Stronghold Digital Mining Faces Lawsuit Over Pre-IPO Misrepresentations

What is the lawsuit about?

Stronghold Digital Mining, a crypto mining company that claims to use waste coal to power its operations, is facing a lawsuit from one of its shareholders. The shareholder, Glenn Bruno, accuses the company and its senior officials of making false and misleading statements in its IPO documents, which resulted in inflated share prices and losses for investors.

According to the complaint, filed on Friday in the U.S. District Court for the Southern District of New York, Stronghold violated several laws between July 2021 and March 2022, including breaches of fiduciary duty, corporate waste, and securities fraud. Bruno seeks to represent a class of investors who purchased or acquired Stronghold’s securities during that period.

What are the allegations against Stronghold?

The lawsuit alleges that Stronghold misrepresented its access to bitcoin miners, its mining capacity, and its environmental impact in its IPO materials. Specifically, the company claimed that it had secured agreements with multiple bitcoin miner suppliers, including MinerVa Semiconductor Corp, a China-based manufacturer. Stronghold said that it had ordered 15,000 miners from MinerVa, totaling 1.5 million terahashes, and that it expected to receive them by the time of its IPO, which took place on Oct. 22, 2021.

However, Bruno claims that Stronghold’s executives knew that these statements were unrealistic and unattainable, as MinerVa faced significant challenges in its assembly facility in China, such as power outages, restrictions, and component shortages. Moreover, Bruno alleges that the MinerVa miners were defective and underperforming, resulting in only 40% of Stronghold’s advertised 2,100 petahashes goal by the end of 2021.

The lawsuit also accuses Stronghold of overstating its environmental benefits, as the company claimed that it used waste coal to generate electricity for its mining operations, reducing greenhouse gas emissions and land reclamation costs. Bruno argues that Stronghold’s use of waste coal was actually harmful to the environment, as it produced more carbon dioxide, sulfur dioxide, and mercury than other forms of coal.

What are the consequences of the lawsuit?

The lawsuit claims that Stronghold’s false and misleading statements inflated its share price and deceived investors, who suffered significant losses when the truth was revealed. The complaint cites several events that caused Stronghold’s share price to decline, such as:

• On Nov. 15, 2021, Stronghold announced that it had received only 3,000 of the 15,000 miners it had ordered from MinerVa, and that it expected to receive the remaining 12,000 miners by the end of the first quarter of 2022.
• On Dec. 13, 2021, Stronghold reported disappointing financial results for the third quarter of 2021, revealing that it had mined only 122 bitcoins, compared to its guidance of 150 to 200 bitcoins.
• On Jan. 10, 2022, Stronghold disclosed that it had received a subpoena from the U.S. Securities and Exchange Commission, requesting information and documents related to its IPO and its use of waste coal.
• On Feb. 2, 2022, Stronghold announced that it had terminated its agreement with MinerVa, and that it had filed a lawsuit against the company for breach of contract and fraud.

As a result of these events, Stronghold’s share price fell from $19.00 per share on Oct. 22, 2021, to $4.83 per share on Feb. 4, 2022, representing a 74.6% drop.

Bruno seeks to recover damages for himself and other investors who were harmed by Stronghold’s alleged misconduct. He also asks the court to order Stronghold to reform its corporate governance and internal controls, and to appoint a monitor to oversee the company’s compliance with the law.

Stronghold and Bruno’s lawyers did not respond to requests for comment by press time.