State senator faces lawsuits over failed Eastern KY cryptocurrency operation
A Kentucky state senator is fighting multiple legal battles over a failed Bitcoin mining operation in Eastern Kentucky.
Sen. Brandon Smith, R-Hazard, and his company Mohawk Energy are defendants in two lawsuits related to the company’s property purchase and its use of expensive cryptocurrency mining machines.
Ricky Dale Cole of Jenkins sued Smith in Letcher Circuit Court in January, alleging Smith grossly inflated the value of Mohawk Energy.
Mohawk, a former coal cleanup company that pivoted to the cryptocurrency industry, is also being sued by a Chinese company. HBT Power, which helped Mohawk Energy make the pivot, sued Smith, alleging a breach of contract and fraudulent misrepresentation last year.
Cole alleges in the suit that he agreed to sell a warehouse to Mohawk Energy in a deal Smith proposed: sell for below market price in exchange for a 20% stake in the business. Cole now says he’s seen no profit from the deal and has been unable to access information about the company’s finances.
The lawsuit also alleges Smith defrauded Cole “by making false promises, misrepresentations” and not communicating with him about the state of the company.
Cole and his attorney declined to comment on the case, citing the pending litigation.
Smith denies all allegations of serious wrongdoing, as well as the majority of Cole’s narrative.
In a counterclaim filed in the suit, Smith is seeking damages from Cole, alleging he undermined the company. Smith also claimed Cole is not a member of Mohawk Energy due to his actions and, if a judge disagrees and believes he is a member, that he be expelled from the company.
Mohawk Energy joined the wave of cryptocurrency enterprises setting their sights on Eastern Kentucky during the industry’s 2022 rise. Cryptocurrency is a digital currency unregulated by the government. The machines work to solve difficult math problems, for which they earn new cryptocurrency as a reward.
“We just saw that there were a lot of machines coming into the U.S., and they were going to have to be repaired. Why not have a repair (facility) here in Eastern Kentucky?” Smith told the Herald-Leader.
With the promise of a $46 per hour wage after a month of training, the opening of Mohawk Energy’s facility was applauded in Letcher County, where the decline of the coal industry has reduced economic opportunities and the population. At roughly 21,000 residents, about half as many people live there now than in 1940.
Letcher County was among the worst-hit in the historic and deadly floods of 2022. Five of the 45 Kentuckians who died lived there, not to mention millions in property damage.
Smith’s Eastern Kentucky district is close to Letcher County but doesn’t include it. He has served in the legislature for more than 24 years, starting in the House before being elected to the Senate in 2008. He has chaired the Senate Natural Resources & Energy Committee for several years.
The lawsuits
According to Cole’s civil lawsuit, Smith rented his warehouse beginning in April 2022 for several months before he approached Cole in June about purchasing the property. They reached a deal by August, when Smith and Mohawk gave him $2.5 million in cash — $5.5 million below its actual value, per the lawsuit — and Cole took the remaining amount as a 20% ownership stake in Mohawk.
Cole now says Smith owes him $5 million and is also demanding a Letcher Circuit Court judge order Smith and Mohawk to turn over financial information. Cole alleges Mohawk’s value was greatly inflated at the time the two struck the deal.
He also states in the lawsuit, filed in January, that he sought to learn more about the company’s members, its finances, the flow of funds between Mohawk and its members, and more in a December 2024 request. The suit claims the company and Smith hadn’t complied with that request.
Smith, in an interview, called the turn of events “heartbreaking.”
“It was a great vision to bring tech here at a large-scale level,” Smith said
Smith and Mohawk submitted an answer and counterclaim to the lawsuit in March, denying nearly all of Cole’s allegations. For instance, Smith denies Cole’s claims about the exact terms of the initial lease, when and how Smith approached Cole about the purchase and details of the ownership agreement.
