HashNotSoFast: Bitcoin Miner faces the Law

Mining hardwaremanufacturing startup HashFast Technologies LLC is the latest cog in theBitcoin machine to run into trouble with the law.

The company receivedan involuntary bankruptcy notice, the joint effort of five customers who claimthey have not been refunded for orders which Hashfast was unable to fulfill.

Under federal law,HashFast  has 21 days to “evaluate its options and prepare its response,” as marketing director Amy Abascal told Ars Technica,otherwise it will face mandatory requirement to cooperate in having its assetsliquidated.

Specifically, the company must provethat it is still solvent, something which Abascal had earlier confirmed priorto the bankruptcy notice being filed. “Thedefinition of solvency involves as much assets as it does cash, and we haveenough assets,” she told Ars Technica.

Mutually Beneficial Outcome?

The case involves bothprivate and corporate customers, of which the largest, Hong Kong-based KoiSystems, is claiming over US$280,000 in losses.

The history leading tothis point is indeed extensive and complicated. Koi, for example, appears tohave had a prior business relationship with HashFast before it decided, facedwith financial meltdown, to halt manufacture of complete boards and insteadproduce its ‘Golden Nonce’ mining chips.

HashFast currently hasa further five arbitration cases and two lawsuits pending against it, includingaccusations of “outright fraud” aswell as failing to pay out refunds in Bitcoin as promised.

The bankruptcy filingcould be successfully countered, however, in a way which would benefit bothsides, explained the lawyer in charge of three of the five arbitration cases. “My hope is that this transitions to aChapter 11 and everyone gets paid,” Ray E. Gallo said, “We’d be more likely to get paid if they stay in business.”

A Chapter 11bankruptcy protection filing would allow HashFast to take over the case’sresolution, rather than the claimants. Trust in the startup is wearing thin,however, with Abascal even releasing a somewhat flustered statement on itswebsite entitled “On why we’re notscammers.”

“We pre-sold mining systems,” the statement continues, “Based on the immediate demand for our systems, we took those funds andinvested in inventory to satisfy that demand, specifically on ASICs.  We built out our first board.  We told you that story.  That first board was a dud.  We just plain out haven’t recovered.”

Having had its Bitcoinwallets frozen by a Texas court in March and after firing 50% of its staff lastweek, HashFast now has some significant proving to do in order to avoid realdamage to its reputation.

I can't comment on anything at all right now,” Abascal concluded.