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Argo Blockchain accused of misleading investors in class action lawsuit

After a torrid 2022 that saw it sell off its flagship mining facility, Argo Blockchain's woes are worsening after a recent class action suit.

Investors of crypto mining firm Argo Blockchain have filed a class action lawsuit accusing the miner of making untrue statements and omitting key information during its initial public offering (IPO) in 2021.

A newly filed lawsuit on Jan. 26 is aimed at Argo and several of its executives and board members. It claims the firm failed to disclose how susceptible it was to capital constraints, electricity costs and network difficulties.

"The Offering Documents were negligently prepared and, as a result, contained untrue statements of material fact or omitted to state other facts necessary to make the statements made not misleading," the lawsuit read.

As a result, the investors claim the business was “less sustainable” than they had been led to believe which led to an overstatement of the miner’s financial prospects. The complaint noted:

“Had [the investors] known the truth, they would not have purchased or otherwise acquired said securities, or would not have purchased or otherwise acquired them at the inflated prices that were paid.”

Argo released the information in question on Sep. 23, 2021, when the firm filed documents with the United States Securities and Exchange Commission (SEC) relating to its IPO.

7.5 million shares were issued to the public on the same date at an offering price of $15 resulting in proceeds of $105 million before expenses.

Since then, the miner’s share price has taken a beating and is currently trading at $1.96 per share after having fallen as low as $0.36.

The share price decline of Argo Blockchain from Sep. 2021 to present. Source: Yahoo! Finance

Cointelegraph requested comment from Argo but did not immediately receive a response.

Related: Bitcoin hash rate taps new milestone with miner hodling at 1-year low

The recent lawsuit comes just days after Argo regained compliance with Nasdaq’s listing rule on Jan. 23, which requires a company to maintain a minimum closing bid price of $1 for 10 consecutive trading days.

Argo has had to make some difficult decisions to weather the ongoing bear market and tough conditions facing crypto miners. It announced on Dec. 28 that it would be selling its flagship mining facility, Helios, to digital asset investment manager Galaxy Digital for $65 million.

The Helios mining facility during its grand opening. Source: YouTube

Crypto miners in general had a torrid year in 2022 — with high electricity prices, falling crypto prices and increased mining difficulty all eating into their bottom line.

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Mike Novogratz calls Helios a ‘transformative acquisition’ for Galaxy

The Galaxy CEO seems unfazed by the carnage in the BTC mining sector this year, and outlined that the firm is looking to significantly ramp up its mining initiatives.

Galaxy Digital Holdings CEO Mike Novogratz has called the Helios mining deal a “transformative acquisition” for the firm as it works to increase its exposure to the Bitcoin mining sector.

The crypto investment firm’s $65 million acquisition of Argo Blockchain’s flagship mining facility was announced on Dec. 28 as part of Argo’s drastic action to stave off bankruptcy.

Tweeting about the deal on Dec. 29, Novogratz emphasized that Galaxy is a “strong believer” in the long-term future of Bitcoin (BTC) and the company will continue to ramp up its mining initiatives:

“Bear markets are for building. We’re long-term believers in BTC and expect the lowest-cost miners to win over time. Helios is a transformative acquisition that will expand our mining capabilities and services as we continue to build for the decentralized future.”

Explaining the deal in further detail, the Galaxy CEO outlined that the firm has a specific “thesis” on how to approach the mining sector:“low-cost electricity, a very efficient team” and “buying ASIC miners cheap.”

“That’s a recipe for success in mining, even when the hash rate rises,” he said.

Recent data from Hashrate Index found that Bitcoin ASIC miner prices are hovering at lows not seen since at least 2021, with the most efficient ASIC miners seeing their prices fall 86.8% from their peak in May 2021.

Galaxy has five business lines across trading, asset management, crypto mining, venture investments and investment banking. According to its website, it currently has $1.9 billion worth of assets under management.

As it stands, Galaxy has mainly utilized hosting services for its mining operations. However, Novogratz notes that owning 200 megawatt (MW) capacity Helios will not only let the company run miners on its own site but host for others as well.

Helios potentially has a lot of scaling ability to make it one of the biggest miners on the market. Argo Blockchain previously outlined in May this year that it had plans to increase electrical capacity to 800MW in “the coming years.”

At the time, the firm also said it expected Helios to reach a BTC mining capacity of 5.5 exahashes per second by the end of the year, with the potential to eventually hit 20 EH/s.

It appears that Galaxy has some cash to splash amid the 2022 bear market, considering that it also gave Argo Blockchain a $35 million equipment finance loan alongside the acquisition.

Related: BTC price preserves $16.5K, but funding rates raise risk of new Bitcoin lows

The move also adds another coup from earlier this month, when Galaxy snapped up crypto self-custody platform GK8 for an undisclosed fee.

GK8 was being auctioned off as part of the Celsius bankruptcy process, after the defunct crypto lender snapped up the firm for $115 million in 2021.

