Thursday, January 18, 2018

•Riot BlockChain (RIOT): Pump & Dump or Disruptive Blockchain Company?•
(Updated 2/28/2018)

 The rise of Bitcoin and Blockchain has led to the rise of many companies attempting to capitalize on the craze. One such company that has been throwing off huge red flags is Riot Blockchain. Riot was formerly a biotech company that made the "transition" into a blockchain company just months ago, and the stock has soared since.

Consider these 26 Glaring Red Flags before investing:

RED FLAG 1:
One glaring red flag to look at is Riot overpaying for their mining equipment. On November 1st 2017, Riot Blockchain spent over $12 Million in stock and also $1 Million in future royalties for crypto mining equipment that was worth around $2 Million from a company called Kairos Global Technology Inc. Kairos was formed October 19th 2017, under 2 weeks before the purchase.

Here is the PR that Riot put out on November 2nd:
https://www.prnewswire.com/news-releases/riot-blockchain-enters-agreement-for-acquisition-of-1200-bitcoin-mining-machines-manufactured-by-bitmain-300548261.html

Riot’s stock price was $6.95 on November 1st. Riot purchased the mining equipment for 1,750,001 shares of Riot stock and also $1,000,000 in future royalties to “Certain of the shareholders of Kairos” So, they paid $12,162,500 worth of Riot stock and $1,000,000 in cash for equipment worth around $2 million.

Riot purchased 700 AntMiner S9s and 500 AntMiner L3s, all manufactured by Bitmain.
https://ir.riotblockchain.com/sec-filings-email/content/0001079973-18-000010/riot_s3.htm

Anybody can easily purchase this equipment online from Bitmain (the company who made the mining equipment) The Antminer S9 was $1,265 and the Antminer L3 was $2,040 on October 16th.  This can be verified by typing https://shop.bitmain.com into the Archive.org site.
700 * $1,265 + 500 * $2,040 = $1,905,500

Kairos paid exactly $2,089,679 for the mining equipment:
https://ir.riotblockchain.com/sec-filings-email/content/0001079973-18-000009/ex99x1.htm
It does not make sense for a company to buy mining equipment from another company that was just formed 2 weeks earlier and pay over 6 x the value of the equipment. They could have bought the same equipment directly from the manufacturer and waited 2-3 months. Or, they could have bought similar equipment directly from another company.

The following shows who owns Kairos:
http://nvsos.gov/sosentitysearch/CorpDetails.aspx?lx8nvq=fmE0EMNZjWiD8qFICJyf1w%253d%253d
President: Michael Ho
Registered agent: LAXAGUE LAW INC
The 2 directors are Bryan Pascual and Moses D Silverman

Here is one potential smoking gun:
The lawyer who set up Kairos, Joe Laxague, Esq. Laxague Law, Inc also did a filing in the past for one of Riot's largest shareholders, Catherine Johanna DeFrancesco.  Defrancesco also happens to be one of the shareholders who initiated the movement of forcing out old Bioptix associates to transition into a blockchain company.
https://www.sec.gov/Archives/edgar/data/1167419/000165495417000149/defrancesco13da_jan52017.htm  (Bioptix, Inc is one of the former names of Riot)

https://www.sec.gov/Archives/edgar/data/1167419/000107997317000048/ex10x1.htm (forcing out old board members)

RED FLAG 2:
On October 17th, Riot announced that they acquired a majority stake in another Bitcoin company named Tess, Inc.
https://ir.riotblockchain.com/press-releases/detail/11/riot-blockchain-to-acquire-majority-interest-in-tess-a )

Riot paid $320,000 and issued 75,000 shares for a 52% stake in Tess on October 20th 2017.  Riot’s stock price closed at $7.79  on October 19th 2017.  So, Riot’s investment in Tess was a little under a $1 million in cash and stock.

Tess happens to have some direct connections back to the Kairos company.  Tess's Chief Software Architect is Sorin Tanasescu. On October 19, 2017 Laxague Law set up Kairos, and they also set up an entity called Ingenium Global, Inc. on the exact same day, which has a unique name that is similar to an entity in which Tanasescu manages (Ingenium IT Compusoft). Ingenium Global, Inc. listed the exact same officers/directors as Kairos (Michael Ho, Bryan Pascual and Moses D Silverman) and registered the exact same par value and share count. Given that Riot announced the acquisition of Tess the very next day (October 20, 2017), one cannot help but wonder whether the selling parties in the Kairos deal were in any way related to the shareholders of Ingenium, and ultimately to the selling parties in the Tess deal. (https://seekingalpha.com/article/4131031-riot-blockchain-sudden-business-pivot-suspicious-acquisitions-questionable-special-dividend  )

Both Michael Ho and Laxague Law appear to be connected to both Kairos and Tess.

RED FLAG 3:
Riot (formerly Bioptix) announced a special dividend of $1 a share that only applied to certain shareholders on Oct 3rd.
https://www.prnewswire.com/news-releases/bioptix-announces-special-cash-dividend-300529711.html

The next day, Riot announces that they are changing their focus to “Strategic Investor and Operator in Blockchain Technologies.” It does not make much sense for a company to issue most of their cash out to special shareholders and announce the next day that they are going to focus on a new business. This new focus would require more cash. They also announced an investment in Coinsquare for $3 million.

