{"id":26853,"date":"2024-08-01T21:44:08","date_gmt":"2024-08-01T21:44:08","guid":{"rendered":"https:\/\/davidgerard.co.uk\/blockchain\/?p=26853"},"modified":"2024-08-02T16:49:48","modified_gmt":"2024-08-02T16:49:48","slug":"tether-and-northern-data-part-iii-the-whistleblowers","status":"publish","type":"post","link":"https:\/\/davidgerard.co.uk\/blockchain\/2024\/08\/01\/tether-and-northern-data-part-iii-the-whistleblowers\/","title":{"rendered":"Tether and Northern Data. Part III: the whistleblowers"},"content":{"rendered":"<p><em>By <strong>Amy Castor<\/strong> and <strong>David Gerard<\/strong><\/em><\/p>\n<ul>\n<li aria-level=\"1\">Part I: <a href=\"https:\/\/davidgerard.co.uk\/blockchain\/2024\/07\/14\/tether-and-northern-data-part-1-the-miners-tale\/\">the history of Northern Data<\/a><\/li>\n<li aria-level=\"1\">Part II: <a href=\"https:\/\/amycastor.com\/2024\/07\/22\/tether-and-northern-data-part-ii-the-partnership\/\">Northern Data\u2019s peculiar partnership with Tether<\/a><\/li>\n<\/ul>\n<p>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 \u201cborderline insolvent.\u201d [<a href=\"https:\/\/storage.courtlistener.com\/recap\/gov.uscourts.cacd.923837\/gov.uscourts.cacd.923837.25.0_1.pdf\"><i>Amended complaint<\/i><\/a><i>, PDF; <\/i><a href=\"https:\/\/www.courtlistener.com\/docket\/68469691\/joshua-porter-v-northern-data-us-inc\/\"><i>case docket<\/i><\/a>]<\/p>\n<p>Porter and Kama filed the complaint in San Diego, California, in April. The filing became public on June 21, after T<a href=\"https:\/\/amycastor.com\/2024\/07\/22\/tether-and-northern-data-part-ii-the-partnership\/\">ether had taken a majority stake<\/a> in Northern Data and just after news of the company\u2019s $16 billion IPO plans made headlines.<\/p>\n<p>Portions of the complaint have been redacted at Northern Data\u2019s request. Porter and Kama are reserving the right to challenge the redactions. [<a href=\"https:\/\/d1e00ek4ebabms.cloudfront.net\/production\/uploaded-files\/031142763996-958f2169-6ec1-480c-adc0-8adcdd2fd8e7.pdf\"><i>filing<\/i><\/a><i>, PDF<\/i>]<\/p>\n<p>We must stress \u2014 all of this is presently just allegations. None of this is findings of fact. When reading the following, treat every sentence as prefixed with \u201cit is alleged.\u201d<\/p>\n<h3>Joshua Porter\u2019s allegations<\/h3>\n<p>In April 2022, Joshua Porter was hired as COO of Northern Data\u2019s US division. Eight months later, he became president and CEO, a promotion that made him privy to the company\u2019s backroom financial matters.<\/p>\n<p>In 2022, Porter was working on a deal with a \u201cTexas-based company for hosting services\u201d \u2014 we presume Whinstone, which operates a data center in Rockdale. Northern Data sold Whinstone to <a href=\"https:\/\/amycastor.com\/2024\/03\/04\/bitcoin-mining-riot-platforms-10-k-is-full-of-tentacles\/\">bitcoin miner Riot<\/a> in April 2021, but continued to use Whinstone to host its mining rigs.<\/p>\n<p>Porter told Northern Data they should take their crypto mining profits in the US and pay taxes on the gains to the IRS.<\/p>\n<p>Aroosh Thillainathan, CEO of parent company Northern Data AG, decided against paying US taxes on the mining gains \u2014 even though the company\u2019s accountant, Deloitte, had refused to write an opinion letter supporting the decision.<\/p>\n<p>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.<\/p>\n<p>When Porter got promoted to CEO, he uncovered more issues. Northern Data AG owed $30 million to Germany\u2019s Federal Central Tax Office (BZSt) \u2014\u00a0and 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.<\/p>\n<p>As CEO, Porter had to sign off on legal documents and represent the company \u2014 and its solvency. He was unwilling to lie on behalf of Northern Data and put his own career at risk.<\/p>\n<p>So in February 2023, Porter expressed his concerns to Northern Data\u2019s leadership team, including Thillainathan.<\/p>\n<p>Porter expected Northern Data to deal with their \u201crampant tax evasion during previous years.\u201d Instead, Northern Data took action to \u201cavoid US taxes, or failing to report US taxable operations, at least for tax year 2021.\u201d<\/p>\n<p>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.<\/p>\n<p>Around this time, Thillainathan stopped responding to Porter\u2019s messages. Porter thinks he was being \u201ciced out because of his complaints and concerns.