Irma Olguin, Jr., 43, and Jake Soberal, 38, the founders and former leaders of Bitwise Industries, a Fresno-based start-up, pleaded guilty to charges of conspiracy to commit wire fraud and wire fraud. This case, which has rocked the tech and investment communities, involves defrauding investors and lenders out of a staggering $115 million.
The Rise and Fall of Bitwise Industries
Founded in 2013, Bitwise Industries was conceived with a noble mission: to provide technology workforce training, offer technology consulting services, and revitalize urban areas through a real estate arm that bought, renovated, and leased commercial properties. Olguin and Soberal’s vision was to create jobs for underserved groups and demonstrate that such social initiatives could also be highly profitable.
By early 2022, Bitwise had raised over $75 million through Series A and B investment rounds. The company had grown to employ 800 individuals across various offices and states, creating an aura of success and rapid expansion. However, beneath this facade, the company was struggling financially and running low on funds.
The Deception Unfolds
As Bitwise’s financial situation worsened, Olguin and Soberal embarked on a series of fraudulent activities to conceal the truth from investors and lenders. They fabricated financial information, presenting an inflated picture of the company’s revenues and cash balances.
In a February 2022 presentation and a July 2022 prospectus, they falsely claimed that Bitwise had a cash balance of over $44 million at the end of 2021 and revenues exceeding $58 million. In reality, the company’s cash balance was less than $12 million, and its revenue was minimal. This deception was part of a broader strategy to attract more investment and secure loans.
Specific Instances of Fraud
The founders’ fraudulent activities extended beyond mere misrepresentation. In June and July 2022, Olguin and Soberal falsely represented to a California-based investment firm that Bitwise had secured a $150 million investment from a London-based firm. This lie was intended to persuade the California firm to purchase several buildings owned by Bitwise. Subsequently, Soberal falsely claimed to another lender that Bitwise still owned these buildings to obtain additional loans.
In March 2023, the deceit continued. Olguin and Soberal circulated a presentation to investors, claiming Bitwise had a cash balance of over $77 million and revenues exceeding $143 million at the end of 2022. The actual figures were drastically lower, with a cash balance of less than $5 million. They also provided an investor with an altered audit report, making it appear as though Bitwise’s revenue was 300 percent higher than it was.
The fraudulent activities reached a personal level when Soberal misled a long-time Bitwise employee about the company’s financial health, inducing the employee to make a significant loan to the company.
The Collapse and Legal Consequences
By the end of May 2023, Bitwise had run out of money and collapsed, leaving a trail of financial devastation. The fraud had netted the company $115 million in ill-gotten funds, which were used for payroll, office outfitting, and repaying previous debts.
The investigation, led by the Federal Bureau of Investigation and the Internal Revenue Service’s Criminal Investigation Division, culminated in Olguin and Soberal’s guilty pleas. They admitted to using their positions as co-chief executive officers to deceive and defraud investors and lenders, concealing their actions from the board of directors and others within the company.
Olguin and Soberal are scheduled for sentencing on November 6, 2024. Each faces a maximum penalty of 20 years in prison and a $250,000 fine for each count of conspiracy to commit wire fraud and wire fraud, amounting to a potential total of 40 years in prison and $500,000 in fines. They have also agreed to pay full restitution.
The actual sentences will be determined at the discretion of the court, which will consider various statutory factors and the Federal Sentencing Guidelines. This case serves as a reminder of the severe consequences of fraudulent activities and the importance of integrity and transparency in business operations.
