Entrepreneur

Class-Action Sues Bit Digital For Securities Violations After Report Calls It “Fake Crypto Currency Business”


On Wednesday a Bit Digital securities purchaser filed a class-action complaint on Wednesday in the Southern District of New York against Bit Digital and a few of the company’s executives for purported securities violations. The filing claimed that the defendants failed to disclose certain information which caused artificially inflated prices and decreased stock value.  

The class-action lawsuit was brought on behalf of all “persons and entities that purchased or otherwise acquired Bit Digital securities between December 21, 2020 and January 8, 2021, inclusive, as noted in the complaint.

According to the complaint, Bit Digital “is a holding company that purports to engage in the bitcoin mining business through its wholly owned subsidiaries in U.S. and Hong Kong,” however, the plaintiff said that on January 11, 2021, J Capital Research “issued a research report alleging, among other things, that Bit Digital operates ‘a fake crypto currency business’ ‘designed to steal funds from investors.’”  The company claimed that it operates through bitcoin miners in China, but J Capital said that “is simply not possible,” after speaking to local governments who were purportedly hosting the mining but denied that it was or could be occurring. As a result, the complaint noted that at the close of January 11, 2021, the stock price of Bit Digital “fell $6.27 per share, or 25%, to close at $18.76 per share … on unusually heavy trading volume.”

The plaintiff contended that the defendants made materially false or misleading statements and omissions relating to the company’s “business, operations, and prospects,” In particular, the plaintiff proffered that the defendants failed to disclose: “that Bit Digital overstated the extent of its bitcoin mining operation; and that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.” The plaintiff contended that these misleading and/or false statements and failures to disclose caused the company’s securities to be “traded at artificially inflated prices during the Class Period.” Consequently, the plaintiff alleged that he and the putative class suffered significant losses and damages.

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Bit Digital responded to the accusations in a press release without specifically mentioning J Capital Research’s report. Bit Digital stated that “as a result of the recent dramatic rise in the price of bitcoin, with the corresponding increase in our stock price, Management is compelled to refute certain false accusations about the Company.” Additionally, Bit Digital reiterated its Q3 2020 financial disclosures on the size and scale of its operation, stating that “an overview of our bitcoin mining operations” is publicly available on the Securities and Exchange Commission’s website.

The plaintiff accused the defendants of violating Section 10(b), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Securities Exchange Act of 1934.

The plaintiff has sought for this to be a proper class action and for an award for damages, costs, and fees. The plaintiff is represented by Glancy Prongay & Murray LLP and the Law Offices of Howard G. Smith.



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