Cryptocurrency miner fails to pay more than half million dollar fine to Falls

Feb. 7—More than five days after the due date for a cryptocurrency mining company in the Falls to stop operating and deliver a check for more than half a million dollars in fines to the city, the facility continues to operate and there is no cash in the municipal coffers.

That’s because lawyers representing the Falls and U.S. Bitcoin have failed to agree on the language of a draft order to enforce a ruling by State Supreme Court Justice Edward Pace that found that a crypto-mining facility on Buffalo Avenue was deliberately operating in violation of the city’s zoning code.

Pace ruled on Jan. 25, that if U.S. Bitcoin continued to operate their Buffalo Avenue facility, he would impose fines of $10,000 a day through Feb. 1 and then increase the fines to $25,000 a day until the cryptocurrency mining stopped. The justice imposed the fines, dating back to Dec. 9, when Supreme Court Justice Frank Sedita III first issued a temporary restraining order (TRO) that directed U.S. Data Technologies Group Ltd. and U.S. Data Mining Group Inc, doing business as U.S. Bitcoin, to stop operating while lawyers for the Falls sought a preliminary injunction to force their cryptocurrency mining facility to comply with a new zoning ordinance governing high energy use industries.

“If, by January 31, (the cryptocurrency mining operation) has not shut down, then a check should be delivered to the city of Niagara Falls on February 1 for $540,000,” Pace said in his ruling from the bench.

However, Pace directed lawyers representing the city to draft an order for him to sign that would enforce his ruling. In such cases, the attorneys who draft an order routinely share it with opposing counsel.

In this case, the attorney representing U.S. Bitcoin, John Bartolomei, has reportedly raised objections “to every proposed draft order.” The Gazette has learned that Pace has given the lawyers in the case until Wednesday to resolve the objections or the justice is prepared to either adopt one of the current drafts from the city’s lawyers or craft his own order.

A check by a Gazette reporter on Monday afternoon showed that the U.S. Bitcoin facility was continuing to operate. That operation would mean that fines against the company are continuing to accrue.

Bartolomei, who vigorously protested Pace’s ruling, has indicated that he would appeal the decision to the State Supreme Court Appellate Division Fourth Department in Rochester. However, as of Monday, no appeal has been filed and so Pace’s decision remains in place.

Attorneys for the Falls had asked Sedita, who recently transferred some of his caseload to Pace, to find U.S. Bitcoin in contempt of court for violating his TRO that directed them to shut down their Buffalo Avenue facility, which the city charges is creating “a public nuisance” and engaging in “ongoing violations” of the city’s Zoning Code.

Sedita issued the restraining order on Dec. 1. It directed U.S. Bitcoin to cease “engag(ing) in “any and all forms of cryptocurrency mining” pending the outcome of a hearing on the city’s request for a preliminary injunction that seeks to shutdown three cryptocurrency mining facilities currently operating in the city “unless and until” they comply with a recently enacted series of amendments to the city’s Zoning Code that govern the location and operation of high-energy use industries such as data centers and crypto-mining facilities.

City lawyers have noted that one of the crypto-mining facilities immediately shut down its operations when the Falls filed its motion for the preliminary injunction. That facility has since begun the process of applying for permits to re-open.

A second facility has been shuttered since the summer because of a fire in a substation on its property.

However, Dan Spitzer, an outside special counsel to the city on zoning matters, has argued that U.S. Bitcoin has “thumbed its nose” at Sedita’s TRO.

On Dec. 8, the city filed its request for a contempt citation asking Sedita, and now Pace, to impose a “daily fine” against U.S. Bitcoin for it’s alleged ongoing violations of the temporary restraining order. City lawyers have also asked Pace to issue an order directing National Grid to cut off electrical power to the property U.S. Bitcoin rents.

Pace has set a date for further hearings on that request.

Bartolomei, who has asked Pace to dismiss the city’s motion for a preliminary injunction, vacate or modify Sedita’s TRO and not find U.S. Bitcoin guilty of contempt, said forcing his client to stop operating would cause “impermissible damage” to his client’s business. He said the Buffalo Avenue facility has more than 12,000 computers “connected in a complicated system” and using “expensive software.”

“The abrupt shutdown of these systems will cause impermissible damage,” Bartolomei told the justice. “If this facility is damaged it will be in the vicinity of $20 to $30 million and the city doesn’t have the money (to pay for that damage). It’s an abuse of power. A tyrannical abuse of power.”

However, Edward Perlman, another outside counsel for the city, has told the court that U.S. Bitcoin is resisting shutting down because its operations are creating an average of four coins a day, with an individual value of $20,000 each.