Case 1:21-cv-00511-LAP Document 36 Filed 02/28/22 Page 1 of 84
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`
`SCOTT BISHINS and DARSHAN
`HASTHANTRA, Individually and On
`Behalf of All Others Similarly Situated,
`
`
`
`
`
`CLEANSPARK, INC., ZACHARY
`BRADFORD, and S. MATTHEW
`SCHULTZ,
`
`
`
`
` Case No. 1:21-cv-00511-LAP
`
`AMENDED CLASS ACTION
`COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
`
`
`JURY TRIAL DEMANDED
`
`
`
`Plaintiffs,
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`Defendants.
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`v.
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`Case 1:21-cv-00511-LAP Document 36 Filed 02/28/22 Page 2 of 84
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`TABLE OF CONTENTS
`
`GLOSSARY OF DEFINED TERMS ............................................................................................ iii
`
`TABLE OF EXHIBITS ................................................................................................................... v
`
`I.
`
`II.
`
`III.
`
`IV.
`
`NATURE OF THE ACTION AND OVERVIEW .............................................................. 1
`
`JURISDICTION AND VENUE .......................................................................................... 4
`
`PARTIES ............................................................................................................................. 5
`
`SUBSTANTIVE ALLEGATIONS ..................................................................................... 8
`
`A.
`
`B.
`
`C.
`
`D.
`
`E.
`
`F.
`
`Background Of CleanSpark’s Business And Relevant Pre-Class Period Events .... 8
`
`Background On The Bitcoin Mining Industry ....................................................... 10
`
`CleanSpark Announces Acquisition Of ATL Data Centers, Inc. .......................... 12
`
`Culper Research Publishes A Report That Partially Reveals The Truth Concerning
`The ATL Acquisition ............................................................................................. 16
`
`The Undisclosed Background of ATL ................................................................... 20
`
`1.
`
`2.
`
`ATL’s Undisclosed Corporate History And Its Undisclosed Relationship To
`Fastblock .................................................................................................... 20
`
`Additional Undisclosed Conditions At ATL Prior To And Following
`CleanSpark’s Acquisition .......................................................................... 28
`
`Following The ATL Acquisition, Defendants Continued To Make Misleading
`Statements Concerning The Project Timeline While Corrective Information Was
`Slowly Leaked To The Market In A Series Of Partial Disclosures ....................... 33
`
`1.
`
`2.
`
`3.
`
`4.
`
`Following The ATL Acquisition, CleanSpark Immediately Began To
`Purchase New Bitcoin Mining Equipment ................................................ 34
`
`During February And March 2021, Defendants Made Incremental
`Revisions To The Publicly Stated Project Timeline, But Each Of These
`Projections Ignored Material Facts And Failed To Provide A Realistic
`Timeframe For Project Completion ........................................................... 36
`
`In March 2021, CleanSpark Conducted A $200 Million Public Offering To
`Finance Its Expansion Project ................................................................... 38
`
`During The Spring Of 2021, Defendants Pushed Back The Project
`Completion Date To The End Of Summer Of 2021 .................................. 39
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`AMENDED CLASS ACTION COMPLAINT
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`Case 1:21-cv-00511-LAP Document 36 Filed 02/28/22 Page 3 of 84
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`
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`5.
`
`6.
`
`7.
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`8.
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`In June 2021, Culper Research Issued A Second Report, Revealing
`Additional Risks About CleanSpark’s Bitcoin Mining Business .............. 40
`
`In July And August 2021, Defendants Announced That CleanSpark Was
`Engaging In Alternative Means To Expand Its Bitcoin Mining Capacity
`While The ATL Expansion Project Was Delayed ..................................... 41
`
`On August 17, 2021, Defendants Announce That The Power Expansion At
`The ATL Facility Would Not Be Complete Until The Fall Of 2021 ........ 44
`
`Following The End Of The Class Period, Defendants Admit That The Power
`Expansion At The End Of The ATL Facility Was Still Not Complete As Of
`The Middle of December 2021 .................................................................. 45
`
`V.
