← Bitwise & Betrayal: Inside the fraud scandal that shook Fresno
Bitwise & Betrayal: Inside the fraud scandal that shook Fresno
Episode 2: Bitwise fraud and disillusionment
00:27:34
Bitwise Industries, a one-time technology darling in Fresno, California, began to grow beyond Fresno to other California cities and, later, to other states.
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- [00:01]
Gemini AI
This episode is brought to you by Google Gemini. With the Gemini app, you can talk live and have a real time conversation with an AI assistant. It's great for all kinds of things like if you want to practice for an upcoming interview, ask for advice on things to do in a new city, or brainstorm creative ideas. And by the way, this script was actually read by Gemini. Download the Gemini app for iOS and Android today. Must be 18 to use Gemini live.
- [00:26]
Jake Soberall
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. A decade of bringing tech education and.
- [00:47]
Tim Sheehan
Opportunities to the underserved. Between 2013 and 2020, Bitwise Industries, Fresno's self proclaimed mothership of technology education, collaboration and innovation had expanded from one cramped building to three larger buildings across the city's downtown to house a roster of tenants in technology and other fields and to provide technology training to a diverse range of students.
- [01:14]
Bob Rodriguez
Jake Soborough, an ambitious young attorney and software engineer, Irma Olguin Jr. Believed that technology startups could diversify the region's business landscape. And that training would be tech workers could feed the local industry.
- [01:29]
Irma Olguin Jr.
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.
- [01:44]
Jake Soberall
Bitwise Industries is a technology ecosystem that is designed to make it possible for cities like Fresno and Bakersfield to participate in the opportunity that exists in the technology industry. And what that looks like is providing a ramp into the industry for the people in that city.
- [02:01]
Tim Sheehan
But 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.
- [02:21]
Jan Guerra
A million, like, if, I mean, why would they take that salary? Why didn't they put that back into the company? And, and then hearing that like some of these people that were their friends and family weren't even here and they were on payroll. And everybody said it like that were, you know, they were like, oh, these people are on payroll and they're not here, they're not working. And so to me, what is that? That's like, what is it called? Like, nepotism.
- [02:48]
Irma Olguin Jr.
Yeah.
- [02:49]
Bob Rodriguez
I'm Bob Rodriguez.
- [02:50]
Tim Sheehan
I'm Tim Sheehan. And this is the story Of Bitwise and betrayal inside the fraud scandal that shook Fresno Fresno developer Will Dyck became involved with Bitwise Industries, first as a development partner in the rehabilitation of several old Fresno warehouses into office spaces for Bitwise tenants and its own programs, and later as a member of the company's board of directors. As a board member for a couple of years in the late 2010s, Dyke and two other directors had concerns about Bitwise's business model, which focused more on recruiting investors and emphasizing its social enterprise vision of training and uplifting people from historically disadvantaged demographics rather than revenue generating business practices. There was a clear divide between the capitalists on the Bitwise board and the Bitwisers, leading to disagreements on how the company should operate.
- [03:52]
Will Dyke
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. So at that period of time in 2018, we had the three capitalists in the room, as we refer to ourselves, that came from the business world and then you had the four Bitwisers. And so we were the underdogs because we were outvoted on everything. And Bitwise was going down a path of putting the social enterprise in the forefront and the business enterprise in the backseat.
- [04:31]
Tim Sheehan
The Fresno B reached out to both Jake Soberall and Irma Olgwin, asking if they'd be willing to be interviewed for this podcast. Neither of them responded. Here's Irma Olgwin as the company announced its nationwide expansion plan.
- [04:44]
Irma Olguin Jr.
That's right, 27 million new dollars. We started Bitwise in 2013 thinking that we could use the technology industry to fix the city. And we've had a lot of success in that in the last six years. But this raise will enable us to sort of double down on what's working and for the first time consider what it might look like to expand to.
- [05:06]
Will Dyke
Another, to a businessman that that's not sustainable. It's great that they could do all the things that they were doing and they were changing people's lives and they were involved in amazing things. But without a business model to sustain that, to the growth, the outreach, the things they were spending capital on, it's not sustainable long term.
- [05:28]
Tim Sheehan
Dyke's role as a board member was short lived and he and other like minded board members were consistently outvoted by Bitwise's founders. The trio that Dyke called the capitalists eventually left the board when institutional investors came in.
