1

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

SECURITIES ACT OF 1933

Release No. 11222 / August 15, 2023

SECURITIES EXCHANGE ACT OF 1934

Release No. 98131 / August 15, 2023

ACCOUNTING AND AUDITING ENFORCEMENT

Release No. 4440 / August 15, 2023

ADMINISTRATIVE PROCEEDING

File No. 3-21561

In the Matter of

Ault Alliance, Inc. (f/k/a BitNile 

Holdings, Inc., Ault Global 

Holdings, Inc., DPW Holdings, 

Inc., and Digital Power 

Corporation); Milton Charles 

(“Todd”) Ault III; and William 

B. Horne, CPA;

Respondents.

ORDER INSTITUTING CEASE-ANDDESIST PROCEEDINGS PURSUANT TO 

SECTION 8A OF THE SECURITIES ACT 

OF 1933 AND SECTION 21C OF THE 

SECURITIES EXCHANGE ACT OF 1934, 

MAKING FINDINGS, AND IMPOSING A 

CEASE-AND-DESIST ORDER 

I.

The Securities and Exchange Commission (“Commission”) deems it appropriate that ceaseand-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act 

of 1933 (“Securities Act”) and Section 21C of the Securities Exchange Act of 1934 (“Exchange 

Act”), against Ault Alliance, Inc. (f/k/a BitNile Holdings, Inc., Ault Global Holdings, Inc., DPW 

Holdings, Inc., and Digital Power Corporation) (“AAI”), Milton Charles (“Todd”) Ault III 

(“Ault”), and William B. Horne (“Horne”) (collectively, “Respondents”). 

II.

In anticipation of the institution of these proceedings, Respondents have submitted Offers

of Settlement (the “Offers”) which the Commission has determined to accept. Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the findings 

herein, except as to the Commission’s jurisdiction over them and the subject matter of these 

proceedings, which are admitted, and except as provided herein in Section V, Respondents consent 
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to the entry of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the 

Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings, 

and Imposing a Cease-and-Desist Order (“Order”), as set forth below. 

III.

On the basis of this Order and Respondents’ Offers, the Commission finds1that: 

SUMMARY

1. This matter involves material misstatements regarding certain businesses of AAI, 

the failure to disclose interests in related person transactions, improper recording of purported 

consulting services, erroneous accounting of investments, and the failure to maintain accounting 

and disclosure controls. 

2. In 2018 and 2019, AAI, a holding company based in Las Vegas, Nevada, and its 

Executive Chairman and then-Chief Executive Officer (“CEO”), Ault, made materially false and 

misleading statements and omissions concerning the performance of a $50 million purchase order 

that AAI received from a related party, as well as the performance of AAI’s new crypto asset 

mining business. AAI and Ault made these misstatements, which operated as a fraud on investors,

in registration statements, various periodic and other reports filed with the Commission, in investor 

presentations, and in tweets by Ault. 

3. In its Forms 10-K and proxy statements for fiscal years 2016 to 2021, AAI failed to 

disclose material interests that Ault and then-Chief Financial Officer (“CFO”) Horne had in loans 

that AAI made to a related person, as required by Item 404 of Regulation S-K. Separately, in 

2019, through Ault and Horne, AAI improperly recorded $75,000 paid to an individual as being for 

consulting services which, in fact, were not provided to AAI and benefitted Ault in extinguishing a 

personal debt owed to the individual.

4. In addition, from 2017 through the present, AAI has had reporting, books and 

records, and internal accounting control failures, and has failed to maintain Disclosure Controls 

and Procedures (“DCP”) and Internal Control over Financial Reporting (“ICFR”) due to repeated

material weaknesses that AAI has repeatedly disclosed. AAI failed to maintain DCP and ICFR for 

22 consecutive reporting periods from the period ended June 30, 2017, through the period ended 

September 30, 2022. These deficiencies continue through today and have not been remedied. AAI 

announced one restatement in 2017 resulting from its material weaknesses. And during its fiscal 

years ended December 31, 2018 through 2021, AAI improperly accounted for its investments in 

warrants of a related party. On April 14, 2023, AAI filed amended periodic reports to restate for 

this improper warrant accounting.

5. Based on the foregoing and the conduct described below, Respondents committed 

the following violations. AAI violated Sections 17(a)(2) and 17(a)(3) of the Securities Act, 

Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a), and Exchange Act Rules 12b-20, 

1 The findings herein are made pursuant to Respondents’ Offers of Settlement and are not

binding on any other person or entity in this or any other proceeding. 
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13a-1, 13a-11, 13a-13, 13a-15(a), 14a-3, and 14a-9. Ault violated and caused AAI’s violations of 

Securities Act Sections 17(a)(2) and 17(a)(3), and Exchange Act Section 14(a) and Exchange Act 

Rules 14a-3 and 14a-9; violated Exchange Act Rule 13b2-1; and caused AAI’s violations of 

Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a1, 13a-11, 13a-13. Horne violated Exchange Act Rule 13b2-1 and caused AAI’s violations of 

Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B).

RESPONDENTS AND RELEVANT ENTITY

6. Ault Alliance, Inc. is a Delaware corporation whose principal place of business is 

in Las Vegas, Nevada. AAI is a diversified holding company which, since 2016, has engaged in 

operating businesses that include, among others, power products and systems, digital asset mining 

of Bitcoin, the manufacture and sale of textile technology machinery, and commercial lending. 

During the relevant period, AAI has been known by several different names: AAI (since January 

3, 2023); BitNile Holdings, Inc. (from December 13, 2021 to January 2, 2023); Ault Global 

Holdings, Inc. (January 19, 2021 to December 12, 2021); DPW Holdings, Inc. (September 19, 

2017 to January 18, 2021); and Digital Power Corporation (prior to September 19, 2017). AAI’s 

stock is registered under Section 12(b) of the Exchange Act, and its common stock trades on 

NYSE American. AAI has a December 31 fiscal year end. AAI offered and sold securities during 

the relevant period.

