Riot Rebuts Northern Data’s Claims of Accounting Errors in Acquisition of Bitcoin Mining Firm Whinstone

News | July 8, 2024 By:

On Monday, June 24, 2024, Riot Platforms, Inc. and Whinstone US, Inc. filed their response in the Delaware Court of Chancery to a lawsuit brought against them by Northern Data AG related to the 2021 acquisition of Whinstone by Riot.

Northern Data, a German technology company, had owned Whinstone, which operates one of the largest Bitcoin mining facilities in North America in Rockdale, Texas. In April 2021, Northern Data agreed to sell Whinstone to Riot, a publicly traded cryptocurrency and blockchain company, for $80 million in cash plus 11.8 million shares of Riot stock.

As is typical in acquisition deals, the purchase price was subject to post-closing adjustments based on Whinstone’s financial figures at closing. The parties’ Stock Purchase Agreement outlined a process for Riot to provide a proposed final closing statement calculating any adjustments within 75 days of closing. Northern Data then had 60 days to review and raise any objections. If the parties could not resolve disagreements through negotiations, the SPA provided for an independent accounting expert to make a final determination on disputed issues.

In August 2021, Riot provided its proposed closing statement, claiming it had overpaid for Whinstone by around $27 million. Northern Data objected to this and said it was owed an additional $1 million. The parties were unable to agree on several accounting issues through negotiations.

Seeking to resolve the disputes, Riot sued Northern Data in Delaware Chancery Court last year. As part of settling that lawsuit in March 2023, the parties agreed to submit the purchase price adjustment matters to an independent accounting expert for a final decision.

In its June 2024 lawsuit, Northern Data argues the accounting expert committed “manifest errors” in its June 2023 determination. Specifically, Northern Data contends the expert disregarded provisions of the SPA requiring any decision to be made consistently with an illustrative closing schedule annexed to the agreement. Northern Data says this resulted in an improper $22.5 million accounting change related to revenue recognition for work done for a major Whinstone customer.

Northern Data further argues the expert exceeded its jurisdiction by including in its determination two disputed items that were actually alleged breaches of representations and warranties, not proper purchase price adjustments. These totaled around $4 million.

In answering the new complaint, Riot and Whinstone deny all allegations of manifest error or that the expert exceeded its authority. They argue the expert resolved all disputed issues properly submitted by the parties under the settlement agreement and the SPA’s processes. Riot and Whinstone maintain Northern Data is simply dissatisfied with the outcome that left it owing approximately $27 million to Riot.

Please contact BlockTribune for access to a copy of this filing.