Mining hardware manufacturing startup HashFast Technologies LLC is the latest cog in the Bitcoin machine to run into trouble with the law.
The company received an involuntary bankruptcy notice, the joint effort of five customers who claim they 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 assets liquidated.
Specifically, the company must prove that it is still solvent, something which Abascal had earlier confirmed prior to the bankruptcy notice being filed. “The definition of solvency involves as much assets as it does cash, and we have enough assets,” she told Ars Technica.
Mutually Beneficial Outcome?
The case involves both private and corporate customers, of which the largest, Hong Kong-based Koi Systems, is claiming over US$280,000 in losses.
The history leading to this point is indeed extensive and complicated. Koi, for example, appears to have had a prior business relationship with HashFast before it decided, faced with financial meltdown, to halt manufacture of complete boards and instead produce its ‘Golden Nonce’ mining chips.
HashFast currently has a further five arbitration cases and two lawsuits pending against it, including accusations of “outright fraud” as well as failing to pay out refunds in Bitcoin as promised.
The bankruptcy filing could be successfully countered, however, in a way which would benefit both sides, explained the lawyer in charge of three of the five arbitration cases. “My hope is that this transitions to a Chapter 11 and everyone gets paid,” Ray E. Gallo said, “We’d be more likely to get paid if they stay in business.”
A Chapter 11 bankruptcy protection filing would allow HashFast to take over the case’s resolution, rather than the claimants. Trust in the startup is wearing thin, however, with Abascal even releasing a somewhat flustered statement on its website entitled “On why we’re not scammers.”
“We pre-sold mining systems,” the statement continues, “Based on the immediate demand for our systems, we took those funds and invested 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 Bitcoin wallets frozen by a Texas court in March and after firing 50% of its staff last week, HashFast now has some significant proving to do in order to avoid real damage to its reputation.
“I can't comment on anything at all right now,” Abascal concluded.
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