Bit Digital sued by investors over alleged fraud

Bit Digital sued by investors over alleged fraud

Block reward miner Bit Digital (NASDAQ: BTBT) faces a class-action lawsuit in the Southern District Court of New York as investors are accusing the firm of making false and misleading statements.

Investors who bought a stake in the Nasdaq-listed and New York-headquartered company between December 21, 2020, and January 8, 2021, based their lawsuit on several allegations against Bit Digital from a recently published and highly critical report by J Capital Research. 

Bit Digital claims to operate 40,865 ASIC miners generating 2,253.5 PH/S. The primary allegation in the case alleges Bit Digital exaggerated the scale of its Chinese BTC blockchain mining operations which started in February 2020. 

“The company reported at end Q3 2020 that it was operating 22,869 bitcoin miners in China, but that is simply a lie,” J Capital Research alleged. The stock-research company believes that since Bit Digital does not have a subsidiary in China, any operation there would be illegal, and the ASIC rigs subject to confiscation.

Moreover, J Capital Research stated that it enquired with local Chinese governments and found out that Bit Digital does not have any BTC mining infrastructure in the country. Also, the companies from which Bit Digital has claimed to have purchased new ASIC miners have refuted ever having done business with BTBT.

J Capital Research concluded that they “think the company has simply stolen the $18.8 million it claims to have spent on miners in the first nine months of 2020.”

Without specifically naming the report, Bit Digital dismissed all allegations of fraud against its business made by J Capital Research. The company claims it chose not to sign direct relationships at crypto mining facilities to reduce cost; instead opting to rely on third-party suppliers signed with its subsidiary XMAX Hong Kong. They purchased used the hardware from resellers to reduce the delivery time. 

The irate shareholders behind the litigation insist Bit Digital’s “positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.” 

The allegations are having a negative impact on Bit Digital’s reputation on Wall Street. The share price of the company has fallen by 45 percent from its peak earlier this month after previously rising over 400% between Dec. 28, 2020, and Jan. 4, 2021. 

See also: TAAL’s Jerry Chan presentation at CoinGeek Live, The Shift from Bitcoin “Miners” to “Transaction Processors”

New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.

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