After U.S. short-seller J Capital Research published a report against Bitcoin miner Bit Digital on Jan. 11, its shares fell in response and are now back up again. (Web Screenshot)
Bitcoin miner Bit Digital, which is listed on the Nasdaq in New York, has been hit with a class action lawsuit. The plaintiffs claim the mining company made materially false and misleading statements and failed to disclose the true scope of its mining operations, in violation of federal securities laws.
Bit Digital’s market cap is now over $1 billion, well above the $6.2 million it had a year ago. The company, whose shares have soared nearly 7,500 percent in the past year, is the fourth North American bitcoin mining company to surpass $1 billion in market capitalization.
Bitcoin miners are computers that are used to earn bitcoins. These computers typically have specialized mining chips and tend to work with a large number of graphics cards installed.
On January 11, 2021, U.S. short-seller J Capital Research published a report accusing Bit Digital of not having as many mining machines as it claimed and operating a “fake cryptocurrency business” designed to “steal money from investors. from investors”. The report shocked the market, and Bit Digital’s shares fell in response, dropping $6.27, or about 25 percent, in one day to close at $18.76 on Jan. 11, 2021.
The class action lawsuit seeks to recover damages for investors who purchased Bit Digital securities between Dec. 21, 2020, and Jan. 8, 2021, according to a complaint filed Jan. 26 in the Southern District of New York by investors surnamed Yang, including Bit Digital and two executives, Min Hu and Erke Huang. Huang.
Fraudulent “Mining” Operations?
The indictment cites a report from J Capital Research that Bit Digital, which only entered the bitcoin mining game in 2020, was formerly known as “China’s No. 1 car loan company,” a Shanghai-based P2P company. “In September 2020, Golden Bull Limited, a US-listed company, announced its name change to Bit Digital, Inc. and its entry into bitcoin mining, changing its ticker symbol from DNJR to BTBT.
Despite Bit Digital’s claims that the company operates 22,869 bitcoin mining machines in China, J Capital’s report claims that “this is simply not possible” and states that it has “checked with local governments [in China that host mining operations] and there are no bitcoin mining machines there. “
If there is no Chinese registered entity, it will not be legal, the report says. While BTBT disclosed that all of its bitcoin mining operations are in China by September 2020, “our mining operations are in Wuhai, Inner Mongolia, Xilinhot, Zhundong, Xinjiang and Sichuan, China.” But J Capital’s phone calls to the local governments in all of these locations resulted in responses that said they had no bitcoin mining operations and had never heard of “Bit Digital”.
In response, Bit Digital’s website issued a statement on January 19, stating that the reason J Capital checked with local governments and found no miners was because “as is customary in the Chinese mining industry, we may relocate miners seasonally in the above locations”; furthermore, it stated in “All bitcoin mining operations in mainland China are operated by XMAX Hong Kong, and all utility and other fees for the company’s operations in China are paid to the Hong Kong and U.S. suppliers that host the miners.” “Bit Digital has no subsidiaries or VIE legal entities in mainland China.”
In response to J Capital’s verification with major suppliers of mining machines that there is no record of any purchase of mining machines and that these manufacturers have never heard of Bit Digital, Bit Digital’s website counters that it is “choosing to buy used mining machines because of the long lead times for buying new ones” and that Bit Digital’s website refutes that the company is “using a proprietary serial number that is different from any other mining machine for warranty control” because it is “maintained by a Hong Kong supplier”.
A sudden “bloodbath” at the top of the company
On February 3, Bit Digital’s website issued another statement saying that its board of directors had announced that it had relieved CEO Hu Min of his duties, citing “his lack of involvement in the company’s mining operations”; CFO Huang Erk took over the CEO position. In addition, the company’s chairman of the board has resigned for “health reasons” and has been replaced by another person.
Meanwhile, Hong Yu, one of the most well-known figures within the cryptocurrency community, has also resigned as Bit Digital’s chief strategy officer and director.
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