Investors who bet big on Malachi Salcido, a self-described bitcoin mining magnate, now claim the Washington state man busted his own business, and may have cost them millions of dollars.
A group of investors who sunk $8.5 million into Salcido’s bitcoin mining company, StepChange, claim the Wenatchee man misappropriated, embezzled or otherwise misspent $2.4 million in company money over three years. At one bitcoin mine that he owns, Salcido charged StepChange — a company that he held a controlling interest in — rents that were more than nine times what he was paying on the mortgage.
Earlier this month, the investors sued Salcido and his companies in an effort to get some of their money back and force a detailed accounting of StepChange’s spending, said Susan Preston of Seattle Angel Fund, a Seattle venture capital firm that was one of the largest investors in StepChange’s Series A funding round in late 2017.
“Management and transparency to the shareholders has been abandoned and lost,” Preston said.
A spokesperson for Salcido Enterprises said the company is “committed to maintaining sound, legal, and ethical business practices” and denied breaking any agreements with the investors.
“We have followed the guidelines specified in all formal agreements and have provided documentation and disclosure information in accordance with SEC requirements,” the spokesperson said by email. “We dispute the allegations, we remain committed to our values, and we hope to resolve this matter soon.”
An engineer by trade, Salcido, 46, got into the bitcoin business in 2013. By 2018, he claimed to control about 4% of the world’s mining capacity and had been presented on CNBC and elsewhere as a poster boy for the bitcoin “gold rush” in energy rich rural America. He posed for photos in December with U.S. Rep. Kim Schrier at a mealworm farm heated by StepChange’s bitcoin-mining servers.
Bitcoin miners like Salcido run data centers dedicated to managing the flow of the cryptocurrency. The process is energy intensive and requires a great deal of computing power, but miners are paid back with newly created bitcoins and through fees.
In the lawsuit, Salcido’s investors claim he egregiously inflated StepChange’s expenses on personnel and property, to their detriment.
By July 2018, Salcido was charging $57,000 a month in management fees to company accounts, according to the lawsuit, well beyond the $16,500-a-month rate Salcido’s investors contend would’ve been appropriate.
Those charges and a host of others were hidden by a web of commingled bank accounts, phony invoices and false accounting records created to conceal “mismanagement, fraudulent accounting, embezzlement, self-dealing and breaches of fiduciary duties,” attorneys for the investors argued in the lawsuit, which was filed March 1 in Washington state court.
The investors — a group that includes funds and individuals in Luxembourg, Sweden and Seattle — contend Salcido overbilled for rent on two data centers used in the bitcoin mining operation.
Salcido drew $16,500 a month to rent a property he owned on which his mortgage payment was $1,823 a month, according to the lawsuit. The investors claim Salcido then took a bizarre legal action — he evicted StepChange.
Attorneys for Salcido’s primary business, Salcido Enterprises, filed an unlawful detainer action against StepChange in 2020 claiming StepChange owed $439,250 in back rent on an East Wenatchee data center, according to the lawsuit. StepChange, which Salcido also controlled, failed to respond to the lawsuit and lost by default.
At a second data center in an East Wenatchee business park, Salcido billed $13,900 a month for a property he’d been renting for $4,250 monthly, according to the lawsuit.
The investors contend Salcido failed to notify them of the nearly half-million-dollar judgment. That, they say, was one of several instances in which he declined to share crucial information with them.
According to the lawsuit, Salcido didn’t disclose that investor money would be used to pay $807,211 to cover fees owed to two other companies. Attorneys for the investors contend the money was added to unrelated bills covering the costs of building the second data center.
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Payments were made to both companies, one of which is currently suing StepChange. The investors claim Salcido hid that 2018 lawsuit from them even as he spent hundreds of thousands of dollars fighting it. Brought by a consultant, the lawsuit, which remains unresolved, contends Salcido failed to pay finder’s fees.
Salcido also allegedly failed to tell investors he owned a property that StepChange spent $209,556 developing, an omission attorneys for the investors contend was self-dealing.
The investors have asked that StepChange be placed in receivership so a detailed review of its books can be conducted without Salcido’s interference. They contend they are also due compensation for what they describe as misrepresentations designed to gain their investments.
“Our immediate goal is for an independent third-party receiver to take control of the company’s operations with court oversight to conduct a thorough analysis and restore company operations consistent with the rights and expectation of the shareholders,” Seattle Angel Fund’s Preston said by email.
Salcido has not yet responded to the lawsuit in Chelan County Superior Court. A company spokesperson declined to respond to detailed questions about the allegations.
