The criminal charges filed this week against former Bitwise Industries co-CEOs Jake Soberal and Irma Olguin Jr. are just one more reason the pair have to be in the courtroom.
Soberal and Olguin pleaded not guilty on Thursday to federal wire fraud charges. They are accused of defrauding investors of $100 million to keep the failed company afloat.
Soberal, Bitwise and its affiliates, and other parties are defendants in 10 active civil lawsuits — including Chapter 7 bankruptcy.
Two more lawsuits have been filed in recent weeks.
Compared to the several complicated real estate fraud and employment law lawsuits filed, Robert Ellis’ lawsuit filed Oct. 26 in Fresno County Superior Court is relatively straightforward. His five-count complaint centers around a $500,000 loan made to Bitwise that was never repaid.
Another piece of ongoing litigation is a battle of who should be the recipient of a $5 million defense insurance policy. Two of the company’s former board of directors — Joseph Proietti and Ollen Douglass — filed an amended complaint in Fresno on Oct. 23.
A $5 Million Battle
The company took out a policy in April 2023 from Arizona-based Scottsdale Insurance Company to cover losses from lawsuits, and to defend them in court.
Scottsdale agreed to defend Soberal, Olguin, and former company president Bethany Mily, but not Proietti and Douglass.
“The CEO Defendants told lie after lie to cover up previous lies,” the Proietti/Douglass lawsuit claims. The lawsuit uses a version of the word “fraud” 45 times.
The lawsuit contends that the policy should not defend Soberal, Olguin, and other managers because the policy renewal was “based on material misrepresentations.”
The several lawsuits name different entities and individuals from Bitwise as defendants. Proietti and Douglass are named as defendants in at least two lawsuits, both from former employees.
“Thus, while Scottsdale is protecting the fraudster CEO Defendants, it has wrongfully denied Plaintiffs and other Insureds the coverage they deserve,” the lawsuit states.
The lawsuit admits that with damages likely in “the hundreds of millions,” the $5 million policy “will be exhausted defending the fraudsters absent a prompt award of equitable relief by this Court. Plaintiffs cannot let this unjust result stand.”
The bankruptcy trustee in October already released $1 million from the policy so the executives can defend themselves.
Scottsdale has already hired several attorneys to defend Soberal, Olguin, Mily and several related Bitwise companies. One attorney involved in one of the cases say those attorneys are “high priced.”
On Nov. 2, Judge Jon Skiles denied a plaintiff request for a temporary restraining order of Scottsdale Insurance defending Soberal, Olguin and Mily. A preliminary injunction is set for Nov. 16 in front of Judge Jeffrey Hamilton.
Another Failed Loan
Ellis’ lawsuit alleges he loaned Soberal and Olguin (both named as defendants) $500,000 on April 27, 2023 “to fulfill various bank covenants.” The promise was a repayment with interest within three months.
Soberal, sources have told GV Wire, allegedly told would-be investors that a major financial institution required Bitwise to have a minimum amount in the bank account as a condition to receive more funding. This was apparently a lie.
“(The) Defendants entered into the Term Note with the knowledge that they would never be able to repay the money and, in fact, they never intended to do so,” the complaint alleges.
The Ellis lawsuit is at least the third Bitwise currently faces based on an unpaid loan.
The Crumbling of Bitwise
GV Wire first reported Bitwise’s imminent collapse in May, when stories circulated of missing property tax payments and bounced payroll checks. The company furloughed and later laid off all its employees, up to 900 in court documents, with 400 in the Fresno area.
The Bitwise board fired Soberal and Olguin as co-CEOs in June. Douglass took over as interim president, in an effort he said in court documents to salvage the company. Bitwise filed for Chapter 7 bankruptcy June 28.
Several lawsuits filed before and after the bankruptcy accuse Soberal and Olguin of varying levels of fraud — from lying to investors to receive loans; to fraudulently providing documents to secure other big-money loans; and promising their stock in the company to several entities as collateral for those loans.
A national radio show will come to Fresno to discuss the Bitwise collapse. “1A” heard nationally on NPR and locally on Valley Public Radio (KVPR-89.3 FM) will record a show next Tuesday (Nov. 14), starting 6:30 p.m. at the Old Administration Building Auditorium at Fresno City College.
Where Do the Other Lawsuits Stand
Generally, the other lawsuits filed in state and federal courts are at a standstill until there is movement in the bankruptcy case. Being adjudicated in Delaware, the bankruptcy put a pause in most of the other Bitwise cases.
The bankruptcy court ordered a stay until at least February 2024. A mediation is scheduled for Jan. 30-31, 2024. While there are events scheduled on the calendar for the remaining cases, one attorney told GV Wire that means no discovery or exchange of evidence can start.
Also, there is the matter of collecting the evidence. Access to the Bitwise computers are in the hands of some of the plaintiffs, but it could cost hundreds of thousands to retrieve the necessary data.
Here is a chart of where the criminal and civil lawsuits stand: