The co-founders and co-CEOs of failed startup Bitwise were in California court Thursday accused of defrauding investors of $100 million by fabricating bank statements and revenue numbers. did.
Irma Holguin Jr. and Jake Soberal turned themselves in after facing federal charges of conspiring to commit wire fraud by misrepresenting the assets of their Transformation Technology business.
“The defendants could have chosen to simply acknowledge the failure of Bitwise’s business model, U.S. Attorney Philip Talbert asserted in his ruling.” statement. “Instead, they lied upon lie after lie to defraud a moribund venture out of more than $100 million.”
The upstart suddenly I was furloughed and then fired. All 900 employees were fired on May 30, and the board fired co-CEOs Holguin and Soberal a few days later. By the end of June, Bitwise It has been submitted Due to bankruptcy.
The sudden collapse came just four months after Bitwise’s announcement. $80 million funding round The company is valued at more than $500 million and promises to expand into Chicago’s South Side.
In separate charges announced Thursday, the U.S. Securities and Exchange Commission accused the pair of misleading investors about the company’s finances. “In 2022, Defendants Jake Soberal and Irma Holguin Jr. raised approximately $70 million while falsifying documents and misleading investors.” SEC complaint [PDF] claims.
According to financial watchdogs Holguin and Soberal, Agreed resolve SEC charges against them; In that case, they are likely to be fined or face other forms of punishment to be determined later by the court.
Back to the criminal case: According to the Department of Justice, the scheme began in January 2022. While being pursued by federal investigators, Holguin and Soberal admitted to conspiring to lie about Bitwise’s financial status to the company’s board, investors, and banks in order to commit fraud. Prosecutors said he obtained venture capital and loans.
“They fabricated financial information in board presentations and investor materials, and falsified and falsified bank statements, board consents, and other financial records to reduce the company’s revenue and They did this by inflating their cash balances and asset holdings.” court documents [PDF]. “They also led board members, investors, lenders, and others to believe that Bitwise was good when it was failing instead.”
That’s a big deal for the idealistic business the two founded in 2013 with a clear mission: creating tech jobs in underserved communities in an economically struggling city. It was quite a failure. The organization promised to develop technology talent, provide consulting services, and renovate and lease commercial real estate.
The company started in Fresno, California, and committed in December 2019 to leverage $20 million in Series A funding to support expansion to other cities in California’s Central Valley, including Bakersfield and Merced.
However, according to a person identified in court documents as “Investor 1,” “most of the funds were spent on buying out some of the company’s early investors…with only a few million Series A funds remaining.” I haven’t.”
In a February 2022 presentation, they reportedly told the board that the company had cash balances of more than $44 million as of December 31, 2021. The company also told the board that its revenue for the year exceeded $58 million. “However, bank records show that the company had a cash balance of approximately $11.7 million at the end of 2021,” according to court documents. By June 1, Bitwise had less than $1.5 million left, according to the complaint.
The chief financial officer and other Bitwise employees cited in court documents said most of that money went to Mr. Holguin and Mr. Soberal’s $600,000 annual salaries, equipment for the company’s office space and previously The money was used to pay Bitwise’s salary and fringe benefits, including repaying debts it had incurred. lender.
If convicted, the two men face up to 20 years in prison and a $250,000 fine. ®