After altering its title to Riot Blockchain in October to incorporate the phrase “blockchain,” the general public firm watched its inventory skyrocket from $eight a share to greater than $38 throughout a cryptocurrency rally in the beginning of the 12 months.
The primary important drawback was the corporate didn’t have any actual give attention to blockchain know-how. Earlier than October, Riot was often called Bioptix, a maker of diagnostic equipment for the biotech business. The corporate additionally modified its ticker image to RIOT from BIOP.
One other drawback was that key shareholder Barry Honig bought caught along with his hand within the cookie jar, promoting off a giant stake of his shares at $38 per share after the title change.
On February 22, 2018, regulation agency Robbins Geller Rudman & Dowd LLP introduced it was submitting a class-action lawsuit towards Riot. The grievance costs Riot, together with Honig and firm CEO John O’Rourke and CFO Jeffrey McGonegal, with securities violations.
Particularly, the costs declare that regardless of its lack of blockchain experience, Riot modified its title to generate investor enthusiasm to additional an insider scheme that might enable Riot’s controlling shareholders to dump their shares at grossly inflated costs.
No less than two different lawsuits have been filed towards Riot and its principals, charging them with securities violations and false and deceptive statements.
These lawsuits observe a scathing investigation into Riot by CNBC on February 16, 2018, that raised questions in regards to the firm’s enterprise mannequin and Honig. Within the wake of that report, shares tumbled 33 % to $11.46. It’s probably these class-action lawsuits could be the first of many to return towards Riot.
On October four, 2017, Riot adopted its new title and headed off in a radical new enterprise route, saying it was going to put money into and function blockchain applied sciences with a give attention to Bitcoin and Ethereum. The corporate had no earlier enterprise in blockchain know-how, but in press releases, Riot portrayed itself as a seasoned participant within the house.
“At Riot Blockchain, our workforce has the perception and community to successfully develop and develop blockchain belongings,” mentioned Riot’s then-CEO, Michael Beeghley, in a assertion on the time.
The corporate has a historical past of questionable actions. In December, Riot started buying cryptocurrency mining tools. However moderately than buying from the producer or different suppliers, the firm paid greater than $11 million for tools price solely $2 million by buying it by means of a newly shaped shell entity.
Honig can be charged with exercising exterior affect over the corporate’s enterprise operations. Starting in April 2016, lengthy earlier than the corporate modified its title to Riot, Honig started buying shares within the firm. By December 2016, he had turn out to be the corporate’s largest shareholder, proudly owning greater than 11 % of the corporate. He used that affect to appoint a number of new administrators to the board, together with O’Rourke.
Along with insider promoting after the title change, different worrying indicators in regards to the firm included: Riot misplaced two auditing corporations in only one 12 months, and two annual stockholder conferences have been postponed on the final minute. Additionally, a few of Riot’s enterprise offers concerned buyers who had labored on related offers collectively previously, elevating questions in regards to the firm’s governance.
Riot will not be the one firm to have jumped onboard the rename-your-company “blockchain” bandwagon. A number of different firms have additionally rewritten their names to money in on the blockchain and cryptocurrency craze.
In December, the Lengthy Island Iced Tea Company, a New York–primarily based firm that makes iced tea, rebranded itself as “Lengthy Blockchain.” Its firm shares rose 300 % in consequence. In January, legacy images firm Kodak introduced the launch of KODAKCoin, a “photo-centric” cryptocurrency for photographers, and its inventory went up 80 % inside hours.
Lawsuits like those now piling up towards Riot stand as a reminder that a title change will not be sufficient — an organization wants actual blockchain expertise and know-how and a stable marketing strategy behind it earlier than including “blockchain” to its title.
#blockchain #riot #lawsuit