A Fresno man has been charged with fraud in connection to the collapse of Bitwise.
The charges come less than two months after Bitwise founders and former co-CEOs Jake Soberal and Irma Olguin Jr. were sentenced to prison.
The big picture: A federal grand jury indicted David Hardcastle, 61, with six counts of fraud, acting U.S. Attorney Michele Beckwith announced on Monday.
- Hardcastle was charged with conspiracy to commit wire fraud and substantive wire fraud for defrauding investors in loans made to Bitwise.
- Hardcastle was arrested on Monday by federal authorities.
- Further, Connecticut man Andrew Adler, 31, has been charged by information and has entered into a plea agreement where he has agreed to plead guilty to conspiracy to commit wire fraud.
Zoom in: Court documents state that Hardcastle and Adler gave Bitwise around $20 million in hard money loans through Startop Investments LLC from December 2022 through May 2023.
- Hardcastle and Adler syndicated the loans to other investors, altering the original loan documents to make it look as if Bitwise was obligated to pay significantly less interest than the company actually had to.
- They also forged Soberal’s signature on the altered documents, making the loans appear less risky and more appealing to investors.
- Hardcastle and Adler received tens of thousands of dollars in origination fees for the loans. Federal prosecutors say they could have made millions more in secret profits from the high, undisclosed interest rates had the loans been fully repaid.
- One of the loans they made to Bitwise included a secure interest reserve of around $700,000, while the investors were unaware of the reserve. They then used the reserve funds to make an unrelated investment to another company that they operated without the authorization from the investors.
- They did not have the money to repay investors when Bitwise collapsed in May 2023, and since Bitwise did not repay the loans before collapsing, the investors lost nearly all of their money.
What we’re watching: Hardcastle and Adler each face a maximum of 20 years in prison and a $250,000 fine for the conspiracy to commit wire fraud charge.
- Hardcastle also faces an additional 20-year sentence and a $250,000 fine for each of the substantive wire fraud charges.
- Adler is scheduled to plead guilty in federal court in March.