- [05:43]
Will Dyke
So they really at the very beginning should have probably been organized as a nonprofit and sought third party funding as opposed to trying to create a business engine that would sustain it. And that was the chasm of 2018. And when the series A financing came in and these institutional investors wanted board seats, the other two capitalists, they cashed their shares in and walked away. And at that time I resigned from my board seat and I've never been involved in any of the operations after that.
- [06:13]
Tim Sheehan
One of the concerns for Dyke and even some Bitwise employees was the company's penchant for offering management salaries that were well above the market for the Fresno area and for nepotism. Hiring friends or family members to serve in high profile, high paying roles, often with little or no experience in their area of responsibility. Prior to its meltdown in May 2023, Bitwise Industries boasted an executive roster of 12 people with chief level titles, plus 54 others with titles of vice president or senior vice president. Bitwise co founders Soberal and Olgwyn were each earning salaries of $600,000 per year as co CEOs, according to court documents.
- [06:57]
Bob Rodriguez
Beyond health insurance and retirement savings plans, other Bitwise benefits raise eyebrows because they seem to be financially impractical for a company of Bitwise size and stage of development, like covering 100% of the vet bills for pets adopted by employees. Bitwise employee Jan Guerra recalls her observations from within the company. Did you hear stories of people with little to no experience in the job that they were given being paid very high salaries? Yes, they were friends.
- [07:33]
Jan Guerra
Yes. Yeah, there were, there are people were talking about like Erma's sister, you know, she didn't really know real estate or anything. I did real estate for 12 years and I, I have a license, I care renew, you know, but it's just like, man, you know, like I looked into getting into the real estate team but they wouldn't even like look at it. And just because they're friends or their Irma's girlfriend or whatever, and that's what we kept hearing that well, Irma's girlfriends get to be president or they get to be like CEO, you know, whoever, and making all this money that, I mean I can't believe it. It's just ridiculous. You know, that's one way to run your company to the ground.
- [08:22]
Bob Rodriguez
Roger Bonakter has been a practicing attorney in Fresno for 18 years. His connection to the community and familiarity with Bitwise, while limited, stems from his interactions with various individuals associated with the company over the years.
- [08:37]
Roger Bonakter
I was astonished. I wasn't surprised. I was flabbergasted by some of the salaries and Hourly incomes that were being paid. Now, I, by no means I value a hard day's work. Whatever it is you do where you get up and you look yourself in the mirror and you know that you earned an honest living. God bless you. 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.
- [09:23]
Jan Guerra
Yeah, it would come out, people would talk about it, you know, and just like, oh, it sucks, you know, and we would see it more and more and just the imbalance of everything. And then it was when it was shown in like one of the court documents, you're like, oh, my God, like so and so is making 300,000 and this other girl 150, you know, and I was begging for a $5,000 raise.
- [09:51]
Roger Bonakter
But it wasn't just the hourly compensation or the salaries that were nutty. They had these weird programs. If you adopted a pet from a rescue, they would pay 100% of the veterinary bills. I love animals. I absolutely. I donate to no kill animal shelters. I think it's wonderful to want to encourage adoption of animals that are at risk of euthanization. I think that's a beautiful thing. 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. I get it. Google does it, Facebook does it. All these publicly traded companies do it because they got this phony baloney stock market money that they're living off of. I get it. But if you're growing a small business. No. No mom and pop, no Joe's Donuts, no. You know, Jane's Coffee can operate like that. You can't grow that like that. It's if you're a regular business. So why Bitwise chose to operate as if it had already achieved its as if it had already went public and it was sitting on a nine figure valuation is beyond me.
- [11:09]
Tim Sheehan
The model of high salaries, good benefits, and rapid expansion across California and the US Hid warning signs of financial mismanagement, unrealistic hiring practices, and a lack of positive cash flow from its business operations. Instead of generating revenue from products or services, Bitwise's co CEOs focused on raising money from investors and lenders based on a compelling vision of social impact through hiring and expansion. An FBI agent later characterized the process as an unsustainable Ponzi scheme using new investments to cover old debts. Here's Will Dyck again.
