Proposed $20 million bankruptcy settlement would benefit former Bitwise employees
Hundreds of former Bitwise Industries employees in Fresno and across the U.S. stand to benefit from a proposed $20 million settlement hammered out over seven months of mediation and negotiations.
Although the settlement isn’t due to be approved by a federal bankruptcy judge until at least November, documents filed this week in the U.S. District Bankruptcy Court in Delaware outline details of the agreement, including an initial distribution of $6 million for an estimated 750 employees of the defunct Fresno-based technology firm once the proposal is approved.
“This equates to approximately $8,000 per class member — a meaningful recovery for abruptly terminated employees, many of whom were not paid their final wages and are still struggling to find employment,” wrote René Roupinian, an attorney with the law firm of Raisner Roupinian LLP representing former Bitwise employees in a federal class-action lawsuit.
The settlement agreement also calls for a subsequent allocation of $14 million for eventual distribution to employees who do not opt out of the agreement.
“When weighed against the risks of an adverse outcome, with respect to both liability and to damages, the $20 million that will be realized under the Settlement Agreement … is a very favorable recovery,” according to attorneys representing the court-appointed bankruptcy trustee Jeoffrey Burtch and the class-action employees.
Not all of that money, however, will be going to the jilted workers. The settlement agreement allows lawyers in the two separate class-action lawsuits to seek up to $1.8 million in attorney fees plus expenses from the initial $6 million distribution, and up to one-third, or about $4.6 million, in fees and expenses from the subsequent $14 million payout.
In addition to the Raisner Roupinian firm in New York, other legal counsel representing the former employees in both state and federal lawsuits are the Erickson Kramer Osborne LLP law firm in San Francisco, Brian Whelan of the Whelan Law Group in Clovis, and Roger Bonakdar of Fresno’s Bonakdar Law Firm.
Bitwise Industries, founded in Fresno in 2013 by co-CEOs Jake Soberal and Irma Olguin Jr., was a highly touted symbol of efforts to revitalize downtown Fresno and provide technology training for people in need of economic opportunities. After partnering in the renovation of several downtown buildings into hubs for small technology businesses and other companies, Bitwise began rapidly expanding its footprint, first to other California cities, and then to communities across the U.S.
But the expansion masked financial troubles that were more serious than most people realized. The company’s meltdown became apparent over the Memorial Day weekend of 2023, when Soberal and Olguin told employees that they were being furloughed immediately. Soberal and Olguin were fired by the remaining Bitwise board members several days later. The employee furloughs, which formally became terminations in mid-June, led to the class-action lawsuits on behalf of the workers: one in federal court, the other in the Fresno County Superior Court.
Both the federal and state lawsuits allege that Bitwise and its leaders violated provisions of the Worker Adjustment and Retraining Notification or WARN Act, which require companies to give at least 60 days notice to employees before layoffs. Employees also contend that the Bitwise owed them unpaid wages and benefits for the weeks before the furloughs were announced.
Bitwise and several associated companies filed for bankruptcy in late June 2023.
Where is the money coming from?
Early on in the bankruptcy case, Burtch reported that there appeared to be few, if any assets, available from which claims from creditors could be paid. Over the past year, however, several potential sources of money were identified to at least partially satisfy creditors.
Court records indicate that much of the money for the employees’ settlement agreement is coming from an array of insurance policies taken out by Bitwise officers and directors totaling about $11.5 million. That includes the unspent share of a hotly contested $5 million policy from Scottsdale Insurance purchased by Bitwise to cover defense of Soberal, Olguin and other officers and directors in potential civil lawsuits and criminal prosecution.
But Burtch, the bankruptcy trustee, also asserted that a $5 million loan repayment by Bitwise in April 2023 to a trust associated with then-Bitwise board member Mitchell Kapor — a technology entrepreneur who founded software company Lotus in the early 1980s — represented an improper preferential repayment only about two months before the bankruptcy filing. As part of the settlement agreement, that money will become part of the funds to be distributed to employees.
Kapor and several of his capital management companies will also contribute an estimated $3.4 million to the settlement fund. Motley Fool Ventures, formerly headed by another Bitwise director Ollen Douglass, will chip in another $75,000.
A tangled web of responsibility
The collapse of Bitwise Industries triggered not only the company’s bankruptcy filing and the class-action lawsuits by employees, but a slew of other civil lawsuits alleging fraud and mismanagement by Soberal, Olguin, board members and other company leaders. Most of those lawsuits remain on hold while the bankruptcy case is pending.
Soberal and Olguin were also the targets of criminal investigations by the FBI and Internal Revenue Service and a civil complaint by the U.S. Securities and Exchange Commission. Soberal and Olguin were indicted in November on felony charges of wire fraud and conspiracy, and in July agreed to plead guilty in federal court to the charges. They will be sentenced in November.
Federal agents reported that Soberal and Olguin assumed full blame for defrauding investors, lenders, board members and their employees in the financial scheme that led to Bitwise’s downfall.
Court documents indicate that Burtch had reason to believe that the company’s board of directors might bear at least some responsibility. Shortly after the bankruptcy filing in June 2023, Burtch “began investigating potential claims … including breach of fiduciary duty claims against directors and officers” and other claims. “Based on that investigation, (Burtch) concluded that the Estates had viable claims against the Non-Management Directors based primarily on an alleged failure to exercise oversight …,” court records state.
“In general terms, it appears to be undisputed that the co-CEOs had been falsifying financial information for years before Bitwise’s inevitable collapse,” according to court documents. “The Trustee alleges that if reasonable oversight and reporting systems had been implemented, their fraudulent — indeed, criminal — conduct would have been discovered earlier, and steps could have been taken to avoid the sort of damages that Bitwise actually suffered.”
The board members “deny these allegations,” the documents state.
The settlement does not apply to the remaining array of civil lawsuits against Bitwise, Soberal, Olguin and other officers and directors.
Another major bankruptcy settlement
Earlier this year, the federal bankruptcy judge in Delaware approved a settlement between the bankruptcy trustee and 1861 Acquisition LLC, a company that in 2022 agreed to advance Bitwise Industries cash in exchange for rights to anticipated COVID-19 employment tax credits.
The company sued Bitwise alleging that, rather than forwarding the tax credits to 1861 Acquisition, Bitwise instead deposited the money into its own accounts. In settling that lawsuit, in late April 2023 Bitwise paid 1861 Acquisition the nearly $6.2 million that was owed.
Burtch alleged that the repayment represented an improper preferential transfer only about two months prior to the bankruptcy filing and sought to reclaim that money for the bankruptcy estate. While 1861 Acquisition disputed Burtch’s assertion, a settlement was hammered out and approved by the bankruptcy court in which 1861 would repay $4 million in exchange for a release of the claim on the transfer.
That agreement was approved by the court on June 21.
This story was originally published August 1, 2024 at 3:07 PM.