7. Milton Charles (“Todd”) Ault III, age 52, resides in Las Vegas, Nevada. In late 

2016, through an entity he controlled, Ault became AAI’s largest shareholder and obtained the 

right to appoint a majority of directors to AAI’s Board of Directors. On March 16, 2017, Ault 

became Executive Chairman of AAI’s Board of Directors, a position he currently holds. In 

December 2017, Ault became AAI’s CEO, a position he held until January 2021. Ault was 

suspended by the Financial Industry Regulatory Authority in May 2012 for two years for 

unauthorized trading in customer accounts and failing to deliver securities.

8. William B. Horne, age 53, resides in Sammamish, Washington. Horne has served 

as AAI's CEO since January 2021. He was AAI's CFO from January 2018 to August 2020 and 

AAI's President from August 2020 to January 2021. Horne has served as a director of AAI’s 

Board of Directors since October 2016. Horne was licensed as a CPA in the state of Washington in 

1996. His license lapsed in 2017.

9. Avalanche International Corp. (“Avalanche” or “MTIX”), a holding company, 

is a Nevada corporation with its principal place of business in Las Vegas, Nevada, which AAI has

repeatedly disclosed as a “related party” since 2017. In 2014, Ault acquired control over Avalanche 

and has served as its Chairman since then. In June 2022, AAI acquired over 90% of Avalanche’s 

stock and began consolidating its financial results. Horne has been a director and CFO of 

Avalanche since June 2016. Avalanche’s common stock was publicly traded until September 

2021. Avalanche has not filed any periodic reports with the Commission since its third fiscal 

quarter ended August 31, 2016. At Ault’s urging, AAI invested over $17 million in Avalanche 

from 2016 to 2021 for Avalanche to acquire textile treatment technology from MTIX Ltd. and to 

contract with AAI to manufacture textile treatment machines. Avalanche does business under the 

name MTIX International. 
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FACTS

Misstatements Concerning New Business Operations2

10. Under Ault’s leadership, starting in 2017, AAI expanded its core power supply 

business to include the manufacture of textile treatment systems and “cryptocurrency mining.” As 

these operations grew, AAI, through Ault, made materially false and misleading statements and 

omissions about the businesses and their financial prospects. 

Misstatements Concerning $50 million purchase order with MTIX

11. In late 2016, after Ault became controlling shareholder of AAI, Ault obtained 

approval from AAI’s Board to loan Avalanche up to $1.5 million to acquire MTIX Ltd., an earlystage, UK-based company that had a textile treatment technology system which had not been 

commercially proven. Avalanche completed the acquisition of MTIX the following year. 

12. On March 15, 2017, AAI issued a press release announcing that it had received a 

$50 million purchase order from MTIX Ltd. to manufacture, install and service textile treatment 

systems using MTIX’s technology. The purchase order called for the manufacture and installation 

of 25 machines over approximately two and a half years: 2 machines by the end of 2017; 6 more 

machines by August 2018; and the remaining 17 machines by August 2019. The purchase order

was material to AAI as it stood to double AAI’s annual revenue, which had averaged about $8 

million during the prior three fiscal years. AAI’s stock price increased by over 175% immediately 

after the press release.

13. AAI and Ault made a series of misrepresentations about the MTIX purchase order 

over the next two years.

14. In 2018, AAI and Ault misrepresented to investors that AAI had completed and 

delivered the first machine under the MTIX contract. On May 21, 2018, Ault led an investor 

presentation concerning AAI’s financial review for the quarter ended March 31, 2018. In the 

materials used for the presentation, which were furnished as an exhibit to a Form 8-K signed by 

Ault, Ault represented that AAI had delivered its first machine under the MTIX purchase order. 

Ault repeated this assertion in a June 6, 2018 investor presentation, which was also furnished as an 

exhibit to a Form 8-K signed by Ault, and added that the other machines were “on track to be 

delivered timely.” In an earnings call on August 15, 2018, Ault represented that the first machine 

had been “completed.”

2 AAI offered and sold securities through registered offerings during the period of these 

misstatements (2018-2019). These included, among others, raising over $29 million through AtThe-Market (ATM) offerings of its common stock under prospectus supplements to registration 

statements offering up to $80 million: (1) raised $18 million under a 2/27/2018 424B5 

Prospectus Supplement offering up to $50 million, which was terminated 9/23/2018; (2) raised 

$6 million under a 10/16/2018 424B5 Prospectus Supplement offering up to $25 million, which 

was discontinued on 4/1/2019; and (3) raised $5.5 million through 12/31/2019 under a 8/6/2019 

424B5 Prospectus Supplement offering up to $5.5 million, which incorporated by reference 

AAI’s fiscal 2018 Form 10-K.
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15. These statements were not true, as Ault knew or should have known. By early 

2018, the first machine was largely complete and had been delivered to an AAI subcontractor for 

finalization. However, AAI was experiencing significant delays on the project primarily due to its 

failure to pay subcontractors to manufacture the machines, including significant payments to 

finalize completion of the first machine and to move forward manufacturing another machine. 

Though certain records reflect that Ault believed that funding had been paid for completion of the 

first machine, emails and texts prior to Ault’s August 15, 2018 earnings call above, which included 

Ault, showed that AAI was experiencing delays completing the machines, including finalizing the 

first machine, due to lack of funds to pay certain vendors and subcontractors. In addition, although

Ault claimed he received conflicting information from Avalanche and AAI executives whether

delivery to the last subcontractor for finalization constituted delivery under the contract, the 

contract required delivery of the machines to MTIX or an MTIX customer, not an AAI 

subcontractor. In the months after Ault’s August 15, 2018 earnings call, the delivery date of the 

first machine continued to slip and funding delays continued. Texts between Ault and the CEO of 

Avalanche in September 2018 estimated a revised delivery date for the first machine in April 2019

and identified numerous items remaining before delivery could occur. Emails involving Ault from 

October 2018 to April 2019 reflect that the finalization of the first machine was significantly 

behind schedule and had not yet been completed. 