`
`MATERIALLY FALSE AND MISLEADING STATEMENTS ISSUED DURING THE
`CLASS PERIOD ............................................................................................................... 46
`
`VI.
`
`UNDISCLOSED ADVERSE FACTS ............................................................................... 61
`
`VII. ADDITIONAL SCIENTER ALLEGATIONS ................................................................. 62
`
`A.
`
`B.
`
`The Company Never Responded To Questions Posed By Culper Research ......... 63
`
`Management Refused To Answer Employees’ Questions About The Culper Report
`Allegations ............................................................................................................. 64
`
`VIII. LOSS CAUSATION ......................................................................................................... 65
`
`IX.
`
`X.
`
`CLASS ACTION ALLEGATIONS .................................................................................. 66
`
`APPLICABILITY OF PRESUMPTION OF RELIANCE (FRAUD-ON-THE-MARKET
`DOCTRINE) ...................................................................................................................... 69
`
`XI.
`
`NO SAFE HARBOR ......................................................................................................... 71
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`XII. CAUSES OF ACTION ...................................................................................................... 72
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`XIII. PRAYER FOR RELIEF .................................................................................................... 76
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`XIV. JURY TRIAL DEMANDED ............................................................................................. 77
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`AMENDED CLASS ACTION COMPLAINT
`ii
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`Case 1:21-cv-00511-LAP Document 36 Filed 02/28/22 Page 4 of 84
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`GLOSSARY OF DEFINED TERMS
`
`Term
`ASIC
`
`Data
`ATL
`Centers, Inc.
`Bitcoin
`
`Block Data
`Processing
`Corp.
`Bradford
`
`CleanSpark
`
`CleanBlok
`
`Coinmint
`LLC
`
`Company
`de Andrada,
`Gustavo Lima
`Calderia
`ESG
`Fastblock
`
`Hash
`
`Hashrate
`
`Love, Lori
`
`Definition
`Application-Specific Integrated Circuit, or computer hardware which is
`designed for a specific function, such as bitcoin mining.
`Company that was acquired by CleanSpark in December 2020. ATL was
`ultimately an alter ego of Fastblock and Block Data.
`When “Bitcoin” is capitalized it refers to the Bitcoin network, which was
`created in 2009 and is the world’s largest and most popular form of
`cryptocurrency. The
`lowercase “bitcoin” refers
`to
`the units of
`the
`cryptocurrency.
`Company that attempted to purchase the assets of ATL, and was essentially an
`alter ego of Fastblock and ATL.
`
`Defendant Zachary Bradford was CleanSpark’s Chief Executive Officer
`(“CEO”) and President since October 2019. Bradford served as CleanSpark’s
`Chief Financial Officer (“CFO”) from 2014 through October 2019.
`Defendant CleanSpark, Inc. that has its principal executive offices located in
`Woods Cross, Utah and its common stock trades on the NASDAQ exchange
`under the symbol “CLSK.” The Company was incorporated in Nevada in
`October 1987 as SmartData Corporation (“SmartData”) and it began trading
`publicly in January 1988.
`A wholly-owned subsidiary of CleanSpark.
`
`The company that agreed to house and power certain of CleanBlok’s
`cryptocurrency mining equipment in its facilities, and to use commercially
`reasonable efforts to mine Bitcoin through an agreed upon third-party provider
`on behalf of CleanBlok.
`Defendant CleanSpark, Inc.
`Director of Block Data, who was listed an organizer of ATL in its Articles of
`Organization, and was identified as a seller of ATL to CleanSpark in the
`Agreement and Plan of Merger.
`Environmental, social, and corporate governance.
`Bitcoin mining company seemingly owned by Bernando Schucman.
`“Fastblock Data Centers” and “Fastblock Mining” seem to be synonymous
`companies.
