← Bitwise & Betrayal: Inside the fraud scandal that shook Fresno
Bitwise & Betrayal: Inside the fraud scandal that shook Fresno
Episode 3: Behind the Bitwise meltdown: Truth and consequences
00:27:15
10 years after Jake Soberal and Irma Olguin Jr. founded Bitwise Industries in Fresno, California, the once promising company collapsed amid an abrupt financial meltdown.
Loading summary
Transcript53 lines
- [00:00]
Tim Sheehan
Tomorrow is a very significant event in this Bitwise saga.
- [00:05]
Bob Rodriguez
The founders of the failed Fresno company Bitwise have now signed a plea deal. Bitwise Industries collapsed last year. Now its founders, Jake Soberall and Ema Elgin Jr. Are expected to appear in front of a federal judge tomorrow. They're accused of taking more than $100 million from several businesses and individuals.
- [00:24]
Monique Winkler
Today, my office is announcing the filing of federal criminal charges alleging that Ms. Alguin Jr. And Mr. Soberall conspired to commit wire fraud, lying to board members, investors, lenders, and others about Bitwise's financial condition to obtain investment money and loans. From its earliest days in 2013, Bitwise co founders Jake Soberall and Irma Olgwyn Jr. Positioned their company as a transformative force for downtown Fresno, providing training opportunities in the technology industry for people often overlooked in the local economy, while also revitalizing vacant, blighted buildings.
- [01:08]
Tim Sheehan
Bitwise is a place where every person.
- [01:11]
Will Dyke
In this community is simultaneously leveling up themselves and helping someone else do the same thing.
- [01:16]
Tim Sheehan
We are an ecosystem.
- [01:18]
Bob Rodriguez
Technology became a completely different animal for me, thinking that this is going to change everything. How does the son or daughter of a migrant farm worker really become a computer in underdog cities across the United States? You don't see for yourself things like college or entrepreneurship or high technology. You have to have a place you can point to and say, this is where you come. That's why we started Bitwise.
- [01:45]
Monique Winkler
They carried that on over the next decade, expanding that vision to other cities in California with promises to do the same in communities across the country. But from at least 2022, the reality did not match the facade. And those promises collapsed like a house of cards on May 23, 2023, when the company abruptly furloughed its employees and apprentices and closed its doors nationwide.
- [02:13]
Jen Guerra
You built Bitwise on, like, this authentic, like, let's be real kind of thing. Why weren't you just real with Ash? Like, why couldn't you just say, look, what we're doing isn't working, or our model isn't working. We need to just stay in Fresno? Why weren't you just honest with us and transparent? Because that's what they sold us on, being honest and transparent, you know, I'm Bob Rodriguez.
- [02:42]
Monique Winkler
I'm Tim Sheehan. And this is the story of Bitwise and betrayal inside the fraud scandal that shook Fresno. Here's the regional director of the securities and Exchange Commission, Monique Winkler, on that agency's fraud allegations.
- [03:00]
Bob Rodriguez
Today, the SEC filed charges against Jake Soberall and Irma Baldwin Jr. In our complaint, we allege that they swindled investors out of tens of millions of dollars. They lied about how much revenue Bitwise generated. They lied about how much cash it had on hand. They lied about Bitwise's aud. They even doctored important documents like bank statements before providing them to investors. Soberall and Ogwin's scheme also caused significant harm to this community. Bitwise was a highly visible business here. When Soberall and Olguin's fraud was revealed, everyone at Bitwise lost their jobs without any notice.
- [03:47]
Roger Benachter
Bitwise employee Jen Guerra, who had bought into the Bitwise vision, felt deeply betrayed when the company began to unravel. She was shocked by the lack of transparency from leadership and the fact that Bitwise continued to hire new employees even as it was collapsing. Her respect for the leadership turned into a distrust as she realized they were not being honest about the company's financial health.
- [04:13]
Jen Guerra
The month of May, we get this email from Irma saying, if you think the company's falling apart, it isn't. We're doing great. We're just going to get a new bank. And that's why you have paper checks and don't believe what you read in the news or something. And I'm like, what news story? So I started Googling it. Bitwise, new story, you know, whatever. And then I see David Todd from GB Wire interviewing Jake. I'm like, what is this? So I listened 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.
- [04:51]
Monique Winkler
We're.
