Marathon Patent Group: Bright Red Flags With This Newfangled 'Blockchain' Play

Summary

• Marathon recently announced an agreement for the acquisition of Global Bit Ventures Inc. that will leave prior common shareholders with just 19% of the company.
• GBV was an entity set up only in August of this year and appears to have an undisclosed security interest with the former CFO, EVP and Secretary of Marathon.
• Marathon has multiple concerning parallels to Riot Blockchain, which recently engineered a similarly dubious pivot to the “blockchain."
• BDO resigned as auditor November 27. Per the filing “the resignation of BDO was not recommended by the Company’s audit committee."
• We are urging strong caution to investors in Marathon regardless of one’s views on blockchain technology.

With “blockchain mania” in full swing, Marathon Patent Group Inc. (NASDAQ:MARA) has seemingly hitched itself to the blockchain wagon and rode the wave to nearly 5x returns in a matter of weeks. The company’s blockchain focus has come about through a series of rapid shifts that are eerily similar to the questionable moves we identified in our recent piece on Riot Blockchain (NASDAQ:RIOT).

In Marathon’s latest 10-Q filed on November 20^th the company describes its business as being “to acquire patents and patent rights and to monetize the value of those assets to generate revenue and profit for the Company.”

Yet despite that stated business model, the company has seemingly abandoned much of its focus on patents and patent rights and instead shifted gears toward blockchain assets including cryptomining.

Global Bit Ventures Inc. (GBV) Acquisition Raises Questions

Rather than purchase cryptomining assets directly from manufacturers or suppliers, the company decided instead to purchase an entity that owned the cryptomining assets. On November 2, 2017, the company announced via press release that it had “entered into a definitive purchase agreement to acquire 100% ownership of Global Bit Ventures Inc. (“GBV”), a digital asset technology company that mines cryptocurrencies.”

The company has been scant with details on the transaction thus far. On a conference call following the announcement, the company detailed that the acquisition includes 1,000 Ethereum mining servers, though it failed to disclose the cost or value of the servers when asked by an investor. Another investor asked “How long has the company (GBV) been in existence?” The company declined to disclose this information as well, suggesting instead that they would wait until an S-4 was filed before disclosing.

We found the above non-disclosures to be troubling. The agreement with GBV stipulates that the company is to issue 126,674,557 shares of

Analyst’s Disclosure: I am/we are short MARA, RIOT, COOL. 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.

Use of Hindenburg Research’s research is at your own risk. In no event should Hindenburg Research 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, Hindenburg Research (possibly along with or through our members, partners, affiliates, employees, and/or consultants) along with our clients and/or investors has 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. Hindenburg Research is 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. Hindenburg Research makes 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 Hindenburg Research does not undertake to update or supplement this report or any of the information contained herein. Hindenburg Research and the terms, logos and marks included on this report are proprietary materials. Copyright in the pages and in the screens of this report, and in the information and material therein, is proprietary material owned by Hindenburg Research unless otherwise indicated. Unless otherwise noted, all information provided in this report is subject to copyright and trademark laws. Logos and marks contained in links to third party sites belong to their respective owners. All users may not reproduce, modify, copy, alter in any way, distribute, sell, resell, transmit, transfer, license, assign or publish such information.