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Rebellion against McLouth cryptocurrency data center triggers one-year application moratorium

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Skeptics alarmed by environmental, financial issues and shocked by oil tank fire

OSKALOOSA — The avalanche of complaints about threats to rural quality of life, unresolved issues of land ownership and leasing rights, an oil tank explosion that burned a truck packed with ammunition and widespread distrust of developers — even by a former white-collar criminal — compelled the Jefferson County Commission to impose a moratorium of at least one year on applications for construction of cryptocurrency processing centers.

Crypto Colo Center Corp.’s proposal to boost McLouth’s economy by planting a crypto currency mine one-third of a mile north of town imploded under pressure from energy companies, Sierra Club, McLouth City Council, Jefferson County Redevelopment Office and, most significantly, dozens of area residents. They were aghast anybody would bring into their midst two dozen 40-foot shipping containers packed with energy-intensive computer servers that churned around the clock on electricity drawn from eight locomotive-sized generators fueled by natural gas pulled right out of the ground.

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All to enable secretive asset transactions some financial experts believe the United States ought to ban as China did last year.

Sound pollution tied to the business of validating Bitcoin and other cryptocurrency deals on the network would likely be heard for miles in Jefferson County, critics said, despite promises by developers a cloth barrier on the chain-link fence and fast-growing plants would muzzle the nuisance. Outsiders pitching the idea to locals reportedly violated a cardinal rule of development — they recklessly mispronounced “McLouth.”

Oskaloosa’s Bob and Joy Thayer, speaking on behalf of four other Thayers, told the Jefferson County Planning and Zoning Commission the crypto project was an abomination on many levels.

“We’re not one to mince words and play political games,” Bob Thayer said. “But I can assure, if this project passes through your hands unscathed, there will be fallout for many and collapse a quiet little town we all once knew. For God’s sake … if a vehicle loaded with ammunition exploding isn’t enough to raise major levels of concern, then nothing is.”

“There may be places where people are willing to sell their birthright for a pot of beans, but I trust that Jefferson County is not one of them. If it is not stopped, I will have no choice but to move,” said Edith Williams, 65.

Cory Van Nostrand, who lives about one-half mile from proposed data center, said it didn’t make sense for Jefferson County to host a business devoted to validating anonymous crypto exchanges that could be associated with illegal activities, such as human trafficking, drug smuggling, weapon sales or terrorists.

Sentiments shared by the trio resembled that of the Russell, Wood, Vaught, Pope, Chrisman, Kingsolver, Zule and Rollins families who submitted written comments in opposition to Crypto Colo Center’s project ahead of the scheduled Monday night meeting to take public comment. Several hours before the meeting, the agenda item was dropped because the company’s request for a conditional use permit was withdrawn and the county commission issued the moratorium on new permit requests for cryptocurrency facilities.

‘Stop order,’ council vote

Crypto Colo Center, on behalf of Dei Vitae Enterprises, had filed an application for a conditional use permit with the goal of converting agriculture land to commercial use on Kansas Highway 92. The initial focus of the data facility would be a 15-acre piece of an 81-acre parcel that had served previously as a location of oil and gas extraction.

The drama ripened Feb. 21 when the Jefferson County Community Development Office sent Crypto Colo Center’s legal counsel a “stop order” because the company had started putting up structures at the site without a building permit. On the next day, the McLouth City Council unanimously recommended the county planning commission deny the request for a conditional use permit — a prerequisite for securing a permit to build.

Kathy Ewert, a veterinarian who submitted a lengthy memorandum chronicling objections to the project, said it had been a challenge to unravel details of business people involved in the project, puzzle about who owned or leased the property and energy rights, explore twists and turns of courthouse feuding, discern ramifications of energy-hogging data centers and consider what it all meant to Jefferson County residents.

“This is ‘Days of Our Lives,’ ” she said of the long-running soap opera. “This is daytime drama.”

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Ewert raised an alarm about potential damage to property values and inability of taxes paid by developers to cover the county’s cost of extending public services. She was apprehensive about the volume of electricity demanded, adequacy of environmental assessments and influence of noise pollution on residents, livestock and wildlife.

She noted Crypto Colo Center’s office was initially listed as Lot 5 in Easton, which turned out to be an abandoned mobile home. The registered address was amended to a Wichita rental office.

