Bankruptcy judge OKs $20M settlement for Bitwise workers’ unpaid-wage, labor law claims
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A federal bankruptcy judge has approved the terms of a $20 million settlement that will benefit former Bitwise Industries employees who abruptly lost their jobs when the Fresno-based technology company collapsed in May 2023.
Judge Mary Walrath of the U.S. District Bankruptcy Court in Delaware, where Bitwise was incorporated and filed for bankruptcy, issued an order Wednesday finalizing the settlement. Approximately 750 employees in Fresno and across the U.S. are expected to receive money from the settlement.
The settlement, first proposed in late July puts a lid on two separate class-action lawsuits on behalf of Bitwise’s former workers:
- One alleging that Bitwise and its leaders violated California’s state Worker Adjustment and Retraining Notification (WARN) Act. It also alleged that employees were owed unpaid wages and benefits for the weeks before Bitwise co-founders and co-CEOs Jake Soberal and Irma Olguin Jr. announced on May 29, 2023 that all of the company’s workers were immediately furloughed.
- A second alleging in federal court on behalf of Bitwise workers outside of California that the company violated the federal WARN Act and labor laws.
Both the state and federal WARN acts require employers to give workers a 60-day notice of a mass layoff or closure.
Some of the former employees will receive more than others from the settlement. Those who worked for Bitwise for less than six months before the sudden furloughs won’t qualify for the WARN Act claims. But almost all will receive something based on their unpaid-wage claims against the company in bankruptcy court.
Fresno lawyer Roger Bonakdar, one of the attorneys representing the jilted employees in the class action lawsuit, said there is a cap of $15,000 for unpaid-wage claims in bankruptcy cases.
“I can estimate that 98% or 99% of the employees that qualify under the wage-theft claim, their claims are less than $15,000,” Bonakdar told The Fresno Bee on Wednesday. “So it’s pretty safe to say that everybody who lost a paycheck or had a bounced paycheck is going to be made whole, which is huge.”
“Ordinarily, employees get nothing in these types of cases,” Bonakdar said. “No one expected that these people would ever see a dime, let alone be made whole in terms of their lost wages.”
It’s likely to be at least a couple of months before the affected employees will receive checks from the settlement.
“Realistically, I think we can get people paid in the first quarter of 2025,” Bonakdar said. “For the sake of comparison, to get class plaintiffs paid in under five years on a class action like this … just doesn’t happen. These things take years just to get to approval, let alone to payment.”
Bonakdar said a claims administrator will be chosen to handle the details of the distribution, making sure all affected employees are notified of the settlement, “then they will run the math on who’s going to get what, and the court approves it.”
In addition to Bonakdar, other legal counsel representing the former employees in the state and federal class-action cases included Brian Whelan of the Whelan Law Group in Clovis, the Raisner Roupinian firm in New York, and the Erickson Kramer Osborne LLP law firm in San Francisco.
Where the money is coming from
Nearly 900 Bitwise employees, including almost 400 in the greater Fresno area, lost their jobs with the abrupt furlough announcement. For many, the final paychecks issued to them bounced. Employees also report that deductions from their paychecks for the company’s 401(k) retirement savings plan were never deposited with the plan administrator.
On June 2, 2023, just days after Soberal and Olguin told employees nationwide that they were furloughed, the pair were fired by the remaining members of Bitwise’s board of directors. By the end of June 2023, the company filed for Chapter 7 bankruptcy in Delaware.
Documents in the company’s initial bankruptcy petition indicated that Bitwise Industries and its associated companies owed at least $511 million to various creditors — not including the unpaid-wage claims by its workers.
Early on in the bankruptcy case, court-appointed bankruptcy trustee Jeoffrey Burtch reported that there appeared to be few, if any, assets or resources from which creditors – including the employees — could recover any losses.
But as the case unfolded, several potential sources of money were identified to at least partially satisfy creditors and enable the settlement with employees.
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 the defense of Soberal, Olguin and other officers and directors in potential civil lawsuits and criminal prosecution.
There’s also $5 million from an April 2023 loan repayment made by Bitwise to a trust associated with one of its then-board members, Mitchell Kapor, a technology entrepreneur who founded software company Lotus in the early 1980s. Burtch asserted in the bankruptcy court that the loan repayment represented an improper preferential payment to a company insider because it came only about two months before the bankruptcy filing.
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 December.
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 class-action settlement with employees does not apply to the remaining array of civil lawsuits against Bitwise, Soberal, Olguin and other officers and directors.
This story was originally published November 20, 2024 at 3:29 PM.
