More Trouble at Core Scientific - Now Potential Securities Fraud
Pomerantz LLP, a New York based law firm, has commenced an investigation into Core Scientific based on reports Core's leadership had engaged in securities fraud which negatively affected its stock price.
Acting upon a report by Culper Research dated March 3, 2022, Pomerantz LLP alleges that "Core Scientific 'has wildly oversold both its mining and hosting businesses, which it cobbled together in a series of questionable transactions before dumping onto the market via SPAC'." [Pomerantz LLP. SHAREHOLDER ALERT: Pomerantz Law Firm Investigates Claims On Behalf of Investors of Core Scientific, Inc. - CORZ. (Accessed January 10, 2023). At the heart of the Pomerantz LLP claim are three specific transactions, to wit:
TRANSACTION 1: Demonstrating that insiders have abandoned any indication of care for the rights of minority shareholders, Core waived a 180 day lockup on more than 282 million shares permitting the shares to be dumped within 5 days of the initial reporting. As a result, Core's stock price fell 9.7% ($0.72 per share) closing on March 3, 2022 at $6.98.
TRANSACTION 2: On September 28, 2022, Celsius filed a motion to enforce its automatic stay and alleging Core committed 'civil contempt' in knowingly violating the automatic stay provision in effect by refusing to perform its contractual duties, by threatening the termination of the companies contract, and by the imposition of improper surcharges. As a result, Core's stock price fell 10.3% ($0.15 per share) closing on September 29, 2022 at $1.30.
TRANSACTION 3: On October 27, 2022, Core announced "that 'given the uncertainty regarding the Company’s financial condition, substantial doubt exists about the Company’s ability to continue as a going concern,' and that it is exploring alternatives to its capital structure". Additionally, at that time, Core announced that it was holding a mere 24 Bitcoins, far less than the 1051 Bitcoins it held on September 30, 2022. As a result, Core's stock price fell $78.1% ($0.79 per share) closing on October 27, 2022 at $0.22.
Pomerantz LLP has invited any investor affected as a result of Core's bankruptcy filing to conduct a self examination of the above claims and to join in the potential pending class action against Core.
Despite the foregoing, on December 23, 2022 Cointelegraph had reported that the Bankruptcy Court granted interim approval for Core to access a $37.5 million funding loan from existing creditors in response to its liquidity issues. The source of this loan was from a group of creditors holding more than 50% of Core's convertible notes providing a DIP (Debtor-in-Possession) commitment for up to $75 million bearing 10% per annum interest attached. [See, e.g. Quarmby, B. BTC miner Core Scientific gets interim nod for $37.4M bankruptcy loan. (Accessed January 10, 2023)]. According to a representative of these creditors, Kris Hansen, Core's existing stakeholders “have faith' in the company’s future despite its recent troubles". [Quarmby, supra].
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