HUT
​
Get Ready for the Pump and Dump:
​
Management hiding stock ownership through undisclosed related party,
​
​a stock-promoter cabal, and a host of left-for-dead assets

Initiation Report: January 18, 2024

J Capital Research ("J Cap") is a stock-research company. J Cap has analyzed the U.S.-listed company Hut 8 Corp. (“HUT”) and is hereby publishing the outcome and the conclusions of our analysis, based on publicly available information. We may be short shares of HUT, and, for this reason, there might be a conflict of interest.

• Hut 8 recently merged with U.S. Bitcoin Corp. (USBTC). We uncover that USBTC is backed by promoters with a history of legal trouble. In its short existence, USBTC appears to have defaulted on a loan and paid two government fines, one for committing securities violations.1  
• One of USBTC’s largest shareholders is an undisclosed related party.
• Our diligence highlights USBTC’s core asset, purchased from bankrupt Compute North, has historically failed to provide energy and high-speed internet—unquestionably the two most important inputs for mining Bitcoin.  Compute North’s bankruptcy docket showed that no one else wanted the assets, aside from one bankrupt entity, which bid up the price of USBTC.
• One person highly familiar with USBTC told us, “without the merger, [USBTC] would have done a structured bankruptcy.” Why then did HUT pay $745 mln2 to acquire this company and its planned payments? Even worse, we estimate a value for USBTC that’s as much as 75% less. Typically, such egregious over-payments occur only when management is being enriched.
• USBTC’s co-founder/CEO (now HUT CSO/director) is a 30-year-old used-car salesman from Vancouver whose history is littered with involvement in SEC-defined pump-and-dumps, sporting share-price declines of 83%. Its other founder, now HUT’s president, has seemingly abandoned several failed start-ups.
• We reveal a relationship between USBTC and the SEC-charged Honig group stock promoters.  The SEC accused the Honig group of engaging in ”classic pump and dump” and “fraudulent schemes.”3 Stocks the group has been associated with are down an average of 89% from peak.
• We link the USBTC CEO to multiple Honig group promotes. Under that CEO, Michael Ho, USBTC gave one affiliate a consulting agreement despite “never receiving a resume [or] otherwise vetting her credentials.”4 We believe that, at worst, this was a plan to steal from shareholders or, at best, a bad process.
• The Honig group members were early investors in USBTC. USBTC was investigated and fined over violations of securities law alleging that they hid the identity of stock promoters.4
• In a DOJ plea agreement, the CEO of YesDTC, an earlier Honig group promote, explained how the scheme worked: “Honig wanted to use promotions to drive up the price of YesDTC shares and then sell his shares.” 
• USBTC management hired a 13-year-old “chief meme officer” with family ties to the Honig group and the disgraced Miami mayor, who is under FBI investigation for alleged bribes and more. Investors need to ask why the company employed a child with connections to stock promoters.
• We have linked another group of likely stock promoters,  the DesLauriers twins,5 to both of HUT and USBTC’s CEOs. We believe that the DesLauriers may also be behind the promotion scheme.

Limited lock-ups and undisclosed related-party shell corps lead us to believe insiders may soon sell shares.

