BITF in Hot Water: Bitfarms Ltd. Faces Explosive Class Action Lawsuit - What Investors Need to Know

Another day, another crypto lawsuit—this time Bitfarms Ltd. (BITF) takes center stage as shareholders gear up for battle. The mining firm joins the growing list of crypto enterprises facing legal heat, proving the industry's 'wild west' era isn't quite over.

Why the lawsuit matters: While details remain scarce, class actions rarely pop up without smoke—and where there’s smoke in crypto, there’s usually a dumpster fire. Allegations could range from disclosure failures to operational missteps, but one thing’s certain: lawyers smell blood in the water.

Market déjà vu: Bitcoin miners already face enough headwinds—energy costs, halving pressures, and now legal grenades. Will BITF’s hash rate survive the courtroom drama? Cynics would say this is just Wall Street’s latest excuse to short crypto stocks while pretending to care about ‘shareholder rights’.

Stay tuned. In crypto, the only certainty is volatility—and lawsuits apparently.

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Bitfarms is a Canadian Bitcoin mining company that is transitioning its focus to building and managing data center infrastructure for high-performance computing (HPC) and artificial intelligence (AI) projects. The company claims to use renewable and alternative power sources for its operations to optimize costs and enhance sustainability.

The company’s failure to inform investors about its deficient internal controls over financial reporting is at the heart of the current complaint.

Bitfarms’ Misleading Claims

According to the lawsuit, Bitfarms and three of its current and/or former senior officers (the Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the efficacy of the company’s internal controls over financial reporting, and ancillary issues, from SEC filings and related material.

During the Class Period, the company repeatedly stated that its management, including the CEO and CFO, have assessed the effectiveness of the Registrant’s internal control over financial reporting and found them to be effective as of December 31, 2022.

Additionally, in a May 15, 2023 press release, the former CEO noted that the company was maintaining financial and operating discipline and was able to achieve its target of reaching 6.0 exahash per second (EH/s) in Q3 FY23, ahead of the previously projected Q4 FY24.

Finally, in an August 8, 2023 press release, the company mentioned that its management, led by the CEO and CFO, had established internal controls over financial reporting (ICFR). These controls were meant to help ensure that the company’s financial reports are reliable, that its financial statements are prepared correctly for external purposes, and that they are in accordance with IFRS rules.

However, subsequent events (mentioned below) reveal that the defendants failed to implement adequate internal controls over financial reporting, which ultimately led to the restatement of their historical financial statements.

Plaintiffs’ Arguments

The plaintiffs maintain that the defendants deceived investors by lying and withholding critical information about the business practices and prospects during the Class Period.

Importantly, the defendants are accused of misleading investors about deficient internal controls and procedures related to the categorization of proceeds derived from the sale of digital assets as cash flows from operating activities rather than from investing activities.

The information became clear on December 9, 2024, when the company issued a press release announcing that it WOULD need to restate previously issued financial statements due to the above-mentioned erroneous reporting. Particularly, Bitfarms will have to restate its consolidated financial statements for the fiscal years ending December 31, 2023 and 2022 and the related management’s discussion and analysis (MD&A) for the year ended December 31, 2023.

Additionally, the company will need to restate unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2024 and 2023 and the related MD&A for the three and nine months ended September 30, 2024. These restatements were required to correct “a material error in the classification of proceeds derived from the sale of digital assets.” Following the news, BITF stock fell 6.6% the same day and a further 6.1% on December 10.

To conclude, the company misled investors regarding the potential impact on its financial results from the incorrect classification of proceeds from the sale of digital assets under cash FLOW from operating activities. Owing to these issues, BITF stock has declined 74.5% in the past year, causing massive damage to shareholder returns.