- [04:51]
Jen Guerra
We actually moved our stuff from the offices to our houses or wherever until we can move it to the new building. And now I think about it, I kind of feel like, did they do that on purpose? And then when it really was very in my face when. When the paper checks and our 401ks, I kept checking my 401k they're taking out of my check, but it's not being deposited. And so we're all asking, you know, we had this Slack channel for hr, hey, what's going on with this and that? And at first they were answering us, kind of like HR was saying, oh, you know, I don't even know what the excuse was. Like, we'll look into it. But then when it started, that paper checks, checks, balancing all this stuff, then they just shut down the channel, and I'm like, oh, my God, we are screwed. There's no hope for us. Because I realize there's just a black hole. And if HR doesn't know what's going on and they have no control, there's just chaos.
- [05:56]
Bob Rodriguez
According to Fox 26 News partner GVwire, 300 employees are now out of jobs in Fresno alone. A big turn of events from last year when Bitwise Industry's co founders Jake Soberl And Irma Ogwen Jr. Had a huge announcement they were expanding nationwide. And so today we get to announce that we're going to five additional cities to bring Bitwise cities to a total of 10.
- [06:21]
Roger Benachter
The collapse of Bitwise had a severe financial impact on its employees. Many of whom faced eviction, lost their banking privileges or were unable to pay bills. The use of paper checks to delay payments and the failure to remit taxes further compounded these issues. Fresno attorney Roger Benachter spearheaded one of two separate class action lawsuits by employees against Bitwise leaders over lost wages, unpaid benefits and labor law violations.
- [06:53]
Tim Sheehan
Most people can't afford to miss half a paycheck, let alone have an entire paycheck balance, work for another week for free, not so much as opposed it to show for it and then find out that your taxes probably weren't remitted that were allegedly withheld from your check and all these other snowball effects of a collapsing enterprise. That was I guess thinking they could get away with it, that at some point they'd be able to right the ship. But they were taking chances with their employees financials, which is crazy to me. I mean, these, you know, this, you know, we've both signed, you know, the backside of a check to deposit a paycheck before your bank will give you money immediately on deposit of your paycheck because usually that check's good. So for these employees, all of them, when the check hit, operated as business as usual. They paid their rent, they paid their car note, they bought groceries. They lived. For many of them to ultimately find out, now they're in the red and their bank account's frozen. You know, I had clients still to this day, I have a couple clients that lost the ability to bank because their account was frozen. The bounce checks get reported, so then they go to a new bank to try and open up a new account and they come up with as a high risk account holder. So they get declined from a new bank to put, to put their money in.
- [08:32]
Roger Benachter
Employees like Jen Guerra struggled to come to terms emotionally and financially with the company's collapse. But earlier developer Will Dyke, who renovated three old warehouses for Bitwise Industries, became wary of the company's strategy. He had already bought out Bitwise interest in the real estate and became their landlord. A move he considered fortunate given Bitwise eventual bankruptcy.
- [08:59]
Will Dyke
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. As joint venture partners, the concept was we would collect rents and pay expenses and pay the mortgage and whatever was left over would be profit. Bitwise had no interest in profit and they were very candid about it, that they just wanted to create a sense of place and if they had a partner that was on board with that, which I was not, that might work. But where the sticking point was, that just kind of blew up that relationship. It was the banks and the lenders don't accept that you have to have a cash flow positive building. There's covenants on the loans and the mortgages. And Bitwise was failing to sustain the covenants of every loan that we were involved in. The banks had approached me because I was the development partner and said, we have a problem, we have track record with you, but we've got to figure out how to undo this. And at that point, the banks, with their cooperation, we exited Bitwise, refinanced all the buildings and here we are today. And then they just became a tenant. And that was in retrospect a great decision because I'm not sucking 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 subtenants that were there.
- [10:26]
Monique Winkler
From his position as Bitwise's development partner, one time board member, and ultimately its landlord, Will Dyke, could start to see things turn south. But for people on the outside, the truth was enveloped in a thick fog of deceit.
- [10:41]
Will Dyke
It was really tough to detect because the Bitwise narrative was so strong and they were so good at portraying the strength and the growth and the profitability.
