A shareholder sued crypto mining firm Stronghold’s senior officials, claiming that they made impractical pre-IPO pledges.
Glenn Bruno’s Friday complaint targets Stronghold’s officers and directors for alleged legal violations between July 2021 to March 2022. The violations include breaches of fiduciary duty and corporate asset misallocation.
The lawsuit concerns alleged false statements in Stronghold’s IPO documents. These statements relate to agreements with bitcoin miner suppliers, including China-based MinerVa Semiconductor Corp, and their expected hash rate deliveries.
Stronghold made a purchase agreement with MinerVa for 15,000 miners, totaling 1.5m terahashes, according to the complaint. MinerVa was expected to deliver these miners at the time of Stronghold’s IPO, which took place Oct. 22, 2021.
Stronghold’s Alleged IPO Misrepresentations
In the IPO documents, Stronghold was presented as having “superior access to Bitcoin miners with multiple miner procurements channels.” It also supposedly showed specific purchase orders from multiple Bitcoin miner suppliers, showcasing its capability to swiftly increase its mining capacity.
But Bruno alleged that company executives were aware the stated delivery schedules and quantities in the IPO materials were unattainable.
“That included the first scheduled delivery, which would purportedly take place less than two weeks after the IPO,” he wrote.
However, Stronghold’s IPO went forward and raised $132.5m, according to the lawsuit. The money was meant to go toward general company needs, like buying more miners and power-related assets.
Stronghold and Bruno’s lawyers didn’t return Cryptonews’ request for comment by press time.
Lawsuit Claims Crypto Mining Execs Knew About MinerVa’s Assembly Struggles
Bruno’s suit further claimed that Stronghold’s executives were allegedly aware of major challenges faced MinerVa faced at its assembly facility in China. These challenges included power outages and restrictions that hindered the assembly of miners.
Additionally, MinerVa was unable to obtain essential components required to assemble a considerable portion of the ordered miners.
“Despite its declarations to the contrary, [Stronghold] knew that the advertised 100TH/s rate was impractical as it has not yet been achieved in real-world conditions,” Bruno said.
In actuality, however, the MinerVa MV7 miners were plagued with faults and performance issues, with one in three of the miners being defectively non-operational. These failures led to Stronghold producing only 40% of its advertised 2,100 PH/s goal by the end of 2021.
The MinerVa miners had frequent defects and performance issues, resulting in one-third of them being non-operational, the suit claimed. Consequently, Stronghold only reached 40% of its initially stated hashing power goal by the end of 2021.
Bruno’s lawsuit seeks compensation, legal fees, and governance improvements at Stronghold.
The miner also faces a securities class action in New York over similar claims.
US Targets Crypto Miners’ Electricity Usage
Cryptocurrency mining is a process that releases new coins into circulation. It involves verifying transactions and adding them to a blockchain. Mining demands substantial energy and computational resources, typically better suited for specialized entities rather than individual enthusiasts.
US regulators are starting to take action against mining. The Energy Information Administration (EIA) recently announced its intention to gather data on electricity usage from American miners starting in February.
The Biden administration plans to impose a 30% federal tax for all electricity usage for digital asset mining.
—The U.S. Energy Information Administration (EIA) has announced that it would start tracking electricity consumption and power use by #crypto mining companies actively…
— Nuke Rockwell (@Tradingheavy) February 2, 2024
The EIA has so far pinpointed 52 crypto mining operations within the US crypto sector while examining their immediate and long-term impacts.
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