Riot Blockchain: This Crypto Clown Car Continues Hurtling Toward The Abyss

Summary

• Riot filed a registration for ~3.3M shares of common stock & common stock issuable upon warrant exercise, representing potential selling pressure for a stock with only ~11.6M common shares outstanding.
• The registration statement was reported Friday after the close.
• Riot dismissed and replaced its auditor, reporting the event Friday after the close. The company has had 3 different auditors within the span of a year.
• A new audit reported Friday after the close sheds light on Riot’s bizarre approach to purchasing (and overpaying for) cryptomining assets.
• The CEO recently sold about $869,256 worth of his shares, reporting the event Friday after the close heading into the long New Year’s weekend.

Introduction

This is a brief update on new red flags we have identified since our original December 11^th piece on Riot (NASDAQ:RIOT), which had detailed a broad array of red flags relating to the company’s sudden name change and business pivot from a medical device company, its 3^rd metamorphosis within the span of a year.

Since that original piece, a slew of new information has come out, much of it having been released on Fridays after the market close. Given that these releases have occurred during periods of relative market inactivity, we believe the timing may have mitigated the impact of negative developments.

Share Registration Could Create Near-Term Selling Pressure

Per an S-3 filed on Friday after the close, the company is registering 3,292,226 shares of common stock and common stock issuable upon warrant exercise. The implication of this filing is that investors who had purchased shares in the recent private placement offering will be free to trade them once the statement is declared effective. We believe this could create near to mid-term selling pressure, especially if the investors take a cue from the company’s own CEO who recently sold off a significant portion of his shares.

The number of shares being registered is meaningful. Per the filing, as of January 4^th, the company had 11,622,112 shares of common stock outstanding. The 1,646,113 common shares being registered represent over 14% of the outstanding common shares. The registration of 1,646,113 warrants issuable into shares of common stock at a $40 strike price also could create additional selling pressure. Note that the company has 1,458,001 preferred shares convertible into common issued and outstanding as well.

The Company Dismissed its Auditor

According to an 8-K filed Friday after the close, EisnerAmper LLP was dismissed as auditor and MNP LLP (headquartered in Calgary Canada) was engaged on

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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