The co-founders and co-CEOs of failed startup Bitwise appeared in a California court Thursday accused of cheating investors out of $100 million by making up bank statements and revenue figures.
Irma Olguin, Jr and Jake Soberal self-surrendered after a federal complaint charged them with conspiring to commit wire fraud by misstating the assets of their “transformative technology” biz.
“The defendants could have chosen simply to admit the failure of Bitwise’s business model, US attorney Phillip Talbert declared in a statement. “Instead, they used lie after lie to pull over $100 million into a dying venture through fraud.”
The upstart abruptly furloughed and then laid off all of its 900 employees on May 30, and days later the board of directors fired co-CEOs Olguin and Soberal. By the end of June, Bitwise had filed for bankruptcy.
The sudden collapse came just four months after Bitwise announced an $80 million funding round on a $500-million-plus valuation and promise to expand to Chicago’s South Side.
In separate charges released Thursday, the US Securities and Exchange Commission accused the duo of misleading investors about the firm’s finances. “In 2022, defendants Jake Soberal and Irma Olguin, Jr falsified documents and misled investors while raising approximately $70 million,” the SEC complaint [PDF] alleges.
According to the financial watchdog, Olguin and Soberal have agreed to resolve the SEC’s charges against them; that will likely involve them being fined and facing other forms of punishment, to be determined later by the courts.
Back to the criminal case: according to the Dept of Justice, the scheme started in January 2022. While being grilled by federal investigators, Olguin and Soberal admitted they conspired to lie to their board, investors, and banks about Bitwise’s finances so they could fraudulently obtain venture capital and loans, prosecutors said.
“They did so by fabricating financial information in board presentations and investor materials, as well as altering and forging bank statements, board consents, and other financial records to inflate the company’s revenues, cash balances, and property holdings,” according to the court documents [PDF]. “They also misled the board members, investors, lenders, and others into believing Bitwise was excelling when it was instead failing.”
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It was quite a fall for the idealistic biz that the two founded in 2013, with the express mission to create tech jobs for under-served communities in economically struggling cities. The outfit promised to train up technology workers, provide consultancy services, and renovate and lease commercial properties.
It started in Fresno, California, and pledged to use its $20 million series-A funding in December 2019 to support an expansion to other cities in California’s Central Valley, including Bakersfield and Merced.
However, according to someone identified as “investor one” in the court documents, “most of the money went toward buying out some of the company’s early investors and … there was only a few million in series-A funds left over.”
During a February 2022 presentation, the pair reportedly told the board that the cash balance was more than $44 million as of December 31, 2021. They also told the board that the year’s revenue exceeded $58 million. “Bank records, however, showed that the company’s cash balance was approximately $11,700,000 at the close of 2021,” according to court documents. By June 1, Bitwise had less than $1.5 million left, the complaint states.
Most of the money, according to chief financial officers and other Bitwise employees cited in the court documents, went towards paying Bitwise’s payroll and fringe benefits – including Olguin and Soberal’s $600,000 per year salaries, outfitting the company’s office spaces, and repaying debts owed to prior lenders.
If convicted, the two face a maximum penalty of 20 years in prison and a $250,000 fine. ®