16. Despite these delays and financial setbacks, in numerous AAI filings made with the 

Commission from May 21, 2018 through May 20, 2019, most of which were signed by Ault, AAI 

expressed the belief that the MTIX purchase order would be a source of revenue and “generate 

significant cash flows.”3 AAI omitted any information regarding its inability to perform under the 

purchase order, including that it was unable to pay AAI vendors to complete the manufacture of 

machines. 

17. It was not until December 27, 2019, in a Form S-3/A signed by Ault and filed just 

weeks after AAI received an investigative subpoena from the Commission staff, that AAI 

disclosed for the first time that it had “not yet delivered a MLSE plasma-laser system to MTIX.”. 

According to an April 2022 MTIX press release, the first delivery of an MLSE machine by MTIX 

to a customer occurred in November 2021 and was expected to be installed during 2022.

Misstatements Concerning AAI’s Crypto Mining Revenue and Operations

18. In January 2018, AAI announced the formation of a new subsidiary to operate a 

“cryptocurrency” business that would engage in the mining of crypto assets. Over the course of 

that year, AAI and Ault made misleading and false public statements that made the crypto business

appear more successful than it was.

19. In May and June 2018, AAI and Ault made material misstatements regarding the 

company’s crypto mining revenues, which were principally generated from mining Bitcoin. On

May 9, 2018 and May 12, 2018, Ault stated on Twitter that AAI was mining over $400,000 a 

month in Bitcoin. On May 21, 2018, AAI issued a press release representing that it was “currently

3 See Form 10-Q (5/21/2018); Form S-3 (6/11/2018); Form 10-Q (8/20/2018); Prospectus 

(9/14/2018); Form S-3/A (11/1/2018); Proxy Statement (11/19/2018); Form S-3 (12/7/2018); 

Prospectuses (filed from 2/12/2019 through 4/2/2019); Form 10-K for fiscal year 2018 

(4/16/2019); Form 1-A (5/13/2019); Form 10-Q (5/20/2018).
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mining $420,000 to $460,000 a month of cryptocurrencies or between $1,200,000 to $1,400,000 in 

value per quarter.” A June 6, 2018 AAI investor presentation by Ault, which was also filed by 

AAI as an attachment to a Form 8-K, represented that AAI was “currently mining between 

$450,000 to $500,000 in [Bitcoin] monthly.”

20. Ault knew or should have known that these statements significantly overstated the 

value of crypto assets that AAI was mining. For example, on May 12, 2018, the total value from 

AAI's crypto mining had reached $367,509, which represented all the mining it had done since 

January 2018—nowhere close to $400,000 per month stated in Ault’s tweet. Even after AAI 

increased its number of active mining machines on May 16 to over 1700, AAI mined significantly 

less Bitcoin than any of its disclosed monthly mining amounts. Though the current mining 

amounts in the above misstatements were extrapolations from the information Ault was receiving 

from individuals more closely involved in the crypto mining operation, crypto executives regularly 

updated Ault orally with information about the number of active miners and the daily amount of 

Bitcoin being mined. Ault at times received weekly trend reports or emails showing the actual 

amount of daily crypto mined over the past month or longer, the market value of Bitcoin, and the 

total value of Bitcoin in AAI's digital wallet. Ault also knew that the fundamentals for mining 

digital assets were getting worse as the quarter progressed: the price of Bitcoin steadily decreased

after its peak in early May, while the difficulty to mine Bitcoin increased. Despite this, AAI’s

“current” mining revenues according to Ault and AAI continued to improve throughout the 

quarter, even as its actual mining revenue declined, as ultimately disclosed in AAI’s second quarter 

Form 10-Q, filed on August 20, 2018, which reported $719,000 in crypto mining revenues for the 

three months ended June 30, 2018.

21. In addition, Ault and AAI misrepresented the launch of a digital asset miner that 

AAI touted as a new ASIC Bitcoin miner designed to operate faster and more efficiently. In 

investor presentations on September 5, 2018, and October 2, 2018, both of which were attached to 

Forms 8-K furnished with the Commission, Ault represented that AAI had developed a

“proprietary” crypto miner “in collaboration with Samsung” that had been introduced for sale in 

September 2018. However, Ault was aware that AAI had not collaborated with Samsung to 

develop a miner. Instead, AAI had a memorandum of understanding to purchase miners from 

another party and sell them as AAI miners under a white-label agreement. Further, at the time of 

these statements, AAI did not have a white-labelled miner available for sale.

22. These misstatements were material because investing in the crypto space was 

material to AAI’s business plan in 2018 and was part of the company’s publicly stated long-term

investment strategy. The mining amounts reflected in AAI’s and Ault’s statements also grossly 

overstated “current” monthly and quarterly revenues. Even the lowest claimed current quarterly 

mining revenue of $1.2 million reflected in those statements overstated actual revenue for the 

quarter of $719,000 by 40%.

AAI’s Failure to Properly Disclose Related Persons Ault and Horne’s Interests

in AAI’s Investment in Avalanche

23. At Ault’s urging and with the approval of AAI’s board of directors, including 

Horne, from 2016 through 2021, AAI loaned approximately $17.8 million to Avalanche. During 

this period, Avalanche had little to no revenues, insufficient funds to pay its expenses, and relied 

on AAI’s loans for its operating cash flows. Ault, in addition to his controlling interests in 
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Avalanche, served as the Chairman of Avalanche’s board of directors, and Horne, starting in June 

2016, served as the CFO of Avalanche and an uncompensated director.

24. Horne and Ault – related persons to AAI due to their senior positions at AAI – had 

an interest in the loans from Avalanche. Specifically, as a result of these loans, Avalanche was able 

to pay Horne’s salary as CFO, to pay fees to Ault for serving as Chairman, to reimburse certain 

expenses to Horne and Ault, and to reimburse loans Ault had made to Avalanche through a

company he controlled. In total during this period, Avalanche paid over $1.5 million of the loan 

proceeds from AAI to Ault and his company, and paid Horne over $300,000. 

