Bitwise Industries, the Fresno-headquartered co-working and tech incubator firm, announced on Memorial Day that all of its employees’ services are on hold, effective immediately, according to documents obtained by The Sun.
The announcement came on the heels of a report of issues regarding processing of employees’ payroll checks on Friday and deeper financial issues earlier in the week.
Driving the News: In an email to all Bitwise staff obtained by The Sun on Monday, the firm’s two top leaders – Irma Olguin Jr. and Jake Soberal – announced that they were furloughing 100 percent of its workforce.
- Soberal and Olguin hosted an all-hands call with employees on Monday to share the news directly.
- The firm pointed employees – which span at least California, Texas, and Ohio and could extend into Illinois and New York – to seek guidance regarding unemployment benefits and health benefits.
The backstory: Last week, reports that the firm was facing financial trouble surfaced, led by unpaid property taxes on tech hub properties in downtown Fresno and litigation with its building and construction partners.
- The Sun reported on Wednesday that Soberal, the firm’s co-CEO, was soliciting local investors for short-term, seven-figure loans at interest rates as high as 50 percent.
- Bitwise officials denied any issues regarding its finances, noting that it was “confident in its current financial position” and adding that “[there] is no present concern on the future of the company.”
- Friday, GV Wire reported that the firm’s payroll would be processed via paper check, rather than via direct deposit.
Payroll issues persist: Heading into the weekend, the company dismissed Friday’s payroll issue as being the result of “new processes… being implemented,” rather than being indicative of potential financial issues.
- In an email to employees on Friday regarding the payroll issues, the company’s Human Resources recommended to employees to cash checks rather than deposit them to avoid potential bank holds.
- A source with knowledge of the situation told The Sun that payroll checks heading into the holiday weekend did not clear, adding that it was not the first instance that Bitwise’s payroll payment did not process upon deposit.
What they’re saying: “[W]e currently find ourselves in a situation where it is necessary to furlough 100% of our Bitwise Industries and AlphaWorks apprentices, effective immediately. Paychecks from last week will most likely not go through when deposited,” Soberal and Olguin said in an email to staff on Monday night. “This means that all Bitwise work stops for the time being.”
- Speaking to McClatchy, Soberal cited a combination of transactions triggered a move by the company’s board to furlough its workforce.
- “Several critical (financial) transactions either did not materialize or materialized unfavorably, and the quantum of that is quite large,” Soberal said. “We held an emergency board meeting today and the difficult decision was arrived at that it was in the best interest of the company to furlough all employees effective immediately.”
- “This happened in a very short period of time,” Soberal told McClatchy on Monday. “The events that we’re dealing with that led to the furlough of our team were very new and very unexpected.”
- Tuesday, Fresno Mayor Jerry Dyer announced that the City of Fresno, which granted $1 million in COVID relief funds to the company for a Digital Empowerment Program, had processed $500,000 in payments to Bitwise.
- “We are currently in communication with Bitwise to determine if the program will continue and whether any funding will need to be returned,” Dyer said in a statement.
The case of missing 401k money: An internal source at Bitwise told The Sun early Monday morning that the firm withdrew 401k contributions for employees’ retirement accounts dating back to March 17.
- Despite the deducting 401k contributions from its employees’ pay, the source noted that the company had not been making its distribution of funds into the employees’ John Hancock 401k accounts.
- In total, the firm has missed five pay periods worth of 401k contributions, with the total value of the missing contributions at more than $1 million.
- The company’s failure to timely facilitate the contributions into 401k accounts could expose Bitwise Industries to civil penalties and criminal action for theft of retirement funds.
How Bitwise got here: Signs of financial trouble at Bitwise arguably first emerged weeks after the firm announced it secured an $80 million investment from the likes of Goldman Sachs and Citibank.
- Shortly after trumpeting the fundraising haul, Bitwise listed three of its recently-acquired and under development properties in Bakersfield up for sale with a leaseback
- Speaking to McClatchy, Soberal said the $80 million investment was actually funded in 2022, not 2023.
- In light of the hefty sum raised from banks to kick off 2023, the sale-leaseback was peculiar, as the transaction is typically utilized to free up cash.
- Amid the solicitation for short-term, high interest loans in recent weeks, multiple sources told The Sun that Bitwise’s investment from Goldman Sachs came with strict requirements that the Fresno firm maintain $65 million in liquidity at all times.
- One investor likened Goldman’s capital requirements as “golden handcuffs” that functionally zeroed out its operating cash.