Novogratz called the acquisition a “crucial cornerstone in our effort to create a truly full-service financial platform for digital assets.”

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Argo Blockchain reports insufficient funds, ‘no assurance’ it can avoid Chapter 11 bankruptcy

According to the mining firm, “inadvertently published materials” led to the suspension of trading of Argo Blockchain on the London Stock Exchange and Nasdaq on Dec. 9.

Crypto mining firm Argo Blockchain has reported it had been negotiating to sell assets and “engage in an equipment financing transaction” in an effort to avoid filing for bankruptcy.

In a Dec. 12 announcement, Argo Blockchain said it was at risk of having insufficient funds to continue operating within a month, and was in the middle of “advanced negotiations” to sell certain assets. Though the mining firm said it had not filed for Chapter 11 bankruptcy in the United States, “inadvertently published materials” related to the company’s financial situation led to the suspension of trading on the London Stock Exchange, or LSE, and Nasdaq on Dec. 9.

Argo reported it had resumed trading on the London Stock Exchange as of Dec. 12, but there was no data recorded with the LSE at the time of publication. Shares of the mining firm closed at $0.69 on the Nasdaq on Dec. 8, and 6.70 pounds on the LSE.

“The Company is hopeful that it will be able to consummate the transaction outside of a voluntary Chapter 11 bankruptcy filing in the United States, although there is no assurance that the Company can avoid such a filing,” said Argo. “The Company has requested that the UK Financial Conduct Authority restore the listing of its ordinary shares and that is expected to happen as soon as practicable.”

The mining firm reported in October that it was at risk of becoming cash flow negative “in the near term” should it fail to raise needed capital to continue operations. Amid the bear market, Argo reported selling some of its mined Bitcoin (BTC) holdings to pay down a loan from Galaxy Digital, from which it secured crypto-backed loan agreements in 2021.

As of Nov. 30, Argo reported holding 126 BTC and Bitcoin equivalents. The price of the cryptocurrency was $17,033 at the time of publication.

Related: Argo Blockchain facility in West Texas expects to start mining Bitcoin in May

Should Argo file for Chapter 11, it would be the latest in a string of crypto firms reporting financial difficulties amid a bear market. Many global regulators and lawmakers have pointed to the collapse of Terraform Labs, Celsius Network, Voyager Digital, BlockFi, and most recently FTX in criticisms of the crypto market.

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BTC miner CleanSpark scoops up thousands of miners amid ‘distressed markets’

CleanSpark bought over 3,800 mining machines at $15.50 per terahash – far below the current market price of $22.94 and an 85.4% discount from the all-time high costs of $106.62 in Dec. 2021.

Sustainability-focused Bitcoin (BTC) mining company CleanSpark has snapped up another 3,843 cryptocurrency miners amid a backdrop of mining industry consolidation.

The $5.9 million purchase of the Antminer S19J Pro Bitcoin miners announced by the company on Nov. 1 came at a price of $15.50 per terahash — far cheaper than the current market price of $22.94 for a machine with the same efficiency according to data from Hashrate Index.

The purchase has brought its total number of machines to around 50,000 according to the company.

CleanSpark said it's purchased 26,500 miners since the start of the "bear market conditions" — a time when many mining firms have been forced to sell off mining equipment or even consider filing for bankruptcy.

There is a possibility that the miners were purchased from competitor Argo Blockchain as an Oct. 31 update from Argo shows it sold 3,843 Bitmain S19J Pro machines, the exact amount and miner model that CleanSpark purchased.

Cointelegraph contacted CleanSpark and Argo Blockchain to confirm if a transaction took place between the companies but did not immediately hear back.

While other Bitcoin miners are struggling in the prevailing market conditions, CEO Zach Bradford said an “unwavering focus” on sustainability, a strong balance sheet, and its operating strategy has enabled CleanSpark to “acquire machines at incredible prices, grow our hashrate, and increase our daily Bitcoin production.”

Related: Top 3 reasons why Bitcoin hash rate continues to attain new all-time highs

In an earlier interview with Cointelegraph Matthew Schultz, executive chairman of CleanSpark, said one of CleanSpark’s operating strategies has been to view Bitcoin mining as a “potential solution for creating more opportunities for energy development.”

For example, CleanSpark partners with various city councils in the United States to buy excess energy in order to improve the efficiency of its mining operations – but it also cuts down energy costs for those communities too, Schultz explained:

“These cities essentially become our utility provider. They make a margin on every kilowatt hour we buy to conduct our mining operations. Yet, we are buying such high quantities of energy that it brings down energy costs for the communities we work with.”

But with Bitcoin mining difficulty increasing and profitability decreasing, mining companies will need to look for new ways to diversify their revenue streams in order to stay afloat, while some companies may have no option but to consolidate to stay in the game.

That was the case with Colorado-based Bitcoin miner Crusoe Energy Systems, who bought the operating assets of portable BTC mining operator Great American Mining (GAM).