25. AAI failed to disclose Ault and Horne’s interest in these loans in its annual reports 

on Forms 10-K or its proxy statements, as required. Form 10-K and Schedule 14A (to the extent the 

proposed action to be taken is the election of directors) require registrants to disclose, pursuant to Item

404 of Regulation S-K, any current or proposed transaction “in which the registrant was or is to be a

participant and the amount involved exceeds $120,000, and in which any related person had or will

have a direct or indirect material interest.” A related person under Item 404 includes a director or 

executive officer of the registrant, such as Ault and Horne. Item 404 requires disclosure of, among 

other information, the name of the related person; the related person’s interest in the transaction;

the approximate dollar amount of the transaction; the approximate dollar value of the related 

person’s interest in the transaction; and any other material information about the transaction.

26. AAI’s Forms 10-K for the years ended December 31, 2016 through 2021, and its 

Schedules 14A soliciting elections of directors filed from 2017 through 2022, disclosed the 

amounts AAI loaned to Avalanche, which well exceeded $120,000 in each year. AAI also 

disclosed Ault and Horne’s senior positions with Avalanche, and Ault’s ownership interest in 

Avalanche. However, AAI did not disclose in these filings the approximate value of Ault and 

Horne’s interest in those loans, which enabled Avalanche to pay Horne’s salary and Ault’s Board 

fees, and the loan and expense reimbursements noted above. Specifically, AAI failed to disclose 

that Ault received the following total related person payments: $179,550 in 2016; $750,350 in 

2017; $279,137 in 2018; $130,894 in 2019; $251,425 in 2020; and $58,333 in 2021. Similarly, 

AAI failed to disclose that Horne received the following total related person payments: $10,671 in 

2016; $100,404 in 2017; $57,911 in 2018; $46,166 in 2019; $44,647 in 2020; and $54,727 in 2021.

AAI, Through Ault and Horne, Inaccurately Recorded $75,000 as Consulting Fees in AAI’s 

Books and Records, which Benefitted Ault in Extinguishing a Personal Debt4

27. In 2018, Ault wanted AAI to purchase shares that an individual (“Individual”) 

owned in a private company (“M Corp”) in which AAI had acquired a controlling interest. The 

Individual wanted to be paid his cost basis for his shares, $100,000, and Ault wanted to pay the 

Individual that amount, in part because the Individual was an important client of a broker who 

provided services to AAI and who had recommended the share purchase. Drafts of a share 

purchase agreement were exchanged between the parties but never finalized. 

4 AAI offered and sold securities through registered offerings during August 2019 and through 

December 31, 2019. See footnote 2, above. See also 10/2/2020 424B5 Prospectus Supplement

and subsequent amendment offering up to $40 million, which incorporated AAI’s fiscal 2019 

Form 10-K and raised $39.9 million through 12/31/2020.
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28. At the same time, Ault was in an ongoing dispute with the Individual over 

outstanding amounts owed to the Individual in connection with a loan the Individual made in 2015 

to a political action committee (“PAC”) of which Ault was the Chairman and for which Ault had 

pledged securities for repayment. 

29. On or around July 25, 2018, AAI made a payment of $25,000 to the Individual to 

purchase his M Corp shares. The Individual thereafter signed a draft purchase agreement, which 

stated that AAI would pay $100,000 for the Individual’s shares. AAI never signed the purchase 

agreement. In emails or texts to Ault over the following year, the Individual complained that he 

had not received the full $100,000 for his M Corp shares. 

30. Almost a year later, on or around May 7, 2019, AAI paid another $10,000 to the 

Individual, which the Individual understood was a further payment towards the purchase of the 

Individual’s shares. 

31. Two months later, in July 2019, AAI provided the Individual two agreements, 

both signed by Ault. One agreement reflected that AAI paid $25,000 for the 16,677 shares of M 

Corp the Individual owned, contrary to the amount the Individual expected to be paid. Another 

agreement, for consulting services, which the parties had been discussing separately but never 

finalized, reflected that the $10,000 AAI paid to the Individual on May 7, 2019, was an initial 

payment for those services—again, contrary to the Individual’s understanding that he was being 

paid for his M Corp shares. 

32. By August 2019, despite numerous requests from the Individual, AAI had not paid 

$100,000 for his M Corp shares and Ault had not paid the amounts the Individual believed he 

was owed from the PAC loan, which by then exceeded $100,000. On August 21, 2019, the 

Individual sent a text message to Ault, stating: “One time offer. $65k wired to my account 

tomorrow. [PAC] obligation with your personal guarantee will be considered settled.” Ault 

responded, “I think I oh (sic) more,” to which the Individual replied, “65k by tomorrow end of 

day, and we’re done. Needs to be considered [M Corp] purchase for enhanced tax treatment.” 

Two days later, on August 23, 2019, AAI wired $65,000 to the Individual. As noted above, Ault 

had pledged securities to guarantee repayment of the Individual’s loan to the PAC.

33. AAI’s books and records falsely reflected that the $10,000 and $65,000 

payments to the Individual (for a total of $75,000) were paid for consulting services. In fact, the 

Individual had provided minimal or no consulting services to AAI. 

34. Horne, AAI's then-CFO, approved all three payments to the Individual and 

recorded the descriptions of the payments in AAI's books and records. Horne was not involved in 

the communications between Ault and the Individual. Horne was aware that AAI was acquiring 

the Individual’s M Corp shares and that Ault wanted to pay the Individual $100,000 for those 

shares. However, Horne valued the shares at $25,000 based on previous prices AAI had paid 

other shareholders for M Corp stock, and he did not want to pay an inflated amount for the 

shares so as not to disadvantage AAI in future negotiations with other M Corp shareholders. 

Horne chose to record the two payments totaling $75,000 as consulting services. Horne 

understood from Ault that Ault and the Individual had been discussing a consulting arrangement 

and had exchanged draft consulting agreements. However, Horne did not know if the $75,000 
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was for actual consulting services. And Horne knew that the Individual had not submitted 

invoices to AAI for consulting services.