`A measure of computing power. The computing power of bitcoin mining
`equipment is often evaluated my measuring the number of calculations, or
`“hashes,” per second. A “terahash” is one trillion hashes. One “petahash” is
`equivalent to one thousand terahashes, and one “exahash” is equivalent to 1000
`petahashes.
`The number of hashes per second that can be executed by a machine or group
`of machines.
`CleanSpark’s Chief Financial Officer (“CFO”) from October 2019 until she
`resigned on December 14, 2021.
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`AMENDED CLASS ACTION COMPLAINT
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`Case 1:21-cv-00511-LAP Document 36 Filed 02/28/22 Page 5 of 84
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`Marathon
`
`Microgrid
`
`MW
`Schultz
`
`Schucman,
`Bernando
`
`Virtual
`Citadel
`
`Marathon Patent Group which sought to purchase FastBlock Mining (an alter
`ego of ATL) in August 2020, but withdrew the offer in September 2020 after
`due diligence revealed problems with FastBlock.
`A local, decentralized, energy grid with control capability, which means it can
`disconnect from the traditional grid and operate autonomously.
`Megawatts, or measure of electrical output.
`Defendant C. Matthew Schultz was CleanSpark's Chairman of the Board since
`October 2019 and as Director since March 2014. Schultz was CleanSpark's
`CEO from 2014 through October 2019 and has served as Executive Chairman
`since October 2020.
`Owner of Block Data, who wass listed an organizer of ATL in its Articles of
`Organization, and was identified as a seller of ATL to CleanSpark in the
`Agreement and Plan of Merger.
`A Bitcoin mining business whose assets were ultimately conveyed to ATL.
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`AMENDED CLASS ACTION COMPLAINT
`iv
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`Case 1:21-cv-00511-LAP Document 36 Filed 02/28/22 Page 6 of 84
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`TABLE OF EXHIBITS
`
`Exhibit
`1
`2
`3
`
`4
`
`5
`
`Description
`Amended Certification of Lead Plaintiff Darshan Hasthantra
`Culper Research, CleanSpark, Inc. (CLSK) – Back to the Trash Can, Jan. 14, 2021
`Culper Research, CleanSpark, Inc. (CLSK): Mining Operations Don’t Add Up,
`Jun. 18, 2021
`Copy of archived image from fastblockmining.com as of July 30, 2020, last
`accessed on Wayback Machine on February 24, 2022
`Copy of archived image from atl-data.com as of January 25, 2021, last accessed on
`Wayback Machine on February 24, 2022
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`AMENDED CLASS ACTION COMPLAINT
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`Case 1:21-cv-00511-LAP Document 36 Filed 02/28/22 Page 7 of 84
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`Lead Plaintiff Darshan Hasthantra and Plaintiff Scott Bishins (collectively “Plaintiffs”),
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`individually and on behalf of all others similarly situated, by and through their attorneys, allege
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`the following upon information and belief, except as to those allegations concerning Plaintiffs,
`
`which are alleged upon personal knowledge. Plaintiffs’ information and belief is based upon,
`
`among other things, counsel’s investigation, which includes without limitation: (a) review and
`
`analysis of regulatory filings made by CleanSpark, Inc. (“CleanSpark” or the “Company”) with
`
`the United States (“U.S.”) Securities and Exchange Commission (“SEC”); (b) review and analysis
`
`of press releases and media reports issued by and disseminated by CleanSpark; and (c) review of
`
`other publicly available information concerning CleanSpark.
`
`I.
`
`NATURE OF THE ACTION AND OVERVIEW
`
`1.
`
`This is a class action on behalf of persons and entities that purchased or otherwise
`
`acquired CleanSpark securities between December 10, 2020 and August 16, 2021, inclusive (the
`
`“Class Period”). Plaintiffs pursue claims against the Defendants under the Securities Exchange
`
`Act of 1934 (the “Exchange Act”).
`
`2.
`
`Prior to the Class Period, CleanSpark described itself as an energy company that
`
`provides advanced software and controls technology solutions, including end-to-end microgrid1
`
`energy modeling, energy market communications, and energy management solutions. In its most
`
`recent Form 10-K, however, CleanSpark has described itself as “a leading bitcoin mining and
`
`diversified energy company.”2
`
`3.
