Stronghold Digital has agreed to pay $4.75 million in cash and 25 Bitcoin to settle a class action lawsuit alleging it overstated its Bitcoin mining capacity potential during its 2021 initial public offering (IPO).
According to a court update on Friday, plaintiffs in the suit filed a memorandum supporting an unopposed motion for preliminary approval of the settlement. The plaintiffs initiated the case against Stronghold in April 2022 in the Southern District of New York.
Under the proposed settlement, Stronghold and the underwriter defendants—a group of investment banks underwriting Stronghold’s 2021 IPO—agreed to the cash and Bitcoin terms after a year of mediation. The Bitcoin portion, valued at $2.2 million based on Bitcoin’s current price of $90,000, is set to be paid according to the following schedule:
“The dollar value of one Bitcoin paid on the third business day of the month following preliminary approval, one Bitcoin per month on the third business day of the month for 22 months, and two Bitcoins paid on the third business day of the 24th month.”
The class action case originated from Stronghold’s reliance on a lesser-known Bitcoin ASIC miner manufacturer during the 2021 bull market. In April 2021, Stronghold’s relatively new mining team signed a pre-order for 1.5 EH/s of hashrate from MinerVA Semiconductor Corp., a Canadian company led by Marc Ma. The machines were expected to arrive by the end of 2021.
However, MinerVA equipment faced multiple delays. By March 29, 2022, Stronghold announced it had received only 3,300 of the 15,000 miners ordered from MinerVA. “Additionally, the performance of MinerVA’s miners has been below expectations, with hash rates ranging from 50% to 70% of the expected capacity,” Stronghold reported at the time.
The company’s share price dropped by 32% the following day on Mar. 30. Meanwhile, the broader crypto market continued to decline, exacerbated by the collapses of Luna and FTX in the summer of 2022. When the plaintiffs filed the initial complaint in April 2022, Stronghold’s stock was as low as $4.78, down 75% from its IPO price.
Over the past two years, Stronghold has made various efforts to restructure its debts to navigate the bear market. In February 2023, it amended a loan agreement with WhiteHawk Capital to defer mandatory amortization on a $55 million loan until June 2024, after which a $1.6 million monthly amortization will commence.
In August 2024, Bitfarms entered into an all-stock merger agreement with Stronghold, aiming to expand into the U.S. market and assume Stronghold’s outstanding loans.
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