35. Ault was aware of and approved of the payments to the Individual. Although 

Horne was responsible for making the payments and recording them in AAI's books and records, 

Ault knew or should have known that $75,000 was recorded for consulting services, which was 

false and grossly overstated any consulting services the Individual arguably provided. As noted 

above, Ault signed agreements stating that AAI had purchased the Individual’s M Corp shares 

for $25,000 and that the $10,000 paid to the Individual was an initial payment for purported 

consulting services. Ault should have known that Horne inaccurately recorded the remaining 

$65,000 as consulting services in the company’s books. As a result of the two payments for 

unsupported consulting work, AAI paid $75,000 for services it did not receive. Instead, the 

payments benefitted Ault because the Individual received the cost basis for his M Corp shares 

and no longer held Ault personally responsible for the disputed PAC debt.

AAI's Erroneous Accounting and Failure to Maintain 

Disclosure Controls and Procedures and Internal Control over Financial Reporting

AAI’s Improper Accounting of Avalanche Warrants

36. As part of AAI’s loans to Avalanche, starting in September 2017, Avalanche issued 

warrants to purchase shares of Avalanche common stock. As of December 31, 2021, Avalanche 

had issued AAI warrants to purchase 35.6 million shares of Avalanche stock. AAI improperly

accounted for these warrants during the fiscal years 2018 through 2021 by recording the changes in 

fair value of the warrants in other comprehensive income instead of in net income.

37. AAI failed to apply the Financial Accounting Standards Board Accounting 

Standards Codification (“ASC”) Topic 321, Investments – Equity Securities (“ASC 321”), which 

was issued under Accounting Standards Update No. 2016-01, to the purchased warrants in 

Avalanche. ASC 321 became effective for fiscal years beginning after December 15, 2017. ASC 

321 eliminated the ability to record changes in the fair value of certain investments in equity 

securities within other comprehensive income, and instead required such changes to be recorded

immediately in net income/loss. Though ASC 321 became effective for AAI's fiscal year 2018 and 

AAI applied it to equity investments in a private company in its Form 10-K for the year ended 

December 31, 2018, it did not apply this standard to its Avalanche warrants. 

38. In addition, beginning with AAI's fiscal year 2020, AAI began improperly 

classifying the Avalanche warrants as debt securities instead of equity securities. AAI applied 

ASC Topic 320, Investments—Debt and Equity Securities, which permits changes in fair value of 

debt securities to be recorded in other comprehensive income rather than net income. Even when 

AAI wrote off the value of these warrants at the end of fiscal year 2021, AAI’s Form 10-K for 

fiscal 2021, filed on April 15, 2022, improperly characterized the write-off as “impairment of debt 

securities”.

39. Though AAI’s periodic reports disclosed the amounts of changes in fair value of the

Avalanche warrants, they improperly recorded and disclosed the accounting for these changes.

AAI’s failure to record the change in fair value as part of net income materially under- or 
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overstated its reported net income or loss in its Forms 10-K and 10-Q during fiscal years 2018 

through 2021. Examples of these impacts are in the following table (in US dollars):

FY 2018 FY 2019 FY 2020 Q1 2021 Q2 2021 Q3 2021 FY 2021

Unrealized gain 

(loss) on warrants

 

(8,027,746) (1,950,168)

 

3,312,094 

 

2,969,170 

 

(5,893,000)

 

(4,849,000)

 

(2,683,000)

Reported Net 

Income (Loss) (32,982,201) (32,945,828) (32,728,629) 3,077,967 41,133,000 (42,774,000) (23,971,000)

Net income (loss) if 

included (41,009,947) (34,895,996) (29,416,535) 6,047,137 35,240,000 (47,623,000) (26,654,000)

% Impact on Net 

Income (Loss) 24.34% 5.92% -10.12% 96.47% -14.33% 11.34% 11.19%

In addition, AAI improperly recorded and disclosed changes in fair value in its accounting for the 

Avalanche warrants in the balance sheets and the statements of changes in stockholders’ equity in 

its Forms 10-K and 10-Q during fiscal years 2018 through 2021, as well as in related financial 

statement footnotes.

40. The impacts of this erroneous accounting continued to be reported in AAI’s Forms 

10-Q for the periods ended March 31, 2022, June 30, 2022, and September 30, 2022. 

41. On April 14, 2023, AAI restated its financial statements to correct for its erroneous 

warrant accounting by filing an amended Form 10-K for the year ended December 31, 2021, and 

amended Forms 10-Q for the periods ended March 31, 2022, June 30, 2022, and September 30, 

2022.

AAI’s Material Weaknesses in DCP and ICFR

42. AAI has disclosed several material weaknesses in each of its Forms 10-K and 10-Q

for over six fiscal years, from 2017 to 2022, continuing through its most recent Form 10-Q for the 

period ended March 31, 2023. Although AAI disclosed that it remediated two material weaknesses, 

one of those recurred and it and the other material weaknesses have not been remediated. Over six 

years, AAI has repeatedly concluded and disclosed that its DCP and ICFR were not effective due 

to these material weaknesses.

43. In its Form 10-Q/A for the period ended June 30, 2017, AAI disclosed that it lacked 

sufficient internal accounting resources regarding required disclosures and lacked “segregation of 

duties to ensure adequate review of financial statement preparation.” AAI disclosed that it filed 

this amended 10-Q to restate the misclassification of certain payments that was caused by these 

material weaknesses in its ICFR and resulting ineffective DCP. In its Form 10-K for the period 

ended December 31, 2017, with respect to the first material weakness, AAI stated, “We do not 

have sufficient resources in our accounting function, which restricts our ability to gather, analyze 

and properly review information related to financial reporting in a timely manner.” The Form 10-

K also disclosed the “failure to have segregation of duties” and identified another material 

weakness, stating, “We have inadequate controls to ensure that information necessary to properly 

record transactions is adequately communicated on a timely basis from non-financial personnel to 

those responsible for financial reporting.” As a result of these material weaknesses, AAI concluded 

that its DCP and ICFR were ineffective.
11

44. AAI repeated two of these material weaknesses—insufficient accounting resources 

and lack of segregation of duties—in each of its subsequent Forms 10-K and 10-Q through the 

present, as identified in its most recent Form 10-Q for the period ended March 31, 2023, for a total 

of 24 reporting periods. AAI also repeated the other material weakness—non-timely 

communication from non-financial personnel to financial reporting personnel—for over three 

years.

