In rural Wisconsin, former employees lift the curtain on a struggling cryptocurrency mine

Jacob Resneck and Zhen Wang Wisconsin Watch

Two recently unemployed Chinese citizens weigh their options in a cramped Park Falls, Wisconsin motel room not far from where they worked in a former paper mill now used to mine cryptocurrency.

One of them continues to nurse a stitched-up laceration on his left wrist from a work-related injury after he tripped while carrying a computer in August, just months before he was fired.

Speaking in their native Mandarin, Aaron and Justin – as they call themselves in English – came to the US on visas that allowed them to visit temporarily for “business activities” but not to take jobs in America. The two said they think they have a long-term future by helping a global company, SOS Limited, establish a cryptocurrency mining operation in North America, one of only two known facilities in Wisconsin.

What they found was a possible circumvention of immigration and labor laws. Wisconsin Watch does not publish their names because they are concerned about their legal status to work in the United States.

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The two said they were abruptly fired and spent weeks holed up in the motel until belatedly receiving their last month’s paycheck from their employer.

Their story is among several troubling signs that the company, which has just a handful of Park Falls-based employees, may not be providing the kind of economic boost the city was looking for when it lent $1 million to one of the current partnered with SOS Limited to relaunch the newspaper. mill.

Two other North American cryptocurrency mining sites announced by the company, including one in Marinette County, are also on lockdown. Over the past two years, SOS Limited has seen 94% of its share value canceled after raising more than $600 million from investors.

Cryptocurrency mining operations were banned in China in 2021 due to concerns over criminal activity and economic stability. They have since moved to countries with looser regulations such as the United States.

Cryptocurrencies take root in rural Wisconsin

For decades, Park Falls was a company town centered around the iconic paper mill built along the banks of the Flambeau River to harness hydroelectric power.

“He meant a lot to this community,” said John Tapplin, former president of the local union. “It used to be probably dumping about a quarter of a million dollars every two weeks into the economy.”

But the mill’s future has been uncertain since its longtime owner sold it in 2006. It ran for just over a decade, closing temporarily in 2019.

New Jersey-based businessman Yong Liu and several investors resumed operations the following year. The city issued a $1 million bridging loan to get things going, but ultimately the COVID-19 pandemic and low commodity prices killed the business.

The mill was auctioned off to a liquidator. A number of creditors, including the city of Park Falls, went to court over the payout. The judge ordered Liu’s business interests to pay off the remaining $828,108 of the loan.

Bitcoin mining comes to Park Falls

In early 2022, SOS Limited began installing computer racks inside the former paper mill to mine cryptocurrencies.

Cryptocurrencies, such as Bitcoin and Ethereum, have emerged over the past decade as a form of digital currency created by sophisticated computers solving complex computational problems to create unique strings of information. Mining operations compete to solve these complex problems, thus creating a digital currency that can be exchanged for hard currencies, including US dollars.

The Chinese government has long been hostile to digital currencies, in part because they are difficult to regulate, but also because computers use enormous amounts of energy, which has raised environmental concerns.

In a recent report, the White House estimated that the electricity powering US cryptocurrency production in 2021 was equivalent to the average annual greenhouse gas emissions of 3 million automobiles.

In Park Falls, the early 2022 arrival of a cryptocurrency operation received a cold reception.

“The city does not believe this use is the best use of the property in terms of jobs for our area, however, that is entirely up to the mill owner to decide,” City Administrator Brentt Michaelek said in the statement. Park Falls Facebook page.

SOS Limited embroiled in controversy

SOS Limited’s arrival in Wisconsin coincided with the company’s public acknowledgment that it was under investigation by the Securities and Exchange Commission.

The SEC served a subpoena on the company following fraud allegations raised by a pair of investment firms that advertise – and therefore profit from – publicly traded companies that allegedly mislead investors.

A company has reportedly provided SOS Limited with $20 million worth of computer equipment to mine cryptocurrencies was actually a shell company set up to give the illusion of progress.

“We believe the company’s claims regarding its alleged cryptocurrency mining purchases and acquisitions are highly problematic, if not completely fabricated,” Culper Research wrote in its Feb. 26, 2021 report.

SOS Limited executives and attorneys did not respond to emailed questions from Wisconsin Watch. But in a March 2021 web statement, the company denied what it calls “distorted, misleading and baseless claims” and pledged to address its criticisms.

