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Bitwise Founders Plead Not Guilty to Fraud Charges in Fed Court
Bitwise founders Jake Soberal and Irma Olguin Jr. pleaded not guilty to fraud charges in Fresno’s federal courthouse Thursday afternoon, the latest legal development stemming from the spectacular collapse of Bitwise Industries.
Earlier in the day, United States Attorney Phillip Talbert formally announced the charges in statements to the media.
Soberal and Olguin founded Bitwise in 2013 in Fresno. The goal was to bring tech to underdog cities. Both were Central Valley natives who won the adulation of the community, and of the tech and social investment worlds.
But by January 2022, Talbert said, things were going south. To keep the business afloat, Soberal and Olguin allegedly committed fraud, forgery, and outright lied to investors.
Talbert said the fraud was $100 million, one of the biggest cases his office has prosecuted.
“Instead of acknowledging that the business was failing to achieve the hoped-for returns, the defendants Olguin Jr. and Soberal repeatedly lied to the board of directors, investors, lenders and others about the business’s revenues and financial condition,” Talbert told the media at a pre-hearing news conference.
The deception was exposed in May when payroll checks bounced. GV Wire first reported on the problem. It was also revealed Bitwise was delinquent paying property taxes in several counties, including Fresno.
Furloughs and layoffs followed, with up to 900 employees nationwide (400 in Fresno) losing jobs. The Bitwise board fired Soberal and Olguin in June. Later that month, the company filed for bankruptcy.
Jake Soberal and Irma Olguin leave federal courthouse. pic.twitter.com/dGgWYpEHl7
— David Taub (@TaubGVWire) November 10, 2023
In Court Thursday
Olguin and Soberal surrendered to the custody of the FBI at the Robert E. Coyle Federal Courthouse Thursday morning. They spent most of the day in the courthouse.
Both walked into the 2 p.m. hearing and sat in the back row until their case was called approximately 45 minutes later by U.S. Magistrate Judge Sheila Oberto.
Olguin, her hair now fuchsia colored, wore a jacket, white shirt, and slacks. Soberal wore a navy blue suit.
Oberto asked if they understood the charges. Both answered “yes, your honor.”
Through their attorneys — Daniel Olmos for Olguin, and Eric MacMichael for Soberal — the defendants entered not guilty pleas.
Federal prosecutor Joseph Barton did not push for the pair to remain in custody. Oberto released Soberal and Olguin on several conditions, including surrendering their passports; putting up their homes as collateral (in Olguin’s case, her mother’s home); no contact with the Bitwise board, CFO, or former president; no discussion of the case with other witnesses; and travel restricted to almost all of California (except San Diego and Imperial counties) and Oregon.
Soberal and Olguin will return to court for a Dec. 8 bond and post-bail hearing. The judge also set a preliminary hearing for Jan. 25, 2024.
The U.S. Attorney’s Office says Soberal and Olguin face up to 20 years in prison and $250,000 in fines if they are found guilty.
Tense Moments After Court
The hearing was attended by several former Bitwise employees, and a few attorneys involved in other cases.
Julian Ramos stared intently at Olguin in the courtroom. As she and Soberal emerged, Ramos yelled at them in the hallway.
“Nothing. Your family? Our community? Each one of us loved our community, and you took us down. All we wanted was for Fresno to (expletive) succeed. Look what you done?” Ramos said.
Jake Soberal and Irma Olguin Jr. leave court. Confronted by former employee Julian Ramos. Warning language. pic.twitter.com/iH55oZwQCC
— David Taub (@TaubGVWire) November 9, 2023
Related Story: As Bitwise Legacy Erased, Creditors Meet. What About Employee 401(k)?
Also in court was attorney Roger Bonakdar, who represents several employees in a civil suit against Bitwise over labor violations. He served Olguin with the lawsuit inside the courtroom.
Olguin was also served another lawsuit by a process server.
After the hearing, the defendants and their attorneys spent time at the U.S. Marshal’s office, in the same building, before filing paperwork in the clerk’s office. They left the courtroom around 4 p.m., with neither speaking to the media.
Related Story: Bitwise Board Members Allege Soberal, Olguin Jr. Lied and Defrauded Them
“The result of their actions was the inevitable collapse of what was an unsustainable Ponzi scheme,” said FBI assistant special agent Crosby Brackett.
The FBI and IRS also investigated the criminal case.
Irma Olguin Jr. and Jake Soberal sit in the U.S. Marshal’s office Thursday after pleading not guilty to fraud charges. (GV Wire/David Taub)
Investigation and Criminal Complaint
The criminal complaint unsealed on Thursday revealed some details. Olguin and Soberal paid themselves $600,000 as co-CEO. The investigation spoke with several former employees and investors.
“Much of the money Olguin, Jr. and Soberal obtained by fraud went towards paying Bitwise’s payroll and fringe benefits, including their $600,000 per year salaries, outfitting the company’s office spaces, and repaying debts owed to prior lenders,” the complaint said.
The complaint also detailed how the company raised nearly $70 million in financing through December 2021. Soberal and Olguin painted a rosy financial picture to the board, but it was all fabricated, the complaint said.
During the news conference, Talbert said the defendants altered bank records that appeared to show the company had $20 million more in its account than it actually did.
US Attorney Phillip Talbert shows real and altered Bitwise bank statements. In March 2022, inflated by $23 million. pic.twitter.com/yUFmYJTlNL
— David Taub (@TaubGVWire) November 9, 2023
The complaint identified a woman, only listed as the company president, telling the government that Olguin and Soberal “would often make short term loans to the company that would be repaid with ten percent interest and that they would ask her and other key personnel to do the same. They called it ‘passing the hat.'”
Bethany Mily served as company president until its closing in June. She is not currently charged, although Talbert would not say if others could also be arrested.
Bitwise was accused of not using standard accounting practices in any of its presentations to the board or other investors.
SEC Also Files Case
Meanwhile, the Securities and Exchange Commission filed a parallel civil case against Soberal and Olguin for misleading investors. The SEC says Bitwise raised $70 million from investors in 2022, fraudulently inflating the value of the company.
“We allege that Soberal and Olguin resorted to blatant fraud, including the creation of fake financial documents, to deceive investors and raise money,” Monique Winkler, SEC regional director based out of San Francisco, said in a news release.
“In one instance, the defendants allegedly conspired to send a purported screenshot to investors of a company bank account showing a cash balance of $23.4 million. In actuality, the account had only $325,100 in it. That’s not a bank error — that’s fraud, and the SEC is taking action to hold the defendants accountable.”
The SEC is charging Soberal and Olguin with violating the antifraud provisions of the federal securities laws.
“Soberal and Olguin have each agreed to the entry of a partial judgment, subject to court approval, imposing permanent and conduct-based injunctions as well as an officer and director bar, and reserving the issues of disgorgement, prejudgment interest, and a civil penalty for further determination by the court,” the SEC said.
Read the Criminal Complaint
Several Suits, Bankruptcy Ongoing
Bitwise filed for bankruptcy June 28, a month after it furloughed then laid off its entire workforce.
The company and its managers have been embroiled in several lawsuits from investors, business partners and former employees, in both federal and state courts.
Founded in 2013, Bitwise’s business model was to train traditionally disadvantaged people how to code. Bitwise also delved into real estate, buying several buildings in downtown Fresno and rehabbing them.
Bitwise eventually expanded to other cities such as Bakersfield, Oakland, Buffalo, New York, Toledo, Ohio and others.
This story has been updated.