- [11:48]
Will Dyke
It 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. They weren't doing anything. It was, we're bringing people through the educational Geekwise Academy and we're going to guarantee them employment. Which meant Bitwise was going to hire them but had nothing to do with them. So they came up with ridiculous titles and assigned them to things like, you know, Director of Food and Beverage, Bakersfield. There was a gal that had that title.
- [12:22]
Tim Sheehan
Here's Jake Soberall on Bitwise's nationwide plan for expansion.
- [12:27]
Jake Soberall
Almost nine years ago, we began the work of Bitwise Industries here in our hometown of Fresno, California with the hope of serving our community and advancing our city. And over the course of that time span, not only have we gotten to do really extraordinary work here in Fresno, but we've gotten to see that work expand to places like Bakersfield, Merced, Oakland and Toledo.
- [12:50]
Will Dyke
They never had a presence in Bakersfield other than a little co working space. There was no business there. But they had 20 full time staff. And that all played into the concept that hey, we're this fast growing company, we're doing all these great works and if you invest in us, we're going to 10x like any venture capitalist wants. And that's why they attracted the dollars that they did. But there never was a good or a product that anybody wanted to back any of that. And so to stay in business, they had to keep raising money. But there was no business to invest in. So that's how things went sideways with cooking, the books and everything else.
- [13:30]
Jake Soberall
We surround our work with that of other tech and tech enabled firms. And what this does is it creates benefit in three directions for the student. For from the very first moment you walk into class, you have access to an inspiring venue that you didn't expect to be for you or your city, to community, to belonging and to professional opportunity. For the tech or tech enabled company, you have ready access to the talent that historically you viewed as your barrier to growth in that geography. And then for the city, you have vitality on a street corner where there was formerly blight that rooting this work into in place is how the things of Bitwise work together to serve the cities that Bitwise calls home. And it couldn't be more important to the work that we do.
- [14:17]
Will Dyke
Any tech company is a house of cards. I mean you got a one in a thousand shot of ever being profitable in that arena. That's why I don't deal in it. I need to gamble. I'll go to Vegas. Much better odds. They weren't on track to build a sustainable tech company. We have lots of ag tech companies in town. We have lots of sustainable tech companies that do all kinds of good and goods and services. But they restrain their growth, they restrain their hiring. They build out of positive cash flow, not on borrowed, you know, super accelerated unicorn money. That, that's Silicon Valley and, and that's not Fresno. And so that was the big red flag is like okay, 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. And when you can't raise money, you're out of business. That's exactly what happened.
- [15:12]
Tim Sheehan
Quick Labs, a technology company founded by Damon Thomas and Kurland Phipps, was one of the earliest business tenants of Bitwise. Expanding into larger spaces as Bitwise opened new buildings. Before long, as Bitwise began to shift its focus away from training and software coding and website development, QuickLabs became more involved in teaching those classes. For Bitwise's Geekwise Academy, here's Irma Olg from an interview with cnbc.
- [15:39]
Irma Olguin Jr.
Once you see somebody from your community make it in the technology industry, you start to imagine what it might be like if you yourself went to a class and maybe earned a wage and found a job in the technology industry. So that is our best recruitment is the student themselves. But of course seeing yourself have or somebody from your community have success is really the driver. That is really what changes a person's mind about self selecting into an industry.
- [16:04]
Bob Rodriguez
Damon was initially hesitant to teach due to his expertise in front end design rather than deeper back end coding. But Irma Olgwin convinced him by emphasizing the importance of his teaching style. This led to successful classes that engaged students and improved retention. QuickLabs also taught adult classes and game design summer camps, contributing to Bitwise's educational programs.
- [16:30]
Damon Thomas
They started getting contracts with teaching for the school district. And I remember Irma coming up to me and asking me to teach a web design class teaching students how to code. I didn't understand why she wasn't asking Curlin. So the ending I was like, no, it makes sense. Why are you asking me? Because I'm really a designer, I'm a marketing guy and I've designed how things look and feel. When I said no at the beginning that Irma said, you do this for a living. They're high School students, just teach them what you know. I said some more words and then at the end of that conversation, it was really about, we want you. We're not really just hiring a person with all this code experience. We're hiring you.
- [17:15]
Bob Rodriguez
After some convincing, Damon Thomas accepted Irma's proposal to teach classes for Bitwise.
