WENATCHEE — Investors in a local cryptocurrency mining company say they were swindled out of millions of dollars by Salcido Enterprises.

The plaintiffs allege in a lawsuit filed in Chelan County Superior Court that Salcido Enterprises “improperly used, misappropriated, embezzled and converted” more than $2.4 million for the personal benefit of Malachi Salcido and Salcido Enterprises.

Salcido denied the accusations and said costs charged to the investors, which they perceive as too high, were necessary during what was a down market.

“It is unfortunate that the investors’ representatives have chosen to make accusations that are either blatantly false or the twisting of facts in a deceptive manner,” Malachi Salcido said in the statement Thursday to The Wenatchee World.

Salcido and co-defendants Salcido Enterprises, Nick Warner, the chief operating officer of Salcido Enterprises, and their spouses filed an answer to the civil lawsuit on Wednesday and denied wrongdoing. Salcido entered the cryptocurrency industry in 2013 and Salcido Enterprises now has several facilities in the region, including Cashmere and East Wenatchee. They’ve managed StepChange since January 2018.

The plaintiffs are StepChange Data Sidecar Fund, Seattle Angel Fund III, Shellcap SA, Hestia Finance SARL, Karl Anders Aidanpä and Sven Hemmingsson.

The group invested $8.5 million into StepChange Data, a cryptocurrency mining company managed by Salcido Enterprises, in 2017.

The lawsuit, filed March 1, says Salcido Enterprises, which was tasked with managing StepChange, overcharged investors to manage the company.

The plaintiffs say in the lawsuit they were overcharged management fees by Salcido. They paid $57,000 a month for Salcido to manage StepChange but the plaintiffs estimate management costs should have only totaled about $16,500 a month.

Salcido Enterprises leases a property at the Pangborn Airport Business Park East Wenatchee from the Port of Douglas County for $4,250 a month and subleases the same property to StepChange for $13,900 a month, according to the lawsuit.

The investors say they were overcharged rent at another property.

Salcido Enterprises owns a property on Urban Industrial Way north of East Wenatchee for which it pays a mortgage of $1,823 a month. Salcido Enterprises charges StepChange $16,500 a month to rent the property.

Salcido Enterprises filed for an unlawful detainer against StepChange in 2020 claiming StepChange owed $439,250 in unpaid rent. The lawsuit against StepChange, which Malachi Salcido also controlled, went unanswered and StepChange lost by default.

The investors also say they weren’t made aware of a dispute between Salcido Enterprises and another partner group, Cascade Bay LLC.

In 2018, StepChange paid almost $150,000 in legal fees owed by Salcido Enterprises when Salcido Enterprises was sued by Cascade Bay, a construction company. These fees were not disclosed to StepChange shareholders, according to the lawsuit.

The lawsuit asks a judge to appoint a new manager of StepChange to take control of finances and business operations and to “unwind and forensically trace phony and misrepresented” financial records. It adds that a new manager is also needed to pursue claims against Salcido Enterprises.

Aside from asking the court to appoint new management, the plaintiffs are alleging fraudulent misrepresentation, neglectful misrepresentation, breach of fiduciary duties and violations of the state Securities Act.

Salcido in his statement explained that when StepChange was formed in December 2017, Bitcoin prices were at an all time high of about $20,000 and the company was looking to build two crypto mines in Douglas County.

But the crypto market took a downturn and by 2019 Bitcoin was valued at $3,300, which amounts to an 84% decline from the initial investment.

At that time, they’d completed one mining center and had begun developing a second, larger center.

“Like any other emerging, speculative market, bitcoin is very volatile and a high-risk investment. We believe that the best way forward is through,” Salcido said.

Salcido Enterprises brought a proposal to StepChange investors in late 2019: the second center could be completed with no additional capital investment from existing shareholders

“Unfortunately, the investor representatives balked at this critical juncture, refused to proceed with the deal at the conclusion of due diligence, and threatened legal action if the majority of the Board voted to proceed,” Salcido said.

The second site was not completed. He said if it were approved, the center would likely have been operational by November 2020 not long before the current cryptocurrency boom. Bitcoin was valued at nearly $59,000 Thursday afternoon.

“The result would have been a very valuable second location, independently appraised at a valuation of over $100 million,” Salcido said. “The sites would have been generating several million dollars of revenue per month at current market conditions.”

Shareholders would have had the option to sell the site or to hold on to the site for additional potential returns.

“Due to this critical judgment error on the part of the investors’ representatives, the returns realized by the Plaintiffs and Salcido Enterprises never materialized as projected,” Salcido said. “By mid-2020, StepChange Data was losing money each week, bringing revenue below the direct cost of electricity and other variable costs incurred in mining operations.”

He said Salcido Enterprises continued to cover operational costs of StepChange Data, despite the lack of return on investment but was eventually unable to continue to incur the losses.

“We were forced to issue notices of default under the terms of various contractual agreements, which prompted these claims,” Salcido said referencing the lawsuit. “It is unfortunate that the investors’ representatives have chosen to make accusations that are either blatantly false or the twisting of facts in a deceptive manner.”

He called the situation “deeply regrettable” and added that Salcido Enterprises followed all formal agreements and provided documentation and disclosure information in accordance with Securities and Exchange Commission requirements.

“We dispute the allegations, we remain committed to our values, and we hope to resolve this matter soon,” Salcido said.

A hearing is scheduled to be heard by Judge Lesley Allan on Friday.

Pete O’Cain: 664-7152

ocain@wenatcheeworld.com or

on Twitter@peterocain