It seems they started as a mining operation, then pivoted to sell shares or futures called "Hashlets". The scam started when they oversold these Hashlets and advertised to customers to use a cloud service instead of their physical mining rigs.
Right. At one point in the complaint, they say the company had oversubscribed its mining capabilities but kept selling to 4x IIRC, which rather implies that there was mining capability there in the first place (just much much less than they were selling).
The reason for that is that it turns out that paying for power and cooling is more expensive than not.