A Swiss company is suing an Austin-based manufacturer of computers that sift for bitcoins, alleging that the business had long been on the brink of insolvency but continued to take payments for orders it knew it could not fulfill.
Hannacott S.A. is seeking more than $250,000 in damages from CoinTerra Inc. for deceptive trade practices. The firm claims it bought 25 machines from CoinTerra that were never delivered or refunded, and its lawyers say it was likely not the only client defrauded.
“CoinTerra seemed to keep speculating on bitcoin and taking money from customers in an attempt to turn the company around,” said Austin attorney Steve Skarnulis, who is representing Hannacott. “Basically, they were turning their customers into investors. We hope to find out how many of these orders they got, and I hope CoinTerra does the right thing and refunds the money.”
CoinTerra, which filed for bankruptcy Saturday, has since closed its Austin offices. CEO Ravi Iyengarwas, who Travis County records show has been served with the lawsuit, could not be reached for comment.
Legal experts say the case captures concerns over the volatility of bitcoin and other digital currencies that have come under increasing scrutiny by securities and financial regulators. The Texas State Securities Board last year placed such currencies on its list of top investor threats, warning their value could rise and fall dramatically in a short period of time.
Bitcoin is obtained through “mining,” which requires specialized computer hardware and software that run algorithms and solve complex mathematical problems to generate the digital currency.
CoinTerra sold machines for that process that could sit on a desk and cost anywhere from $1,000 to $6,000 or more. It also ran its own computers and sold contracts to customers, giving them rights to a portion of the firm’s bitcoin payouts.
Yet its financial troubles coincide with a fall in the bitcoin network’s “price,” which has dropped from more than $1,000 per unit last year to about $250 after a number of high-profile losses, including the bankruptcy of the Mt. Gox exchange and the theft of the more than $400 million in bitcoins it held.
CoinTerra was sued in California last year by customers who alleged its low-quality equipment caused them profit losses. And it had been tussling with a Utah data center that had prohibited it access to its facility this month, alleging the Austin company had failed to pay electricity, rent and cabinet space, according to records filed in federal court.
Its bankruptcy petition states that between 200 and 999 creditors are owed between $10 million and $50 million.
Hannacott, registered in Paradiso, Switzerland, was not refunded for the equipment worth more than $157,000, according to its lawsuit filed this month in Travis County. Instead of a refund, the records state, CoinTerra engaged in bait and switch tactics, asking Hannacott to accept other products or a bitcoin mining contract.