Hut 8 has agreed to pay $2.35 million to make a securities class-action lawsuit go away. The case alleged the Bitcoin mining company misled investors during its all-stock merger with US Bitcoin Corp. (USBTC), which closed in November 2023.

The proposed settlement, filed in the US District Court for the Southern District of New York, is pending approval from Judge Victor Marrero. Hut 8 denies any wrongdoing.

What the lawsuit actually alleged

The heart of the case was the King Mountain joint-venture mining facility. Plaintiffs claimed Hut 8 failed to disclose operational issues at the site, which came into the company’s portfolio through the USBTC merger.

The merger itself was announced in early February 2023. From that point through January 18, 2024, investors who purchased Hut 8 securities form the class covered by the settlement.

On January 18, 2024, short seller J Capital Research published a report questioning Hut 8’s operational capabilities. The stock promptly cratered more than 23% in a single session.

The $2.35 million settlement represents roughly 19.6% of the plaintiffs’ estimated maximum recoverable damages of $12.08 million. That might sound like pennies on the dollar, but it’s actually above the median recovery rate for comparable Securities Act settlements.

Only specific Securities Act claims made it to the settlement stage. The case evolved over time, with the scope narrowing as it moved through the legal process, ultimately crystallizing around those undisclosed operational risks at King Mountain.

The bigger picture for Hut 8

Hut 8’s shares have surged more than 640% over the past year, a run that puts it among the best performers in the Bitcoin mining sector.

The USBTC merger was announced in February 2023 and finalized that November. It was an all-stock deal that significantly expanded Hut 8’s mining footprint, but the King Mountain facility’s issues became an unexpected liability that investors argued should have been disclosed before they bought in.

Hut 8’s shares dipped about 5% in pre-market trading following the settlement announcement.

What this means for investors

For shareholders covered by the class period, between February 13, 2023, and January 18, 2024, the practical payout will depend on how many people file claims and how the $2.35 million gets distributed. Given the gap between the settlement amount and the $12.08 million in estimated maximum damages, individual recoveries will likely be modest.

The settlement still needs Judge Marrero’s sign-off, so nothing is technically final yet. With nearly 20% of estimated maximum damages on the table, this recovery percentage exceeds industry norms for comparable Securities Act settlements.