45. In its Forms 10-K for the years ended December 31, 2018 and 2019, AAI added an 

additional material weakness regarding its failure to “design or maintain effective general 

information technology (‘IT’) controls over certain information systems that are relevant to the 

mitigation of the risk pertaining to the misappropriation of assets.” These included “[p]rogram 

change management controls” for certain “financial IT applications” and “digital currency” mining 

equipment, hardware wallets, and underlying accounting records, as well as “physical security 

controls” related to “digital currency” mining equipment and hardware wallets. 

46. AAI took certain remedial steps concerning its material weaknesses starting 

particularly in 2018. These steps included hiring Horne as CFO in January 2018; hiring a Chief

Accounting Officer (“CAO”) in September 2018; hiring a Senior VP of Finance in January 2019; 

and hiring a General Counsel in May 2019, along with hiring three other accounting, finance, and 

legal employees. In addition, in December 2020, the company hired a consultant to review 

management’s assessment of compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and 

to identify internal control process improvements. In January 2021, the company hired a Director 

of Reporting.

47. In its fiscal year 2020 Form 10-K, AAI reported that it had remediated two of its 

material weaknesses—the inadequate communication from non-financial personnel and the IT 

controls, noted above. However, over the next two years, AAI reported a similar and expanded 

financial IT-related material weakness, including controls related to revenue recognition and its 

crypto assets. Specifically in its fiscal year 2021 Form 10-K, AAI stated, “Our primary user access 

controls (i.e. provisioning, de-provisioning, privileged access and user access reviews) to ensure 

appropriate authorization and segregation of duties that would adequately restrict user and 

privileged access to the financially relevant systems and data to appropriate personnel were not 

designed and/or implemented effectively. We did not design and/or implement sufficient controls 

for program change management to certain financially relevant systems affecting our processes.” 

In its fiscal year 2022 Form 10-K, AAI further expanded this material weakness to its crypto assets 

and revenue recognition, stating: “The Company did not design and/or implement user access 

controls to ensure appropriate segregation of duties or program change management controls for 

certain financially relevant systems impacting the Company’s processes around revenue 

recognition and digital assets to ensure that IT program and data changes affecting the Company’s 

(i) financial IT applications, (ii) digital currency mining equipment, and (iii) underlying accounting 

records, are identified, tested, authorized and implemented appropriately to validate that data 

produced by its relevant IT system(s) were complete and accurate. Automated process-level 

controls and manual controls that are dependent upon the information derived from such 

financially relevant systems were also determined to be ineffective as a result of such deficiency. 

In addition, the Company has not effectively designed a manual key control to detect material 

misstatements in revenue.”
12

48. In addition, in its fiscal year 2020, 2021 and 2022 Forms 10-K, AAI expanded its

first material weakness to state that its insufficient accounting resources also restricted its ability to 

apply “complex accounting principles relating to consolidation accounting, fair value estimates and 

analysis of financial instruments for proper classification in the consolidated financial statements,” 

in a timely manner for financial reporting. The company applies consolidation accounting and fair 

value estimates to its investments in various related parties, including Avalanche.

49. Despite AAI's remedial actions and other planned remedial actions, the company 

continues to report most of the same material weaknesses it originally identified six years ago, 

some of which have expanded, and has repeatedly concluded since 2017 that its DCP and ICFR are

ineffective due to its disclosed material weaknesses.

VIOLATIONS5

Violations by AAI

50. As a result of the conduct described above, AAI violated Sections 17(a)(2) and 

17(a)(3) of the Securities Act, which prohibit any person from directly or indirectly obtaining 

money or property by means of any untrue statement of a material fact or any omission to state a 

material fact necessary in order to make the statements made, in light of the circumstances under 

which they were made, not misleading, or engaging in any transaction, practice, or course of 

business which operates or would operate as a fraud or deceit upon the purchaser, in the offer or 

sale of securities. 

51. In addition, AAI violated Section 14(a) of the Exchange Act and Rule 14a-3 

thereunder, which, with respect to issuers with securities registered pursuant to Section 12 of the 

Exchange Act, prohibit soliciting proxies without furnishing proxy statements containing the 

information specified in Schedule 14A. AAI also violated Rule 14a-9 thereunder, which 

prohibits the use of proxy statements containing materially false or misleading statements or 

materially misleading omissions necessary to make statements made not misleading.

52. In addition, AAI violated Section 13(a) of the Exchange Act and Rules 13a-1, 13a11, 13a-13 and 12b-20 thereunder, which require every issuer with securities registered pursuant 

to Section 12 of the Exchange Act, to file with the Commission annual, quarterly, and current 

reports containing such information as the Commission’s rules may require and such further 

material information as may be necessary to make the required statements, in light of the 

circumstances under which they were made, not misleading.

53. In addition, AAI violated Exchange Act Rule 13a-15(a), which requires issuers 

required to file reports pursuant to Section 13(a) or 15(d) to maintain disclosure controls and 

procedures as defined in Exchange Act Rule 13a-15(e) and to maintain internal control over 

financial reporting as defined in Exchange Act Rule 13a-15(f). 

5 The violations herein do not require a showing of scienter. See, e.g., Aaron v. S.E.C., 446 U.S. 

680, 701-02 (1980); S.E.C. v. Hurgin, 484 F. Supp. 3d 98, 109 (S.D.N.Y. 2020); S.E.C. v. Wills, 

472 F. Supp. 1250, 1268 (D.D.C. 1978); Ponce v. S.E.C., 345 F.3d 722, 737 n.10 (9th Cir. 2003);

S.E.C. v. World-Wide Coin Investments, 567 F. Supp. 724, 749 (N.D. Ga. 1983).
13

54. In addition, AAI violated Section 13(b)(2)(A) of the Exchange Act, which requires 

reporting companies to make and keep books, records, and accounts which, in reasonable detail, 

accurately and fairly reflect their transactions and dispositions of their assets.