“Nothing about this proposed conditional use permit is remotely agricultural in nature,” Ewert said. “Not even the spirit of agriculture.”

Elaine Giessel, chairwoman of Sierra Club’s Kansas chapter, said the project’s long-term solvency was questionable and its energy source ill-conceived. Environmental costs and public health risks would place a “disproportionate burden on the citizens of Jefferson County who will see little, if any, economic benefit,” she said.

In a twist, Rueben Burton submitted comments about Crypto Colo Center on behalf of himself, his wife, Susan, and her company, Dei Vitae Enterprises. Burton, who pled guilty in 2002 in federal court to mail fraud, money laundering and securities fraud, said Crypto Colo Center shouldn’t be approved because its management couldn’t be trusted to be “good stewards of the land and project they so desperately wish to place out there.”

“The primary source of all the turmoil and litigation between Dei Vitae and Crypto Colo Center is the fact that we differed on how best to utilize this property and the role the company should have in the community,” said Burton, who in 2021 still owed $2.7 million in restitution to victims of his fraud.

Meanwhile, Crypto Colo Center chairman Anthony Melikhov filed a lawsuit in Illinois on behalf of Natan Holdings, controlled by Melikhov, alleging the Burtons and Dei Vitae collectively engaged in systematic fraud against Natan for years.

Bullets cooking off

Opposition to the cryptocurrency construction project had been forming when an explosion rocked the site Dec. 10, 2022.

Phil Hook, representing ARC Energy Development, featured that catastrophe in a document sent to the county planning commission outlining concerns for the Crypto Colo Center application. ARC Energy, a licensed Kansas oil and gas operator, is a subsidiary of ARC Rock Capital, which loaned $3.4 million to KLMKH, the original owner of Jefferson County property in the bullseye of the data center. KLMKH is bankrupt, he said, but ARC Energy’s acquisitions included an oil-and-gas lease situated on land tied to Crypto Colo Center’s application.

Hook said the Crypto Colo Center project could expose the community to “potentially dangerous” levels of hydrogen sulfide gas emissions. Natural gas fuel requirements of the development were far in excess of the available supply locked underground, he said.

“The proposed proximity of the data center and generators to oil and gas operations pose potential hazards which have not been addressed,” Hook said. “Development sponsors and operators have a questionable track record and capabilities.”

He referenced the afternoon when Crypto Colo Center was likely responsible for operating a tank battery that exploded at the site. The ignition destroyed and burned two oil stock tanks, a water truck and a nearby operator’s vehicle, which contained a bounty of live ammunition and delayed extinguishment of the fire. Flames pumped black smoke into the sky as half a dozen township fire departments and first responders scrambled.

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Hook disputed the conclusion of Max Smetannikov, chief executive officer and co-founder of Crypto Colo Center, who reportedly said “fires are, unfortunately, not uncommon on oil leases.” Hook said the opposite was true.

“In our opinion,” Hook said, “the explosion was directly or indirectly due to operator negligence and could have been avoided were Crypto Colo Center to have employed good oilfield practices in managing the site.”

Brandy Jones, who also submitted testimony to the county planning commission, said she and her husband bought a farm last year at McLouth. Her husband was teaching at U.S. Army Command and Staff College at Fort Leavenworth, and they were drawn to beautiful rural landscapes reminding them of where they grew up in Alabama. The farm is 0.8 miles from the Crypto Colo Center base.

“The peacefulness of our home is important to us as my husband has served this amazing country in lands for years that were not so peaceful,” Jones said.

She said they could hear loading and unloading of shipping containers by Crypto Colo Center and backup alarms of heavy equipment because sound carried right to their property. She assumed the company’s generators would grind 24/7 if the facility went operational. And, she was outside the day of the explosion and felt the ground shake under her feet. She recalled the smoke and subsequent blasts.

“I did my research when I first heard of their plans,” Jones said. “Hoping to find a positive to their presence, I found only negatives in every community that these data centers were installed.”

Kansas Reflector is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Kansas Reflector maintains editorial independence. Contact Editor Sherman Smith for questions: info@kansasreflector.com. Follow Kansas Reflector on Facebook and Twitter.

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