A class action lawsuit has been filed against a Nasdaq-listed Bitcoin mining company. The lawsuit cites a report claiming the company is “totally fraudulent” and that there are no Bitcoin mining operations.
Lawsuit Claims Crypto Firm’s Bitcoin Mining Business Is “Totally Fraudulent”
On Wednesday, a class action lawsuit was filed in the Southern District Court in New York against Bit Digital Inc., its CEO Min Hu and CFO Erke Huang.
Bit Digital, a holding company listed on the Nasdaq under the symbol BTBT, claims to operate bitcoin mining through its subsidiaries in the United States and Hong Kong. The name was adopted by Golden Bull Ltd. in September 2020. (Ticker DNJR) changed.
The lawsuit cites a January 11 report by J Capital Research alleging that Bit Digital is “running a fake cryptocurrency business” designed to “steal funds from investors.”
J Capital claims that Bit Digital’s claim of “running 22,869 Bitcoin miners in China” is “simply impossible”. The research firm said it “verified with the local governments that supposedly host the BTBT mining operation that there are no Bitcoin miners there,” adding:
We consider the Bitcoin business disclosed by BTBT to be completely fraudulent.
Plaintiff Anthony Pauwels accuses the defendants individually and on behalf of everyone else who purchased Bit Digital securities between December 21, 2020 and January 8, of violating federal securities laws. They said the defendants “made materially false and / or misleading statements and did not disclose any material adverse facts about the business, business and prospects of the company”.
Following the release of J Capital’s report, Bit Digital’s share price fell $ 6.27 per share, or 25%, to close at $ 18.76 per share on January 11, 2021 amid unusually high trading volume.
Local Chinese authorities have never heard of the company
Bit Digital had previously stated, “Our mining operations are located in Wuhai, Zhundong, Xinlinhot and Sichuan, China.”
J Capital stated, “In China, you have to register with the government to have a data center, and local governments keep records of all data centers and bitcoin mining operations.” The research firm also found that “without one in China registered company this would not be legal “. In addition, companies must provide a registration document from a domestic legal entity before they can sign a lease or hosting contract. However, the company clearly claims to both operate and lease mining facilities in China. “
To verify Bit Digital’s claims, J Capital contacted the governments of these regions. “In phone calls, local government officials in each location told us that they had not been mining Bitcoin and had not heard of Bit Digital,” J Capital said.
A Zhundong official told J Capital, “Big data, cryptocurrency, cloud computing parks or data centers – none of them have registered here.” An official from Xilinhot also confirmed, “There is no bitcoin center here.” Similarly, a Wuhai official told J Capital:
There is no Bitcoin center here. I’ve never heard of Bit Digital before.
Mining equipment manufacturer also called ‘Drew a Blank’
To verify that Bit Digital had the bitcoin miners it claimed, J Capital spoke to “all of the major manufacturers of bitcoin mining equipment in China” but “none had heard of BTBT”.
An employee of Microbt, a mining equipment maker that BTBT claims to have bought 21,713 machines from in 2020, told J Capital that BTBT had not bought any equipment from them. “I’ve never heard of Bit Digital,” he said. “We gave the name of the company’s former VIE with no better result,” J Capital clarified.
Bit Digital also said it bought 256 miners from Bitmain in the first nine months of 2020. However, J Capital said that Bitmain “drew a loophole” in requesting BTBT.
Bit Digital makes false allegations
Bit Digital Inc. responded to the allegations on Tuesday, claiming they were false. “Since we didn’t buy brand new miners from suppliers in 2020, they wouldn’t know the company or its subsidiaries,” the company claims. Bit Digital also confirmed that it owned 40,865 Bitcoin miners, as announced in its third quarter financial results on December 18, 2020.
Additionally, the company said, “We have not signed any leases for bitcoin mining facilities. In order to achieve lower supply costs, the mining facilities are serviced by our third party providers. The bitcoin mining facilities in China are serviced by suppliers in Hong Kong. In addition, Bit Digital stated that it had acquired Xmax Hong Kong and that “all bitcoin mining activities in mainland China will be carried out by Xmax Hong Kong.”
Plaintiff and Class are seeking “damages,” “reasonable costs and expenses incurred in this lawsuit, including attorney and expert fees,” and “other and other reliefs that the Court may deem just and reasonable”.
What do you think of Bit Digital’s mining operations? Let us know in the comments below.
Photo credit: Shutterstock, Pixabay, Wiki Commons
Disclaimer of liability: This article is for informational purposes only. It is not a direct offer or an invitation to make an offer to buy or sell, or a recommendation or approval of products, services or companies. Bitcoin.com does not provide investment, tax, legal or accounting advice. Neither the company nor the author are directly or indirectly responsible for any damage or loss caused or allegedly caused by or in connection with the use or reliance on any content, goods or services mentioned in this article.