\u201d<\/p>\n<p>By early March 2023, Porter realized the decision to use the \u201coffshore entity\u201d (presumably Northern Data AG), and not recognize or pay any US taxes from the US-based crypto mining, came directly from Thillainathan.<\/p>\n<p>When word got out that Porter was considering taking the matter to Northern Data\u2019s board of directors, he was promptly fired. The company claimed this was because the position of US COO was being eliminated \u2014 apparently unaware that Porter was now the US CEO, not COO.<\/p>\n<h3>Gulsen Kama\u2019s allegations<\/h3>\n<p>Gulsen Kama was hired as CFO of Northern Data\u2019s North American subsidiaries in July 2022. She became Group Deputy CFO in September 2022.<\/p>\n<p>Kama handled all interactions with KPMG, the auditor working on Northern Data\u2019s 2022 financials. KPMG had already handled the company\u2019s 2020 and 2021 audits.<\/p>\n<p>In February 2023, KPMG \u201craised concerns about the liquidity position of the company being a going concern\u201d and asked for documentation showing the company\u2019s financial well-being before signing off on the audit \u2014 which sounds like KPMG suspected Northern Data was broke.<\/p>\n<p>Kama worried how the company was representing its financial health to KPMG. She raised concerns about \u201cthe accounting and securities fraud\u201d she was finding to Northern Data\u2019s leadership team, to no avail \u2014 \u201cbecause the CEO and COO were perpetuating the accounting and securities fraud.\u201d<\/p>\n<p>The global CEO is Aroosh Thillainathan and the global COO is Rosanne Kincaid-Smith.<\/p>\n<p>Thillainathan called the legal and finance teams \u201croad blockers.\u201d He thought they only got in the way of taking advantage of new opportunities. He told Kama they were mere \u201csupport functions\u201d whose purpose was only to execute deals negotiated by the CEO and COO.<\/p>\n<p>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 \u201cher head was on the chopping block\u201d:<\/p>\n<blockquote><p>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.<\/p><\/blockquote>\n<p>On June 7, 2023, Kama issued a special \u201chold notice\u201d to the accounting and finance department to ensure the preservation of all historical records.<\/p>\n<p>She was terminated the next day \u201cbecause other staff members allegedly complained about how she allegedly treated them.\u201d<\/p>\n<p>Her firing came just before a July 12, 2023, shareholders\u2019 meeting \u201cat which resolutions about authorizing additional equity capital diluting the existing shareholders were voted on by only 20% of shareholders who signed up to vote.\u201d [<a href=\"https:\/\/northerndata.de\/en\/investor-relations\/news\/northern-data-ag-holds-extraordinary-general-meeting-1\"><i>press release<\/i><\/a><i>, <\/i><a href=\"https:\/\/archive.is\/N7zSO\"><i>archive<\/i><\/a>]<\/p>\n<p>Northern Data had a habit of creating piles of money out of thin air by simply <a href=\"https:\/\/davidgerard.co.uk\/blockchain\/2024\/07\/14\/tether-and-northern-data-part-1-the-miners-tale\/\">firing up the stock printer<\/a>:<\/p>\n<blockquote><p>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.<\/p><\/blockquote>\n<p>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 \u2014 but she says she was not asked to review the presentation and didn\u2019t approve it.<\/p>\n<h3>At last, the 2022 show<\/h3>\n<p>KPMG finally published its audit of Northern Data\u2019s 2022 financials in March 2024, though it noted \u201cmaterial uncertainty about the group\u2019s ability to continue as a going concern\u201d due to Northern Data\u2019s dependence on bitcoin mining and a Tether shareholder loan. [<a href=\"https:\/\/northerndata.de\/en\/investor-relations\/news\/northern-data-group-publishes-consolidated-financial-statements-for-the-year-ended-december-31-2022\"><i>press release<\/i><\/a><i>, <\/i><a href=\"https:\/\/archive.is\/vBdml\"><i>archive<\/i><\/a><i>; <\/i><a href=\"https:\/\/amycastor.com\/wp-content\/uploads\/2024\/07\/nd_ar2022_en.pdf\"><i>2022 annual report<\/i><\/a><i>, PDF<\/i>]<\/p>\n<p>Northern Data published its 2023 audited financials on July 12, 2024. Its new auditor is Liebhart &amp; Kollegen \u2014 a single-office law firm in Stuttgart, Germany, with less than 15 team members. [<a href=\"https:\/\/northerndata.de\/en\/investor-relations\/news\/northern-data-group-publishes-consolidated-financial-statements-for-the-year-ended-december-31-2022\"><i>press release<\/i><\/a><i>, <\/i><a href=\"https:\/\/archive.is\/vBdml\"><i>archive<\/i><\/a><i>; <\/i><a