`
`CleanSpark’s transformation into a company whose principal focus is now Bitcoin
`
`mining began on December 10, 2020, when CleanSpark announced the acquisition of ATL Data
`
`
`1 A “microgrid” is a local, decentralized, energy grid with control capability, which means it can
`disconnect from the traditional grid and operate autonomously.
`2 All emphasis (indicated in bold, emphasis and/or underline) in this Complaint has been added.
`
`
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`AMENDED CLASS ACTION COMPLAINT
`1
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`Case 1:21-cv-00511-LAP Document 36 Filed 02/28/22 Page 8 of 84
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`
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`Centers, Inc. (“ATL”). ATL’s business consisted of two segments: a traditional data center and a
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`Bitcoin mining operation. Defendants explained that their plan was to turn ATL into a “profitable,
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`full-scale demonstration facility” to demonstrate the value of CleanSpark’s software technologies.
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`Specifically, Defendants claimed that by leveraging CleanSpark’s proprietary microgrid
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`technologies and trade secrets, CleanSpark could maximize energy savings, expand total power
`
`capacity and improve the resiliency of ATL’s existing Bitcoin mining operations. Because the
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`main cost of Bitcoin mining is the cost of energy, Defendants offered a compelling value thesis:
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`by decreasing energy costs, CleanSpark could maximize the profitability of Bitcoin mining.
`
`4.
`
`Defendants claimed that the first phase of improving the ATL facility would
`
`involve expanding the power capacity from 20 megawatts to 50 megawatts. Defendants stated
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`that CleanSpark had already contracted with the local municipality to carry out this power
`
`expansion, that the expansion would begin promptly, and that it was expected to be completed by
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`April 2021.
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`5.
`
`In addition, Defendants claimed that they had engaged in extensive due diligence
`
`on ATL, including an early-stage analysis that began in February 2020 and “an in-depth
`
`examination of the profitability under the existing energy structure,” after which Defendants
`
`concluded that ATL was “a perfect fit to deploy the aforementioned strategy” of layering
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`CleanSpark’s microgrid technologies on top of an existing Bitcoin mining operation.
`
`6.
`
` Just a little more than a month after the ATL acquisition was announced, on
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`January 14, 2021, a short-seller called Culper Research published a report that made a number of
`
`damning revelations about CleanSpark’s acquisition of ATL. Among other things, Culper claimed
`
`that the Bitcoin mining business that was now called ATL was effectively just the rebranded assets
`
`of a now-defunct company called Virtual Citadel, Inc. that had gone through a bankruptcy in early
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`AMENDED CLASS ACTION COMPLAINT
`2
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`Case 1:21-cv-00511-LAP Document 36 Filed 02/28/22 Page 9 of 84
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`2020. Culper also claimed that the public Bitcoin mining company Marathon Patent Group had
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`just a few months earlier made an effort to acquire the same business (then branded under the name
`
`of Fastblock Mining, rather than ATL) but pulled out of the deal after discovering adverse
`
`information during the due diligence process.
`
`7.
`
`On this news, CleanSpark’s stock price fell $3.63, or 9.2%, to close at $35.71 per
`
`share on January 14, 2021, thereby damaging investors. The stock continued to decline the next
`
`trading session by $4.56, or 12.8%, to close at $31.15 per share on January 15, 2021, further
`
`damaging investors.
`
`8.
`
`While Defendants did not address the specific allegations made by Culper, they
`
`generally responded in a January 21, 2021 press release, claiming that the report had made “false
`
`accusations against CleanSpark and its officers.”
`
`9.
`
`In the months that followed, Defendants continued to issue positive statements
`
`about CleanSpark’s new Bitcoin mining business, including continual updates about new Bitcoin
`
`mining equipment that the Company had sourced and purchased and reported improvements in the
`
`Company’s hashrate, which is the speed with which mining hardware can solve cryptographic
`
`problems and earn additional bitcoins.
