Bitwise founders take plea deal for $100M scam

Founders of Fresno-based Bitwise Industries agree to plea deal, face 20 years in prison for $100 million fraud scheme

(Bijac / AdobeStock)
Darren Fraser
Published July 5, 2024  • 
9:00 am

FRESNO – Irma Olguin Jr. and Jake Soberal, founders of the now defunct Bitwise Industries, reached a plea agreement with the U.S. Department of Justice in their $100 million plus fraud scheme. 

The founders will appear before Judge Dale Drozd on July 17 for a change of plea hearing in the U.S. Eastern District Court.

“The parties have reached plea agreements to resolve the case and will file agreements with the Court shortly,” according to the court document filed on July 2.

Bitwise quickly and loudly imploded after information became public that the roughly $115 million it received in loans between 2022 and 2023 was used to keep the floundering enterprise afloat. When the company could no longer sustain itself, Olguin and Soberal furloughed 900 employees, most of whom were based in the Central Valley, and closed its doors.

On Nov. 9, 2023, Olguin and Soberal surrendered to federal authorities. The two were charged with conspiring to commit wire fraud. If convicted, each faces a maximum penalty of 20 years in prison and a $250,000 fine.

According to a Nov. 9 press release from the Eastern District Court, “The defendants could have chosen simply to admit the failure of Bitwise’s business model. Instead, they used lie after lie to pull over $100 million into a dying venture through fraud.”

The Court alleges the duo fabricated and altered bank statements, provided false information to the company’s board of directors, and used buildings the company no longer owned as collateral for loans.

“All while lining their own pockets,” said the release.

At the time of its collapse, the company continued to boast impressive numbers, claiming it was worth over $500 million. According to the release, the money Bitwise took in was used, primarily, to make payroll and to pay fringe benefits. A sizable chunk of the money went towards paying Olguin and Soberal’s $600,000 salaries.

$100,000,000 IN LOSSES

According to court papers filed Nov. 9, 2023, following Bitwise’s May 2023 collapse, the FBI and the IRS launched an investigation into the company. The agencies interviewed employees, investors and lenders, former Bitwise board members, and Olguin and Soberal. The investigation concluded that the duo’s misconduct caused more than $100,000,000 in losses.

At the start of 2022, Olguin and Soberal conspired with each other to lie to board members, investors and lenders, claiming the company was financially sound in order to secure investments and loans. At that time, according to the court document, the duo knew their company was failing.

Olguin and Soberal contend they were able to pull off the ruse by effecting siloing – separating – company divisions and by limiting access to information.

By June 1, 2023, the company was in dire financial straits. Despite Olguin and Soberal’s success in raising huge amounts of capital, bank records showed that the company had less than $1,500,000 on the books. According to an individual identified as “EMPLOYEE ONE” in the court document, Olguin and Soberal routinely made short-term loans to the company. The money would be repaid at a 10% interest rate. EMPLOYEE ONE said the two would ask other key personnel to also make loans. This practice came to be known as passing the hat.

Another individual identified as “CFO ONE” worked in that capacity from June 2020 through September 2021. He described the company as being always cash negative during his tenure and estimated it lost over $20,000,000 per year.

CFO ONE added that the company’s rosy financial outlook was due to the fact Olguin and Soberal used managerial account practices to convey financial data to investors and the board. When CFO came onboard, he switched to Generally Accepted Accounting Principles (GAAP) to conduct appraisals of Bitwise’s financial state. Using GAAP, CFO ONE said that the company’s revenue in 2020 was reduced from $30,000,000 to $9,000,000. He noted the revenue for the first quarter of 2021 dropped from $10,000,000 to $1,000,000.

The FBI and IRS interviewed multiple employees who held key positions in the financial department. The court document identified these individuals as “EMPLOYEE TWO,” “EMPLOYEE THREE,” etc. Each reported that the company’s revenue was habitually low, that it had few customer sales, and was not close to being profitable. On several occasions, the company resorted to issuing paper checks, rather than direct deposit, to buy time to scare up more money.

By the time Bitwise collapsed in 2023, payroll had ballooned to $60,000,000 to $72,000,000 annually. According to the court document, in 2022, as Olguin and Soberal continued to tout the “magical deals” they signed – $50,000,000 with the State of California, $20,000,000 with the State of Colorado – “EMPLOYEE FIVE,” who worked in finance, said that his calculations indicated the company had $2,00,000 to $3,000,000 total revenue for 2022 and only $400,000 for the first quarter of 2023.

In addition to the federal charges, Bitwise faces several civil lawsuits filed by employees, business partners and investors.

Darren Fraser