As bitcoin hit record highs in late December, a hot new stock was making news on a daily basis. Riot Blockchain’s (RIOT) stock shot from $8 a share to more than $40, as investors wanted to cash in on the craze of all things crypto. In this column we discuss the major issues.
CNBC reported that its inquiry into Riot Blockchain’s dubious history revealed the name of one Barry Honig. It seems he became active in the company when it was a veterinary testing firm called Bioptix in April 2016.
A prospectus filed with the SEC on August 24, 2017, showed Mr. Honig owning 543K shares and GRQ Consultants, which he founded and heads, owning 30.6K shares. His father, Alan Honig, was also on board, owning 20K shares.
“Nobody should think it is OK to change your name to something that involves blockchain when you have no real underlying blockchain business plan and try to sell securities based on the hype around blockchain,” SEC Chairman Jay Clayton said, speaking in generalities in recent testimony to Congress. The SEC declined to comment to CNBC about Riot Blockchain.
The company did make an investment in a cryptocurrency exchange in September and two months later did purchase a company that has cryptocurrency mining equipment, but paying more than $11 million for equipment worth only $2 million, according to SEC filings.
Another investor was Mark Groussman, owner of 160K shares, who leads another consultancy called Melechdavid, owner of 340K shares.
Mr. Honig and Mr. Groussman have a long history together. For example, they were both involved with MusclePharm in 2012, providing services paid in stock, each accumulating a 4.2% stake. Both men also worked on a reverse merger involving American Strategic Minerals.
A 13G filed filed on October 11, 2017 for Riot Blockchain/F/K/A Bioptix reported a 639,920-share stake by Mr. Honig’s brother Jonathan. A 13G filed two days later listed Mr. Groussman’s 399,020-share stake.
Diligent investors will, no doubt, be looking into RIOT through a sharper lens.
A number of red flags in the company’s SEC filings also might make investors leery: annual meetings that are postponed at the last minute, insider selling soon after the name change, dilutive issuances on favorable terms to large investors, SEC filings that are often Byzantine and, just this week, evidence that a major shareholder was getting out while everyone else was getting in.
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