The criminal charges filed against former Bitwise Industries co-CEOs Jake Soberal and Irma Olguin Jr. this week are just one more reason why they must appear in court.
Mr. Soberal and Mr. Holguin pleaded not guilty Thursday to federal wire fraud charges. They are accused of defrauding investors of $100 million to keep their failing company afloat.
Soberal, Bitwise and its affiliates and other parties are defendants in 10 civil lawsuits, including Chapter 7 bankruptcy cases.
Two more lawsuits have been filed in recent weeks.
Compared to some complex cases filed in real estate fraud and employment law, Robert Ellis’ case, filed Oct. 26 in Fresno County Superior Court, is relatively simple. His five-count complaint centers on a $500,000 loan made to Bitwise that was not repaid.
Another issue in the ongoing litigation is a dispute over who should receive the $5 million defense insurance policy. Two former members of the company’s board of directors, Joseph Proietti and Oren Douglas, filed the amended complaint in Fresno on October 23.
5 million dollar battle
In April 2023, the company acquired insurance from Arizona-based Scottsdale Insurance Company to cover losses from litigation and defend it in court.
Scottsdale agreed to defend Mr. Soberal, Mr. Holguin and former president Bethany Milley, but not Mr. Proietti and Mr. Douglas.
“The CEO Defendants told one lie after another to cover up earlier lies,” the Proietti/Douglas lawsuit alleges. The word “fraud” is used 45 times in the lawsuit.
The lawsuit argues that the policy should not protect Mr. Soberal, Mr. Holguin and other executives because the policy renewal was “based on material misstatements.”
Several of the lawsuits name various entities and individuals within Bitwise as defendants. Mr. Proietti and Mr. Douglas have been named as defendants in at least two lawsuits, both brought by former employees.
“Thus, Scottsdale is protecting the fraudulent CEO defendants while unfairly denying plaintiffs and other insureds the coverage they deserve,” the complaint states.
The lawsuit says damages are likely to be in the “hundreds of millions of dollars” and that the $5 million insurance policy “will provide limited protection to the fraudsters absent a prompt award of equitable relief by this court.” “There will be,” he admits. Plaintiffs cannot leave this unjust outcome untouched. ”
Bankruptcy trustees had already waived $1 million from insurance policies in October to allow management to defend itself.
Scottsdale has already hired several attorneys to defend Soberal, Holguin, Milley and several related Bitwise companies. One lawyer involved in one case said that these lawyers’ fees were “exorbitant.”
On November 2, Judge John Skiles denied the plaintiffs’ request for a temporary restraining order against Scottsdale Insurance, which represents Soberal, Holguin and Milley. A preliminary injunction is scheduled for Nov. 16 before Judge Jeffrey Hamilton.
Another failed loan
Ellis’ lawsuit alleges that he loaned Soberal and Holguin (both defendants) $500,000 on April 27, 2023 “to enforce various bank terms and conditions.” . The promise was to repay the loan with interest within three months.
Soberal told GV Wire that he allegedly told prospective investors that major financial institutions required Bitwise to deposit a minimum amount of money into their bank accounts as a condition of receiving additional funds. Ru. Apparently this was a lie.
“Defendants entered into the term notes knowing they would never be able to repay, and in fact never intended to repay,” the complaint alleges.
The Ellis lawsuit is at least the third lawsuit Bitwise currently faces based on unpaid loans.
GV Wire first reported on Bitwise’s impending bankruptcy in May, when stories of missed property tax payments and dishonored payroll checks spread. The company furloughed and later laid off its entire workforce, up to 900 people and 400 in the Fresno area, according to court documents.
Bitwise’s board fired Soberal and Holguin as co-CEOs in June. Douglas said in court documents that he was appointed interim president as part of the company’s efforts to rebuild. Bitwise filed for Chapter 7 bankruptcy on June 28th.
Several lawsuits filed before and after the bankruptcy accuse Mr. Soberal and Mr. Holguin of various degrees of fraud, including lying to investors to obtain loans. Fraudulently providing documents to secure other large-money loans. They then pledge their stock to multiple companies as collateral for those loans.
A national radio show is coming to Fresno to discuss the collapse of Bitwise. “1A,” heard nationally on NPR and locally on Valley Public Radio (KVPR-89.3 FM), will be in Fresno City College’s Old Administration Building Auditorium next Tuesday (November 14) at 6:30 p.m. Record the program starting.
What is the position of other lawsuits?
Other lawsuits filed in state and federal courts generally remain stalled until the bankruptcy case moves forward. The bankruptcy put a pause on most other Bitwise lawsuits, as the judgment was handed down in Delaware.
The bankruptcy court ordered a stay until at least February 2024. Mediation is scheduled for January 30-31, 2024. The remaining cases have events scheduled on the calendar, but one lawyer told GV Wire that means no discovery or exchanges will take place. The evidence may begin.
There is also the issue of gathering evidence. Access to Bitwise computers is in the hands of some plaintiffs, but getting the data they need could cost hundreds of thousands of dollars.
The diagram below shows the positions in criminal and civil proceedings.