From Biotech to Blockchain: Riot Blockchain Subpoenaed by SEC

Cryptocurrency company Riot Blockchain has been issued a subpoena by the SEC, the company has revealed. This is in relation to the recent surge in its stock from $8 to $40 after a change of name.

The company’s 10K report indicates the subpoena was issued on April 9 with SEC requesting “certain information. “

According to the report, the company intends to “cooperate fully” with the regulator’s request.

Riot Blockchain also warned investors that the cost of compliance with the SEC  subpoena may not be covered by its insurance carrier.

“The Company has notified its insurance carrier although there can be no assurance that the costs of compliance with the subpoena or any related matters will be eligible for insurance coverage. Nevertheless, response to the subpoena will entail cost and management’s attention.”

“We continue to focus on the expansion of our cryptocurrency mining operations and the active investigation of launching a cryptocurrency exchange in the United States. We see a strong integration opportunity of supply and demand between our mining operation and a potential exchange,’ CEO John O’Rourke said in a statement.

From Biotech to Blockchain

Previously known as Bioptix, the company quickly transformed from a biotech company known for making diagnostic equipment to a Blockchain company despite having no known prior experience in the area.

It quickly acquired a cryptocurrency company with mining equipment and invested in a cryptocurrency exchange. SEC filings however indicate that it paid $11 million for equipment worth only $2 million, according to a CNBC report.

The Company is building a cryptocurrency mining operation, operating specialized computers (also known as “miners”) that generate cryptocurrency (primarily Bitcoin).   As of December 31, 2017, the Company owned 1,200 miners acquired with the Kairos Global Technology. During February 2018 in two separate transactions, the Company acquired an additional 6,800 miners bringing the total miners owned to 8,000,” Riot Blockchain’s 10-K filing said.

A CNBC investigative piece in February revealed “insider selling soon after the name change “ among other red flags like “dilutive issuances favourable terms to large investors.”

Same Boat

Longfin, a controversial fintech company is in trouble with the law after it sold unregistered shares when prices were highly elevated. Like Riot Blockchain, Longfin’s shares surged more than 47% after it announced it was acquiring a cryptocurrency company.

SEC Chairman has previously warned companies without prior experience in blockchain technology against changing dabbling in it or changing their names without adequate disclosures about the risks involved.

Dabbling with Blockchain

“In late 2017, we determined to instead pursue a blockchain and digital currency (specifically bitcoin)‑related business, initially through investments in existing companies,” the company says.

Riot Blockchain expected the current scrutiny, it seems.

“SEC Chairman Jay Clayton warned that it is not acceptable for companies without a meaningful track record in the sector to dabble in blockchain technology, change their name and immediately offer investors securities without providing adequate disclosures about the risks involved.  As a result, we could be subject to substantial SEC scrutiny that could require devotion of significant management and other resources and potentially have an adverse impact on the trading of our stock, “ its report says.

The company says it is now developing a mining facility in Oklahoma. It is also setting up a cryptocurrency exchange but it warns investors that these “new and unproven” ventures might not bring in any profit.

“During February 2018, Kairos entered into a lease agreement for approximately a 107,000-square foot facility in Oklahoma City, Oklahoma, which included data center improvements,” the 10-K filing to the SEC said.

Even if they did, it might not be for long, the company says in its 10-K report.  “Our mining operations are costly, and we expect our expenses, including those related to acquisitions, to grow in the future,” the company says.