BCause Mining LLC, the bitcoin mining operation that filed for chapter 11 bankruptcy a year after it received a grant worth up to $500,000 from the city of Virginia Beach to expand to a rented warehouse there, has been ordered to liquidate its assets. An attorney for BCause confirmed the company’s operations have shut down.
A federal judge approved a motion Tuesday to convert the case involving BCause Mining LLC and BCause LLC from a reorganization to a chapter 7 liquidation. Chicago bankruptcy Judge Janet S. Baer also approved the appointment of a trustee in the case.
At the time it filed for bankruptcy, the city of Virginia Beach had already given the company $436,823 of the grant first awarded in January 2018 because it pledged to invest $64.8 million in a massive expansion BCause executives claimed would make it the largest cryptocurrency mining operation in North America.
The vast majority of that investment, though, appeared to be in mining equipment owned by others who paid BCause fees, sometimes adding up to more than $1 million a month, to host the machines.
One entity that hosted its equipment with BCause, BMG Operations Ltd. of Antigua, now claims to be owed more than $6.8 million. In total 23 creditors – including BCause executives, its landlord and U.S. Customs and Border Protection – claim they’re owed $13.3 million.
The company filed for bankruptcy protection April 11 after one of its primary vendors, WESCO Distribution, won a lawsuit allowing it to garnish BCause’s bank account to recover $1.9 million it said it was owed. At the time, it also owed Dominion Energy $1.7 million in past-due electric bills before coming to an agreement with the utility.
Attorneys for WESCO, which has a secured claim meaning it would be among the first to be paid, asked the court to convert the case to chapter 7 liquidation, according to court filings.
“It should be apparent to the Court and other parties in this case, there is no hope of reorganization,” they wrote. At the same time, BCause’s lawyers had also recently asked the court to approve more than $214,000 in fees they say it earned in the six months since the company had filed for bankruptcy, on top of a $46,101 paid retainer. If the case wasn’t converted, WESCO attorneys said BCause would likely keep its bankruptcy case going until it ran out of money. In a budget submitted to the court, BCause estimated it would have $471,436 in cash at the end of the year. “The Court needs to end these Chapter 11 Cases before more damage is done,” WESCO’s attorneys wrote.
In August, BCause proposed a plan to the court to pay back its creditors, noting it could take two to four years, depending on the launch of another enterprise, the Spot Exchange, that would have acted as a currency exchange for the digital coins. That launch, though, would have required the company to seek more capital from investors to fund it until it was earning revenue from transaction fees.
At that time, the company estimated that if its assets (a bank account, machinery, equipment and future revenue based on its hosting agreements) were to be liquidated, it would add up to $2.12 million.
The company had also agreed to hire 100 full-time employees with average wages of $60,000 but the Virginia Beach Development Authority grant wasn’t tied to the company following through on the promise. By the time it filed for bankruptcy, it had 27 full-time and four part-time workers in Virginia Beach and Chicago.
A provision in the agreement between the city and the company noted that it must be in operation for at least five years and for every year it isn’t, it agreed to re-pay the city one-fifth of the grant award.
The city intends to file a claim in bankruptcy court, it just doesn’t yet know how much it will seek, said Virginia Beach spokeswoman Julie Hill. It would also be considered an unsecured creditor, meaning its claim would take a backseat to those with secured claims.