RED FLAG 4:
Riot previously announced a shareholder meeting for December 28th. I live about 30 minutes from the "country club type hotel" that the meeting was supposed to be at. I tried to call Riot for more information on the meeting around a week before the meeting, but they never answered the phone or responded to voicemail or email. Their IR email that they put on every PR ( IR@RiotBlockchain.com ) has been bouncing back as an invalid email for over 4 weeks. I tried calling the hotel earlier in the week of the December 28th meeting. 3 different people at the hotel told me that they never heard of any meeting for Riot. Riot ended up cancelling this meeting the day before the meeting and rescheduling it for February 2018.  https://www.prnewswire.com/news-releases/riot-blockchain-announces-adjournment-of-annual-meeting-of-stockholders-300575416.html

RED FLAG 5:
Riot also wants to increase its Equity incentive plan to 1,645,000 shares from 895,000 shares.
Riot only has 11.6 Million shares outstanding as of its last SEC filings.  Riot appears to be trying to dilute the common shareholders for the benefit of company insiders.

RED FLAG 6:
Riot’s CEO SOLD most of his shares on the last trading day of 2017.
https://ir.riotblockchain.com/all-sec-filings/content/0001140361-17-047827/0001140361-17-047827.pdf
Riot’s stock price has went straight down since the CEO sold.

RED FLAG 7:
Riot has put out PR with no actual news relating to their company. This PR is only to draw attention to new investors that are looking for ways to jump into the BlockChain / Crypto space. Here are 2 examples:

Riot Blockchain Director Featured in ABC7 News Interview on Cryptocurrency
https://www.prnewswire.com/news-releases/riot-blockchain-director-featured-in-abc7-news-interview-on-cryptocurrency-300574524.html

Riot Blockchain Featured in 5-Part Series on CBS Interactive This Week
https://www.prnewswire.com/news-releases/riot-blockchain-featured-in-5-part-series-on-cbs-interactive-this-week-300556557.html

Here are 5 videos of the CEO from the article :

https://www.techrepublic.com/search/?q=riot+blockchain
On the “How to get Started” video, the CEO even recommends people can invest in his company to get exposure to the BlockChain.

RED FLAG 8:
Before October 4th 2017, Riot was a small Biotech company with about 7 employees.  They have no previous experience in Blockchain.  Riot’s Ceo, John O'Rourke, appears to live in Florida, but the company’s business address is listed in Colorado.  The next shareholder meeting also appears to be in Florida.  On January 17, 2017 Riot appointed Jeffrey Vormittag as Chief Operating Officer of Riot Blockchain Canada Inc.  On January 9th 2018, Riot appointed Daniel Stefan Robertsen from Norway as president of a new subsidiary named Digital Green Energy Corp.  It’s hard to tell where Riot’s main operating base is.  Riot also does not have anyone listed as a Chief Technology Office, yet they now claim to be a Technology company.

RED FLAG 9:
On December 19th 2017, Riot announced a PIPE offering for the purchase of 1,644,444 restricted units of the company at a purchase price of $22.50 per unit (the "Investment"). Each unit consists of one share of restricted common stock and one warrant to purchase one share of restricted common stock at an exercise price of $40.00 per share for a period of three years. This was a big discount to the current market price at the time.
https://www.prnewswire.com/news-releases/riot-blockchain-announces-37-million-private-placement-300573173.html
Riot’s stock price was:
12/15 $28.50
12/18 $36.57
12/19 $38.60
12/20 $36.12

Riot offered a very big discount to the investors of the PIPE offering.

RED FLAG 10:
Riot fired their accounting firm on 1/5/18
 https://ir.riotblockchain.com/sec-filings-email/content/0001079973-18-000008/riot_8k-010518.htm

This will be their third auditor in just a 1 year period:
https://finance.yahoo.com/news/3-crypto-stocks-were-part-003000438.html

RED FLAG 11:
Barry Honig is a large shareholder of Riot. He has a well documented history with penny stocks. He was the one, along with Catherine Defrancesco, who called the meeting to force out the Bioptix people, thus beginning the transition into a blockchain company. A simple Google search for “Barry Honig” will bring up a wealth of information on his past dealings.

https://bizwest.com/2017/01/09/shareholder-forces-bioptix-board-members/

https://seekingalpha.com/article/4123062-pershing-gold-believe-shares-virtually-worthless

http://www.teribuhl.com/2017/02/09/california-doj-investigating-honig-and-the-frost-group-2/

RED FLAG 12:
Riot's CFO has already been accused of pumping this same exact company before it changed its name:
https://www.reddit.com/r/investing/comments/7npd0n/cfosecy_of_riot_blockchain_previously_sued_twice/

RED FLAG 13:
Riot put out another PR (1/10/18) about it forming a new subsidiary that is "identifying environmentally friendly projects with large energy capacity and a cost-efficient rate for cryptocurrency mining and data center operations."

https://ir.riotblockchain.com/press-releases/detail/24/riot-blockchain-establishes-digital-green-energy-corp-as

It looks like Riot bought their mining equipment first, and now they are exploring a good place to put this equipment.  There is no logical reason why Riot would need a separate subsidiary just for this purpose. Riot said "Daniel Stefan Robertsen was "most recently Chairman and CEO of Bitfury Norway AS". There is very well known blockchain company called Bitfury that was founded in 2011.  However, Mr. Robertsen was never the CEO of this well known Bitfury.  Bitfury Norway AS was recently formed on October 11th 2017.
https://opencorporates.com/companies/no/919779543

RED FLAG 14:
Riot put out a PR about TessPay on 1/17/18:
https://www.riotblockchain.com/news-media/press-releases/detail/25/riot-blockchains-tesspay-enters-definitive-agreement-for

Riot’s CEO said “The merger would be the first of Riot Blockchain's investments to become a stand-alone public company.”  This PR seems hyped up since Cresval Capital Corp has a market cap of only $1.5 Million and trades only 3,000 shares a day at around $0.05 a share.

