Ben Strack

<div id="highlights-block_6259bfba81a9a" class="highlights">
 <ul>
 <li>Stronghold’s IPO statement omitted to flag potential difficulties obtaining miners, law firm alleges</li>
 <li>The mining company reported a fourth-quarter net loss of $17.5 million</li>
 </ul>
 
</div>



A class action lawsuit against Stronghold Digital Mining is brewing after the company reported fourth quarter earnings results that fell short of expectations.&nbsp;



The company, which converts coal waste into energy to mine bitcoin, <a href="https://cms.blockworks.co/stronghold-digital-mining-ipo-opens-55-8-above-expected-stock-price/" target="_blank" rel="noreferrer noopener">went public in October</a>. Stronghold sold 7,690,400 shares of Class A common stock at a price of $19 per share as part of its initial public offering (IPO), receiving net proceeds of approximately $132.5 million.



Stronghold was set to use proceeds from the IPO for general purposes, including acquisitions of miners and power-generating assets to mine more bitcoin, according to an SEC <a href="https://www.sec.gov/Archives/edgar/data/0001856028/000156459021050660/sdmi-s1a.htm" target="_blank" rel="noreferrer noopener">filing</a>.



But the IPO&#8217;s registration statement was “materially false and misleading,” according to a Friday statement by law firm Robbins Geller Rudman &amp; Dowd LLP.



The law firm alleges that the statement did not mention that contracted suppliers were likely to miss anticipated delivery quantities and deadlines, and that Stronghold would experience difficulties obtaining miners outside of confirmed purchase orders.



If included, such information may have alerted investors of the “significant risk” that Stronghold would not expand its mining capacity as expected and likely experience losses, the firm argued in the statement.



A Stronghold spokesperson did not immediately return Blockworks’ request for comment. 



Stronghold’s 2021 fourth-quarter adjusted earnings-per-share showed a loss of $0.52 a share, the company <a href="https://cms.blockworks.co/stronghold-loses-25-after-hours-as-q4-earnings-revenue-miss-mark/" target="_blank" rel="noreferrer noopener">reported last month</a>. It posted a fourth quarter net loss of $17.5 million.



CEO Gregory Beard said during the firm’s latest earnings call that the results are “not representative of the potential we aim to deliver.”



Stronghold executives attributed the losses to delivery delays, noting that it received roughly 3,300 of the total 15,000 miners ordered from Canada-based MinerVa Semiconductor Corp, despite a delivery deadline of Dec. 31, 2021.



The stock price fell roughly 32% following the earnings report, according to Robbins Geller Rudman &amp; Dowd.



Anybody who bought Stronghold’s stock in connection with the IPO may seek to become the lead plaintiff, who will act on behalf of all other class members of the suit. Lead plaintiff motions must be filed with the court by June 13. 



The class action lawsuit against Stronghold, which commenced Thursday, charges the company and some of its top executives, as well as the IPO&#8217;s underwriters.



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Stronghold Mining Faces Lawsuit Over Earnings Miss

Casey Wagner

<div id="highlights-block_624ca1f36ab61" class="highlights">
 <ul>
 <li>Stronghold Digital Mining says it has already been over-reporting when it comes to climate-related disclosures</li>
 <li>One Democratic senator argues the rule puts unfair scrutiny on the fossil fuel industry</li>
 </ul>
 
</div>



The US Securities and Exchange Commission’s recent <a href="https://www.sec.gov/news/press-release/2022-46" target="_blank" rel="noreferrer noopener">proposal</a> that publicly traded companies should disclose greenhouse gas emissions and climate-related risks that would impact business has environmentalists and politicians torn, but one cryptocurrency mining company is welcoming it with open arms.



“Looking at this [rule proposal,] I think we are already doing most of this,” said Gregory Beard, co-chairman and CEO of Stronghold, a crypto mining company that uses energy from coal waste to mine bitcoin. “The risk section of our filings includes climate-related risks.”&nbsp;



The proposed rule changes would require publicly traded businesses to disclose information about how climate-related risks have had or are likely to have a material impact on their business.&nbsp;



“Our operations involving the combustion of coal refuse are subject to a number of risks arising out of the threat of climate change, which could result in increased operating and capital costs for us and reduce the extent of our business activities,” Stronghold’s <a href="https://www.sec.gov/Archives/edgar/data/0001856028/000156459021055305/sdmi-s1.htm" target="_blank" rel="noreferrer noopener">S-1 filing</a>, which was submitted to the SEC in November 2021, reads. 



Additionally, the SEC proposes that registrants disclose information about direct greenhouse gas emissions and indirect emissions from purchased electricity or other forms of energy.&nbsp;



“If there were a way to do this without emitting carbon into the air at all, we would do it, even if it wasn&#8217;t the most economic thing to do,” Beard said. “We&#8217;re looking at technologies and investments to reduce our carbon emissions and lower our carbon footprint.”&nbsp;



The proposed rule changes come even as institutional investors’ concerns over environmental issues appear to be <a href="https://cms.blockworks.co/does-crypto-have-a-place-in-an-esg-portfolio/" target="_blank" rel="noreferrer noopener">easing</a>.



