockFusion ceased operating its facility in November after the city notified the company it was in violation of the high-energy use industry zoning code amendment and sought a preliminary injunction to block continued mining there and at two other cryptocurrency mining facilities in the Falls. Rossi said his client then filed an application for an operating permit and made changes to comply with the new zoning code requirements.

In December, Rossi said the city asked for some "supplemental changes" to BlockFusion's application and the company promptly complied with that request.

Under the new zoning code rules, Rossi told the Planning Board, BlockFusion should have been granted a public hearing on its request within 15 days. He said more than two months have passed and the city has still not scheduled a hearing.

"It's not my practice to show up unscheduled," Rossi told the Planning Board members, "but I would have expected a firm (hearing) date by now."

The BlockFusion attorney said his client wants to do business in the Falls, and needs to know where it stands in the process to obtain an operating permit.

"It's important to them to do this right," Rossi said. "I would be willing to cooperate in anyway possible."

Rossi acknowledged that BlockFusion has filed a lawsuit challenging the zoning code changes, but indicated that suit was only initiated to protect the company's rights while its operating permit application was pending.

"It's not our intention (to have to challenge the law)," Rossi told the board. "If we could have an opportunity to demonstrate our compliance (with the law), we would appreciate that."

Former Falls City Council Chair John Spanbauer, who now serves on the Planning Board, told Rossi the city "needs to do better" in handling BlockFusion's application.

On Friday, Restaino said that because of litigation with another cryptocurrency mining company, and because BlockFusion is the first operating permit applicant under the new zoning code regulations, the city has been moving "very cautiously."

Everybody is kind of watching this," Restaino said. "We're wanting to make sure BlockFusion gets across the finish line because it shows our (new) statute works."

The mayor said city lawyers had some "additional comments coming back" to BlockFusion about its application.

"(City lawyers) are moving as quickly as possible, but we're moving carefully," Restaino said. "And we're hoping for a pleasant conclusion."

Restaino also confirmed that he met on Tuesday with a representative of U.S. Bitcoin which is involved in a bitter legal battle with the city over the high-energy use zoning code changes. In court proceedings, city attorneys have repeatedly contrasted the refusal of U.S. Bitcoin to comply with the zoning code changes to BlockFusion's attempt's to follow the operating permit application process.

The mayor said he "shared some thoughts" with the U.S. Bitcoin representative on ways to resolve their dispute.

"Then on Thursday, I was subpoenaed by their lawyers," Restaino said.

The subpoena calls for the mayor to give testimony during hearings in mid-March on the city's request for a preliminary injunction to force U.S. Data Technologies Group Ltd. and U.S. Data Mining Group Inc, doing business as U.S. Bitcoin, to comply with the new zoning code amendments governing high-energy use industries.

Before those hearings, State Supreme Court Justice Edward Pace has scheduled a conference for March 3 to determine what will be the contents of a judicial order that seeks to fine and shut down the operations of U.S. Bitcoin. Pace directed lawyers for the city and U.S. Bitcoin, to meet with him to resolve an ongoing dispute over a draft order that would enforce a previous ruling he made that found the cryptocurrency mining company, which operates a facility on Buffalo Avenue, in contempt of an order from another State Supreme Court justice that directed the company to shutdown its operations.

That ruling, by State Supreme Court Justice Frank A. Sedita III, had directed U.S. Bitcoin to immediately stop operating its Buffalo Avenue facility while the lawsuit for a preliminary injunction worked its way through the judicial process.

Pace ruled on Jan. 25 that U.S. Bitcoin was deliberately operating its cryptocurrency mining facility in violation of the order issued by Sedita and found the company in contempt. The justice also ruled that if U.S. Bitcoin continued to operate their facility, he would impose fines of $10,000 a day through Feb. 1 and then increase the fines to $25,000 a day until the cryptocurrency mining stopped.

The justice imposed the fines, dating back to Dec. 9, because that was the date when Sedita first issued his temporary restraining order (TRO) that directed U.S. Bitcoin to stop operating.

Pace also directed lawyers representing the city to draft an order for him to sign that would enforce his ruling. In such cases, the attorneys who draft an order routinely share it with opposing counsel.

In this case, the attorney representing U.S. Bitcoin, John Bartolomei, has reportedly repeatedly raised objections "to every proposed draft order."

The March conference is expected to settle what the contents of the judicial order should be and immediately implement it. Bartolomei has indicated he intends to appeal any order from Pace to the State Supreme Court Appellate Division Fourth Department in Rochester.

In setting the conference date, Pace reportedly reaffirmed his core decision and reaffirmed that the fines against U.S. Bitcoin will continue to accrue.

The fines now exceed $1 million.

In addition to U.S. Bitcoin and BlockFusion, there is one other cryptocurrency mining operation in the Falls. That facility has been shuttered since the summer because of a fire in an electrical substation on its property.