RED FLAG 15:
From Riot’s Q3 2017 10-Q filing:
https://ir.riotblockchain.com/all-sec-filings/content/0001079973-17-000667/riot_10q-093017.htm

“The Company has experienced recurring losses and negative cash flows from operations.  At September 30, 2017, the Company had approximate balances of cash and cash equivalents of $13,140,000, working capital of $12,555,000, total stockholders' equity of $15,466,000 and an accumulated deficit of $120,823,000. To date, the Company has in large part relied on equity financing to fund its operations. The Company expects to continue to incur losses from operations for the near-term and these losses could be significant as we incur costs and expenses associated with our recent and potential future acquisitions and investments, as well as public company and administrative related expenses are incurred and winding-down BDI’s operations. “

Riot has already burned through over $100 million in the past of shareholder equity.  Their revenue for the quarter ending September 30, 2017 appears to be only $24,175.  This was exactly the same revenue that Riot received for the same quarter in 2016.  Riot has almost no revenue for a company with over a $200 million market cap as of 1/25/18.

RED FLAG 16:

 Riot released another non newsworthy PR today, 1/18/18

https://ir.riotblockchain.com/press-releases/detail/27/riot-blockchain-submits-bidder-registration-for-the-u-s

Almost anyone with $200,000 is eligible for this sealed bid auction:
https://www.usmarshals.gov/assets/2018/bitcoinauction/
Putting out a PR that says you are submitting a form to participate in a sealed auction serves no purpose other than to try to make your company sound more relevant in the news.  Riot appears to be taking advantage of the Bitcoin craze in order to attempt to hype up its company.

 Update as of 1/24/18:  Riot announced that they "won" 500 Bitcoins at the auction
https://ir.riotblockchain.com/press-releases/detail/28/riot-blockchain-wins-500-bitcoins-in-u-s-marshals-service

Riot did not even announce what they paid for their "winning" bid.  They could have just bought 500 Bitcoins from CoinBase or from any other Bitcoin exchange and paid the market price at the time.  Riot was the only company at the auction who has publicly for out a PR that they "won".  There were 62 registered bidders:
https://www.bloomberg.com/news/articles/2018-01-23/riot-blockchain-claims-500-bitcoins-in-u-s-marshals-auction

Riot's CEO said Bitcoin is going to $50,000 within 12 to 18 months, but gives no reason for his logic.  Keep in mind that Riot was a Biotech company a few months ago, and Riot's CEO does not list any experience he has in the past with any Cryptocurrency.

 RED FLAG 17:

Riot shares a lot of the same insiders as MundoMedia:

Eric So, LL.B. is a Riot director and Chief Legal and Corporate Development Officer at Mundo Inc.

Riot's CEO, John O’Rourke, still currently serves on Mundos's board.

Barry Honig is a very large shareholder of Riot, and he helped shape Riot's current board:
https://bizwest.com/2017/01/09/shareholder-forces-bioptix-board-members/

Some of the same people behind Riot were also part of Mundo Media:
"The selling shareholders are Mansfield International Trade Ltd., Four Kids Investment Fund LLC, Stetson Capital Management LLC, ATG Capital LLC, Melechdavid Inc., Barry Honig, John O’Rourke and Jonathan Honig."
https://privatecapitaljournal.com/mundo-raise-60m-ipo-8-50-9-50/

Mundo Media was involved in some interesting lawsuits:

https://www.leagle.com/decision/infdco20150112551
"In this case, Tagged alleges that defendants operate an illegal spam ring that has inundated Tagged's social network system with millions of illegal, unsolicited messages to users, intending to entice them to visit fraudulent adult dating and pornographic websites."

https://watchyourbuck.com/2013/11/08/texas-ag-slams-cellphone-crammers-with-a-lawsuit/
"Texas AG slams cellphone crammers with a lawsuit"

https://www.complaintsboard.com/complaints/brilliant-brights-scam-convert2media-and-mundo-media-usa-cyprus-etc-c312195.html

Fake blogs from affiliates of Convert2Media and Mundo Media CPA Networks promoting Brilliant Brights teeth whitening scam.

RED FLAG 18:

Barry Honig sold almost all his shares:

https://www.wsj.com/articles/investor-who-rode-pivot-from-biotech-to-bitcoin-sells-big-stake-1517403600

https://seekingalpha.com/news/3326791-riot-blockchain-fast-money-investor-cashes

He owned about 10% of the company, and now owns only 1%.

RED FLAG 19:

Riot cancelled its rescheduled shareholder meeting, the day before the meeting again.  Just like last time, the hotel never had a meeting scheduled according to the hotel.

https://www.prnewswire.com/news-releases/riot-blockchain-announces-adjournment-of-annual-meeting-of-stockholders-300591550.html

This caused the SEC to issue "Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing." 
https://ir.riotblockchain.com/sec-filings-email/content/0001079973-18-000058/biot_8k-013118.htm


RED FLAG 20:

Riot acquired another small company for an undisclosed amount on 2/7/18:

The company's webpage looks totally empty:

Here is some more information on the company they acquired:
https://www.nfa.futures.org/BasicNet/Details.aspx?entityid=jRxBbbxQ%2Fq8%3D

Barry Honig is connected to the owner of Logical Brokerage, Mark Fisher:
http://www.floridavipers.org/page/show/2905536-our-board-

They are 2 of the 3 members of the Florida Vipers Basketball board.  

Riot keeps on buying tiny companies in whatever area seems to be "hot" at the time. Keep in mind that Riot was a Bio tech company a few months ago.