`
`10.
`
`Counterbalancing these rosy statements, however, Defendants repeatedly made
`
`incremental revisions to the timeline for the expansion project, continually pushing back the
`
`expected completion date. Through a series of partial disclosures, the market gradually became
`
`aware that the power capacity expansion was going to take far longer than Defendants had
`
`promised, and CleanSpark’s stock price suffered as a result. Eventually, CleanSpark was forced
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`to adopt an alternative, less profitable means to expand its mining capacity, by contracting with a
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`AMENDED CLASS ACTION COMPLAINT
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`Case 1:21-cv-00511-LAP Document 36 Filed 02/28/22 Page 10 of 84
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`third-party to house and power CleanSpark’s mining equipment so it would not stand idle while
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`the expansion project was ongoing.
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`11.
`
`According to a former employee who managed the ATL facility, Defendants were
`
`informed in January or February 2021 that their publicly stated project timeline was wildly off
`
`target, and that an aggressive project schedule, assuming no delays, would entail a completion date
`
`of October 2021. Defendants, however, refused to accept this reality and instead continued to
`
`provide projections to investors that ignored the facts on the ground.
`
`12.
`
` Finally, on August 17, 2021, Defendants acknowledged that the expansion project
`
`would not be completed until sometime in the fall of 2021. On this news, CleanSpark’s stock price
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`fell $2.08, or 15.1%, to close at $11.65 per share on August 17, 2021, thereby damaging investors.
`
`13.
`
`After the Class Period, on December 14, 2021, Defendants admitted that the
`
`expansion of power capacity at the ATL facility to 50 megawatts was still not complete, and would
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`not be complete until sometime in “the next few weeks.”
`
`14.
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`As a result of Defendants’ wrongful acts and omissions, and the precipitous decline
`
`in the market value of the Company’s securities, Plaintiffs and other Class members have suffered
`
`significant losses and damages.
`
`II.
`
`JURISDICTION AND VENUE
`
`15.
`
`The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange
`
`Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17
`
`C.F.R. § 240.10b-5).
`
`16.
`
`This Court has jurisdiction over the subject matter of this action pursuant to 28
`
`U.S.C. § 1331 and Section 27 of the Exchange Act (15 U.S.C. § 78aa).
`
`17.
`
`Venue is proper in this Judicial District pursuant to 28 U.S.C. § 1391(b) and Section
`
`27 of the Exchange Act (15 U.S.C. § 78aa(c)). Substantial acts in furtherance of the alleged fraud
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`AMENDED CLASS ACTION COMPLAINT
`4
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`Case 1:21-cv-00511-LAP Document 36 Filed 02/28/22 Page 11 of 84
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`or the effects of the fraud have occurred in this Judicial District. Many of the acts charged herein,
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`including the dissemination of materially false and/or misleading information, occurred in
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`substantial part in this Judicial District.
`
`18.
`
`In connection with the acts, transactions, and conduct alleged herein, Defendants
`
`directly and indirectly used the means and instrumentalities of interstate commerce, including the
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`United States mail, interstate telephone communications, and the facilities of a national securities
`
`exchange.
`
`III.
`
`PARTIES
`
`19.
`
`Lead Plaintiff Darshan Hasthantra, as set forth in the previously filed certification
`
`(Dkt. No. 13-3), incorporated by reference herein, and an amended certification attached hereto as
`
`Exhibit 1, purchased CleanSpark securities during the Class Period, and suffered damages as a
`
`result of the federal securities law violations and false and/or misleading statements and/or material
`
`omissions alleged herein.
`
`20.
`
`Plaintiff Scott Bishins, as set forth in the previously filed certification (Dkt. No. 1),
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`incorporated by reference herein, purchased CleanSpark securities during the Class Period, and
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`suffered damages as a result of the federal securities law violations and false and/or misleading
`
`statements and/or material omissions alleged herein.
`
`21.
