Riot Blockchain: Sudden Business Pivot, Suspicious Acquisitions, Questionable Special Dividend

Summary

  • Riot made a dramatic pivot from a "life science tools" business to a blockchain company mere months ago.
  • The company paid approximately $12 million for a two-week-old crypo-mining entity that owned only about $1.9 million in crypto mining assets.
  • A second acquisition raises additional red flags.
  • Riot depleted an estimated 63% of company cash through a special dividend that appears to have disproportionately advantaged insiders.
  • Regardless of one's views on blockchain technology, we believe Riot is a name that should be avoided.

With "blockchain mania" in full swing, a new self-described leader has emerged. Riot Blockchain (NASDAQ:RIOT) purports to be "a Leading Blockchain Company & Only Nasdaq Listed Pure Play Blockchain Company." With share prices nearly quadrupling in the past three months, we decided to examine the name more closely.

The company's blockchain focus has come about through a series of rapid moves. Mere months ago, Riot was known as Bioptix, Inc. and operated "a life science tools company that provides an affordable solution for drug discovery scientists who require label-free, real-time detection of bio-molecular interactions."

On October 4th of this year, Bioptix announced that it was changing its name and ticker from Bioptix. Inc. (BIOP) to Riot Blockchain (RIOT), and indicated that it would be pursuing a completely different business model focused on strategic investment and operations in the blockchain ecosystem.

We find such a dramatic pivot in business operations to be concerning in its own right, but we believe it is even more questionable given that the seismic shift has come about in conjunction with a series of dubious transactions.

Riot Paid Approximately $12 million To Acquire Kairos Global Technology - A Two-Week-Old Crypto-Mining Company That Owned Only About $1.9 Million in Crypto Mining Assets

On November 2, 2017, the company announced via press release that it had "entered into a definitive agreement to acquire cryptocurrency mining equipment consisting of 700 Antminer S9s and 500 Antminer L3s, all manufactured by industry leader Bitmain." Upon closing of the purchase the company issued another press release on November 6, 2017, stating that "it has closed on its acquisition of cryptocurrency mining equipment". A basic reading of the press releases might lead a reader to believe that the company had purchased the equipment directly.

However, a reading of the November 1, 2017, Form 8-K

This article was written by

Founded by Nate Anderson, CFA, CAIA, Hindenburg Investment Research specializes in forensic research and activist short-selling. Our experience in the investment management industry spans over a decade, with a historical focus on buy side equity, credit, and derivatives analysis. While we use fundamental analysis to aid our investment decision-making, we believe the best edge can be had by uncovering hard-to-find information from atypical sources. In particular we look for situations where companies may have any combination of (i) accounting irregularities (ii) bad actors in management or key service provider roles (iii) undisclosed related-party transactions (iv) or illegal/unethical business or financial reporting practices. Tips and feedback can be sent to info@hindenburgresearch.com

Analyst’s Disclosure: I am/we are short RIOT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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