- [10:52]
Bob Rodriguez
You know, being a Latinx female queer founder and CEO of a technology company, you check a lot of boxes that people don't expect to be checked when you're out there raising money or trying to lead a successful effort. And we ran into that all the time, continue to run into it to this day. I mean, my co founder is a white presenting male who's also of Mexican descent. But his white presenting sort of forward face, you could tell when people were talking to him instead of to me.
- [11:20]
Will Dyke
Those that dug deeper and got financial statements, then they weren't accurate. And those that push harder on Certain issues were given a different false narrative. My play at that point as their landlord was, well, I borrowed a bunch of money to buy them out. I just need to ride this as long as possible, and the longer they keep paying rent, the better for me.
- [11:41]
Monique Winkler
Will Dyke had a final conversation with Jake Soberall shortly before the collapse, where Soberall still maintained optimism despite the dire situation.
- [11:50]
Will Dyke
I was about to sue him again in 2023. Bitwise, at the time they filed, was about 3/4 of a million behind in rent. Jake texted me out of the blue. Hadn't talked to him in literally years. We're about to close on $180 million JP Morgan Chase. The money's ready to go. I just need, you know, little bit of time. And if you, if you don't sue me, then, you know, I might be able to trickle in 50,000 here once a month just to, you know, as a. He called it a good faith payment. But. But if you sue me, then obviously I just can't pay you anything and we'll have to slug it out in court. So I talked with counsel and, you know, figuring our next move. And then the next thing was the announcement that they furloughed everybody. And it had started, so I never got to respond.
- [12:42]
Roger Benachter
Here's attorney Roger Bon, actor again.
- [12:44]
Tim Sheehan
Now, after Bitwise imploded, I immediately had, I think it was just under a dozen people reach out. My office has been downtown for more than 12 years. I've probably bumped into Bitwise employees as many times as I've had hair on my head. A lot of folks there knew me. And so when their paychecks bounced, my phone started to ring. They all had this kind of sense of dismay. They kind of wanted to believe and express this belief of maybe it'll all be okay. Maybe there's some explanation because kind of a unique circumstance. These employees, a lot of them had a lot of emotional attachment, a lot of emotional investment in Bitwise. So their paychecks bouncing was scary, but their initial reaction wasn't, oh, my God, it's over. It was more. Is everything okay? I've never experienced that where someone has had their paycheck bounced. Usually their first suspicion is, I'm about to hold the bag here, I'm never going to get paid. But for these folks, I'd say that the vast majority, nearly all that was their first reaction. The sense of, oh, no, is it going to get better? Are they okay? What's happening? Instead of anger, it was quite strange. Just like Bitwise being strange.
- [14:13]
Roger Benachter
Jen Guerra felt deeply betrayed I stayed.
- [14:16]
Jen Guerra
Till almost till the very end. They started to eventually start cutting people off. And like, you know, we'd have these big meetings and then whoever is still on the meeting, they're like, you're safe, we're still. And I was like, oh my God, that's a weird way of doing it. But so, you know, I made it through a couple of those rounds and then the last round, everyone pretty much let except like five people or something. So I mean, so that was kind of interesting and sad. But I stayed almost to the very end.
- [14:51]
Monique Winkler
In June 2023, less than a month after Soberall and Old Win announced the company's employee furloughs, and about four weeks after they were fired as co CEOs by the Bitwise board of directors, word of a federal criminal investigation came to light.
- [15:06]
Roger Benachter
On July 17, 2024, about a year after the company's meltdown, Soberall and Old Gwynn reached a plea agreement with prosecutors to plead guilty to one charge each of wire fraud and conspiracy to commit wire fraud. Under the terms of their plea deal, they face fines of up to $250,000 each and up to 20 years in a federal prison, as well as paying restitution of up to $115 million.
- [15:34]
Bob Rodriguez
The founders of the failed Fresno company Bitwise have now signed a plea deal. Bitwise Industries collapsed last year. Now its founders, Jake Soberall and Emulgein Jr. Are expected to appear in front of a federal judge tomorrow to plead guilty to at least a couple accounts of wire fraud.
- [15:51]
Tim Sheehan
Tomorrow is a very significant event in this Bitwise saga. They are going to have to stand up, face the district court judge, and admit guilt for two counts, one conspiracy to commit wire fraud and two, actual wire fraud.
- [16:05]
Bob Rodriguez
Bon Act? R is representing 900 former Bitwise workers in a civil suit after they lost their jobs, suffered balanced paychecks and 401k losses.