RED FLAG 21:

Riot just put out a SEC filing after the close today (2/16/18)
https://ir.riotblockchain.com/sec-filings-email/content/0001079973-18-000112/riot_8k.htm

At first, this PR might seem a little bit confusing.  Kairos is now owned by Riot Blockchain.  You can read more about Kairos much earlier in he blog.

So in the new PR, Kairos purchased mining equipment from a company called "Prive Technologies LLC". Prive Technologies happens to be owned by Bryan Pascual and Michael Ho.  These are the same exact owners as the Kairos company that Riot previously purchased.

http://search.sunbiz.org/Inquiry/CorporationSearch/ConvertTiffToPDF?storagePath=COR%5C2017%5C1031%5C70164737.tif&documentNumber=L17000225341

Riot just bought mining equipment again at a large premium over market prices.  And, it happens to be from the same exact owners as the previous Kairos owners. Riot purchased Kairos on October 19th, 2017. On October 31st, 2017, Michael Ho and Bryan Pascual formed Prive Technologies.


The 3,800 Antminer S9 miners that Riot bought have a market value of $2,320 USD each if you buy directly:
https://shop.bitmain.com/main.htm?lang=en

Again, Riot could have ordered the miners in the past directly from Bitmain and they would have already received them for a substantially lower price.  Also, they could have negotiated a bulk discount if purchasing directly from Bitmain.

$2,320 x 3,800 machines = $8,816,000

Riot just paid $11 Million Cash and 1,000,000 shares of Riot stock.  Well, they did put 200,000 of the shares in Escrow that won't be available until Riot mines $10,000,000 worth of Bitcoins.

Riot also paid $8,500,000 for 3,000 Antminer S9 miners from Blockchain Mining Supply & Services Ltd. for $8.5 Million.
This can be bought directly at cost for $2,320*3,000 = $6,960,000


Mining is a VERY competitive market.  It makes no sense to overpay for equipment.  Plus, Riot does not seem to have any competitive advantage in this area at all.

RED FLAG 22:

Riot just put out a SEC filing after the close today (2/23/18)
https://ir.riotblockchain.com/sec-filings-email/content/0001079973-18-000125/riot_8k.htm

Riot is paying a company called INGENIUM INTERNATIONAL LLC $4 million up front in consulting fees.... The people behind this company happen to be Michael Ho and Bryan Pascual.  These are the same people who also happened to own Kairos and Prive.
http://search.sunbiz.org/Inquiry/CorporationSearch/SearchResultDetail?inquirytype=EntityName&directionType=Initial&searchNameOrder=INGENIUMINTERNATIONAL%20L170002525470&aggregateId=flal-l17000252547-c7fcad0c-b342-484a-9925-0f65422097bb&searchTerm=Ingenium%20Group%2C%20LLC&listNameOrder=INGENIUMGROUP%20L130001682030


 On November 1st 2017, Riot Blockchain spent over $12 Million in stock and also $1 Million in future royalties for crypto mining equipment that was worth around $2 Million from a company called Kairos Global Technology Inc. Kairos was formed October 19th 2017, under 2 weeks before the purchase. (See Red Flag #1)

 See Red Flag 21 for more information on Prive.

Here is the consulting agreement:
https://ir.riotblockchain.com/sec-filings-email/content/0001079973-18-000125/riot_8k.htm

This consulting agreement makes no sense on so many levels.  First of all, Riot could just hire 1-2 people to oversee this project and pay them between $50-150k a year each instead of $4 Million up front. Also, look at Red Flag #8.  Riot already overpaid Jeffrey Vormittag to set up Digital Green Energy Corp.  Riot paid Jeffrey a signing bonus of $25,000 and $225,000 a year plus bonuses.
https://www.sec.gov/Archives/edgar/data/1167419/000107997318000036/ex10x1.htm
RED FLAG 23:

Riot's valuation of CoinSquare seems VERY suspicious to me:


CoinBase has 13.3 million users a of November 2017, and was getting over 100k users a day. CoinSquare only has around 100k users.

CoinBase was valued at $1.6 Billion. Even if you value CoinSquare at 1% of CoinBase, that gives you a valuation of $16 Million. Riot owns 12.5% of Coinbase.  12.5% of $16 Million is $2 Million.

Riot put out the following PR on CoinSquare:
https://www.prnewswire.com/news-releases/riot-blockchain-participates-in-coinsquare-private-

placement-coinsquare-receives-cad-430-million-post-money-valuation-300595589.html

Riot invested CAD $3.4 Million at a CAD $430 Million post-money valuation.  Riot now owns 12.5% of Coinsquare, which would be valued at CAD $53.75 Million or about USD $42.5 Million.
I do not understand how this valuation makes any sense at all.  CoinSquare's userbase is tiny compared to Coinbase, plus there is now a lot more competition.  Also, I can hardly find any information at all about Coinsquare.  The information I do find appears to be mostly pissed off users:

https://www.reddit.com/r/BitcoinCA/comments/7i2xyp/coinsquare_is_a_scam/


Also, there are at least 75 exchanges that do more volume than CoinSquare:
https://coinmarketcap.com/exchanges/volume/24-hour/

GDAX (name for Coinbase's global exchange) did over $800 million in volume over the past 24 hours.  CoinSquare did under $6 million in volume.  GDAX constantly does around 130x + the volume of Coinsquare.

CoinBase was valued around the $200 per user when it last raised money at the $1.6 Billion evaluation.  It looks like they had roughly 8 million users in August 2017 when they raised the money.


CoinSquare has around 100,000 users, and they raised money at a $340 Million valuation.  
This would be $3,400 per user.

Plus, CoinBase already had some very big names behind it in 2017.  Plus, CoinBase was growing at a much faster rate around that time than CoinBase is growing today. There were also less exchanges back in August 2017.

