Hut 8 to pay $2.35M to settle merger securities lawsuit

Hut 8 has agreed to pay $2.35 million to settle a proposed securities class action that accused the bitcoin miner of misleading investors about operational issues linked to its 2023 merger with U.S. Bitcoin Corp. The settlement would cover purchasers of Hut 8 securities between Feb. 13, 2023, and Jan. 18, 2024, and still requires preliminary and final approval from U.S. District Judge Victor Marrero in the Southern District of New York.

The suit focused on Hut 8’s all-stock merger with U.S. Bitcoin Corp., which closed in November 2023 and formed the current Hut 8 Corp. Plaintiffs said the company overstated the benefits of the transaction and failed to disclose energy and internet connectivity problems at King Mountain, a Texas bitcoin mining joint venture in which U.S. Bitcoin Corp. held a 50% interest before the merger. The complaint argued those issues were material because bitcoin miners and hosting services depend on reliable power and high-speed internet.

The litigation began after a January 2024 short-seller report questioned Hut 8’s statements about the merger and raised concerns about conditions at King Mountain. Hut 8’s share price fell after the report and investors filed suit, asserting claims under the Securities Act of 1933 and the Securities Exchange Act of 1934. In September, Judge Marrero dismissed the Exchange Act claims and rejected certain Securities Act claims tied to alleged pre-merger misstatements about U.S. Bitcoin Corp.’s financial condition, but he allowed part of the Securities Act case to continue on alleged omissions related to King Mountain.

Under the proposed settlement, Hut 8 does not admit liability. The filing quotes lead plaintiff Abhishek Maheshwari as saying the agreement “provides investors with immediate recovery while avoiding the risk that Hut 8 could still defeat the case.” Plaintiff counsel estimated the $2.35 million settlement is about 19.6% of the maximum recoverable damages of roughly $12.08 million.

The parties reached the settlement after mediation. They took part in a full-day virtual mediation on May 7 before JAMS mediator Jed Melnick, accepted a mediator’s proposal on May 13 and entered a formal stipulation dated June 18. Plaintiffs told the court the settlement avoids a legal dispute defendants intended to press: Hut 8 planned to seek judgment on the pleadings by arguing that registered and unregistered shares were commingled after the merger, which could make it difficult for aftermarket purchasers to trace their shares to the registration statement.

The proposed class covers investors who purchased or acquired Hut 8 securities in the United States or on a U.S.-based exchange during the stated class period. The case is pending in the U.S. District Court for the Southern District of New York. Hut 8, which trades on Nasdaq under the ticker HUT, has denied violating securities laws or causing investor losses and did not admit wrongdoing in the settlement.