“SOS upholds the integrity of the company and remains committed to transparency and the highest ethical standards,” he said.

The company agreed to pay $5 million to settle a class action lawsuit by former shareholders it had sued following allegations raised by the research firms. SOS Limited has not admitted any wrongdoing.

Wisconsin expansion was frozen

The Park Falls cryptocurrency operation quietly expanded in early 2022 as it began moving its equipment outside the confines of the mill’s thick walls.

Michaelek said officials noted the expansion had begun without the owner withdrawing any permits.

The company came back with an application, but was rejected in August because there was no technical survey on how much noise the outdoor operation would generate.

The vote came two months after the company released a short video, a rare public statement about its Wisconsin business. It showed the inside of the Park Falls operation and was evidence of cryptocurrency mining at the first of three US sites it announced in April 2021.

That announcement detailed a partnership with US-based holding companies with energy deals in Park Falls; Stacyville, Maine; and Niagara, Wisconsin.

“If and when operations of the site begin, the company expects it will create significant employment opportunities (sic) in the United States,” the company wrote in an April 2021 news release.

Unclear crypto future

But Wisconsin experts are skeptical that cryptocurrency mining operations will ever offer meaningful employment after they are operational.

“It’s analogous to other things like data centers,” said Tom Still of the Wisconsin Technology Council, a Madison-based impartial advocate for the state’s technology industry. “You know, there’s a lot going into them in terms of building them, but not necessarily a lot of work afterwards.”

Cryptocurrency production is largely unregulated in the United States, and it is unknown how many mines are in operation in Wisconsin. Still said he knows of only one other in the state: Digital Power Optimization’s facility about 50 miles southeast of Eau Claire. The operation runs on renewable energy.

Alex Stoewer, chief operating officer of New York-based Digital Power Optimization, said his company’s partnership model with renewable energy producers keeps it profitable.

“Despite difficulties in the broader cryptocurrency market, this deal continues to generate positive cash flow, much of which is reinvested in a maintenance plan for the hydroelectric infrastructure, canal and dam,” he said in a statement. written statement.

SOS’s expansion has slowed elsewhere

Aside from Park Falls, SOS Limited’s other two projects in Maine and Niagara, Wisconsin have yet to materialize. City of Niagara Administrator Audrey Fredrick said there has been no activity on the site of a former paper mill since April 2021.

He said there were reports of people traveling to the city near Michigan’s Upper Peninsula to see if anything was up.

“People have been trying to hack into the site,” Fredrick said. “Like, investors who felt cheated, and obviously the site is safe because there’s a landfill… and dangerous because there’s a dam there – but no, there’s nothing.”

SOS Limited’s US partner at the three sites is Liu, who had owned the Park Falls plant for nearly two years. Reached briefly on his cell phone, he told Wisconsin Watch that so far only the Park Falls site has broken ground. There have been technical hurdles in Maine and his company has yet to finalize a power purchase agreement for the other Wisconsin site, he said.

Immigration questions loom

When asked about employing Chinese nationals without work visas in Wisconsin, Liu said the men were hired by clients in China who lease capacity to mine cryptocurrencies.

“They’re not our employees,” he said.

A contract signed by Aaron and reviewed by Wisconsin Watch shows that he was employed by Shenzhen Beibeizhu Technology, also known as BBZ. The company is a major supplier of equipment to SOS Limited and some shareholders have questioned the true nature of the relationship between the two companies in online forums.

Aaron has also signed a contract with the US branch of SOS Limited. It was only after the two were fired that Aaron learned that SOS Limited’s US contract had not been signed by the company.

Ming Luo, the Park Falls site supervisor, questioned Liu, who did not return subsequent calls and messages.

Erin Barbato, director of the Immigrant Justice Clinic at the University of Wisconsin Law School, said the two Chinese nationals are at risk of being arrested by federal authorities for working without the proper permits. But she said there is evidence to suggest they were lured under false pretenses by offering a contract with the US company, meaning employers could also be held liable.

“In a way, they’re both at risk because they’ve both potentially done things that are against our immigration laws,” Barbato said.

The nonprofit Wisconsin Watch (www.WisconsinWatch.org) partners with WPR, PBS Wisconsin, other media outlets, and the University of Wisconsin-Madison School of Journalism and Mass Communication. All work created, published, posted or disseminated by Wisconsin Watch does not necessarily reflect the views or opinions of UW-Madison or its affiliates.

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