This story was produced by Wisconsin Watch, a nonprofit, nonpartisan investigative reporting organization that focuses on government integrity and quality of life issues in Wisconsin.
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By Jacob Resneck and Zhen Wang, Wisconsin Watch
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
In early 2022 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 Limited’s recent regulatory filings that show $307 million of the more than $600 million raised by shareholders are “unspecified receivables,” meaning the company has not detailed what it’s doing with roughly half the money that has poured in from investors.
SOS Limited executives and attorneys did not answer questions emailed by Wisconsin Watch. But in a March 2021 web statement, the company denied what it calls “distorted, misleading, and unsubstantiated claims” and pledged to answer its critics.
“SOS stands behind the integrity of the company and remains committed to maintaining transparency and the highest ethical principles,” it said in a lengthy web statement.
$5 million settlement reached
The company has agreed to pay $5 million to settle a class-action lawsuit by former shareholders who had sued following the allegations raised by the research firms. SOS Limited admitted no wrongdoing, but it also did not answer the core allegation contained in the complaint.
“There has been a distinct lack of communication from SOS on its business operations, and its questionable deals,” Anderson said. “And it seems clear that shareholders want the answers to those questions.”
But some investors hope the problems are more of a cultural disconnect than evidence of fraud.
József Gazsó said he has bought about $32,000 worth of SOS stock since March 2020. He also handled investments for friends and family in his native Hungary.
“This move to the U.S. was a good business move,” Gazsó told Wisconsin Watch from Budapest, where he works in logistics. “If they prove that they can mine in a safe and economic way, with renewable (energy) they have a huge upside potential.”
He said his own firm in Hungary does business with a large Chinese company that’s often averse to the type of investor relations and normal publicity that U.S. shareholders demand. He admitted he sometimes doubts the company will continue to issue new share offerings while showing little public progress in cryptocurrency mining.
“If the company is a scam, I have been a fool,” he texted after an interview with Wisconsin Watch.
Wisconsin expansion put on ice
The cryptocurrency operation quietly expanded in early 2022 by beginning to move its equipment outside the confines of the mill’s thick walls.
The din of computers and cooling equipment has been a problem in other parts of the country including Niagara Falls, New York, a city that’s used to the roar of North America’s largest waterfall.
In Park Falls, Michaelek, the city administrator, said officials noticed the expansion had begun without the owner pulling any permits.
“They were starting to put footings outside the building,” he said. “We told them you can’t do that.”
The company came back with an application, but it was voted down in August because there was no engineering survey on how much noise the outdoor operation would generate.
While that was happening, SOS investors hungry for updates looked to the Price County Review, a weekly newspaper headquartered in Phillips, the county seat, for updates on the cryptocurrency operation.
Company executives shared a write-up in the local newspaper, one of the few reports of progress on the ground after SOS had raised hundreds of millions of dollars from investors.
The company last June released a short video, a rare public statement about its cryptocurrency operation in Wisconsin. It showed the interior of the Park Falls operation. The video was evidence of cryptocurrency mining at the first of three U.S. sites it had announced in April 2021.
That announcement described a partnership with U.S.-based holding companies with power agreements in Park Falls; Stacyville, Maine; and Niagara, Wisconsin.
“If and when the site operations get underway, the company anticipates it will create significant jobs (sic) opportunities in the U.S.,” the company wrote in an April 2021 press release.
Crypto future unclear
But experts in Wisconsin are skeptical that cryptocurrency mining operations will ever offer meaningful employment after they are up and running.
“It’s analogous to some other things like data centers,” said Tom Still of the Wisconsin Technology Council, a Madison-based nonpartisan advocate for the state’s tech industry. “You know, a lot goes into them in terms of construction but not necessarily a lot of employment afterwards.”
Cryptocurrency production is largely unregulated in the United States, and it’s unknown how many are in operation in Wisconsin. Still said he’s aware of only one other cryptocurrency mine in the state: Digital Power Optimization’s facility in the town of Hatfield, about 50 miles southeast of Eau Claire. The operation runs on renewable energy.
Alex Stoewer, chief operating officer of New York-based Digital Power Optimization, said his firm’s model of partnering with renewable energy producers is keeping it in the black.
“Despite the difficulties in the broader crypto market, this operation continues to generate positive cash flow, much of which is being reinvested in a maintenance plan for the hydro infrastructure, canal and dam,” he said in a written statement.