The New York Stock Exchange was an early investor in CoinBase.  


The multiple per user should be much higher on CoinBase than CoinSquare.  I don't see what changed with CoinSquare since Riot invested.  Something does not add up.

 *** Update on 2/26:
Circle acquired an exchange called Poloniex today for $400 Million.  Poloniex is much larger than Coinsquare:
https://techcrunch.com/2018/02/26/circle-acquires-cryptocurrency-exchange-poloniex/
https://coinmarketcap.com/exchanges/volume/24-hour/

They are well over 30 times larger than Coinsquare and much more established.  Riot valued Coinsquare at $340 Million.  Poloniex does over 30x the volume as CoinSquare.  Even if it was just 30x, this would value CoinSquare at around $13 Million



RED FLAG 24:

In the same SEC filing from today (2/23/18)
https://ir.riotblockchain.com/sec-filings-email/content/0001079973-18-000125/riot_8k.htm


Eric So resigned.  Eric So was just appointed to the board on October 23rd 2017.  So, he lasted exactly 4 months.  Riot appointed  Remo Mancini to take his place.  Mr. Mancini is also from Canada.  There seem to be a lot of connections with Riot and Canada for some reason even though Riot is a US company.  He will receive 45,000 restricted stock units which shall vest 50% on the date of grant and 50% after six months along with cash compensation of $5,000 per month.
RED FLAG 25:

In a SEC filing from today (2/28/18)
https://ir.riotblockchain.com/sec-filings-email/content/0001079973-18-000127/riot_8k.htm



 Mr. Frank M. Bishop resigned from his position on the Strategic Advisory Board of the Company.  He was just appointed to the board on November 21st 2017.  So, he lasted about 3 months.

RED FLAG 26:

In the same SEC filing from today (2/28/18)
https://ir.riotblockchain.com/sec-filings-email/content/0001079973-18-000127/riot_8k.htm



On February 27, 2018 the Board of Directors (the "Board") appointed Mr. Robby Chang to the position of Chief Financial Officer and to serve as Principal Accounting Officer effective upon completion of the Company's 2017 audit and filing of its Annual Report on Form 10-K for the year ended December 31, 2017 (the "2017 10-K").

He will be replacing Mr. McGonegal.

Here is Robby Chang's  LinkedIn page:
https://www.linkedin.com/in/robbychang/

He has never held a CFO position.  Actually, it looks like he has never held an accounting position.  He went to college at the University of Toronto and seems to have a degree in Management.

Rob Change also recently gave a Buy rating to Pershing Gold Corp:
https://webcache.googleusercontent.com/search?q=cache:pm5Hd3sP-FoJ:https://www.streetwisereports.com/pub/co/pglc-otcqx+&cd=1&hl=en&ct=clnk&gl=us

He gave a price target of $4.25 a share on 10/26/17
Pershing Gold Corp stock was priced at $2.90 on 10/25/17
As of 2/28/18, Pershing's stock was $2.18.


Barry Honig happens to be on the board of directions of Pershing Gold Corp:



 Conclusion:
Riot appears to be quickly spending the $37 million cash that they recently raised.  This money is being spent on some very questionable purchases.  And, Riot also appears to keep diluting the shares of the company by issuing more shares.    Plus, it appears that company insiders will be receiving more shares in the near future, thus diluting current shareholders.  Riot wanted to increase the board's compensation at the shareholder meeting that never seems to happen.  Barry Honig, Riot's largest shareholder already sold most of his shares during the peak, when Riot was pumping out PR constantly.   The only asset that might have value for Riot is its share in CoinSquare, but Riot keeps on diluting its sharers, so even this asset will not be worth much to current shareholders with all the dilution.  Riot does not appear to have any real operations.  Their CEO lives in Florida, and they might have 5 old employees from their old Biotech firm.  They do have  several well paid executives now also.  It looks like Riot will likely need to eventually raise money again since they are burning cash quickly and they do not really have much revenue at all. 

Disclosure: I am/we are short RIOT.

Additional disclosure: Use of this research is at your own risk. In no event should we or any affiliated party be liable for any direct or indirect trading losses caused by any information in this report. You further agree to do your own research and due diligence, consult your own financial, legal, and tax advisors before making any investment decision with respect to transacting in any securities covered herein. We are not registered as an investment advisor in the United States or have similar registration in any other jurisdiction. To the best of our ability and belief, all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable, and who are not insiders or connected persons of the stock covered herein or who may otherwise owe any fiduciary duty or duty of confidentiality to the issuer. However, such information is presented “as is,” without warranty of any kind – whether express or implied. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use. All expressions of opinion are subject to change without notice, and we do not undertake to update or supplement this report or any of the information contained herein.







Posted by at 2 comments:

Tuesday, January 9, 2018

Riot BlockChain:  Potential Red Flags

Summary:  Riot Blockchain is a former Biotech company that recently pivoted into BlockChain.  The stock price has soared since this pivot, but there appears to be many red flags.


