The cryptocurrency craze had many companies interested in digital currency and blockchain technology. Many companies began to integrate a blockchain segment into their business or even changing completely into one. Riot Blockchain Inc. (NASDAQ: RIOT) is one of the companies that changed into a new business.
Before changing to Riot last year in October, it was known as a biopharmaceutical company called Bioptix. The former biopharma company focused on veterinary products and developing new ways to test for diseases.
Riot was only a blockchain company for a few months before it raised suspicion. The company’s share price surged from $8 to $40 as cryptocurrency was making a huge scene, but at the same time, Riot was making headlines for its hot stock.
Shares of Riot began to crash on Friday after CNBC investigated the company about raised doubts and suspicion. Riot shares crashed by 30 percent on Friday following the report.
CNBC began to point out “red flags” revolving around Riot, which included postponing shareholder meetings, insider selling after the name change, issuances that favored large investors, suspicious SEC filings, and new evidence of major shareholders exiting while other investors were buying in.
Other red flags also include when CNBC anchor Michelle Caruso-Cabrera went to Boca Raton Resort and Club in Florida where Riot had reportedly planned to hold its annual investor conference which was cancelled twice. The hotel reportedly said that there was no meeting rooms booked under “Riot Blockchain.”
Cabrera also approached Riot CEO, John O’Rourke, who was staying at the hotel. He was not open to an interview, but later agreed to a formal interview with CNBC, but then he cancelled the interview.
Afterwards, CNBC tried to meet with Barry Honig, one of Riot’s biggest investors, but when they approached his office, they were greeted by O’Rourke instead, which raised more suspicion.
CNBC had also spoke to securities attorneys who said that if a CEO were using the office of a major investors that it would cause concerns about the exchange of private information. Honig and O'Rourke both denied sharing offices.
According to SEC filing, it was reported that O’Rourke had sold more than 800,000 shares as his stock hit an all-time high, another red flag.
But O’Rourke had told the Denver Post that he was selling his overall position at the time for “tax obligations”.
Other red flags were that the company did invest into a cryptocurrency exchange in September and then two months later purchased cryptocurrency mining equipment. According to SEC filings, the company had paid more $11 million for the equipment when they were worth only $2 million.
Jacob Zamansky, founder of Zamansky LLC, also raised concerns about the company. In the company’s most recent quarterly filings, Riot reported an EPS loss of $0.98 per share, which Zamansky says is concerning.
"With the absence of revenue on the company's current financial statements, I would think investors need to be very cautious of a highly speculative stock with a lot of red flags," he said.