By Amy Castor and David Gerard
Just as Northern Data was putting together its artificial intelligence IPO get-rich scheme, two former executives of its US subsidiary, CEO Joshua Porter and CFO Gulsen Kama, filed a wrongful termination lawsuit. They allege that the company has been lying to its investors and auditors, evading taxes, and is “borderline insolvent.” [Amended complaint, PDF; case docket]
Porter and Kama filed the complaint in San Diego, California, in April. The filing became public on June 21, after Tether had taken a majority stake in Northern Data and just after news of the company’s $16 billion IPO plans made headlines.
Portions of the complaint have been redacted at Northern Data’s request. Porter and Kama are reserving the right to challenge the redactions. [filing, PDF]
We must stress — all of this is presently just allegations. None of this is findings of fact. When reading the following, treat every sentence as prefixed with “it is alleged.”
Joshua Porter’s allegations
In April 2022, Joshua Porter was hired as COO of Northern Data’s US division. Eight months later, he became president and CEO, a promotion that made him privy to the company’s backroom financial matters.
In 2022, Porter was working on a deal with a “Texas-based company for hosting services” — we presume Whinstone, which operates a data center in Rockdale. Northern Data sold Whinstone to bitcoin miner Riot in April 2021, but continued to use Whinstone to host its mining rigs.
Porter told Northern Data they should take their crypto mining profits in the US and pay taxes on the gains to the IRS.
Aroosh Thillainathan, CEO of parent company Northern Data AG, decided against paying US taxes on the mining gains — even though the company’s accountant, Deloitte, had refused to write an opinion letter supporting the decision.
Thillainathan directed Northern Data US to hold all its mined bitcoin and not sell it so that it would not have to report the gains.
When Porter got promoted to CEO, he uncovered more issues. Northern Data AG owed $30 million to Germany’s Federal Central Tax Office (BZSt) — and had additional liabilities of almost $8 million. Meanwhile, it only had $17 million cash on hand and a monthly burn rate of $3 million to $4 million.
As CEO, Porter had to sign off on legal documents and represent the company — and its solvency. He was unwilling to lie on behalf of Northern Data and put his own career at risk.
So in February 2023, Porter expressed his concerns to Northern Data’s leadership team, including Thillainathan.
Porter expected Northern Data to deal with their “rampant tax evasion during previous years.” Instead, Northern Data took action to “avoid US taxes, or failing to report US taxable operations, at least for tax year 2021.”
Porter estimates that Northern Data owed the IRS tens of millions of dollars. So if Northern Data was forced to pay their taxes, they would be insolvent.
Around this time, Thillainathan stopped responding to Porter’s messages. Porter thinks he was being “iced out because of his complaints and concerns.”
By early March 2023, Porter realized the decision to use the “offshore entity” (presumably Northern Data AG), and not recognize or pay any US taxes from the US-based crypto mining, came directly from Thillainathan.
When word got out that Porter was considering taking the matter to Northern Data’s board of directors, he was promptly fired. The company claimed this was because the position of US COO was being eliminated — apparently unaware that Porter was now the US CEO, not COO.
Gulsen Kama’s allegations
Gulsen Kama was hired as CFO of Northern Data’s North American subsidiaries in July 2022. She became Group Deputy CFO in September 2022.
Kama handled all interactions with KPMG, the auditor working on Northern Data’s 2022 financials. KPMG had already handled the company’s 2020 and 2021 audits.
In February 2023, KPMG “raised concerns about the liquidity position of the company being a going concern” and asked for documentation showing the company’s financial well-being before signing off on the audit — which sounds like KPMG suspected Northern Data was broke.
Kama worried how the company was representing its financial health to KPMG. She raised concerns about “the accounting and securities fraud” she was finding to Northern Data’s leadership team, to no avail — “because the CEO and COO were perpetuating the accounting and securities fraud.”
The global CEO is Aroosh Thillainathan and the global COO is Rosanne Kincaid-Smith.
Thillainathan called the legal and finance teams “road blockers.” He thought they only got in the way of taking advantage of new opportunities. He told Kama they were mere “support functions” whose purpose was only to execute deals negotiated by the CEO and COO.
As of May 2023, the KPMG engagement still had not been signed. Thillainathan told Kama to look into other auditors for the 2022 and 2023 audits, else “her head was on the chopping block”:
While he said to look at the top 20-25 ranked auditors; he expressed that he did not care if they were ranked that high, because no one cares who the auditors are. He claimed KPMG was being difficult and unreasonable, but the underlying command was that he wanted a company that would perform the audit with no questions asked.
On June 7, 2023, Kama issued a special “hold notice” to the accounting and finance department to ensure the preservation of all historical records.
She was terminated the next day “because other staff members allegedly complained about how she allegedly treated them.”
Her firing came just before a July 12, 2023, shareholders’ meeting “at which resolutions about authorizing additional equity capital diluting the existing shareholders were voted on by only 20% of shareholders who signed up to vote.” [press release, archive]
Northern Data had a habit of creating piles of money out of thin air by simply firing up the stock printer:
Northern Data has repeated this scheme numerous times since April 12, 2023, just raising capital through additional authorized shares (a move that was approved by only few shareholders who personally benefitted from these transactions), followed by issuing hyped-up press releases to drive up the stock price.
Kama also complains that Northern Data misled investors and misappropriated her image by publishing an investor presentation in April 2023 with financials, her name, her title as CFO, and her picture — but she says she was not asked to review the presentation and didn’t approve it.
At last, the 2022 show
KPMG finally published its audit of Northern Data’s 2022 financials in March 2024, though it noted “material uncertainty about the group’s ability to continue as a going concern” due to Northern Data’s dependence on bitcoin mining and a Tether shareholder loan. [press release, archive; 2022 annual report, PDF]
Northern Data published its 2023 audited financials on July 12, 2024. Its new auditor is Liebhart & Kollegen — a single-office law firm in Stuttgart, Germany, with less than 15 team members. [press release, archive; 2023 annual report, PDF]
Northern Data says its sales could triple in 2024 from its cloud push — with possible sales of 200 million euros to 240 million euros for the full year, up from 77.5 million euros in 2023. Isn’t “could” a great word? [investor presentation, PDF; Bloomberg, archive]
What happens next?
Porter and Kama are seeking compensation and damages.
Their suit contains some allegations of highly illegal behavior — but at present, this is an employment lawsuit. Such suits frequently end in a confidential settlement.
It’s not yet known if the relevant regulators are looking into Porter and Kama’s allegations. BaFin, the German financial regulator, is not known for going out and doing things — but it’s fined Northern Data previously for shenanigans.
The suit slowly progresses. Northern Data has filed a motion to dismiss, of course. The hearing for the motion is August 19. If this is rejected, we should expect months of discovery and depositions. [Motion to Dismiss, PDF; Declaration of Darja Busch, PDF; Declaration of Keiko Kojima, PDF]
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