Smith and Mohawk deny Cole has any interest in Mohawk and has “intentionally and voluntarily relinquished the interest he may have had” because of statements he’d made to Smith and others claiming he was uninvolved.
Smith’s response to the suit also claims Cole took actions “completely opposed” to the company’s best interest. Those alleged actions: disrupting Mohawk’s readying of the warehouse, slowing its progress toward getting a business license and sabotaging a contract with a third party.
“Sen. Smith did not have benefit of counsel when he entered any of these agreements,” said Anna Whites, a Frankfort-based attorney representing Smith. “That’s just a disappointment, but there’s nothing we can do about it now.”
Smith and Mohawk’s counterclaim states that Smith negotiated a “substantial contract” with the third party to rent the property and equipment and to allow Mohawk to engage in activities on its behalf, “all of which would result in substantial income to Mohawk.”
“The Plaintiff had knowledge of the contract and intentionally took actions to cause the third party to breach the contract with Mohawk causing Mohawk and Smith to sustain substantial damages,” the counterclaim states.
Cole’s lawsuit against Smith was the first of two investor lawsuits he’s filed this year. In April, he accused a Lexington software company executive of misleading him into purchasing company stock. That lawsuit remains ongoing.
Chinese company lawsuit
This is also not the only lawsuit in which Smith and Mohawk find themselves involved. HBT Power, the Chinese company, sued Mohawk in November 2023 in U.S. District Court for the Western District of Kentucky.
Mohawk entered an agreement with HBT Power in June 2022, according to HBT Power’s lawsuit, under which Smith had planned to train workers and eventually repair high-voltage bitcoin mining machines that consume thousands of electricity watts inside Cole’s warehouse.
Whites told the Herald-Leader that two months after Smith received his industrial business license, HBT representatives continued to live on the premises. After Smith and other Mohawk employees asked them to leave, Whites says they called the police, claiming wrongful eviction.
But the question of property ownership remains, per HBT Power’s attorney.
“The fact that Mohawk did not own the property at the time that it entered into the contract with our client has always been one of the key contentions that we’ve had,” Harout J. Samra, a Florida-based attorney representing HBT Power, told the Herald-Leader.
Smith counterclaims he was never fully recompensated for the warehouse renovations to fit thousands of machines.
Smith’s blockchain dreams
Smith still thinks Blockchain, the technology system that underlies cryptocurrency, is the future.
He says the latest iteration of Mohawk Energy was supposed to bring change to Eastern Kentucky, a region that has long struggled to revitalize its economy after the days of coal.
In 2021 and 2022, just before Mohawk Energy’s mid-2023 step into the cryptocurrency space, Smith sponsored bills offering tax breaks and deregulation for crypto enterprises in Kentucky.
In 2021, the General Assembly passed a bill he authored to offer tax incentives for cryptocurrency mining company investments of at least $1 million that purchase and upgrade existing buildings inside the state and that earn income and create jobs. It also passed a bill that he supported, sponsored by House Majority Floor Leader Steven Rudy, R-Paducah, exempting electricity expenses for cryptocurrency mining operations. Both bills passed through the committee he chairs.
In 2022, he pushed for tax incentives on purchasing bitcoin equipment, which did not pass.
Enthusiasm in the General Assembly has continued apace, even without Smith’s direct sponsorship. Not a single “no” vote was recorded on House Bill 701 this year’s legislative session, a “Bitcoin rights” bill that, among other things, bans local zoning changes that “discriminate against” cryptocurrency mines.
Bitcoin as an asset is also doing better than ever. After reaching a low of $16,547 in early 2023, the price now stands at $110,000.
As the expansive warehouse totaling more than 50,000 square feet waits in legal limbo, a few employees remain, maintaining the site and safeguarding the valuable equipment.
“We just have to pray that when this thing clears, these companies will see that we really are a diamond in the rough, and that somebody would be willing to partner, come in and then help take Mohawk and this region to the next level of tech,” Smith said.