SOS expansion slowed elsewhere
Aside from Park Falls, SOS Limited’s other two projects in Maine and in Niagara, Wisconsin, have yet to materialize. Niagara city administrator Audrey Fredrick said there has been no activity on the site of a former paper mill since April 2021, when the company announced its plans in the city of 1,600 people in Marinette County along the Menominee River.
“The only information we ever had about it was inquiries from reporters, or from potential investors,” she told Wisconsin Watch.
But she said there have been reports of people traveling to the city near Michigan’s Upper Peninsula to see if there was anything happening.
“People tried to sneak on the site,” Fredrick said. “Like, investors who felt they were duped, and of course the site is secure because there’s a landfill … and dangerous because there’s a dam there — but no, there’s nothing.”
SOS Limited’s U.S. partner in the three sites is Liu, who for nearly two years had owned the Park Falls mill. Reached briefly on his cellphone, he told Wisconsin Watch that so far only the Park Falls site has broken ground since there were technical hurdles in Maine and his company has yet to finalize a power buying agreement for the Niagara site in Marinette County.
“But we built one in Texas in Fort Stockton,” he added.
To date, there’s been no mention of cryptocurrency mining in Texas in any of SOS’s regulatory filings.
Immigration questions loom
Asked about the employment of Chinese nationals without work visas in Wisconsin, Liu said the men were contracted by clients in China that lease capacity to mine cryptocurrencies.
“That’s not our employees,” he said.
A contract signed by Aaron and reviewed by Wisconsin Watch shows he was employed by Shenzhen Beibeizhu Technology, also known as BBZ. The company is a main supplier of equipment to SOS Limited, and some shareholders have questioned in online forums the true nature of the two companies’ relationship.
Aaron also signed a contract with SOS Limited’s U.S. subsidiary.
“I have been communicating with the Shenzhen-based company for the promised work visa and job contract since my arrival,” Aaron said.
It wasn’t until after the two were dismissed that Aaron learned the SOS Limited’s U.S. contract wasn’t signed by the company.
And despite Aaron’s arm injury, he had to continue lifting heavy equipment as part of the job.
Ming Luo, the site supervisor in Park Falls, declined to comment.
“My company said that I should not talk too much,” he said.
He referred questions back to Liu, who did not respond to subsequent calls and messages.
Attorneys who advise undocumented immigrants said it appears both the employer and employees may have broken the law.
“In some ways, they’re both at risk because they have both potentially done things that are contrary to our immigration laws,” said Erin Barbato, director of the Immigrant Justice Clinic at the University of Wisconsin Law School.
She said the two Chinese nationals run the risk of being arrested by federal authorities for working without the proper permits. But she said there’s evidence suggesting they were lured under false pretenses by being offered a contract with the U.S. company, which means the employers could also be held responsible.
“It’s a very strange situation,” she added.
Keeping the lights on
Bablick, the Park Falls mayor, said the former paper mill is being underutilized as a cryptocurrency mine. And he said he’s troubled by reports of workers going unpaid.
“The (mill) owners could have done better as far as getting tenants in there, that would have been very useful for the town, and I tried to work with them,” he said. “It’s just, they made a business decision. It made sense for them. It wasn’t the best for us.”
Still, he said, Park Falls is a resilient town that’s weathered the transition remarkably well.
“But I almost feel like the way it went away the last time was probably the best possible time,” he said, “just because of the labor market constrictions and just the way the economy is.”
A worker-friendly labor market has meant that many former mill workers have found employment elsewhere. A decade ago, he said, there would have been lines of unemployed.
“Even though they’re probably not making as much money as they used to be, they at least had an opportunity to find a job,” he added.
Chinese workers seek new start
In the weeks after being dismissed from their job and offered a flight back to China without any guarantee of payment for their last month of work, Aaron and Justin spent several weeks in their hotel room, uncertain of their next move.
“They have been asking me to go back to work, but I don’t want to,” Aaron told Wisconsin Watch on Dec. 6.
Days later, they left Park Falls for good. By the middle of the month, they received their final salaries. Justin and Aaron are staying with friends in Chicago to figure out a way to remain in the United States.
They said they didn’t encounter any prejudice against them personally during their time in Park Falls, but there was at least one unsettling sign that the foreign presence is unwelcome.
Inside the mill on a brick wall somebody scrawled in yellow paint a racist slur targeting the Chinese.
The nonprofit Wisconsin Watch (www.WisconsinWatch.org) collaborates with WPR, PBS Wisconsin, other news media and the University of Wisconsin-Madison School of Journalism and Mass Communication. All works created, published, posted or disseminated by Wisconsin Watch do not necessarily reflect the views or opinions of UW-Madison or any of its affiliates.