`
`Defendant CleanSpark has its principal executive offices located in Woods Cross,
`
`Utah and its common stock trades on the NASDAQ exchange under the symbol “CLSK.” The
`
`Company was incorporated in Nevada in October 1987 as SmartData Corporation (“SmartData”)
`
`and it began trading publicly in January 1988. In December 2014, shortly after Defendants
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`Bradford and Schultz joined the Company, SmartData changed its company name to Stratean,
`
`Inc. (“Stratean”). In July 2016, Stratean acquired CleanSpark and in October 2016, Stratean
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`changed its name to CleanSpark. From 2016 through 2020, the Company purported to provide
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`AMENDED CLASS ACTION COMPLAINT
`5
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`microgrid solutions to military, commercial and residential properties and was claimed it was
`
`developing its gasification technologies for commercial deployment. In December 2020, the
`
`Company acquired ATL Data Centers LLC (“ATL”) that, in addition to being a traditional data
`
`center operation, operates Bitcoin mining units (“ASICs”). CleanSpark currently purports to be a
`
`Bitcoin mining and diversified energy company.
`
`22.
`
`Defendant Zachary Bradford (“Bradford”) was the Company’s Chief Executive
`
`Officer (“CEO”) and President since October 2019. Bradford served as the Company’s Chief
`
`Financial Officer (“CFO”) from 2014 through October 2019. Bradford has been a Director of the
`
`Company since March 2014. In June 2013, Bradford co-founded of Blue Chip Accounting, LLC
`
`(“Blue Chip”), a public accounting and consulting firm in Nevada, where he remains a partner.
`
`From 2013 through 2018, Bradford was also a partner and manager for De Joya Griffith &
`
`Company (“DJG”), a public accounting and consulting firm located in Henderson, Nevada. In
`
`2015, Bradford was a Director and CFO for Be At TV, Inc. (“BETV”), as well as CFO of Epic
`
`Stores Corp., who completed a reverse merger in June 2015 with Bradford remaining as the CFO
`
`and a Director of the surviving entity, Epic Stores, Inc. (“Epic”). Blue Chip simultaneously
`
`provided consulting services until July 2016, when Blue Chip provided written notice of
`
`termination of all agreements with Epic for breach of contract and non-payment and Bradford
`
`resigned from his position as a Director and CFO of Epic. Bradford received an undergraduate
`
`degree and a graduate degree from Southern Utah University. He is a licensed Certified Public
`
`Accountant in Nevada and a member of the American Institute of Certified Public Accountants.
`
`23.
`
`Defendant S. Matthew Schultz (“Schultz”) has served as Chairman of the Board
`
`since October 2019 and as Director since March 2014. Schultz was the Company’s CEO from
`
`2014 through October 2019 and has served as Executive Chairman since October 2020. Schultz
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`AMENDED CLASS ACTION COMPLAINT
`6
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`Case 1:21-cv-00511-LAP Document 36 Filed 02/28/22 Page 13 of 84
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`served as the vice-president of the Utah Consumer Lending Association from 1998 through 1999.
`
`From 1999 to 2003, Schultz was the Chairman of Pali Financial Group, Inc., an investment banking
`
`firm specializing in small cap securities. From April 2003 through at least 2008, Schultz served
`
`as President of Wexford Capital Ventures, Inc., a Utah based strategic financial consulting firm.
`
`Schultz was the Chief Operating Officer (“COO”) and Chairman of the Board of Directors of Left
`
`Right Marketing Technology, Inc. (“Left Right”). In or around November 2005, Left Right
`
`merged with and took the name of Strategic Gaming Investments, Inc., which was controlled by
`
`Schultz and Jason Griffith of DJG, and Schultz served as the COO and Chairman until he resigned
`
`in July 2007. In August 2008, Strategic Gaming changed its name to Amerigo Energy, Inc. On
`
`October 31, 2008, Amerigo acquired Granite Energy, Inc. where Schultz was a director and had
`
`served as its CEO since August 2006. From December 2008 through August 2010, Schultz served
`
`as the CEO and Director of Amerigo. Schultz also was the primary owner of SMS Management
`
`Services, LLC (“SMS”), which was created in January 2007 and was managed by his wife, Sheree
`
`Shultz, and DJG. In March 2014, just after Bradford and Schultz joined CleanSpark, the Company
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`acquired SMS’s intellectual property for its downdraft gasifier.