CleanSpark also bought a 36MW facility in Washington, Georgia in Aug. 2022, and recently acquired an 80MW facility in Sandersville, Georgia in Oct. 2022 to go alongside its two existing mining facilities.

Despite CleanSpark’s recent success, its stock price dropped 6.32% to $3.26 on Nov. 1 according to Yahoo Finance — however, the fall was representative of the broader Bitcoin mining sector.

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Crypto miners in Texas shut down operations as state experiences extreme heat wave

ERCOT reported that wind generation in Texas was “generating significantly less," potentially leaving the state unable to meet energy demands during triple-digit temperatures.

With many parts of Texas enduring days of temperatures well over 100 degrees Fahrenheit in July, many crypto miners have shuttered operations in anticipation of the state’s energy grid being unable to meet demand.

The Electric Reliability Council of Texas, or ERCOT, on Sunday called on Texas residents and businesses to conserve electricity with “record high electric demand” expected on Monday. According to ERCOT’s forecast, demand for electricity in Texas — due in part from running air conditioners amid extreme heat — could surpass the available supply.

The energy supplier’s prediction model showed demand could reach a record high of 79,615 megawatts (MW). While energy costs in Texas in June were reportedly lessened due to increased production from wind and solar, ERCOT reported on Sunday that wind generation was “generating significantly less than what it historically generated in this time period” — less than 8% of capacity when demand was predicted to be highest.

Many crypto miners in the Lone Star State have announced they have already scaled back or shut down operations in anticipation of demand Texas’ energy grid may not be prepared to handle.  In a Monday announcement on Twitter, crypto miner Core Scientific said it had powered down all its ASIC servers located in the state until further notice "to provide relief to people in Texas."

A Riot Blockchain spokesperson told Cointelegraph its Whinstone facility in Rockdale had curtailed energy use at ERCOT’s request during the summer months, consuming 8,648 MWh less. Argo Blockchain CEO Peter Wall also said that the firm had also reduced operations in the state — likely referring to its Helios facility in Dickens County.

"In times of high-power demand, we believe that people should take priority over crypto mining," Wall told Cointelegraph. "When ERCOT sends out a conservation alert, we take it seriously and curtail our mining operations. We did this again this afternoon, as did many of our peers in the mining space."

Related: Compass Mining loses facility after allegedly failing to pay power bill

Mining firms operating in Texas during the winter months have faced similar challenges since 2021, when freezing temperatures nearly caused the entire grid to shut down — instead, many parts of the state were without power for days. In February, Riot announced that it had shut down 99% of its operations in advance of a possible repeat winter storm, predicted to demand roughly 50,000 MW of electricity — 62% of what Texans may be attempting to draw from the grid on Monday.

ERCOT’s announcement came as many crypto mining firms continue to set up new operations in Texas, seemingly attracted by less regulatory oversight and lower energy costs. In June, Riot Blockchain said it planned to “ship the balance of its S19 miner fleet” from New York to Texas, and Switzerland-based crypto mining firm White Rock Management announced it will be expanding its operations to the United States — starting with Texas.

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Another miner cashes in: Argo Blockchain reports selling 637 BTC to pay debts

Argo reported it had an outstanding balance of $22 million on a loan from Galaxy Digital, from which it secured BTC-backed loan agreements in 2021.

Argo Blockchain has joined crypto mining firms including Bitfarms, Core Scientific and Riot Blockchain in selling part of its Bitcoin holdings.

In a Thursday blog post, Argo said it sold 637 Bitcoin (BTC) in June for an average price of $24,500 — roughly $15.6 million. The company planned to use the funds to reduce its debt to Galaxy Digital, from which Argo secured separate $20 million and $25 million BTC-backed loan agreements in 2021. The mining company reported that as of June 30, it had an outstanding balance of $22 million on the loan and holds “sufficient liquidity to avoid any potential liquidation of the BTC-backed loan if Bitcoin price continues to decline.”

“We have seen positive results from our risk management strategy through which we have reduced the company’s exposure to its BTC-backed loan, and we have hired a full-time derivatives trader,” said Argo CEO Peter Wall. “We believe the company is well positioned to navigate the current market conditions and further increase our efficiencies.”

Following the crypto sales, Argo said it held 1,963 BTC and BTC equivalents as of June 30, roughly 18% less than that reported in May. Other mining firms including Bitfarms, Core Scientific and Riot Blockchain all reported selling a significant percentage of their BTC holdings in June amid the market downturn as the price of the crypto asset dipped under $18,000.

Related: Bitfarms sold 3K Bitcoin as part of strategy to improve liquidity and pay debts

Argo reported that it had curtailed mining operations at its Helios facility in Dickens County, Texas in May following high temperatures — many parts of the state experienced days of triple-digit heat — leading to an “increased energy demand and higher electricity prices.” However, its June report showed an increase in mined BTC and BTC equivalents from 124 to 179 due, in part, to “greater uptime at the Helios facility.” Riot Blockchain also announced on Thursday plans to move some of its mining fleet from New York to Texas.

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