Riot BlockChain appears to be a Pump and Dump. The more research I do on Riot, the more red flags I find. The most obvious case of potential fraud for me to prove appears to be Riot overpaying and hyping their mining equipment.
On November 1st, Riot Blockchain spent over $12 Million in stock and also $1 Million in future royalties for crypto mining equipment that was worth around $2 Million from a company called Kairos Global Technology Inc. Also, notice that this company was formed on October 19th 2017, under 2 weeks before the purchase.
( Entity Details - Secretary of State, Nevada shows when Kairos was formed )
It is very clear what mining equipment they were buying.
Riot’s stock price was $6.95 on November 1st. Riot purchased the mining equipment for 1,750,001 shares of Riot stock and also $1,000,000 in future royalties to “Certain of the shareholders of Kairos” So, they paid $12,162,500 worth of Riot stock and $1,000,000 in cash for equipment worth around $2 million. The equipment purchased is below:
700 AntMiner S9s and 500 AntMiner L3s, all manufactured by Bitmain.
( https://ir.riotblockchain.com/sec-filings-email/content/0001079973-18-000010/riot_s3.htm )
Anybody or any company was easily able to purchase this EXACT equipment online from Bitmain (the company who made the mining equipment)
Here is screen shot of the equipment prices on October 16th from Archive.org

$1,265 for the S9 and $2,040 for the L3
700 * $1,265 + 500 * $2,040 = $1,905,500
Here is screen shot of the equipment prices on November 14th from Archive.org

$1,415 for the S9 and $1,586 for the L3
700 * $1,415 + 500 * $1,586 = $1,783,500
If you look at the financials of Kairos Global Technology Inc. that Riot provided on 1/5/18, you can clearly see that Kairos paid exactly $2,089,679 for the mining equipment. Here is a link to Kairos’s financial info that shows what they paid for the mining equipment. It’s under “Purchase of equipment”
https://ir.riotblockchain.com/sec-filings-email/content/0001079973-18-000009/ex99x1.htm
The current pricing of their equipment can be found on the link below.
( Buy ASIC Bitcoin Miners & Bitcoin Mining Equipment - Bitmain ) They recently increased the price of the S9 due to high demand from all the bitcoin hype.
The S9 is currently selling for $2,320 (they purchased 700 as per the SEC filings above)