55. In addition, AAI violated Section 13(b)(2)(B) of the Exchange Act, which requires

all reporting companies to devise and maintain a system of internal accounting controls sufficient 

to, among other things, provide reasonable assurances that, among other things, transactions are 

recorded as necessary to permit preparation of financial statements in accordance with generally 

accepted accounting principles. 

Violations by Ault

56. As a result of the conduct described above, Ault violated and was a cause of AAI’s

violations of Securities Act Sections 17(a)(2) and 17(a)(3).

57. In addition, Ault violated and was a cause of AAI’s violations of Exchange Act

Section 14(a) and Exchange Act Rules 14a-3 and 14a-9.

58. In addition, Ault was a cause of AAI’s violations of Exchange Act Section 13(a)

and Exchange Act Rules 13a-1, 13a-11, 13a-13, and 12b-20.

59. In addition, Ault was a cause of AAI’s violations of Exchange Act Section 

13(b)(2)(A) and Section 13(b)(2)(B).

60. In addition, Ault violated Exchange Act Rule 13b2-1, which prohibits any person 

from directly or indirectly falsifying any books and records subject to Section 13(b)(2)(A) of the 

Exchange Act.

Violations by Horne

61. As a result of the conduct described above, Horne violated Exchange Act Rule 

13b2-1 and was a cause of AAI’s violations of Exchange Act Sections 13(b)(2)(A) and 

13(b)(2)(B).

DISGORGEMENT BY AULT

62. The disgorgement and prejudgment interest ordered in paragraph IV.F is consistent 

with equitable principles and does not exceed Respondent’s net profits from its violations, and

returning the money to Respondent would be inconsistent with equitable principles. Therefore, in 

these circumstances, distributing disgorged funds to the U.S. Treasury is the most equitable 

alternative. The disgorgement and prejudgment interest ordered in paragraph IV.F shall be 

transferred to the general fund of the U.S. Treasury, subject to Section 21F(g)(3) of the Exchange 

Act. 

REMEDIAL EFFORTS BY AAI

63. In determining to accept the Offer of AAI, the Commission considered AAI’s 

remedial act of restating its financial statements to correct its erroneous accounting for the changes 
14

in fair value of the warrants it held in related party Avalanche.

UNDERTAKINGS BY AAI

Respondent AAI undertakes to:

Independent Consultant

64. Retain, within 30 days of the date of entry of the Order, at its own expense, a

qualified independent consultant (the “Consultant”) not unacceptable to the Commission staff, to 

conduct a comprehensive review and evaluation of the adequacy of Respondent’s ICFR and 

DCP, and to provide recommendations for improvements as may be needed to ensure

Respondent’s compliance with ICFR and DCP requirements. This review and evaluation shall also 

include an assessment of Respondent’s policies and proceduresregarding public disclosures;

policies and proceduresinvolving the approval and recording of current and historic transactions

with related parties insofar as they may affect ongoing financial reporting in Respondent’s 

current periodic and other reports; and consolidation accounting and fair value estimates, 

including concerning related party transactions.

65. Respondent shall provide, within 45 days of the issuance of this Order, a copy of

the engagement letter detailing the Consultant’s responsibilities to the Commission staff.

66. Respondent shall require the Consultant to complete its review and evaluation, 

and to make its recommendations in a written report (“Report”), within six (6) months of entry of 

this Order. 

67. Respondent shall require the Consultant to issue the Report simultaneously to

Respondent and the Commission staff. The Reportshall include a description of the Consultant’s 

review and evaluation, the conclusions reached, and the Consultant’s recommendations for 

changes or improvements to Respondent’s ICFR and DCP.

68. Respondent will adopt and implement all recommendations in the Consultant’s 

Report within 180 days of the issuance of the Report. As to any recommendation that 

Respondent considers to be unduly burdensome or impractical, Respondent may, within 30 days 

of the issuance of the Report, submit in writing to the Consultant and the Commission staff a 

proposed alternative reasonably designed to accomplish the same objectives. As to any 

recommendation on which Respondent and the Consultant do not agree within 30 days 

thereafter, after attempting in good faith to reach an agreement, Respondent will abide by the 

determination of the Consultant. As to any such disputed recommendation, the Consultant shall 

inform Respondent and the Commission staff of the Consultant’s final determination within 60 

days after issuance of the Report.

69. Respondent shall certify, in writing, compliance with the undertakings set forth 

above. The certification shall identify the undertaking(s), provide written evidence of compliance 

in the form of a narrative, and be supported by exhibits sufficient to demonstrate compliance. 
15

The Commission staff may make reasonable requests for further evidence of compliance, and 

Respondent agrees to provide such evidence. The certification and supporting material shall be 

submitted to Tim England, Assistant Director, Division of Enforcement, Securities and Exchange 

Commission, 100 F St., NE, Washington, DC 20549-5561, with a copy to the Office of the Chief 

Counsel of the Division of Enforcement. no later than 60 days from the date of completion of the 

undertakings.

70. All written material required herein to be provided to the Commission staff shall 

be provided by the Respondent and the Consultant to Melissa Hodgman, Associate Director, 

Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 

20549-5553.

71. Respondent agreesthat, for good cause shown, the Commission staff may extend

any of the datesset forth above. In the event Respondent decides to request an extension of any 

such dates, it shall provide the Commission staff a written extension request that explains the 

circumstances and rationale for such request. The written extension request shall be submitted to 

the Commission staff no later than 30 days before the applicable deadline.

72. Respondent shall cooperate fully with the Consultant, including providing the 

Consultant with accessto its files, books, records, and personnel asreasonably requested for the 

above-referenced review, and obtaining the cooperation of respective employees or other persons 

under Respondent’s control.

