The salacious pitch by Bitwise’s former co-CEO to convince Central Valley-based business leaders to dole out millions in hard money loans wasn’t merely backed by incredible rates of return, but bolstered by the notion that the loans were safe due to an impending investment from Goldman Sachs.
The problem? The investment didn’t exist.
The big picture: Hard money lenders who have spoken to The Sun in recent weeks have noted that Soberal’s desperation solicitation featured key claims aimed at assuaging concern and reducing perceived risk:
- In an April email to one would-be lender, Soberal said that Goldman Sachs planned to serve “as the lead of a syndicate that plans to fund $80M to Bitwise on or before May 31, 2023.”
- He added that “related to its earlier investment in Bitwise [announced by the company in February], Bitwise has a covenant stating that it will keep $65M or more in cash on hand (minimum liquidity covenant). Compliance with this covenant is especially important because of the active diligence of Bitwise by Goldman Sachs.”
- The loan being solicited in this email was to support Bitwise’s settlement payment to a New York acquisitions company to whom it had sold its Employee Retention Tax Credits but subsequently pocketed the eventual rebate payments from the U.S. Treasury, which The Sun first reported.
- Later in his email to the lender, Soberal details “possible outcomes from this loan transaction,” included:
- Bitwise closing its transaction with Goldman and repaying the loan with roughly $140 million in cash;
- Bitwise failing to close its deal with Goldman Sachs and repaying loans from its $65 million on-hand; or
- “Bitwise fails in some unforeseen way in its repayment obligation under the loan, and you foreclose on our shares which have a third party valuation of $28M.”
Terms change: One month after the April email, a separate would-be lender received a solicitation from Soberal. In conversations leading up to the now-ousted CEO’s email, per the lender, no reference was made to the ERTC controversy, which had been settled, per New York Supreme Court records.
- However, in the May email, Soberal’s reference to a Goldman Sachs investment had ballooned by $20 million to a total value of $100 million.
- Additionally, the closing date of the transaction had shifted from the end of May – less than two weeks away from the email date – to the end of July.
- Would-be lenders who were solicited by Soberal and Bitwise officials expressed doubts about the terms of the investment, citing the unusually large liquidity requirement, and openly mused whether such an investment truly ever existed.
Suspicions confirmed: Sources familiar with the original investment by the bank told The Sun that no such liquidity covenants existed.
- The sources further noted that Goldman Sachs had no pending investment with the Fresno-based company.
Fraud concerns: As previously reported by The Sun, Soberal repeatedly offered Bitwise shares owned by him and co-founder and former co-CEO Irma Olguin, Jr. to hard money lenders in exchange for loans
- Two months after securing at least one known loan, Soberal knowingly continued to misrepresent to lending prospects that the shares were unencumbered.
- Both the misrepresentation of stock status and a phony investment could lead to potential criminal liability for loan, bank, and wire fraud.
- Friday, the Board of Directors for Bitwise Industries fired both Soberal and Olguin alleging their representations to the board were “not an accurate picture of the company’s financial health” and named board member Ollen Douglass as interim President of the company.