• No. 1: Note that USBTC co-founders locked up only a fraction of their shares.
• No. 2: The related party holding shares is the USBTC CEO’s life partner. She and the CEO appear to have gone to lengths to hide their relationship. Her LinkedIn page never mentions her “investment firm,” and it uses what is likely to be a fake a name. We suspect that the firm could be a shell corp for the USBTC CEO and that the partners could dump shares quietly on unsuspecting shareholders.
• No. 3: Two promoters sold their stock to “other equity holders of USBTC,” though Jonathan Honig, Barry Honig’s brother, remains a shareholder. We think it’s likely that “other equity holders of USBTC” may be a reference to additional shell corp games. Once again, this seems to be happening to set up a future share dump.
• Hut 8 came to market via reverse merger on the little-known NEX board of the TSXV, home to many scams and frauds.
• Hut 8 employed Redchip, a PR firm from the Chinese RTO era, as its IR firm. Certain Redchip clients’ securities registrations have been revoked, and many others are down by upwards of 95%.6
• Hut 8’s former auditor, Dale Matheson Carr-Hilton LaBonte LLP, was sanctioned for “violating PCAOB rules and standards” in 2021, when it was still conducting Hut 8’s audits.6 Other Dale Matheson clients’ stock prices have declined more than 95%.
• Hut 8’s North Bay mining facility has been non-operational for an extended period of time, and problems at its Drumheller facility “have been causing miners to fail.” 
• We think Hut 8’s HPC and USBTC’s AI ventures are nothing more than buzzwords. Hut 8’s HPC business is floundering, and USBTC is spending $40 mln on “AI equipment” from an unnamed provider. Given this company’s record of poor disclosure, we believe shareholders should ask who is selling this equipment.
• The combined entity is a result of a failed merger process in which no other party contacted was interested in merging with either Hut 8 or USBTC. Why did other parties walk away but this one did not?
• Behind the promoter network is a slew of left-for-dead assets. The combined company has an industry-low efficiency rate and, post halving, will produce Bitcoin at a loss of close to $20,000 per Bitcoin at current spot prices.
• USBTC’s managed services business appears to be at significant risk. It is currently being sued for patent infringement by Lancium, which has been successful in its other lawsuits.
• Major dilution ahead: with an estimated $21.4 mln of cash7 and its Bitcoin subject to the company’s HODL strategy, we expect the company to raise at least $200 mln in the near term just to stay in business.
• Management clearly hasn’t learned from its mistakes. The company already appears to have defaulted once in its short history and yet has taken on another mountain of debt.​

​Ultimately, we strongly believe that shareholders are likely to feel the pain of being on the wrong side of an over-levered pump-and-dump, only to be left holding the most inefficient Bitcoin miner, which is unprofitable even at a Bitcoin price of over $60,000.

1. Apparently defaulted loan was for Pecos, Texas site. See page 185 HUT S-4: https://www.sec.gov/Archives/edgar/data/1964789/000110465923115414/tm235928-38_s4a.htm. Fine of $1 mln to the City of Niagara and an order to halt operations due to noise pollution: https://www.coindesk.com/policy/2023/04/05/us-bitcoincorp-expected-to-settle-with-city-to-resume-mining-in-niagara-falls/ Fine of $1 mln to the state of New York in partial settlement of a case charging USBTC made an illegal securities offering. See page 54 HUT S-4:
https://www.sec.gov/Archives/edgar/data/1964789/000110465923115414/tm235928-38_s4a.htm
2 Inclusive of $495 in stock, $160 mln in debt (per S4 February 13, 2023), $40 mln in planned AI purchases, and $50 mln in planned capital expenditure that has not been detailed.
3. See “SEC Charges Microcap Fraudsters for Roles in Lucrative Market Manipulation Schemes,” September 7, 2018 https://www.sec.gov/news/press-release/2018-182
4 See page 8, Massachusetts Consent Order, March 22, 2022, https://www.sec.state.ma.us/divisions/securities/download/20220322090340072.pdf
5 See https://www.newswire.ca/news-releases/former-ceo-of-i3-interactive-sues-for-wrongful-dismissal-885971437.html,
https://twitter.com/TimmyAAPL/status/1274831993004580866, https://iknnews.com/cannabis-wheaton-cbw-v-a-total-scam/
6. See PCAOB, https://pcaob-assets.azureedge.net/pcaob-dev/docs/default-source/enforcement/decisions/documents/105-2021-021-dale.pdf?sfvrsn=6cf66cdb_4
7. pro forma for the recent $7.1 mln land and substation acquisition

Use of J Capital Research reports is limited by the Terms of Use on its website, which can be found here. These Terms of Use govern current reports published by J Capital Research and supersede any prior Terms of Use for older reports of J Capital Research, which you may download from the J Capital Research website.

Download our full report