The Bitcoin (BTC) mining giant Core Scientific has recently been facing an investigation by the law firm Pomerantz. According to him, the mining company would have carried out several commercial and financial frauds in 2022, to the detriment of its shareholders damaged by the fall of its share in the stock market.
Core Scientific is in trouble
After filing for bankruptcy last month, Core Scientific is now facing a securities fraud investigation by the Pomerantz law firm, which specializes in securities litigation.
On several occasions during 2022, the mining company allegedly carried out illegal trading actions. It all began with the publication of a report by Culper Research, a company specialising in investigations related to the investment sector, which accused Core Scientific of having:
- overstated its mining operations through a series of questionable transactions;
- Changed the financial rules for its stock without first discussing them with its shareholders.
In addition, during the Celsius Network affair in September 2022, the mining firm was accused of deliberately charging artificially high fees and breaching its contractual obligations while threatening to break its contract with the lending and borrowing company. This revelation resulted in Core Scientific (CORZQ) shares falling by 10.3% in less than 24 hours.
As a reminder, the failed cryptocurrency exchange Celsius had entered into a deal with the mining company in 2020, providing for the hosting of 37,000 mining machines.
Core Scientific between bankruptcy and refinancing
While Core Scientific was a mining behemoth accounting for nearly 10% of the Bitcoin network’s (BTC) hashrate, many doubts about its financial capabilities spread in October 2022. Indeed, the mining company had publicly disclosed its “uncertainties” around its fragile economic health on October 28, 2022, as highlighted by law firm Pomerantz:
“Given the uncertainty regarding the company’s financial condition, there is substantial doubt about the firm’s ability to continue as a going concern. “
Moreover, it turns out that the company had gotten rid of its Bitcoin reserves in a very short period of time. For example, its stockpile went from 1051 BTC on 30 September 2022, to 24 BTC on 27 October 2022.
These two announcements had the effect of a bomb, as evidenced by the Core Scientific share price, which plunged 78% in the space of a single day. The price of the asset was now around $0.22, a 95% drop in less than a year.
Figure 1 – Core Scientific (CORZQ) share price from January 2022 to January 2023, falling from $10 to $0.08
A few weeks later, in December 2022, Core Scientific officially announced its bankruptcy by filing for Chapter 11 bankruptcy protection in the US. In early 2023, the behemoth BlackRock, the company’s largest shareholder, provided a $70 million loan along with several other investors to assist the mining company.