href=\"https:\/\/amycastor.com\/wp-content\/uploads\/2024\/07\/ndg_annual_report_2023_en.pdf\"><i>2023 annual report<\/i><\/a><i>, PDF<\/i>]<\/p>\n<p>Northern Data says its sales could <i>triple<\/i> in 2024 from its cloud push \u2014 with possible sales of 200 million euros to 240 million euros for the full year, up from 77.5 million euros in 2023. Isn\u2019t \u201ccould\u201d a great word? [<a href=\"https:\/\/northerndata.de\/hubfs\/CMD%202024%20Q1\/Capital%20Markets%20Day%20Q1%202024.pdf\"><i>investor presentation<\/i><\/a><i>, PDF; <\/i><a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2024-07-12\/northern-data-forecasts-sales-to-triple-on-cloud-computing-push\"><i>Bloomberg<\/i><\/a><i>, <\/i><a href=\"https:\/\/archive.is\/MxrvI\"><i>archive<\/i><\/a>]<\/p>\n<h3>What happens next?<\/h3>\n<p>Porter and Kama are seeking compensation and damages.<\/p>\n<p>Their suit contains some allegations of highly illegal behavior \u2014 but at present, this is an employment lawsuit. Such suits frequently end in a confidential settlement.<\/p>\n<p>It\u2019s not yet known if the relevant regulators are looking into Porter and Kama\u2019s allegations. BaFin, the German financial regulator, is not known for going out and doing things \u2014 but it\u2019s <a href=\"https:\/\/davidgerard.co.uk\/blockchain\/2024\/07\/14\/tether-and-northern-data-part-1-the-miners-tale\/\">fined Northern Data previously<\/a> for shenanigans.<\/p>\n<p>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. [<a href=\"https:\/\/amycastor.com\/wp-content\/uploads\/2024\/08\/motion-to-dismiss.pdf\"><i>Motion to Dismiss<\/i><\/a><i>, PDF; <\/i><a href=\"https:\/\/amycastor.com\/wp-content\/uploads\/2024\/08\/declaration-of-darja-busch.pdf\"><i>Declaration of Darja Busch<\/i><\/a><i>, PDF; <\/i><a href=\"https:\/\/amycastor.com\/wp-content\/uploads\/2024\/08\/declaration-of-keiko-kojima.pdf\"><i>Declaration of Keiko Kojima<\/i><\/a><i>, PDF<\/i>]<\/p>\n<hr \/>\n<p>If you&#8217;ve enjoyed this series on Northern Data, please sign up on Patreon to support our work! Here&#8217;s <a href=\"https:\/\/www.patreon.com\/amycastor\">Amy&#8217;s Patreon<\/a> and <a href=\"https:\/\/www.patreon.com\/davidgerard\">here&#8217;s David&#8217;s.<\/a><\/p>\n<p>$5-and-up patrons are invited to join our <a href=\"https:\/\/davidgerard.co.uk\/blockchain\/2024\/07\/30\/video-qa-for-patrons-thursday-8-august-at-1600-utc\/\">Video Q&amp;A<\/a> on Thursday August 8!<\/p>\n<p>If you like this post, please <b><i>tell at least one other person<\/i><\/b>. It really helps!<\/p>\n<br><br><div align=\"center\"><p><a href=\"https:\/\/www.patreon.com\/bePatron?u=8420236\"><img src=\"https:\/\/davidgerard.co.uk\/blockchain\/wp-content\/uploads\/2021\/10\/become_a_patron_button.svg\" alt=\"Become a Patron!\" title=\"Become a Patron!\" width=217 height=51><\/a><br><p style=\"align:center;\" class=\"patreon-badge\"><i>Your subscriptions keep this site going. <a href=\"https:\/\/www.patreon.com\/bePatron?u=8420236\">Sign up today!<\/a><\/i><\/p><\/div>","protected":false},"excerpt":{"rendered":"<p>When your former CEO sues you, that\u2019s not a good sign.<\/p>\n","protected":false},"author":1,"featured_media":26854,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1],"tags":[3515,3825,21,837,1238,3830,3829,1018,3844,1717,3759,3843,39,3833],"class_list":["post-26853","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorised","tag-ai","tag-aroosh-thillainathan","tag-bitcoin","tag-deloitte","tag-germany","tag-gulsen-kama","tag-joshua-porter","tag-kpmg","tag-liebhart-kollegen","tag-mining","tag-northern-data","tag-rosanne-kincaid-smith","tag-tether","tag-whinstone"],"jetpack_featured_media_url":"https:\/\/davidgerard.co.uk\/blockchain\/wp-content\/uploads\/2024\/08\/northern-data-kincaid-smith.jpg","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/posts\/26853","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/comments?post=26853"}],"version-history":[{"count":14,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/posts\/26853\/revisions"}],"predecessor-version":[{"id":26868,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/posts\/26853\/revisions\/26868"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/media\/26854"}],"wp:attachment":[{"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/media?parent=26853"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/categories?post=26853"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/tags?post=26853"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}