- [17:22]
Damon Thomas
Because I make learning fun and because I love video games, I love graphic design and anime, all these things that I love. The retention was high and the completion level was high. And then we celebrated at the end, and it was fun. So the staff at Edison loved it. The students loved it. Some of the students are still connected with us at Quick Labs to this day. And then that success from everyone led them to wanting me to teach some of their night classes. Okay. So then it becomes sort of the.
- [17:50]
Tim Sheehan
The adult classes. Sorry, some of the geek. Some of what was the geek wise?
- [17:54]
Damon Thomas
Exactly, Exactly. That's exactly what it was. So that, that worked out for me because it was, I think it was from 6 to 9, something like that in the evening. So I could still do everything we needed to do for Quick Labs during the day. So we were literally heroes for hire. That is our tagline. That's what we are when companies hire us to solve some of their technical problems and their marketing and idea and identity problems with their businesses. But we were contracted and I taught the evening classes and then eventually brought Curlin in to teach game brand things with summer camp. Yeah, game design summer cap qwiklabs.
- [18:30]
Tim Sheehan
Thomas and Phipps served as contractors for Bitwise rather than employees, which sometimes caused brand confusion in the community. Many people began to associate QuickLabs work with Bitwise, leading to a blurring of lines between the two entities. Eventually, QuickLabs distanced itself from Bitwise to maintain its own brand identity.
- [18:52]
Damon Thomas
Yeah.
- [18:53]
Tim Sheehan
What? So you mentioned you were contractors, so I guess technically it was bit wise. But through a contractor teaching the classes, was there a point at which that kind of changed?
- [19:04]
Damon Thomas
If you're paying me to do a job, want to do a job, I'm gonna do a great job. You're contracting me. I'm not an employee, but I'm still going to go in wearing your brand whether you're everything. So when I taught under, you know, geek wise at the time, I wore geek watch shirts. I did everything. So I went in, you know, because they were paying me to service their customers. So I could see how over time, people in the city began to call us the Bitwise guys and the things that we were doing. People thought it was bitwise doing Some of the things that we were doing as far as teaching the classes and the things that we were doing outside of the class as quick labs. We were doing our own software development and we started the nonprofit Learn Steam and we were teaching minority youth and girls STEAM stuff. So science, technology, engineering, art and math, multimedia. We were having all kinds of events. People were starting to think that those things were bitwise. So at some point we stopped teaching for Bitwise and Dequise. And as they started to grow and do more things, we decided that it was best for us to stop going to any of their events. We started the same time they did and before we did. So they just, you know, people didn't know.
- [20:26]
Tim Sheehan
Right.
- [20:26]
Damon Thomas
I'm going around the city, people are calling me the Bitwise guy.
- [20:29]
Will Dyke
Yeah, yeah.
- [20:30]
Damon Thomas
And then I'm realizing my brand just got diluted.
- [20:35]
Bob Rodriguez
Will Dyke, the developer who renovated three of Bitwise's buildings and was working on a fourth in Fresno, had big concerns over the company's expansion to markets in other states when its operations in California already appeared to be built on a shaky foundation.
- [20:52]
Tim Sheehan
Here's Irma Ogwin again on the company's nationwide plans.
- [20:56]
Irma Olguin Jr.
And so today we get to announce that we're going to five additional cities to bring Bitwise Cities to a total of 10. Moving into Greeley, Colorado, Buffalo, New York, El Paso, Texas, Las Cruces, New Mexico.
- [21:10]
Will Dyke
In the, in the 2000s, you know, 20, 21, 22, when they started expanding to Toledo and Las Cruces, and I think they were somewhere on the east coast like Philadelphia. They had a number of sites that were all over the place. And that was part of the, the growth narrative that they were trying to portray. Yeah, and it looked really good on the website that we were doing business there. There really wasn't much of a business there. And people coming in as directors of Bitwise Real Estate Global that had never worked a day in real estate in their life, that was like, wow, that, that was concerning, not just from the, the aspect of the people not being qualified to do the jobs, but they were building a very tight knit C suite that had each other's backs to perpetuate the narrative.
- [22:00]
Bob Rodriguez
After Jengara was hired By Bitwise in 2020, she had some personal interaction with Bitwise leadership, particularly CEO Irma Ogwen. Jen initially admired Irma for her down to earth demeanor and felt a connection due to their similar Hispanic backgrounds. But as the COVID 19 pandemic waned and employees returned to the workplace, Jen became increasingly uneasy, especially when Bitwise leaders Talked about the possible sale of Bitwise and advised employees not to rely on the company over the long term.