The L3 is selling for $1,536 (they purchased 500 as per the SEC filings above)
700 * $2,320 + 500 * $1,536 = $2,392,000 (Someone can buy this equipment at full price for $2.4 Million.)
The 1,750,001 shares Riot issued for the $2 million worth of equipment is now worth $42.75 million as of 1/5/18. Plus, Riot also promised $1,000,000 in future royalty payments.
It does not make sense for a company to buy mining equipment from another company that was just formed 2 weeks before and pay over 6x the value of the equipment. They could have bought the same exact equipment directly from the manufacturer. Or, they could have bought similar equipment directly from another company. Yes, they might have needed to wait for the equipment. But, it will NEVER make financial sense to purchase computers at over 6x the market rate and expect to ever get a return on that equipment. The price of computers is always going down long term, and the performance is always getting better over time. Crypto mining is a very competitive market now, and there is no guarantee they would earn a return on their equipment if they paid the $2 Million retail price. If there was a guarantee, the equipment maker would just use the mining equipment themselves and not sell it .
This purchase looks to be done so Riot's stock can benefit from the bitcoin hype and the other crypto hype. There is no reason to overpay by over 6x for crypto mining equipment. Let's say a mining machine costs $2,400 retail and produces an estimated $100 a month in revenue. It would never make sense to pay 6x the $2,400 cost just so you can earn an extra $200 from starting the mining a couple months early.
Here is some information I found on Kairos:
They registered a domain name of KairosBlockChain.com on 10/16/17
Registrant Name: Michael Ho
Registrant Organization: MKH International Ltd
Registrant Street: 5709 Cayan Tower
Registrant City: Dubai
Registrant State/Province: AE
Registrant Postal Code: 643651
Registrant Country: AE
Registrant Phone: +1.6046492060
email: Mikeho.mkh@gmail.com
The registered agent is LAXAGUE LAW INC
The president is Michael Ho (from Dubai)
The 2 directors are Bryan Pascual and Moses D Silverman (both from Florida)
Here is a complaint on Laxague Law INC:
The lawyer used for Riot in the past was Joe Laxague, Esq. Laxague Law, Inc. This is the same lawyer who set up Kairos company, who owned the mining equipment.
Riot has changed their company name 3 times. The past 3 names are: Bioptix, Inc. Venaxis, Inc. AspenBio Pharma, Inc.
https://ir.riotblockchain.com/all-sec-filings/content/0001079973-17-000761/0001079973-17-000761.pdf
On October 17th, Riot announced that they acquired a majority stake in another Bitcoin company named Tess, Inc.
Riot Blockchain to Acquire Majority Interest in TESS, a Blockchain Development Company
Tess happens to have some direct connections back to the Kairos company:
Tess's Chief Software Architect is Sorin Tanasescu
I give credit to the following article for this paragraph below: ( Riot Blockchain: Sudden Business Pivot, Suspicious Acquisitions, Questionable Special Dividend )
On the same day that Laxague Law set up Kairos (October 19, 2017), the same law firm also set up an entity called Ingenium Global, Inc., which has a unique name that is similar to an entity in which Tanasescu manages (Ingenium IT Compusoft). Even more interestingly, Ingenium Global, Inc. listed the exact same officers/directors as Kairos (an individual in Dubai and two from Florida) and registered the exact same par value and share count. Given that Riot announced the acquisition of Tess the very next day (October 20, 2017), we cannot help but wonder whether the selling parties in the Kairos transactions were in any way related to the shareholders of Ingenium, and ultimately to the selling parties in the Tess transaction.
Here is some more information on the Tess transaction:
Tess Inc. Acquisition: On October 20, 2017, the Company acquired approximately 52% of TESS which is developing blockchain solutions for telecommunications companies. Under the terms of the Purchase Agreement (the “Purchase Agreement”) the Company invested cash of $320,000 and issued 75,000 shares of restricted Common Stock in exchange for 2,708,333 shares of common stock of TESS. Accordingly, TESS became a majority-owned subsidiary of the Company. In connection with the transaction, the Company and TESS entered into a registration rights agreement pursuant to which the Company agreed to file a registration statement within three months to register the resale of 25,000 shares (of 75,000 shares) of Common Stock issued to TESS. As of October 20, 2017 TESS has net tangible assets of approximately $10,000 and the Company expects that the purchase price will be allocated to intangible assets including inprocess research and development and goodwil. ( https://ir.riotblockchain.com/all-sec-filings/content/0001079973-17-000667/0001079973-17-000667.pdf )
Both Michael Ho and Laxague Law appears to be a key connection between Kairos and Tess.
They also both appear to be connected directly to Riot in the past.
I managed to find a connection between Michael Ho, Jason Les (a Riot director), and also Jason Mo (a Riot board advisor)
All 3 are professional poker players, and all 3 played at the 2016 WSOP event:
https://www.wsop.com/pdfs/reports/14968/Ev68-Flight-C-Counts-by-Seat.pdf
I’m assuming their paths also would have crossed at other events, but I don’t have the resources to research that easily.
Also:
Riot happened to buy Kairos on November 1st.
Jason Les was added to board on November 3rd. (Riot Blockchain Inc Board of Directors )
Here are some other Red Flags.
1. Riot (formerly Bioptix) announced a special dividend of $1 a share that only applied to certain shareholders on Oct 3rd.
Bioptix Announces Special Cash Dividend
The next day, Riot announces that they are changing their focus to “Strategic Investor and Operator in Blockchain Technologies”. It does not make much sense for a company to issue almost all of their cash out to special shareholders, and announce the next day that they are going to focus on a new business. This new focus would require more cash. They also announced an investment in Coinsquare, which shows as a $3 million investment on their SEC filings.
2. Riot previously announced a shareholder meeting for December 28th. I live about 30 minutes from the "country club type hotel" that the meeting was supposed to be at. I tried to call Riot for more information on the meeting around a week before the meeting, but they never answered the phone or responded to voicemail or email. Their IR email that they put on every PR ( IR@RiotBlockchain.com ) has been bouncing back as an invalid email for over 2 weeks. I tried calling the hotel earlier in the week of the December 28th meeting. 3 different people at the hotel told me that they never heard of any meeting for Riot. They ended up cancelling this meeting the day before the meeting and rescheduling it for February. (Riot Blockchain Announces Adjournment of Annual Meeting of Stockholders )
3. Riot also wants to increase its Equity incentive plan to 1,645,000 shares from 895,000 shares. Riot’s stock price was $29.80 as of 12/27/17. This has a value of around $49 Million as of 12/27/17. Riot appears to be trying to dilute the common shareholders as much as possible and finding ways to siphon the company’s cash to its insiders. This $49 million is more than the entire company was worth for all of 2017 until they decided to do a name change and add “BlockChain” to their name. The board did not do anything to deserve such a huge pay raise. All they did was create HYPE around their company and cause the stock price to increase due to the hype. They only have made small investments in other companies. And, one of those investments has them paying around $13 million for $2 million worth of computer mining equipment. (explained in detail earlier)
Riot Blockchain Announces Adjournment of Annual Meeting of Stockholders(shows their request to increase incentive plan)
4. Riot’s CEO sold most of his shares on the last trading day of 2017
https://ir.riotblockchain.com/all-sec-filings/content/0001140361-17-047827/0001140361-17-047827.pdf
5. Riot has put out PR with no actual news relating to their company. This PR is only to draw attention to new investors that are looking for ways to jump into the BlockChain / Crypto space. Here are 2 examples:
6. Possible insider trading:
Closing stock prices by date:
Sept 26: $4.30
Sept 27: $4.4999
Sept 28: $4.98
Sept 29: $5.16
Oct 2: $6.45
Oct 3: $8.09
For ALL of 2017, Riot was trading around the $3 to $4 range. It jumped to $6.45, the day before their announcement that they were going to Pivot into the Crypto area.
7. On December 19th, Riot announced a Pipe offering for the purchase of 1,644,444 restricted units of the Company at a purchase price of $22.50 per unit (the "Investment"). Each unit consists of one share of restricted common stock and one warrant to purchase one share of restricted common stock at an exercise price of $40.00 per share for a period of three years.
Riot’s stock price was:
12/15 $28.50
12/18 $36.57
12/19 $38.60
12/20 $36.12
8. Riot fired their accounting firm on 1/5/18
This accounting firm happened to be involved in at least 2 other fraud cases:
9. Barry Honig is a large shareholder. He has a history with penny stocks. He was the one who called the meeting to force out the Bioptix people .
10. Here is some more information on Riot’s special dividend copied from Riot Blockchain: Sudden Business Pivot, Suspicious Acquisitions, Questionable Special Dividend
Riot Depleted An Estimated 63% of the Company's Cash Through a Special Dividend That Appears To Have Disproportionately Advantaged Company Insiders
Bioptix/Riot recently engineered a "special cash dividend" that stripped the fledgling company of approximately 63% of its cash, seemingly handing a significant portion of those funds to company insiders. That kind of cash giveaway - announced one day ahead of a shift to a new, speculative business model - gives us significant concerns. The sequence of events was as follows:
In March 2017, Bioptix announced the completion of private placements that included a convertible note financing and also included warrants to purchase 1,900,000 shares of common stock.
On September 25, 2017, Bioptix made the following disclosures:
Bioptix filed a Form 8-K stating, in part, that notes from the March 2017 Offerings had been exchanged for shares of Series A Convertible Preferred Stock.
Bioptix filed an amended Registration Statement Form S-3 which described how holders of Series A Convertible Preferred Stock "are entitled to receive dividends if and when declared by the Company's board of directors. The Series A Preferred Stock will participate on an 'as converted' basis, with all dividends declared on the Company's Common Stock." Then on October 4, 2017, the newly-named Riot filed a Form 8-K stating that the company had approved a cash dividend:
Pursuant to which, the holders of the Company's common stock, no par value per share (the 'Common Stock'), and Series A Convertible Preferred Stock, no par value per share (the 'Series A Preferred Stock'), as of the close of business on October 13, 2017, shall receive $1.00 for each share of Common Stock, including each share of Common Stock that would be issuable upon conversion of the Series A Preferred Stock, on an as converted basis.
The magnitude of the dividend is significant. The payout "totaled approximately $9,562,000" whereas Riot's financial statements reflected that at the close of Q3 2017 - two days before the October 2017 dividend was approved - the company had only $13,139,722 in cash and cash equivalents. When factoring in an added $1.86 million in cash proceeds from warrant conversion, the October 2017 dividend depleted an estimated 63% of the company's cash and cash equivalents balance. Consequently, we find its size relative to Riot's available cash to be troubling.
The timing of related warrant conversions is similarly concerning. Riot's quarterly filing prior to the October 2017 dividend indicates that 2,060,000 warrants from the March offering were converted into 1,228,690 common shares on a cashless basis. In addition, 620,000 warrants were exercised for cash during a period where Riot's board of directors authorized on October 10th a "temporary reduction in exercise price" of convertible securities from the March 2017 private offerings. Given that the record date of the October 2017 dividend was October 13, 2017 (with a payment date of October 18, 2017), both the cashless warrant conversion and the conversion from the reduction in exercise price of the March 2017 securities appear to have conspicuously occurred just prior to the payment of the October 2017 dividend.
Who Benefited From the Special Dividend?
In the press release announcing the special dividend, the company's CEO stated: "This special dividend is a positive step to return value to all Bioptix shareholders." Despite this pronouncement, we believe Riot insiders and participants in the March 2017 private placements benefited disproportionately.
The amended Form S-3 detailing the convertible and warrant offerings prominently mentioned one individual in particular. Per the filing, "The Lead Investor is Barry Honig who is also a selling stockholder." Moreover, Honig-related entities, as well as Honig's family members including brother Jonathan and father Alan, also participated in the transactions.
Later, in two Schedule 13G filings filed as of an event date of October 10th - just days prior to the dividend ex-date - Jonathan Honig and an individual named Mark Groussman reported common stock ownership stakes of 9.51% and 5.93% respectively. Jonathan Honig's filing also mentioned that the 9.51% figure "does not include 808,198 shares of common stock issuable upon conversion of Series A Preferred Stock." it is unclear from the filings where Barry Honig's ownership on a common stock and on a convertible/exercised basis stands currently.
Note that the same filing mentioned that there were only 5,436,503 shares of common stock outstanding as of September 20th. By November 13th, the number of common shares had spiked up to 8,321,137, a roughly 53% increase in common shares in less than two months. Such a jump indicates that a significant amount of dilution has affected common stockholders in a short amount of time.
11. Michael Ho, owner of Kairos, already started a new mining company: mysite
This shows how easy it is to start a mining company from scratch. It's also a little weird to sell a business for $13 million, and then just start the same exact business up all over again right away.
12. Riot's CFO has already been accused of pumping this same exact company before they changed their name:
Here is some information about Riot's CFO:
13.  Riot put out another PR today (1/10/18) about them forming a new subsidiary that is "identifying environmentally friendly projects with large energy capacity and a cost-efficient rate for cryptocurrency mining and data center operations."
Riot Blockchain Establishes Digital Green Energy Corp as New Subsidiary
Riot recently overpaid to buy mining equipment.  It looks like Riot bought the mining equipment first, and now they are exploring a good place to put this equipment and maybe future equipment.  

