Riot Blockchain's Brazen Disclosure Issues Continue

Summary

• Despite a Friday CNBC investigative piece highlighting red flags with Riot and precipitating a 33%+ share decline, the company filed an 8-K later that afternoon raising bright new red flags.
• The filing was released during a market “dead zone”; Friday after the close heading into the long holiday weekend. It detailed a dubious agreement.
• We estimate that Riot's new agreement implies an over-payment of about $18.5 million for bitcoin mining equipment purchased from a seemingly undisclosed related party entity.
• We found other entities related to a Riot subsidiary that raise additional questions.
• Riot’s latest questionable transaction strikes us as particularly brazen in light of the intense public scrutiny the company has seen recently.

Introduction

Riot Blockchain (NASDAQ:RIOT) and one of its key backers, Barry Honig, have come under a tremendous amount of recent scrutiny over the past couple of months, capped off by a CNBC investigative piece on Friday that precipitated a drop of over 33% in the company’s share price.

Despite the fresh warning signs highlighted by CNBC, that same evening the company filed an 8-K during a market ‘dead zone’; Friday after the close heading into a long holiday weekend. The filing detailed a transaction that strikes us as intensely questionable, and raises brand new red flags.

Public Scrutiny of Riot Blockchain

We are first going to recap some of the recent reporting on Riot. For those interested in just the brand new items please skip to the following section.

• 10/6/2017: Following the company’s sudden business and name change from Bioptix Inc. to Riot Blockchain, the Heisenberg Report identified a multitude of early red flags including how the company’s official corporate address corresponded to a mail drop adjacent to a Blimpie’s in a Colorado strip mall.

• 12/11/2017: We published our first detailed report on Riot entitled “Sudden Business Pivot, Suspicious Acquisitions, Questionable Special Dividend.” In the report, we described the company’s bizarre approach to buying crypto-mining equipment. Rather than purchasing the equipment directly from the manufacturer or from suppliers, Riot instead significantly overpaid for the equipment by purchasing it through a newly formed shell entity. We also highlighted the ownership of key backer Barry Honig and a questionable special cash dividend that seemed to disproportionately benefit insiders such as Honig.

• 12/12/2017: The following day, CNBC’s Brian Kelly led a segment that reinforced and corroborated much of our research, concluding the piece stating “I’m not sure that this is actually a blockchain company, so you need to be careful is the bottom line.”

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