In rural Wisconsin, former employees lift curtain on troubled crypto mine

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Two recently unemployed Chinese nationals weigh their options in a cramped Park Falls, Wisconsin, motel room, not far from where they worked in a former paper mill now being used to mine cryptocurrency.

One of them continues to nurse a stitched-up laceration across his left wrist from an on-the-job injury after he tripped while carrying a computer in August, a few months before he was let go.

Speaking in their native Mandarin, Aaron and Justin — as they refer to themselves in English — came to the United States on visas that allowed them to visit temporarily for “business activities” but not to take jobs in America. The two said they thought they had a long-term future helping a global company, SOS Limited, establish a cryptocurrency mining operation in North America, one of just two known facilities in Wisconsin. 

What they found were what they described as unsafe working conditions and possible skirting of immigration and labor laws. Wisconsin Watch is not publishing their names because they are concerned about their legal status to work in the United States.

The two said they were abruptly fired and spent weeks holed up in the motel until they belatedly got their final month’s salary from their employer. 

Their story is among several troubling signs that the company, which has just a handful of employees based in Park Falls, may not deliver the type of economic boost Park Falls was seeking when the city loaned one of SOS Limited’s current partners $1 million to revive the paper mill, which once employed hundreds of workers. The company’s two other announced North American cryptocurrency mining sites, including one in Marinette County, are also stalled.

Since August, Bitcoin has lost almost three quarters of its cash value. And over the past two years, SOS Limited has seen 94% of its share value erased after raising more than $600 million from investors. 

The story of the two Chinese nationals is also part of a larger tale about an economically challenged Midwestern mill town and the shadowy industry that produces Bitcoin, Ethereum and other digital currencies.

Cryptocurrency mining operations were prohibited in China in 2021 due to concerns over criminal activity and economic stability. They’ve since moved to countries with laxer regulations such as the United States.

“The (Chinese) government banned crypto mining operations in the country,” Aaron said. “Then, we saw an online post about hiring workers to the U.S.”

Crypto business takes root in rural Wisconsin

A combination of local, regional and global factors brought two Chinese citizens to a town of 2,400 people in rural Price County, one of the least populated in the state.

For decades, Park Falls was a company town centered on the iconic Flambeau River paper mill built along the banks to harness hydroelectric power to run the plant.

“It meant a lot to this community,” said John Tapplin, a former mill employee who was president of the local union. “At one time it was probably dumping like a quarter million dollars every two weeks into the economy.”

But the mill’s future has been uncertain since its longtime owner sold it in 2006. It operated for little more than a decade, temporarily shutting down in 2019.

Then New Jersey-based businessman Yong Liu and several investors stepped in and restarted operations the next year, buoying hopes that the paper mill could return to being the economic heart of the community. Some employees were called back to work.

The city issued a $1 million bridge loan to keep things running, but in the end a combination of the COVID-19 pandemic and depressed commodity prices killed the business, recalled Mayor Michael Bablick.

“It was sort of a slow drip for quite a while,” he said. “Finally, it just went down and just couldn’t seem to find its way back open again.”

The mill was sold off at auction to a liquidator. A number of creditors, including the city of Park Falls, went to court for payment. The judge ordered Liu’s business interests to pay the remaining $828,108 of the loan earlier — a process that’s still underway.

Since then, the current owner has farmed out some of the space to various companies while dismantling other parts of the mill.

“They’re doing, I think, all the things you’d expect a liquidator to do,” Bablick said. “They’re removing equipment, they’re removing valuable copper, things like that.”

Bitcoin mining comes to Park Falls

Last year SOS Limited, whose shares trade on the New York Stock Exchange, began installing racks of computers inside the former paper mill to mine cryptocurrencies.

“The company’s vision is to become one of the leading block-chain technology service providers in North America,” it wrote in a filing with financial regulators, referring to one of the key components of how cryptocurrencies are created and maintained.

Cryptocurrencies, such as Bitcoin and Ethereum, have emerged over the past decade as a form of digital currency created by sophisticated computers solving complex computational problems to create unique strings of information. Mining operations compete with each other to work out these complex problems, thereby creating a digital currency that can be traded on the open market for hard currencies including U.S. dollars. 

The Chinese government has long been hostile to digital currencies, partly because it’s difficult to regulate them, but also because the computers use massive amounts of energy, which has raised environmental concerns.

In a recent 46-page report, the White House estimated the greenhouse gas footprint of electricity  powering U.S. cryptocurrency production in  2021 was equivalent to the average annual greenhouse gas emissions from 3 million gas-powered automobiles. The United States now hosts about one-third of global Bitcoin asset mining, the report said.

In Park Falls, the arrival in early 2022 of a cryptocurrency operation received a cool reception.

“The city does not believe this use is the best use of the property in terms of jobs for our area, however, that is a matter solely for the owner of the mill to decide,” City Administrator Brentt Michaelek stated on the Park Falls Facebook page.

Even so, the site’s industrial zoning meant the city couldn’t stop it.

“Our legal analysis, and I think it’s pretty common sense, (is) that you can probably run computer servers if you can run a paper mill,” Bablick said.

Officials also found cryptocurrency mining preferable to the alternative: a fallow and blighted mill in the center of the city. 

“Things can really go wrong in a huge industrial facility real quick when there’s nobody there,” he added.

SOS Limited embroiled in controversy

SOS Limited’s arrival in Wisconsin coincided with the company’s public acknowledgment that it’s under investigation by the Securities and Exchange Commission.

“The company intends to cooperate with the SEC with respect to the investigation,” SOS Limited wrote in a Feb. 25 filing with the financial regulator.

The SEC served a subpoena to the company following allegations of fraud raised by a pair of investment firms that publicize — and then profit from — publicly traded companies that mislead investors.

The investment firms’ critical reports, published in February 2021, questioned the company’s legitimacy as a cryptocurrency operation.

Hindenburg Research, which publishes information and makes stock bets on what it suspects are failing companies, seized on SOS Limited’s publicity photos of another one of its alleged equipment suppliers. Other sources suggested that the photos were actually from an entirely different — and unconnected — Chinese cryptocurrency operation.

Another research firm released information that the company purportedly supplying SOS Limited with $20 million worth of computer equipment to mine cryptocurrencies was actually a shell company created to give the illusion of progress.

“We find the company’s claims regarding its supposed cryptocurrency mining purchases and acquisitions to be extremely problematic, if not fabricated entirely,” Culper Research wrote in its Feb. 26, 2021 report. 

The allegations came from short-seller investors who place bets that a stock’s price will fall. That’s controversial, but the researchers defend their methods, saying they shine a light on corporate misdeeds.

“Our business model is to find fraud and bet against companies that we think are engaging in fraud,” Hindenburg’s Nate Anderson told Wisconsin Watch. “So our positioning is aligned with our beliefs.”

Anderson said there are questionable lines in SOS…