Environmentally friendly mining is a key part of Stronghold’s business model and mission, Beard added. Stronghold owns and operates the Scrubgrass Plant, a coal-refuse power generation facility in Pennsylvania. Coal refuse is classified under Pennsylvania law as a Tier II alternative energy source, similar to large-scale hydropower, Beard said.



“We believe our power generation facility is environmentally beneficial because we remove legacy coal refuse and facilitate the remediation of land and water, with power generation being the byproduct of this activity,” the filing notes.&nbsp;



The SEC’s three Democratic commissioners voted to approve the proposed rule and the sole Republican commissioner voted against it. SEC Chair Gary Gensler said the rule would provide “consistent, comparable and decision-useful information” for investors looking to invest consciously.



One Democratic senator, Joe Manchin from West Virginia, criticized the rule for unfairly targeting fossil fuel companies in an <a href="https://www.manchin.senate.gov/imo/media/doc/SEC%20ClimateDisclosure%20Letter.pdf?cb" target="_blank" rel="noreferrer noopener">open letter</a> to Gensler, released on Monday. Manchin said the proposed reporting requirements are unnecessary because most companies already release sustainability reports, although the content of these reports varies between companies and can be difficult to verify. 



While Beard did not comment on his personal opinion of the rule, he did acknowledge that the proposal did not come as a surprise. He also noted that cryptocurrency mining companies face an uphill battle when it comes to changing the rhetoric around the industry, and greater reporting requirements may help their case.



“On a federal level, you can always expect changes in regulations, and I would expect changes in regulations around climate,” Beard said. “I think there are no public crypto mining boards that aren&#8217;t aware of this issue and aren’t trying to get access to more clean power.”



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Crypto Mining Company Welcomes SEC Environmental Reporting Proposal

<div id="highlights-block_62437d40f0d3a" class="highlights">
 <ul>
 <li>Stronghold has received approximately 3,300 of a total 15,000 miners ordered, despite an initial delivery deadline of Dec. 31, 2021</li>
 <li>Stronghold remains committed to environmentally friendly mining operations, executives insisted</li>
 </ul>
 
</div>



Stronghold Digital Mining (ticker: SDIG) lost more than 25% in after hours trading after the ​​crypto mining company that uses coal waste energy to mine bitcoin reported lower-than-expected fourth quarter earnings.&nbsp;



Stronghold’s 2021 fourth quarter adjusted earnings-per-share shows a loss of $0.52 a share, according to the company’s <a href="https://ir.strongholddigitalmining.com/news-releases/news-release-details/stronghold-digital-mining-reports-fourth-quarter-and-year-end" target="_blank" rel="noreferrer noopener">report</a>. Analysts predicted a gain of $0.002.



Revenue rose from $900,000 in the fourth quarter of 2020 to $17 million in 2021, missing analysts’ estimated $21.9 million. The revenue increase in 2021 “is primarily attributable to higher energy generation and crypto asset mining revenues,” the report said.&nbsp;



The company posted a net loss for the fourth quarter of 2021 of $17.5 million, compared to net income of $200,000 for the same quarter in 2020. Stronghold’s net loss for the full year of 2021 came in at $27.3 million, compared to a net loss of $100,000 in the prior year period.



“[I] want to be clear to everyone, our recent results are not up to the expectations we have at Stronghold and are not representative of the potential we aim to deliver,” Gregory Beard, co-chairman and CEO of Stronghold, said during the company’s earnings conference call Tuesday afternoon. “I firmly believe Stronghold has the foundational pieces to be a successful and differentiated company.”



Stronghold executives said losses can be attributed to delivery delays. Hash rate has been negatively impacted by delays in miner deliveries, the report noted.



To date, Stronghold has received approximately 3,300 of the total 15,000 miners ordered from MinerVa, a Canada-based semiconductor corporation, despite an initial delivery deadline of Dec. 31, 2021. Stronghold is now expecting miners to be delivered by April 30, 2022, executives said.&nbsp;



“We are also revisiting our miner procurement strategy to put a greater emphasis on spot purchases over forward deliveries,” Beard said. “We believe deliveries have an elevated risk profile given potential delays to delivery timing and uncertainty related to bitcoin fundamentals at time of receipt.”  



Stronghold made its <a href="https://cms.blockworks.co/stronghold-digital-mining-ipo-opens-55-8-above-expected-stock-price/" target="_blank" rel="noreferrer noopener">Nasdaq debut</a> in October 2021 at an opening price of $26.50 — 55.8% higher than the anticipated range between $16 and $18 price per share.&nbsp;



Executives remained positive, insisting that the company’s core mission remains intact.&nbsp;



“​​We are focused on improving the environment,” Beard said. “Our vertically integrated business model offers low costs, we have significant scale and our management team is highly aligned with over 50% ownership in the company.”



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.