`
`24.
`
`Defendants Bradford and Schultz (collectively the “Individual Defendants”),
`
`because of their positions with the Company, possessed the power and authority to control the
`
`contents of the Company’s reports to the SEC, press releases and presentations to securities
`
`analysts, money and portfolio managers and institutional investors, i.e., the market. The Individual
`
`Defendants were provided with copies of the Company’s reports and press releases alleged herein
`
`to be misleading prior to, or shortly after, their issuance and had the ability and opportunity to
`
`prevent their issuance or cause them to be corrected. Because of their positions and access to
`
`material non-public information available to them, the Individual Defendants knew that the
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`AMENDED CLASS ACTION COMPLAINT
`7
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`Case 1:21-cv-00511-LAP Document 36 Filed 02/28/22 Page 14 of 84
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`adverse facts specified herein had not been disclosed to, and were being concealed from, the public,
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`and that the positive representations which were being made were then materially false and/or
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`misleading. The Individual Defendants are liable for the false statements pleaded herein.
`
`IV.
`
`SUBSTANTIVE ALLEGATIONS
`A.
`
`Background Of CleanSpark’s Business And Relevant Pre-Class Period Events
`
`25.
`
`CleanSpark is an alternative energy company whose operational and strategic focus
`
`has shifted somewhat in recent years. In its Form 10-K dated December 17, 2020 (“2020 10-K”),
`
`CleanSpark stated that it was “in the business of providing advanced software and controls
`
`technology solutions to solve modern energy challenges” and claimed that it had “a suite of
`
`software solutions that provide end-to-end microgrid energy modeling, energy market
`
`communications and energy management solutions.”3 CleanSpark described its two lines of
`
`business as consisting of an “Energy Business Segment” and a “Digital Agency Segment.”4
`
`26.
`
`It its Form 10-K dated December 14, 2021 (“2021 10-K”), CleanSpark described
`
`itself as a “a leading bitcoin mining and diversified energy company.” CleanSpark described its
`
`two lines of business as now consisting of a “Digital Currency Mining Segment,” focused on
`
`mining bitcoins, and an “Energy Segment,” consisting of the activities previously captured under
`
`
`3 According to the 2020 10-K, CleanSpark’s “offerings consist of intelligent energy monitoring
`and controls, intelligent microgrid design software, middleware communications protocols for the
`energy industry, energy system engineering and software consulting services.”
`4 According to the 2020 10-K, CleanSpark’s Energy Business Segment operated through
`(1) CleanSpark, LLC, which provided “microgrid engineering, design and software solutions to
`military, commercial and residential customers,” (2) CleanSpark Critical Power Systems, Inc.,
`which provided “custom hardware solutions for distributed energy systems that serve military and
`commercial residential properties,” and (3) GridFabric, LLC, which provided “Open Automated
`Demand response … and other middleware communication protocol software solutions to
`commercial and utility customers.” According to the 2020 10-K, CleanSpark’s Digital Agency
`Segment operated through p2kLabs, Inc., which provided “design, software development and other
`technology-based consulting services.”
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`AMENDED CLASS ACTION COMPLAINT
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`Case 1:21-cv-00511-LAP Document 36 Filed 02/28/22 Page 15 of 84
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`the heading of the “Energy Business Segment.” In order to align its financial reporting with the
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`Company’s new strategic focus, CleanSpark eliminated its Digital Agency Segment as a separate
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`reporting segment and reported the results associated with that business component under other
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`revenue and eliminations.
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`27.
