SBI Crypto Sues Riot Blockchain-Owned Data Center for Fraud, Negligence

Bitcoin miner SBI Crypto Co., (SBIC) is suing Whinstone US, a data center based in Rockdale, Texas, for misrepresenting its readiness to host a large-scale mining operation and for millions of dollars in damages as a result of delays and substandard conditions. 

The charges SBI Crypto is pursuing against the data center include “fraud, fraudulent inducement of contract, fraud by nondisclosure, negligent bailment, and breach of the Hosting Service Agreement,” according to the lawsuit filed yesterday with the United States District Court for the Western District of Texas, Waco Division. 

Riot Blockchain acquired Whinstone US for 11.8 million in common stock and $80 million in cash in May 2021.

Among the numerous misrepresentations, SBIC maintains Whinstone did not conform to industry standards and the facility had frequently informed the miner that building permits, certifications, and power contracts were not needed for the facility to fulfill its end of the Hosting Service Agreement. 

SBIC signed with the facility in late October 2019, but the lack of documentation later became a stumbling block when it came to light in the months prior to operations beginning in June 2020 that documentation was, in fact, required to turn on the power. 

Under the initial agreement, Whinstone assured the miner it had “secured for commercial access up to one (1) gigawatt of aggregated electricity that can be delivered to the Data Center, of which a portion of that may be incrementally offered to [SBIC].”

SBIC alleges Whinstone had not secured the gigawatt of electricity for its Rockdale facility and did not begin signing power contracts “until just before operations began in the summer of 2020.” 

SBIC also claims that Whinstone never fulfilled its promise to deliver 20,000 mining machines to the site, going from a fleet of 16,200 in September 2020, down to 14,600 in April 2021. 

A representative of SBIC inspected the site in June 2021, and when they opened one of the machines in front of Whinstone co-founder and CIO Ashton Harris, they saw “high levels of dust and corrosion build-up.” 

During this same visit, it was allegedly observed that Whinstone had provided other mining customers’ equipment with dust filters yet failed to do the same for SBIC’s equipment, an omission made more egregious for the miner by the fact that “on more than one occasion, Whinstone confirmed with SBIC that dust filters had been installed on SBIC’s equipment.”

SBIC’s lawsuit lists multiple other ways in which Whitstone misrepresented its services. 

Decrypt reached out to all concerned parties but did not receive an immediate response. 

Is Texas still open for Bitcoin mining?

The state of Texas has so far been one of the most welcoming regions in the world for miners to set up shop, partly due to an abundance of renewable energy, and partly to the fact that miners can cut their consumption when the grid is experiencing peak levels of demand.

However, a bill tabled in March, Texas Senate Bill 1751—which seeks to limit incentives to Bitcoin miners that scale up and down their power consumption in line with the grid’s needs—passed unanimously (10–0) in a state Senate committee vote on Tuesday.  

The bill awaits approval from the federal Senate before it heads to Texas’ House of Representatives and then Governor Greg Abbott’s desk. 

Texas Blockchain Council President Lee Bratcher believes it can pass Senate, but not the House. Earlier this week, he told Decrypt that local miners should still be concerned by the political developments.

“SB-1751 is a concerted effort by established industry groups in the ERCOT marketplace to tilt the playing field in their favor because they cannot compete with Bitcoin miners when it comes to load flexibility,” wrote Bratcher in an email.