Cryptocurrency miner BitNile Inc. is suing current and former executives at Compute North, an Eden Prairie-based operator of data centers whose parent company recently filed for Chapter 11 bankruptcy protection, claiming Compute North defrauded BitNile out of more than $40 million in equipment and cash.
In the federal lawsuit filed Tuesday, Las Vegas-based BitNile alleges executives with Compute North accepted more than $40 million worth of BitNile cryptocurrency equipment at one of their data centers, despite knowing that creditors were already moving to seize the facility.
In the lawsuit, BitNile claims it also sent $2 million in advance payments to Compute North.
Listed defendants in the lawsuit include three current and former C-level executives at Compute North: Former CEO David Perrill, the company’s chief commercial officer, Kyle Wenzel, and Drake Harvey, who served as the company’s COO and is now listed as its president.
Compute North could not be reached for comment. A lawyer representing BitNile said the company declined to comment.
The lawsuit comes at the heels of Compute North’s parent company, Compute North Holdings Inc., filing for Chapter 11 bankruptcy protection in September, amid a collapse in cryptocurrency prices. A company spokesperson told the Business Journal at the time that the filing was to help stabilize the business and begin restructuring. At the same time, Compute North’s co-founder, Perrill, stepped down from his role as CEO.
Compute North stated that the bankruptcy filing was the result of several events, including unfavorable market conditions, supply chain issues and challenges in its relationship with a primary lender, Generate Lending, an affiliate of Generate Capital.
Compute North asserted that Generate took over control of its material assets, impeding its operations, after the lender said that Compute North defaulted on payments. The company has disputed many of the lender’s assertions of default.
(Generate, which provided $300 million in debt to Compute North earlier this year, could not be reached for comment. In September the company stated in a court hearing that it didn’t cause Compute North’s bankruptcy but moved to protect its collateral, Bloomberg reported.)
Generate’s moves to take over Compute North’s assets, including a subsidiary and its Wolf Hollow Facility, a data center located in Granbury, Texas, were cited in Tuesday’s lawsuit filing by BitNile.
The lawsuit says Generate’s takeover occurred three days before BitNile and Compute North entered into a “Master Agreement” in August, with Compute North agreeing to “host and support BitNile’s mining equipment” and go online by Oct. 1.
“Defendants knew that Compute North had no ability to carry out its promises to BitNile, since that facility was controlled by Generate. More important, once Generate controlled the Wolf Hollow Facility, Compute North had no right to issue contracts for the facility. The Master Agreement was a worthless piece of paper,” the lawsuit reads.
The lawsuit claims that Perrill, Harvey and Wenzel instructed the Compute North sales team “to continue to collect deposits and sign contracts, even though they knew Compute North had no ability to perform.”
According to the suit, Generate has taken the position that it is not bound by the Master Agreement and is asking for new terms.
“As a result, BitNile has suffered, and continues to suffer, millions of dollars in damages,” the suit reads. Generate also not be reached for comment.
Representing BitNile is Thomas Fleming and Kerrin Klein, of New York City-based Olshan Frome Wolosky, and Clay Taylor, of Edina-based Taylor Fricton.
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