The SEC has announced charges against Jake Soberal and Irma Olguin Jr, the former co-CEOs of private technology services startup Bitwise Industries Inc, for misleading investors about the company’s finances. The charges were brought in a complaint filed in the Eastern District Court of California, Fresno Division, with a jury trial demanded.
The pair were also charged by the US Justice Department (DOJ) with conspiring to commit wire fraud and taking $100m from various investors, despite having a failing business model. The SEC has alleged that the pair falsified documents to deceive investors and raise funds, violating the anti-fraud provisions of the federal securities laws, specifically, 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 thereunder. Soberal and Olguin have agreed to resolve the charges against them.
SEC complaint
The SEC’s complaint alleges that Soberal and Olguin made material misrepresentations and falsified documents concerning Bitwise’s cash position and historical financial performance while raising approximately $70m from investors in 2022.
According to the complaint, Soberal and Olguin created and provided investors with falsified bank records and a fake audit report that showed, respectively, inflated cash balances and higher revenues than Bitwise actually generated. Soberal and Olguin’s alleged misrepresentations and falsified materials depicted Bitwise as a healthy, growing business with favorable financial performance.
In reality, and as Soberal and Olguin allegedly knew, Bitwise faced constant cash shortages and was often on the brink of failure because it was unable to generate sufficient funds from its operations, the SEC says.
“The alleged deceptive business practices of Mr Soberal and Ms Olguin Jr have directly and negatively impacted over 900 families from the Fresno and Bakersfield communities.”
Mark Silva, IRS Criminal Investigation Acting Special Agent in Charge
As alleged, Soberal and Olguin’s scheme came to light in May 2023 when Bitwise failed to make payroll and abruptly furloughed – and then terminated the employment of – all 900 of its personnel.
“We allege that Soberal and Olguin resorted to blatant fraud, including the creation of fake financial documents, to deceive investors and raise money,” said Monique C Winkler, Regional Director of the SEC’s San Francisco Regional Office.
“In one instance, the defendants allegedly conspired to send a purported screenshot to investors of a company bank account showing a cash balance of $23.4m. In actuality, the account had only $325,100 in it. That’s not a bank error – that’s fraud, and the SEC is taking action to hold the defendants accountable.”
DOJ complaint
Olguin and Soberal surrendered last Thursday on a federal complaint alleging that, beginning no later than January 2022, they agreed to lie to board members, investors, lenders, and others about Bitwise’s finances. The aim was to obtain investments, loans, and other funding, mainly by fabricating financial information in board presentations and investor materials, and altering and forging bank statements, audits, and other financial records.
Much of the money diverted from the company and its investors and lenders went toward paying Bitwise’s payroll and fringe benefits, including the pair’s $600,000 per year salaries, outfitting the company’s office spaces, and repaying debts owed to prior lenders, the DOJ says.
“The defendants allegedly conspired to send a purported screenshot to investors of a company bank account showing a cash balance of $23.4m. In actuality, the account had only $325,100 in it. That’s not a bank error – that’s fraud.”
Monique C Winkler, Regional Director, SEC San Francisco
The US Attorney’s Office for the Eastern District of California, the FBI’s Sacramento Field Office, and the IRS Criminal Investigation in Oakland all worked on the Bitwise investigation.
“The alleged deceptive business practices of Mr Soberal and Ms Olguin Jr have directly and negatively impacted over 900 families from the Fresno and Bakersfield communities. Today’s complaint is a starting point toward justice for those families,” said IRS Criminal Investigation Acting Special Agent in Charge Mark Silva.
Not that Bitwise
If convicted of the criminal counts, Olguin and Soberal each face a maximum statutory penalty of 20 years in prison and a $250,000 fine.
In its civil case, the SEC is seeking an order barring Olguin and Soberal from serving as an officer or director of any SEC-registered securities business entity, plus an order to disgorge all ill-gotten gains or unjust enrichment derived from the alleged scheme. It also seeks an order requiring them to pay civil monetary penalties.
The company that Olguin and Soberal founded has a name that is similar to that of a crypto fund manager called Bitwise Asset Management, which has caused some unfortunate confusion. Some posts on social media used Bitwise Asset Management’s logo while talking about Bitwise Industries. The crypto index fund manager has since clarified that the two are unrelated, issuing in a statement clarifying that it has no affiliation with the company currently facing SEC charges.
According to Cointelegraph, Bitwise Asset Management offers various crypto-related products for investment, including Ether and futures exchange-traded funds (ETFs), and it is trying to get approval for a spot Bitcoin ETF.
Author update: The SEC updated its litigation release on November 15 to reflect the fact that Olguin and Soberal have agreed to resolve the charges against them.