Also, Riot said "Daniel Stefan Robertsen has been appointed President of Digital Green Energy Corp and will begin his duties in the role on January 24, 2018".

They also said he was "most recently Chairman and CEO of Bitfury Norway AS".

There is very well known blockchain company called Bitfury that was founded in 2011.  However, Mr. Robertsen was never the CEO of this well known Bitfury.  Bitfury Norway AS was recently formed on October 11th 2017:
https://opencorporates.com/companies/no/919779543

Here are some other well written articles on Riot:


Disclosure: I am/we are short RIOT.
Additional disclosure: Use of this research is at your own risk. In no event should we or any affiliated party be liable for any direct or indirect trading losses caused by any information in this report. You further agree to do your own research and due diligence, consult your own financial, legal, and tax advisors before making any investment decision with respect to transacting in any securities covered herein. You should assume that as of the publication date of any short-biased report or letter, we have a short position in all stocks (and/or options of the stock) covered herein, and therefore stands to realize significant gains in the event that the price of any stock covered herein declines. Following publication of any report or letter, we intend to continue transacting in the securities covered herein, and we may be long, short, or neutral at any time hereafter regardless of our initial recommendation, conclusions, or opinions. This is not an offer to sell or a solicitation of an offer to buy any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer would be unlawful under the securities laws of such jurisdiction. We are not registered as an investment advisor in the United States or have similar registration in any other jurisdiction. To the best of our ability and belief, all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable, and who are not insiders or connected persons of the stock covered herein or who may otherwise owe any fiduciary duty or duty of confidentiality to the issuer. However, such information is presented “as is,” without warranty of any kind – whether express or implied. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use. All expressions of opinion are subject to change without notice, and we do not undertake to update or supplement this report or any of the information contained herein.


Posted by at 15 comments:
Subscribe to: Posts (Atom)