Two former executives of Northern Data, a German-listed company specialising in cryptocurrency infrastructure and artificial intelligence backed by Tether, which owns 51% of its shares, claim they were fired after raising concerns about alleged fraud perpetrated by the company’s CEO and COO. The complaint, filed last month in the Central District Court of California, contains serious allegations against Northern Data‘s management.
Detailed allegations of fraud and tax evasion
Joshua Porter and Gulsen Kama, the two former executives, allege that Northern Data was “falsely representing the strength of its financial condition to investors, regulators and business partners” and “knowingly committing tens of millions of dollars in tax evasion”. The company has strongly denied the allegations, saying they are vigorously contesting them to protect themselves from false claims that would damage their company and business.
Company statements
Northern Data emphasised that integrity is fundamental to the group and its leadership. He reiterated that as a listed company, it has comprehensive policies and procedures in place to ensure the accuracy of financial reporting. The 2022 accounts have received an unqualified audit opinion and the company expects to publish the 2023 audited financial statements shortly.
IPO investigation in the US
Northern Data also made headlines for other reasons this week, with Bloomberg News reporting on Monday that the company was planning an IPO in the US for its cloud computing and data centre business:
The banks involved in the valuation suggested values between $10bn and $16bn. This compares with Northern Data’s market capitalisation of €1.3bn ($1.4bn) at Monday’s close. Potential advisers base their valuation on the company’s alliance with the Tether Group.
Accusations of insolvency and misconduct
Joshua Porter, appointed COO of Northern Data ‘s US subsidiary in April 2022 and subsequently promoted to president and CEO of North America in January 2023, said he was fired in March 2023 after raising concerns about the financial state of the German parent company, which he describes as ‘borderline insolvent’. The complaint, dated 21 June 2024, specifies that the company had a German tax liability of $30 million and other liabilities of almost $8 million, with only $17 million in cash and a monthly consumption rate of $3-4 million.
Resistance to authorities and tax regulations
The complaint alleges that Northern Data illegally avoided US taxes for the year 2021. The auditing firm Deloitte allegedly refused to support Northern Data ‘s decision not to pay taxes to theIRS on profits from cryptocurrency mining on US soil. Instead of changing its operational structure or tax treatment to avoid violating US laws, Northern Data allegedly took alternative measures to illegally avoid taxes.
Internal reactions and consequences
Gulsen Kama, who was appointed Northern Data ‘s North America CFO in July 2022 and subsequently promoted to deputy group CFO, claims she repeatedly reported financial irregularities to the company’s global leadership, to no avail. Kama claims she was dismissed in June 2023 after alerting management to the fraud taking place. In a meeting with KPMG, the auditor for 2020 and 2021, the auditing firm reportedly expressed concerns about the company’s liquidity position as a going concern.
Change of auditor and financial difficulties
KPMG was not hired for 2022 and relations between Kama and the company leadership deteriorated further. In May 2024, Northern Data appointed Liebhart & Kollegen as the new auditor. The auditing firm is based in Stuttgart and has almost 15 members. KPMG and Tether did not respond to requests for comment.
Legal actions and future prospects
Northern Data asked the court to seal parts of the complaint, claiming that it contained confidential communications protected by the attorney-client privilege. The plaintiffs reserved the right to challenge the sealing order. The company recently postponed the release of its 2023 audited financial statements to 12 July. It had previously stated that the report would be released by the end of the first half of 2024. In March 2024, KPMG had reported a “material uncertainty about the group’s ability to continue as a going concern” due to its reliance on bitcoin sales and Tether‘s equity loan.