- [16:15]
Roger Benachter
In July 2024, a day after agreeing to the plea bargain, Olgwyn and Silberal issued a statement on their social media platforms apologizing to their former employees, vendors, creditors, and the FRZA community that once celebrated them and their vision.
- [16:35]
Jake Soberall
Yesterday, we pled guilty to two felonies, one for conspiracy to commit wire fraud and one for wire fraud itself. We will owe many people millions upon millions of dollars. We lied to lenders and investors in egregious ways so that they would give Bitwise money that we could use to keep the company going and keep our teammates employed. Second, we were dishonest with teammates and others who trusted us deeply about Bitwise Industries Financial Health. Third, we lost our ability to see the collateral damage that was possible in these cases and likely others. Our actions caused trauma, hardship, grief and profound hurt. We are deeply sorry. We are sorry to have abused and broken the trust you placed in us. We are sorry to have failed in our leadership of the company that you loved. We are sorry for the money that you entrusted to us that you may never get back.
- [17:31]
Roger Benachter
What did you think of the apology letter? Yes, did you read it?
- [17:36]
Tim Sheehan
Yeah, I did a couple times. The joint apology letter that they published on Twitter. I think atonement is a good thing. I think acknowledging wrongs is a good thing. I think it's a little late. I think it would have added some value had it have happened earlier. And I kind of would have hoped for some more direct that they would have spoke more directly to the employees a little bit. They didn't talk about the checks, they didn't talk about, I'm sorry that you couldn't pay rent. I'm sorry that your health insurance got canceled, you took your kid to the hospital, they couldn't mend his leg.
- [18:16]
Roger Benachter
No sorry, nothing.
- [18:19]
Tim Sheehan
Your family, our community, you.
- [18:25]
Monique Winkler
Each one of us loved our community and he took us down.
- [18:31]
Roger Benachter
Benacter was disappointed that the criminal charges against Bitwise leadership focused on defrauding banks and investors. With little attention paid to the harm caused to employees, he feels that the little guy has been overlooked in the legal proceedings.
- [18:48]
Tim Sheehan
Bitwise filed bankruptcy and it filed bankruptcy in Delaware because one of the Bitwise related entities is organized under Delaware law. Then there's some other litigation that has to happen so that the employees are first in line for what's left of bit wise in the insurance policies, which is a big part of the settlement that we had there. So it's there, there's a lot of layers to the onion and we've only gotten a few of them pulled back at this point. It was a little bit of a letdown for me personally because I know the legal system very in and out and the criminal side and the civil side to see a 42 page complaint that is focused on sophisticated lenders and investors but doesn't place a reference or passing mention to the little guy. For me, that's, that's the meat and potatoes, that's, that's the heart and soul is the little people you hurt. I get no, I find no joy and I'm not condoning loan fraud or bank fraud or wire fraud. I feel for the little guy. I feel for the employee that couldn't buy diapers and formula. I feel for the employee who got a three day notice slapped on their apartment door. I feel for the employee that had a tow truck pull up and haul off their economy card that they take their kid to school and doctors and I would have wanted to see that in the complaint. I didn't. I would have wanted to see it in the plea agreement. In the factual basis of the plea agreement, I didn't. So that was a letdown.
- [20:30]
Monique Winkler
On December 17, 2024, Bitwise Industries co founders Jake Soberall and Irma Ogwin Jr. Learned their fate in a federal courtroom in Fresno. Judge John Kohenor sentenced Soberault to 11 years in prison, followed by three years of supervised release. Olgyn was sentenced to nine years in prison followed by three years of release. Both were also ordered to pay $114.6 million in restitution to the lenders and investors victimized by the fraud. Soberall's attorney requested he be able to serve his sentence at a federal prison near Lompoc on California's coast, while Olguin's attorney asked for a women's prison camp in Victorville in the Mojave Desert. Federal guidelines allowed for up to 40 years behind bars, but prosecutors pushed for 12 and a half years each. Defense attorneys argued that five years would suffice, citing both dependents potential for community contributions as well as the lasting consequences they face in their lives. Prior to the sentencing, dozens of letters poured in from friends, family and supporters urging leniency, among them Jen Guerra, the former Bitwise employee featured in this podcast. The sentencing of Jake Soberall And Irma Ogwin Jr. Is far from the end of the Bitwise saga. The company's bankruptcy case, still pending in Delaware, offers little hope for investors, lenders and vendors who are owed tens of millions of dollars. Meanwhile, hundreds of former Bitwise employees across the US await payouts from a $20 million settlement approved in the fall of 2024 by the Delaware bankruptcy judge. Civil lawsuits from investors and lenders against Soberall, Olguin and other Bitwise leaders remain on hold as the bankruptcy process unfolds. Over the course of 10 years, Bitwise had positioned itself as a beacon of technology training and entrepreneurship. The collapse of the company extinguished that beacon and raised concerns about the future of tech development in Fresno. What's it been like trying to get these buildings refilled and rebuild some sense of confidence in the tenants that the buildings are here to stay?
