Fresno councilmembers blast Bitwise furloughs, push to cancel $1 million city contract

A $1 million agreement between the city of Fresno and Bitwise Industries is coming under more scrutiny after the Fresno-based technology and real-estate company abruptly furloughed about 300 employees in Fresno and about 600 more in other cities across California and the U.S.

Two Fresno City Council members said at a press conference Thursday that they’ll ask the council to terminate the contract and retrieve whatever money remains unspent from the first $500,000 payment that was made to Bitwise.

Councilmember Nelson Esparza said the city’s goals include “protecting any further taxpayer dollars from becoming collateral damage in this particular situation.”

“This resolution also ceases any further business with Bitwise or any of its affiliated entities until the present financial situation has been resolved,” Councilmember Mike Karbassi added.

Bitwise Industries co-CEOs Jake Soberal and Irma Olguin Jr. announced late Monday that the company was immediately putting all of its approximately 900 employees on furlough, including about 300 employees in the Fresno area and others across California and the U.S.

The grant agreement approved last fall with Bitwise awarded some of the city’s share of American Rescue Plan Act funds to Bitwise to develop a Digital Empowerment Center to assist small businesses in using technology tools to increase sales and commerce for their enterprises.

City Manager Georgeanne White said the resolution that will come to the City Council next week “will talk about trying to recapture any of the funds that have not yet been spent” of the first $500,000 payment. In its first required quarterly report, Bitwise accounted for about $120,000 in spending, leaving an estimated $380,000.

But the company’s next quarterly report isn’t due until mid-July, White added. “I suspect that a portion of that $380,000 has been spent,” she said, “but until we get that report that they have to document what they spent it on, we don’t know that right now.”

Karbassi said that any grant agreements the city has with businesses requires the return of unused money. For Bitwise, he added, “if they can’t perform, if they can’t show they’ve earned that money, they’re required to return it.”

Potential prosecution ahead for Bitwise?

Karbassi, Esparza and City Attorney Andrew Janz deftly avoided questions about the potential for legal action against Bitwise.

Janz said the city does not have standing to go to court on behalf of furloughed employees to pursue relief under state law that requires 60 days notice prior to mass layoffs. He added, however, that the city’s position is that what Bitwise leaders described as “furloughs” rather than “layoffs” do fall under the provisions of the Worker Adjustment and Retraining Notification, or WARN, Act.

“Under the WARN Act, there are certain remedies available to employees,” Janz said, including back pay for the 60-day notice period, reimbusement of out-of-pocket medical expenses that would otherwise be covered by health insurance, “and stiff penalties up to $500 a day that may be assessed per employee.”

Karbassi said that while he’s concerned about the workers and the lack of WARN notice to employees and the city, he’s also bothered by reports from Bitwise employees that since March, deductions from their paychecks for their 401(k) retirement savings plans had not been deposited with the plan administrator.

“I think it’s pretty clear that, the fact that the payroll deduction started happening in March … they had to be aware something was going on,” Karbassi said, “and we should have been informed so we’re not scrambling.”

“I can’t comment on whether anyone is criminal, but I can say that Mr. Soberal is very irresponsible,” Karbassi added.

Janz declined to comment on prospects for any prosecution related to the federal ARPA funds, instead saying those would be under the jurisdiction of federal agencies such as the Department of Justice or the Federal Bureau of Investigation.

“We’re taking a deep dive into the financial documents that they handed us,” Janz said.

Similarly, Janz told The Fresno Bee after the press conference that he would not address whether there is any criminal investigation that he’s aware of, or whether the city has received any inquiries from federal law enforcement officials regarding either the alleged 401(k) irregularities or the federal ARPA funds.

If the documents submitted by Bitwise for the ARPA grant indicate any problems, however, “we would forward that to the appropriate agency for prosecution,” Janz told The Bee.

What the law says about retirement plans

When Bitwise co-CEOs Jake Soberal and Irma Olguin Jr. announced the furloughs, they said the move was the result of what they called “unexpected” financial issues.

“Severe financial difficulty” for an employer is described by the U.S. Department of Labor’s Employee Benefits Security Administration as one of 10 warning signs of abuse of pension contributions.

The federal Employee Retirement Income Security Act of 1974, also known as ERISA, provides for both civil and criminal penalties for violations of retirement plan laws including embezzlement or theft from a pension plan or 401(k).

“There are a number of ways in which contributory plans can be vulnerable to criminal abuse,” the U.S. Department of Labor states in an online fact sheet. “Employers, or others with authority over plan assets, may convert employee payroll contributions for their own personal use or they may misapply employee contributions to cover business expenses.”

The Labor Department’s Employee Benefits Security Administration reports that “criminal prosecution of individuals who abuse their authority or control over contributory plans can result in severe criminal penalties, including imprisonment.”