The complaint centered on SOS’s purported recent entry into the bitcoin mining business. For example, on Jan. 21, 2021, SOS claimed to have purchased over 15,000 mining rigs from HY International Group New York (“HY”) for $20 million, and a month later, claimed that 5,000 mining rigs had already gone live.
The complaint alleged that, in truth, SOS was a fraudulent stock promotion scheme that has concealed related party transactions, and has misrepresented the type and/or existence of bitcoin mining rigs SOS claimed to have purchased earlier this year.
Investors allegedly began to learn the truth on Feb. 26, 2021, when Hindenburg Research and Culper Research released scathing commentary on SOS, claiming that SOS was an intricate “pump and dump” scheme that used fake addresses and doctored photos of crypto miners to create an illusion of success. The analysts pointed out that the company’s SEC filings, for instance, listed a hotel room as the firm’s headquarters. The analysts also questioned whether SOS had actually purchased the claimed mining rigs, as HY appears to be a fake shell company. Most damaging, the analysts alleged that the photos SOS had published of their “mining rigs” were phony. Culper noted that the photographed SOS “miners” weren’t the A10 Pros the company claimed to own. Instead, they were pictures of Avalon’s A1066 miners. Hindenburg further found the original images from SOS’s site belonged to a legitimate rival, RHY.
After the class period, on Mar. 9, 2021 SOS admitted that rig seller HY was formed to preserve the “confidentiality” of a Chinese seller of used mining rigs.
Then, on Mar. 12, 2021 Culper published a follow-up report, claiming that SOS board member Wenbin Wu is directly linked to HY and arguing that SOS’s supposed desire for “‘confidentiality’” is in fact a thinly-veiled excuse for fraud via an undisclosed related party transaction.”
U.S. District Court Judge Robert B. Kugler approved a $5 million settlement.
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