73. Respondent shall require the Consultant to report to the Commission staff on its 

activities as the Commission staff may request.

74. Respondent and the Consultant shall agree that the Consultant is an independent 

third-party and not an employee or agent of the Respondent. In addition, Respondent and the 

Consultant agree that no attorney-client relationship shall be formed between them.

75. Respondent (i) shall not have received legal, auditing, or other services from, or

have had any affiliations with, the Consultant during the two years prior to the issuance of this

Order; (ii) shall not have the authority to terminate the Consultant without prior written approval

of the Commission staff; and (iii) shall compensate the Consultant for services rendered pursuant

to the Order at their reasonable and customary rates.

76. Respondent agrees, for the period of engagement and for a period of two years

from completion of the engagement, not to (i) retain the Consultant for any other professional 

services outside of the services described in this Order; (ii) enter into any other professional 

relationship with the Consultant, including any employment, consultant, attorney-client, auditing 

or other professional relationship; or (iii) enter, without prior written consent of the Commission 

staff, into any such professional relationship with any of the Consultant’s present or former 

affiliates, employers, directors, officers, employees, or agents acting in their capacity as such.

77. The reports by the Consultant will likely include confidential financial,

proprietary, competitive business or commercial information. Public disclosure of the reports
16

could discourage cooperation, impede pending or potential government investigations or

undermine the objectives of the reporting requirement. For these reasons, among others, the

reports and the contents thereof are intended to remain and shall remain non-public, except (1)

pursuant to court order, (2) as agreed to by the parties in writing, (3) to the extent that the

Commission determines in its sole discretion that disclosure would be in furtherance of the

Commission’s discharge of its duties and responsibilities, or (4) is otherwise required by law.

78. Respondent agrees to require that these undertakings shall be binding upon any 

acquirer or successor in interest to Respondent.

IV.

In view of the foregoing, the Commission deems it appropriate and in the public interest to 

impose the sanctions agreed to in Respondents’ Offers.

Accordingly, it is hereby ORDERED that:

A. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, 

AAI cease and desist from committing or causing any violations and any future violations of 

Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(a), 13(b)(2)(A), 13(b)(2)(B)

and 14(a) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, 13a-13, 13a-15(a), 

14a-3, and 14a-9. 

B. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, 

Ault cease and desist from committing or causing any violations and any future violations of 

Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) 

and 14(a) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, 13a-13, 13b2-1, 

14a-3, and 14a-9.

C. Pursuant to Section 21C of the Exchange Act, Horne cease and desist from 

committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 

13(b)(2)(B) of the Exchange Act and Exchange Act Rule 13b2-1.

D. AAI shall comply with the undertakings enumerated in the Undertakings section 

above, at paragraphs 64-78.

E. AAI shall, within 14 days of the entry of this Order, pay a civil money penalty in 

the amount of $700,000 to the Securities and Exchange Commission for transfer to the general 

fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3). If timely payment 

is not made, additional interest shall accrue pursuant to 31 U.S.C. §3717. 

F. Ault shall, within 14 days of the entry of this Order, pay disgorgement of $75,000 

and prejudgment interest of $10,504, and pay a civil money penalty in the amount of $150,000, for 

a total payment of $235,504, to the Securities and Exchange Commission for transfer to the general 

fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3). If timely payment 

of disgorgement and prejudgment interest is not made, additional interest shall accrue pursuant to 

SEC Rule of Practice 600, and if timely payment of a civil money penalty is not made, additional 

interest shall accrue pursuant to 31 U.S.C. §3717.
17

G. Horne shall, within 14 days of the entry of this Order, pay a civil money penalty in 

the amount of $20,720 to the Securities and Exchange Commission for transfer to the general fund 

of the United States Treasury, subject to Exchange Act Section 21F(g)(3). If timely payment is not 

made, additional interest shall accrue pursuant to 31 U.S.C. §3717. 

Payment must be made in one of the following ways: 

(1) Respondent may transmit payment electronically to the Commission, which 

will provide detailed ACH transfer/Fedwire instructions upon request; 

(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 

(3) Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to: 

Enterprise Services Center

Accounts Receivable Branch

HQ Bldg., Room 181, AMZ-341

6500 South MacArthur Boulevard

Oklahoma City, OK 73169

Payments by check or money order must be accompanied by a cover letter identifying AAI

as a Respondent in these proceedings, and the file number of these proceedings; a copy of the 

cover letter and check or money order must be sent to Melissa Hodgman, Division of Enforcement, 

Securities and Exchange Commission, 100 F St., NE, Washington, DC 20549-5561. 

H. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 

treated as penalties paid to the government for all purposes, including all tax purposes. To 

preserve the deterrent effect of the civil penalty, Respondents agree that in any Related Investor 

Action, they shall not argue that they are entitled to, nor shall they benefit by, offset or reduction of 

any award of compensatory damages by the amount of any part of Respondents’ payment of a civil 

penalty in this action ("Penalty Offset"). If the court in any Related Investor Action grants such a 

Penalty Offset, Respondents agree that they shall, within 30 days after entry of a final order 

granting the Penalty Offset, notify the Commission's counsel in this action and pay the amount of 

the Penalty Offset to the Securities and Exchange Commission. Such a payment shall not be 

deemed an additional civil penalty and shall not be deemed to change the amount of the civil 

penalty imposed in this proceeding. For purposes of this paragraph, a "Related Investor Action" 

means a private damages action brought against Respondents by or on behalf of one or more 

investors based on substantially the same facts as alleged in the Order instituted by the 

Commission in this proceeding.

V.
18

It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 

523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 

Respondents Ault and Horne, and further, any debt for disgorgement, prejudgment interest, civil 

penalty or other amounts due by Ault and Horne under this Order or any other judgment, order, 

consent order, decree or settlement agreement entered in connection with this proceeding, is a debt 

for the violation by Ault and Horne of the federal securities laws or any regulation or order issued 

under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19).

By the Commission.

Vanessa A. Countryman

Secretary