Investor sues Bitwise alleging unauthorized sale of properties, loans

A Texas company that financed five of Bitwise Industries’ real estate acquisitions in California filed a lawsuit against the struggling tech firm, alleging it improperly sought out loans and was unauthorized in listing properties for sale.

The lawsuit, filed in Fresno County Superior Court on Wednesday, comes after Bitwise Industries furloughed its entire workforce amid suspected cash struggles.

Driving the news: NICByte LLC, a real estate investment company headquartered in Houston, alleged that it served as Bitwise’s financing partner for a significant portion of its California real estate portfolio.

• In the complaint, NICByte alleges that it partnered with Bitwise Industries via a joint venture in June 2022, with the Texas firm contributing 95 percent of the capital to acquire five buildings in Fresno, Bakersfield, and Oakland. The estimated sum, the firm alleges, was $35 million.

• Bitwise, via its subsidiary, Wishon Row LLC, contributed another 5 percent of cash to the joint venture – dubbed NICWise LLC – and would serve as day-to-day manager of the properties along with corporate Manager of the joint venture. Bitwise’s cash contributions to the venture was $2.2 million.

• The complaint alleges that Bitwise’s decision making authority as corporate manager was curtailed under the joint venture agreement struck between the two sides.

• Heading into Memorial Day weekend, the complaint reads, NICByte discovered that Bitwise had taken out “approximately $30,000,000 in loans ostensibly secured by the Company’s properties and listing four of them for sale without Investor’s approval or consent.”

• “[Bitwise’s] flagrant deception and unauthorized actions, especially its taking out approximately $30,000,000.00 in loans ostensibly secured by the Company’s properties and listing four of them for sale without Investor’s approval or consent, each individually, and in the aggregate, constitute material and un-curable breaches and defaults under the [joint venture agreement],” the complaint reads.

Acquiring properties: After forming the joint venture, NICByte alleges, the joint venture began acquiring properties previously owned by Bitwise Industries at the following locations: 747 R Street, Fresno, Calif., 1680 14th Street, Oakland, Calif., 1701 18th Street, Bakersfield, Calif., and 1715 18th Street, Bakersfield, Calif.

• After the joint venture acquired the properties from Bitwise Industries, Bitwise entered into master lease agreements with the joint venture for the space.

• The tenancy would create a complicated organizational web for Bitwise. It was both property manager and tenant while simultaneously holding sweeping control of the properties with key caveats.

Limiting Bitwise’s control: NICByte alleged that Bitwise’s corporate and day-to-day management of the joint venture was subject to some limitations, dubbed “Major Decisions” in the joint venture agreement. These major decisions included:

• “Obtaining or modifying any Project Financing or any other financing . . . without limitation.”

• “Any sale, disposition, pledge or other transfer of any interest in, or granting an . . . encumbrance on, any Project . . . or the Company’s [sic] assets.”

• “Pledging, hypothecating, mortgaging, assigning, transferring or granting a security interest in the membership interest, Capital Contributions or capital commitments of the Company . . . or the Investor, or any other assets of the Company or any Subsidiary . . . and amending, renewing or modifying any such security interest.”

• “Executing any goods or services or other contracts pursuant to which the Company is obligated by more than Fifty Thousand Dollars ($50,000) annually and which are not in the Budget, or any contract for the purchase of additional real property.”

• “Entering into any leasing agreement or brokerage or listing agreements relating to a sale of the Project.”

• “Making any material decisions or exercising any rights or remedies under any purchase agreement.”

• “Any other decision under [the JVA] requiring consent or approval by all of the Members [i.e. Investor and WR Member].”

• “Any act in contravention of [the JVA].”

Alleged breaches: NICByte alleged that, beginning in Dec. 2022, Bitwise began entering into “numerous loan arrangements secured by the Properties with various lenders” without approval or consent of the Texas firm.

• Bitwise allegedly obtained an unauthorized $2.75 million loan against 1701 18th Street in Bakersfield with a loan issued by Patrick Investments LLC and recorded with the Kern County Recorder’s Office on Dec. 22, 2022.

• Bitwise allegedly obtained an unauthorized $2.75 million loan against 1715 18th Street in Bakersfield with a loan issued by Patrick Investments LLC and recorded with the Kern County Recorder’s Office on Dec. 22, 2022.

• Bitwise allegedly obtained an unauthorized $5 million loan against 1701 18th Street in Bakersfield with a loan issued by StarTop Investments LLC and recorded with the Kern County Recorder’s Office on March 20, 2023.

• Bitwise allegedly obtained an unauthorized $5 million loan against 1715 18th Street in Bakersfield with a loan issued by StarTop Investments LLC and recorded with the Kern County Recorder’s Office on March 20, 2023.

• Bitwise allegedly obtained an unauthorized $10 million loan against 747 R Street in Fresno with a loan issued by StarTop Investments LLC and recorded with the Fresno County Recorder’s Office on Feb. 2, 2023.

• Bitwise allegedly obtained an unauthorized $10 million loan against 1680 14th Street in Oakland with a loan issued by ABHH LLC and recorded with the Alameda County Recorder’s Office on March. 16, 2023.

• On March 9, Bitwise moved to place the R Street property in Fresno and pair of 18th Street properties in Bakersfield up for sale. Less than week later, on March 16, it listed the Oakland property for sale.

• NICByte alleges that the move to list the properties was in violation of the Major Decisions clause of the joint venture agreement.

• Other allegations include failure to provide reporting and bookkeeping or make the first quarter earnings distribution to NICByte and its widely-reported failure to pay property taxes owed to local municipalities.

Read the complaint: