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Former Bitwise directors accuse ex-CEOs Jake Soberal, Irma Olguin of fraud on a ‘massive’ scale

Bitwise Industries co-founders and co-CEOS Jake Soberal, left, and Irma Olguin Jr. announce the company’s expansion into new cities in Colorado, New Mexico, New York, Texas and Wyoming in a video message in March 2022. The pair were terminated from their positions by Bitwise’s board of directors on Friday, June 2, 2023. (Screen capture from video/Bitwise Industries)

Jake Soberal and Irma Olguin Jr., the former co-CEOs of Fresno-based Bitwise Industries, are being accused of committing fraud on a “massive” scale and repeatedly misrepresenting the company’s financial situation to its board before they were fired June 2, two former Bitwise board members allege in a bankruptcy court filing.

Joseph Proietti and interim Bitwise President Ollen Douglass filed the motion Thursday in the U.S. District Bankruptcy Court in Delaware asking for permission to pursue a civil lawsuit against Soberal and Olguin, as well as Scottsdale Insurance Co., which could cover some legal bills for former Bitwise employees under an existing policy.

Typically, a bankruptcy case creates an automatic stay of lawsuits by creditors against a debtor. But the two former board members want to persuade the bankruptcy court that Soberal and Olguin committed a massive fraud and should not be entitled to bankruptcy protection from lawsuits or any part of $5 million of insurance coverage that might go toward paying legal bills for former employees and board members.

“Because the damages ... are likely to total in the hundreds of millions of dollars, and there are a number of lawsuits already filed … it is extremely likely that the total amount of the policy will be exhausted defending the fraudsters, …” the bankruptcy filing states.

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A civil lawsuit, if allowed by the bankruptcy judge, would be filed in Fresno County Superior Court. It would ask a court to declare that Soberal and Olguin are not entitled to the insurance coverage and that the policy can cover legal fees for board members facing a recently filed state class-action lawsuit against Bitwise on behalf of former employees.

The Bee attempted to contact Soberal and Olguin on Friday evening for comment about the recent filing and allegations. They did not respond to text messages, and for several weeks have declined comment for several Bee stories about the bankruptcy and the company’s demise.

Bitwise was founded in 2013 as a 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 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.

Bankruptcy court documents indicate Bitwise Industries and associated companies owe creditors at least $511 million – a figure that is growing as more employees file claims for unpaid wages and expenses.

Fraud on a “massive scope” alleged

In one of the court filings, Proietti and Douglass say Soberal and Olguin “were concealing material information and actively misleading investors, lenders, employees and partners, as well as their own board, for years.”

“Over the course of the last few years (Soberal and Olguin) 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 court filing alleges.

“In an attempt to enrich themselves and avoid responsibility for their unethical, self-dealing actions for as long as possible, (Soberal and Olguin) told lie after lie to cover up previous lies,” Proietti and Douglass allege. “They 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.”

“Because of the massive scope of the fraud, the true extent of the financial loss is not yet fully clear,” the former directors stated in the court filing.

Proietti and Douglass cite a provision of the insurance policy that addresses misrepresentations in an application for the policy – a provision that they say disqualifies Soberal and Olguin from being covered. But, they added, it is their belief that Scottsdale Insurance, “has agreed to provide coverage … for the former CEO defendants” not only for the civil lawsuits, but also “in defending criminal and/or governmental investigations.”

Multiple sources confirmed to The Fresno Bee in late June that federal agents have launched a criminal probe of Bitwise and its leadership in the wake of the company’s financial collapse.

In a proposed lawsuit against Soberal, Olguin and the insurance company, Proietti and Douglass allege that “for a lengthy period of time prior to April 30 … (Soberal and Olguin) used falsified financial records and lies to solicit loans, insurance coverage and investments in Bitwise.”

“During this time, (Soberal and Olguin) paid themselves lavish salaries and perks such as company cars,” the proposed complaint adds.

Company, board face multiple lawsuits

Bitwise, its board and officers, including Soberal and Olguin, face a slew of lawsuits from investors and other creditors, as well as a pair of class-action lawsuits by employees, stemming from allegations of bad-faith dealing, fraud and misrepresentations.

Those lawsuits include “a staggering array of financial losses suffered by innocent third parties as the result of dealings by (Soberal and Olguin),” the court filing states. Proietti and Douglass allege that they “were never made aware of many of the underlying transactions … on behalf of Bitwise, let alone the financial ramifications on various substantial investments into Bitwise made and/or authorized” by Proietti and Douglass.

“It is not yet clear exactly when the Former CEO defendants began to mislead others, but given the massive scope of the fraud, it is apparent that these misrepresentations began well in advance of April 30, 2023,” the court filing states.

The filing by Proietti and Douglass adds that Soberal and Olguin failed to disclose to the board the various dealings related to six of the lawsuits against the company, including a $6.4 million settlement of a New York fraud lawsuit.

In another lawsuit, Bitwise is being sued for allegedly taking out at least $30 million in loans against buildings in which Bitwise did not hold a majority ownership stake. Not only do Proietti and Douglass assert in their motion that the Bitwise board never authorized Soberal and Olguin to solicit the loans or to list the properties for sale, but they also allege that a written consent provided by Soberal and Olguin for “at least one of those loans appears to bear forged electronic signatures” of Bitwise board members.

“Most, if not all, of the representations allegedly made by Soberal in connection with the … loans were false, misleading, or both,” Proietti and Douglass state in the filing. “The Board of Directors of Bitwise – and specifically both Proietti and Douglass – had no knowledge that either (Soberal or Olguin) was soliciting these loans or investments, or that they were making these representations.”

“None of the acts of (Soberal and Olguin) in furtherance of their fraudulent scheme were authorized by the Board,” the filing states.