- [22:36]
Jan Guerra
I had this weird feeling like, would we go to these Ulti meetings and stuff? And we were actually coming to the office and everything when Jake said he wants to sell Bitwise. And I'm like, what? Why do you guys want to sell? And I, and I remember typing in, I mean, do you really mean you want to sell? He's like, absolutely right away. And I'm like, well, we're just getting. I just get used to you guys as CEOs, like, so we'll have new CEOs. So I was very confused, like, why do they want to sell if they're doing so well? Like, but now I see that they were trying to inflate the company in when it really wasn't worth all of that and they weren't really making all that money. And then so hopefully someone will buy it for $50 million or whatever and then they cash it. And then the other people are like, what? What just happened? Like, what did I buy? You know, so there was that. That made me feel uneasy. And then also I remember Jake telling us that we should be not rely on Bitwise. And I'm like, why is he telling us bad? Like, that makes me feel really 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. So then I felt like, does he mean this isn't going to last?
- [23:58]
Tim Sheehan
Something that wasn't widely known in Fresno is that while the Bitwise Industries name was displayed prominently on its three buildings, the company didn't actually own them. Instead, Bitwise was initially part of a partnership that owned the buildings and a tenant responsible for subleasing and collecting rents from other tenants, as well as for paying for taxes, insurance and other building support costs. Will Dyke explains.
- [24:23]
Will Dyke
To my knowledge, Bitwise never owned outright any building that they ever occupied across the US There were always third party partners that usually put up almost all or all of the capital. And in our four Fresno buildings, we were joint venture partners. That's how we started out early on. And then by 2018, when I was leaving the board, it made sense that I bought them out of all the real estate in 2019 and then just became their landlord. And that that was in retrospect a great decision because I'm not sucking into the middle of the bankruptcy and I'm not a partner with a bankruptcy trustee. So we've been able to move very quickly and nimbly re tenant the buildings, secure the sub tenants that were there and you know, here we are, we still have some vacancy, but at least the buildings are operational and we didn't lose that asset at downtown Fresno.
- [25:15]
Tim Sheehan
And so you were able to cash out your investment. It was the opposite.
- [25:19]
Will Dyke
I bought out Bitwise.
- [25:25]
Tim Sheehan
Next on Bitwise and Betrayal Inside the fraud scandal that Shook Fresno.
- [25:29]
Jan Guerra
So I started googling it Bitwise, new store, you know, whatever. And then I see David Tom from GBY interviewing Jake I'm like, what is this? So I listened to the video. I'm like, oh my gosh, we're behind in rent. They're not paying the bills, this and that. What is going on? We're just about to move into that new building.
- [25:49]
Roger Bonakter
But there are plenty of good and decent people that start businesses and the businesses just don't work out. That's just economics. But it's a whole other thing to trample your employees on the way out. It was a cash flow issue. That's why they switched from automatic deposit to paper check. It bought them an extra few days of the money being in the account. And then by using a paper check instead of a third party payroll provider, the deductions and withholdings wouldn't leave Bitwise's accounts.
- [26:21]
Bob Rodriguez
Hundreds of employees are now without jobs.
- [26:23]
Will Dyke
And wondering what's next. That's after the tech incubator Bitwise Industries announced it is furloughing its entire workforce.
- [26:31]
Tim Sheehan
I'm Tim Sheehan.
- [26:33]
Bob Rodriguez
And I'm Bob Rodriguez.
- [26:34]
Tim Sheehan
Bitwise and Inside the fraud Scandal that Shook Fresno is a product of the Fresno Bee, a McClatchy publication based on original reporting by Tim Sheehan and Bob Rodriguez. It's produced by Lume Alisali, Samantha Sullivan, Bob Rodriguez, Tim Sheehan, Eric Zamora and Craig Colress, executive producers Jennifer Molina and Don Blount. The podcast was edited by Jen Molina and Lume Alisali. Original music by Eve Guiguess. Bitwise and Betrayal Inside the fraud Scandal that Shook Fresno can be found on Apple Podcasts, Spotify, YouTube Music or wherever you get your podcast.