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`Thus, as a result of the acquisitions and transactions described infra, CleanSpark
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`transformed itself from being a generalized alternative energy company to a company whose
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`primary focus is Bitcoin mining. As Defendant Bradford stated in a conference call with analysts
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`on December 14, 2021, “CleanSpark is a bitcoin miner. Bitcoin mining is our primary business
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`segment in terms of revenue. Our most efficient in terms of cost and margin and our most
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`important in terms of maximizing value for our shareholders.” According to a December 22, 2021
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`by Kevin Dede, a securities analyst at H.C. Wainwright & Co., these statements “[c]learly
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`[a]rticulated” a “transformation” of the Company: “Aside from the obvious shift in revenue
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`source, management eliminated all doubt by clearly proclaiming on the accompanying earnings
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`call last week that CleanSpark is now a bitcoin mining company, and we add an industrial one at
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`that, exiting the Sept. quarter at 1.3EH/s (exahash) exclusively dedicated to bitcoin.”
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`28.
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`Prior to the Class Period, on October 6, 2020, CleanSpark announced an
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`underwritten public offering of 4,444,445 shares of common stock at a public offering price of
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`$9.00 per share, expected to generate gross proceeds of approximately $40 million. CleanSpark
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`stated that it intended “to use the net proceeds from the offering for working capital requirements,
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`the growth of CleanSpark’s sales and marketing team, product development including software
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`enhancements and improvements, and general corporate purposes and strategic mergers and
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`acquisitions, although CleanSpark has no present commitments or agreements to enter into any
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`
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`AMENDED CLASS ACTION COMPLAINT
`9
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`Case 1:21-cv-00511-LAP Document 36 Filed 02/28/22 Page 16 of 84
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`such mergers or acquisitions.” On October 9, 2020, CleanSpark announced that the offering had
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`closed, generating aggregate gross proceeds of approximately $40 million.
`
`B.
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`29.
`
`Background On The Bitcoin Mining Industry
`
`Bitcoin5 was created in 2009 and is the world’s largest and most popular form of
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`cryptocurrency, a digital currency that is secured by cryptography. Bitcoin “mining” refers to the
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`process that verifies Bitcoin transactions and releases bitcoins into circulation. Mining involves
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`solving complex cryptographic problems to discover a new “block,” or a group of data. Once this
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`block is discovered or “filled,” it is given a timestamp and strung together in a distributed database
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`known as a “blockchain.” Mining is necessary because Bitcoin does not rely on a central bank or
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`government to oversee it, but instead relies on miners to monitor and verify Bitcoin transactions
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`through data “ledgers” that are distributed throughout in the Bitcoin network, making it almost
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`impossible to forge transaction histories. Given these unique properties, bitcoin was intended to
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`be used, and has been used, as a type of currency.
`
`30.
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`The individuals and companies who mine Bitcoin are incentivized by the release of
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`new bitcoin and transaction fees paid in bitcoin. The first computer to solve the problem receives
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`the next block of bitcoins and the process begins again. Miners need either a graphics processing
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`unit (GPU) or an application-specific integrated circuit (ASIC) to set up a mining rig; however,
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`nearly all miners use ASIC machines, which can run from $500 into the tens of thousands of
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`dollars.
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`31.
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`To ensure the blockchain functions smoothly and can process and verify
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`transactions, Bitcoin aims to have one block produced every 10 minutes or so. As more mining
`
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`5 When “Bitcoin” is capitalized it refers to the Bitcoin network, whereas the lowercase “bitcoin”
`refers to the units of the cryptocurrency.
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`AMENDED CLASS ACTION COMPLAINT
`10
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`Case 1:21-cv-00511-LAP Document 36 Filed 02/28/22 Page 17 of 84
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`rigs work to solve the problems and more bitcoins are created, Bitcoin adjusts the difficulty of
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`mining every 2,016 blocks, or roughly every two weeks. The odds of finding the winning value
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`today is one in the tens of trillions. As difficulty increases, the computing power required
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`increases, necessitating expensive, complex hardware and adva