Former Bitwise directors sue ex-CEOs and president, citing ‘fraud’ and ‘lie after lie’

Two former members of the Bitwise Industries board of directors are again accusing the failed technology company’s ex-CEOs of bilking them, as well as other investors, in a “fraudulent scheme” with losses “likely to total in the hundreds of millions of dollars.”

In an amended version of a lawsuit filed in Fresno County Superior Court, former Bitwise directors Joseph Proietti and Ollen Douglass are asking that Scottsdale Insurance Company be barred from paying for attorneys to defend Bitwise’s co-founders and co-CEOs Jake Soberal and Irma Olguin Jr., as well as former company president Bethany Mily, against a raft of lawsuits as well as potential criminal cases.

The suit alleges that Soberal, Olguin and Mily provided “false and fraudulent financial information” to Scottsdale in insurance applications and renewals.

Proietti and Douglass are also seeking a court ruling that they, as former board members who are named as defendants in some of the lawsuits against Bitwise, are entitled to coverage under the $5 million Scottsdale policy.

The allegations by Proietti and Douglass are similar to ones lodged in Bitwise’s federal bankruptcy case in July, in which the former directors accused Soberal and Olguin of committing fraud on a “massive scale” as they solicited investors and sought loans to keep Bitwise afloat while keeping their board, investors and the public in the dark about the true financial condition of the company.

Bitwise growth then bankruptcy

Bitwise was founded in 2013 as a downtown Fresno hub for training students in software coding and website design, technology services for local companies, and providing leased space to budding technology entrepreneurs and other businesses. From those beginnings, the company embarked on a program of expanding its geographic footprint — first throughout downtown Fresno, then across California and, in recent years, to out-of-state communities in Colorado, Illinois, New Mexico, New York, Ohio and Texas.

Bitwise’s umbrella company, BW Industries, and four of its associated entities filed for Chapter 7 bankruptcy protection on June 28, less than a month after Soberal and Olguin announced May 29 that the company’s entire workforce of more than 900 workers — including about 400 in the Fresno area — were being immediately furloughed, including Mily.

Soberal and Olguin were fired from their positions as co-CEOS in early June. Douglass succeeded Mily as president on an interim basis after Soberal and Olguin were terminated.

“For a lengthy period of time prior to April 30, 2023, … the Management Defendants (Soberal, Olguin and Mily) used falsified financial records and lies to solicit loans, insurance coverage, and investments in Bitwise,” the Fresno County lawsuit states. “During this time, the Management Defendants paid themselves lavish salaries and perks such as company cars.”

“At the same time, of course, (Soberal, Olguin and Mily) misrepresented the financial condition and profitabilty of Bitwise not only to the general public, but also to its insurers, its employees, its own Board of Directors … , its lenders, and its investors,” the lawsuit asserts.

Lawsuit cites Bitwise ‘fraud’ and ‘lie after lie’

The lawsuit added that Soberal, Olguin and Mily “engaged in numerous acts of fraud … to the point that they ultimately destroyed the company they were charged with running, leaving hundreds of others to suffer the consequences of their misdeeds.” The managers allegedly “told lie after lie to cover up previous lies” and “borrowed millions upon millions of dollars without Board knowledge or authorization, often using funds from one defrauded party to pay themselves or another defrauded party.”

After civil lawsuits against the company and its leadership piled up from February through June, the lawsuit states that Scottsdale has, under its insurance policy, paid to provide attorneys for Bitwise, Soberal, Olguin and Mily, but declined to cover Proietti and Douglass, who are named as defendants in some of the cases.

The two board members argue that that because Soberal, Olguin and Mily allegedly made misrepresentations to Scottsdale to secure the insurance policy, the three “are not entitled to coverage under the policy.”

Additionally, multiple sources have confirmed to The Fresno Bee since June that federal agents have launched criminal probes of Bitwise and its leadership in the wake of the company’s financial collapse.

The Bee reached out to Soberal and Olguin via text message on Friday seeking comment on the Proietti/Douglass lawsuit, but has received no response.

Beyond the civil lawsuits and the prospect of future criminal charges, court records for the federal bankruptcy court in Delaware show that more than 460 various creditors, including hundreds of former Bitwise employees, have lodged claims amounting to over $393 million against the Bitwise companies since June.