Hut 8 Investors Reach $2.35 Million Settlement Over US Bitcoin Merger Claims

Hut 8 (NASDAQ: HUT) has agreed to pay $2.35 million to settle a proposed securities class action brought by investors who accused the bitcoin miner of misleading the market about operational problems tied to its 2023 merger with U.S. Bitcoin Corp.

The proposed settlement, filed Monday in the U.S. District Court for the Southern (NYSE: SO) District of New York, would resolve claims on behalf of investors who purchased or acquired Hut 8 securities in the U.S. or on a U.S.-based exchange between Feb. 13, 2023, and Jan. 18, 2024. The settlement still requires preliminary and final approval from U.S. District Judge Victor Marrero.

The case centered on Hut 8’s all-stock merger with U.S. Bitcoin Corp., or USBTC, which closed in November 2023 and created the current Hut 8 Corp. Investors alleged that Hut 8 overstated the benefits of the transaction and failed to adequately disclose energy and internet connectivity problems at King Mountain, a Texas bitcoin mining joint venture in which USBTC held a 50% interest before the merger.

Hut 8 did not admit wrongdoing under the proposed settlement and has denied that it violated the law or caused losses to investors.

The lawsuit followed a January 2024 short-seller report by J Capital Research that challenged Hut 8’s statements about the USBTC merger and alleged problems at King Mountain. Hut 8’s share price fell after the report, and investors later sued, asserting claims under the Securities Act of 1933 and the Securities Exchange Act of 1934.

The litigation had already been narrowed before the settlement. In September, Judge Marrero dismissed the investors’ Exchange Act claims and also rejected Securities Act claims tied to alleged misstatements about USBTC’s financial condition before the merger. But he allowed part of the Securities Act case to proceed over alleged omissions related to risks at King Mountain.

Those surviving claims focused on whether Hut 8’s merger materials adequately disclosed problems at a facility that was material to USBTC’s mining operations. Bitcoin mining and hosting businesses are heavily dependent on reliable power and high-speed internet access, making the King Mountain allegations central to the remaining case.

In asking the court to preliminarily approve the settlement, lead plaintiff Abhishek Maheshwari said the deal provides investors with immediate recovery while avoiding the risk that Hut 8 could still defeat the case. The memorandum said the defendants had indicated they would seek judgment on the pleadings by challenging traceability, arguing that registered and unregistered shares were commingled after the merger, making it difficult for aftermarket purchasers to trace their shares to the registration statement.

Plaintiff counsel estimated that the $2.35 million settlement represents about 19.6% of the maximum recoverable damages of roughly $12.08 million. The filing described that recovery as above recent averages for Securities Act-only settlements.

The proposed settlement was reached after mediation. According to the filing, the parties took part in a full-day virtual mediation session on May 7 before JAMS mediator Jed Melnick. The session did not immediately produce an agreement, but the parties later accepted a mediator’s proposal on May 13 and entered into a formal stipulation dated June 18.