- [22:53]
Will Dyke
The first phase of taking over the buildings was just damage control. Usually when I take over A building or we acquire an asset. You get a banker's box of all the leases or at least a flash drive with all the information in the background and here's the contacts and all this. We literally knew absolutely nothing. So I was going literally door to door, knocking on the door, saying, hi, my name is Will. I'm your new landlord. What's your name? And by the way, can you give me a copy of your lease? So the first thing we did is just to stabilize the tenants. We just said, look, whatever your lease is, we just have to do a one page legal paperwork to say we're now the landlord. We accept all the terms and conditions of what your existing deal is, no changes. And that's what we did. The other interesting thing was how many tenants were very upset with what their situation was, that they needed to expand or they needed a different type of configuration space because their business had grown and they were just always told, there's nothing available. You know, we don't have any vacancy. The upstairs in this building has been vacant for years. Why that was the plan, I have no idea. So as we sit here, Qwiklabs, they're now occupying what's like 7,000ft in this building. They're our largest tenant over here. They were in a single room, 15 by 20 basement office at the South Stadium building. And they were one of the first ones to reach out and said, we are dying. We need more space. Can you help? Yes, we can. And they've been wonderful and they're grown gangbusters. They're awesome.
- [24:24]
Monique Winkler
Qwiklab's co founders and longtime Bitwise tenants Damon Thomas and Kirlin Phipps anticipate increased scrutiny on any new tech initiatives, making it harder to gain trust and support from the Fresno community. They remain optimistic about their own growth, emphasizing their commitment to sustainable organic development without the financial or ethical issues that plague Bitwise. How much do you guys see the Bitwise collapse and the fallout setting back any movement toward developing that kind of community here?
- [25:02]
Will Dyke
We talked about it. We weren't really sure. Let's just say if we want to potentially work with a city or start our own tech building somewhere, the scrupulous going to be much greater on us potentially, we think, than it would have been before. So we think, well, we don't know. That's what we imagine. Like now everyone's going to be a lot more scrutinous on. Yep, anyone who wants to come in and do anything similar. Even though we have been successfully doing it here this whole time without any of the weird stuff, bootstrapping. It says the very beginning.
- [25:37]
Roger Benachter
Here's Will Dyke again.
- [25:38]
Will Dyke
We've learned that when it's too good to be true, it usually is. But at the end of the day, the ones that really got hurt were a lot of the Bitwise employees that had foregone their salaries as loans back to the company, believing that they were going to come up better on the other side. Talked to a bunch of those that have private loans as employees. Two Bitwise that, you know, if you're Fresno businessman and you put a couple million bucks in as a loan, okay, you got burned, but you got burned to the employee that gambled their payroll check as a loan to the company and now has lost the payroll and is unemployed. That's a different game. That, that's, that's tough. That's, that's really rough. There were a lot of people that, that got hurt in this mess.
- [26:32]
Monique Winkler
I'm Tim Sheehan.
- [26:33]
Roger Benachter
And I'm Bob Rodriguez.
- [26:35]
Monique Winkler
Bitwise and Betrayal 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 Lumay Alasalli, Samantha Sullivan, Bob Rodriguez, Tim Sheehan, Eric Zamora and Craig Colress, executive producers Jennifer Molina and Don Blunt. The podcast was edited by Jen Molina and Lumay Alasalli. Original music by Eve Buges. Bitwise and Betrayal Inside the Fraud Scandal that Shook Fresno can be found on Apple Podcasts, Spotify, YouTube Music or wherever you get your podcasts.