Bitwise & Betrayal: Inside the Fraud Scandal that Shook Fresno
Podcast Information:
- Title: Bitwise & Betrayal: Inside the Fraud Scandal that Shook Fresno
- Host/Author: Tim Sheehan and Robert Rodriguez
- Episode: Episode 2: Bitwise Fraud and Disillusionment
- Release Date: December 18, 2024
Introduction and Rise of Bitwise Industries
The podcast episode begins by tracing the origins of Bitwise Industries, a company founded in Fresno in 2013 with the ambitious goal of transforming the local technology landscape. Co-founders Jake Soberall and Irma Olguin Jr. envisioned Bitwise as a catalyst for economic revitalization, providing technology education and fostering a community of innovation.
Jake Soberall reflects on the decade-long journey:
"As the world changes around us, sometimes it's hard to believe that 10 years already passed. But here we are celebrating a decade of Bitwise Industries. A decade of hard work, innovation and community building." (00:26)
Under their leadership, Bitwise expanded from a single building to three larger facilities in downtown Fresno by 2020, housing various technology tenants and offering diverse tech training programs aimed at underserved communities.
Irma Olguin Jr. emphasizes the mission:
"We have a lot of underserved and overlooked talent in the heart of the state, and we have been able to prove folks coming from that story are just as likely to succeed in the technology industry and help us rebuild this economy as anyone else." (01:29)
Expansion and Early Signs of Trouble
Despite its promising start, Bitwise’s rapid expansion in the early 2020s raised concerns among insiders regarding the company's financial sustainability. The shift towards expanding into other Californian cities like Bakersfield, Merced, and Oakland, as well as nationwide markets, began to strain the company's finances.
Tim Sheehan narrates the growing doubts:
"In the early 2000s, as the company sought to expand its presence in California to Bakersfield, Merced and Oakland and to other cities across the U.S., some insiders began to question the financial viability of the operation. Or to put it another way, the math doesn't lie." (02:01)
Former board member Will Dyke highlights the unsustainable business model:
"The early warning signs were there not of what it became, but rather the business model did not seem like something that was sustainable. And there was a big divide in the board at the time." (03:52)
Unethical Practices and Financial Mismanagement
As Bitwise grew, so did its internal issues, particularly concerning exorbitant salaries and nepotistic hiring practices. Executives were paid significantly above market rates, and friends or family members were often placed in high-paying roles without relevant experience.
Jan Guerra, a former Bitwise employee, describes the unethical environment:
"We have people were talking about like Erma's sister, you know, she didn't really know real estate or anything... making all this money... it's just ridiculous. You know, that's one way to run your company to the ground." (07:33)
Roger Bonakter, a local attorney, criticizes the salary structure:
"I was astonished... there is no qualitative difference to me, to the janitor who shows up to go and do an underappreciated and unrecognized job, and the engineer. But you could not be paying people for that type of a job at those rates and have it make sense." (08:37)
Additionally, Bitwise offered extravagant benefits that were financially impractical, such as covering 100% of veterinary bills for employees’ pets. Roger Bonakter further exposes the financial impracticality:
"You can't be handing out all these checks, 3,000 here, 2,000 there for vet bills, and expect your bottom line to make sense... if you're growing a small business... You can't grow that like that." (09:50)
The Collapse of Bitwise Industries
Bitwise’s financial instability became more apparent as the company continued to prioritize raising funds over generating sustainable revenue. The co-CEOs focused on attracting investors with a compelling social impact vision rather than developing profitable business operations. This approach eventually led to the collapse of the company in May 2023.
Will Dyke explains the unsustainable practices:
"There was an insatiable desire to hire people when there really was no reason that you needed to hire additional human capital because there were no goods and services going out the door to sustain that." (11:48)
Further scrutiny revealed that Bitwise orchestrated a façade of growth by hiring extensively in regions where there was minimal actual business presence. Will Dyke criticizes this strategy:
"They had 20 full time staff [in Bakersfield]...they never had a presence in Bakersfield other than a little co-working space...there was no business there." (12:49)
The company's expansion was more about attracting investment than building a viable business, leading to financial strain as Bitwise could not sustain its growth without continuous fundraising.
Impact on the Community and Final Fallout
The revelation of Bitwise’s financial mismanagement had severe repercussions for the Fresno community. Employees were left unpaid, investors were owed tens of millions of dollars, and the company's reputation was shattered. The NFL eventually characterized Bitwise's operations as resembling a Ponzi scheme, where new investments were used to cover previous debts.
Will Dyke comments on the aftermath:
"I bought out Bitwise... it was a great decision because I'm not sucking into the middle of the bankruptcy and I'm not a partner with a bankruptcy trustee." (24:23)
Employees experienced sudden unemployment and financial uncertainty. Jan Guerra shares her distress:
"I saw things like [executives] making $300,000 and others being asked for a $5,000 raise... I felt insecure that like, what does he mean? Like that we should be looking at other things and not just stick plan to stay on Bitwise till we retire." (09:22)
Conclusion and Reflections
The downfall of Bitwise Industries serves as a cautionary tale about the importance of sustainable business practices and ethical leadership. The company's emphasis on social impact without a solid financial foundation ultimately led to its collapse, leaving a lasting impact on the Fresno community.
Will Dyke reflects on the failure:
"That's exactly what happened... there's no business to invest in, so they had to keep raising money... And when you can't raise money, you're out of business." (14:17)
The podcast concludes by highlighting the critical lessons learned from Bitwise’s rise and fall, emphasizing the need for transparency, responsible financial management, and genuine community-focused initiatives in building lasting businesses.
Notable Quotes:
-
Jake Soberall:
"A decade of hard work, innovation and community building." (00:26) -
Irma Olguin Jr.:
"We have been able to prove folks coming from that story are just as likely to succeed in the technology industry and help us rebuild this economy as anyone else." (01:29) -
Will Dyke:
"The business model did not seem like something that was sustainable." (03:52)
"If you're going to invest the money in your good works projects growing the actual underlying business, you can only go as long as you can keep raising money." (14:17) -
Jan Guerra:
"Making all this money... it's just ridiculous. You know, that's one way to run your company to the ground." (07:33)
"What did I buy? You know, so there was that." (25:29) -
Roger Bonakter:
"You can't be paying people for that type of a job at those rates and have it make sense." (08:37)
"You can't be handing out all these checks... and expect your bottom line to make sense." (09:50) -
Damon Thomas:
"Because I make learning fun and because I love video games, I love graphic design and anime..." (17:21)
Timestamps Reference:
Note: The timestamps provided correspond to segments within the podcast transcript for easy reference.
Produced By:
- Producers: Lume Alisali, Samantha Sullivan, Bob Rodriguez, Tim Sheehan, Eric Zamora, Craig Colress
- Executive Producers: Jennifer Molina, Don Blount
- Edited By: Jen Molina, Lume Alisali
- Original Music: Eve Guiguess
Availability:
"Bitwise & Betrayal: Inside the Fraud Scandal that Shook Fresno" is available on Apple Podcasts, Spotify, YouTube Music, and other major podcast platforms.