Btiwise planned to build offices in the State Center Warehouse, one of Fresno’s oldest standing buildings, in Downtown Fresno. The property was later part of a lawsuit. Photo by Donald A. Promnitz

A federal grand jury returned a six-count indictment on Jan. 30 charging David Hardcastle, 61, of Fresno, with conspiracy to commit wire fraud and substantive wire fraud for defrauding investors in loans made to the failed Fresno-based startup company Bitwise Industries, Acting U.S. Attorney Michele Beckwith announced Monday.

The indictment was unsealed after Hardcastle’s arrest Monday morning, and he is scheduled to make his initial appearance in court Monday afternoon.

Andrew Adler, 31, of Greenwich, Connecticut, has been charged by information from Hardcastle’s indictment and entered into a plea agreement with the government where he has agreed to plead guilty to conspiracy to commit wire fraud. Adler is scheduled to enter his guilty plea in court next month.

According to court documents, from December 2022 through May 2023, Hardcastle and his business partner Adler gave Bitwise approximately $20 million in hard money loans through their special purpose entity Startop Investments LLC.

The loans from Startop were were secured by Bitwise properties in Bakersfield and Fresno — properties that Bitwise didn’t even own, according to a report from the SJV Sun. NICByte, a Texas investment firm that financed the cost of nearly all of Bitwise’s properties, sued Bitwise in 2023 over the allegations.

Startop syndicated the loans to other investors. In doing so, they altered the original loan documents to make it appear that Bitwise was obligated to pay significantly less interest on the loans than was true. They also forged the signature of Bitwise’s Co-CEO, Jake Soberal, on the altered documents. This made the loans appear less risky and therefore more appealing to the investors.

Hardcastle and Adler received tens of thousands of dollars in origination fees for the loans and stood to make millions more in secret profits from the higher, undisclosed interest rates had the loans been fully repaid, the indictment says.  Moreover, one of the loans to Bitwise included a secure interest reserve of approximately $700,000. The investors were unaware of this reserve. Hardcastle and Adler then used these reserve funds to make an unrelated investment in another company that they operated without the investors’ authorization, and the money was not available to repay the investors when Bitwise collapsed in May 2023.

A lawsuit against Startop Investments from one of its own lenders filed last year alleges that Hardcastle and Adler were aware of Bitwise’s dire financial straits “at all relevant times.” They viewed Soberal and Btiwse as “easy targets to profit from by way of loan fees and interest due to their constant need for cash,” according to the lawsuit filed by Long Angle Investments, LLC.

The lawsuit states Hardcastle and Soberal had a close relationship beginning around 2013.  Hardcastle, described as a “serial entrepreneur” in online profiles, was housed at Bitwise through his online lottery pooling business, Lottlishus.

Hardcastle had invested in Bitwise prior to the collapse, and was “critical in perpetuating Bitwise’s fraudulent regime by providing the loans necessary to keep appearances of the company’s stability going for as long as possible,” according to the lawsuit.

This case is the product of an investigation by the Federal Bureau of Investigation. Assistant U.S. Attorneys Joseph Barton, Henry Carbajal III, and Cody Chapple are prosecuting the case.

If convicted, Hardcastle and Adler each face maximum statutory penalties of 20 years in prison and a $250,000 fine for the conspiracy to commit wire fraud charge. Hardcastle also faces another 20 years in prison and a $250,000 fine for each of the substantive wire fraud charges.

In December, Bitwise co-CEOs Soberal and Irma Olguin, Jr. combined were sentenced to 20 years in federal prison for their role in a $115 million scheme to defraud Bitwise investors.