Shares of Riot Blockchain (NASDAQ:RIOT) , a popular cryptocurrency proxy stock that was one of the first to gain investor attention after pivoting to blockchain, crashed more than 20% in morning trading Friday after an in-depth report from CNBC raised doubts about the company.
The investigative piece explained Riot’s short history as a blockchain-focused firm, highlighting its name change and subsequent move away from its former Bioptix Inc. business model, which, up until a few a months ago, saw the company manufacturing biotech diagnostics equipment.
CNBC then pointed to a number of “red flags” involving Riot, including postponed shareholder meetings, insider selling in the wake of the name change, shady issuances that seem to favor large investors, and questionable SEC filings.
The report also included video footage of anchor Michelle Caruso-Cabrera at the up-scale Boca Raton Resort and Club in Florida, where Riot had supposedly planned to hold an annual investor conference that has now been cancelled twice. The hotel reportedly said that no meeting rooms had ever been reserved for a “Riot Blockchain.”
Caruso-Cabrera also showed up to the office of one of Riot’s largest investors and found its CEO, John O’Rourke. The polarizing chief executive quickly shut the door on the anchor. O’Rourke eventually agreed to a formal interview with CNBC, but he later cancelled the plans.
CNBC spoke to securities attorneys who said that if a CEO were using the office of a major investor, it could cause concerns about inappropriate exchanges of information. Both O’Rourke and the investor denied sharing an office.
O’Rourke has emerged as quite the sketchy character through Riot’s rise to blockchain fame. The executive has been widely accused of using the name change for personal gain, as he reportedly sold more than 800,000 shares of the stock as it reached an all-time high.
“I sold less than 10% of my overall position to assist with covering tax obligations as a result of so-called phantom income tax rom the vesting of restricted stock awards,” O’Rourke told Business Insider. “I am not wealthy and am working to build a business here.”
CNBC’s report also points to the few blockchain-related activities that can be tracked to Riot.
“The company did make an investment in a cryptocurrency exchange in September and two months later did purchase a company that has cryptocurrency mining equipment, but paying more than $11 million for equipment worth only $2 million, according to SEC filings,” the authors note.
In its most recent quarterly earnings report in November, Riot posted a loss of $0.98 per share. The company’s blockchain business has not proven that it can generate significant revenue yet, leaving even more room for concern.
“With the absence of revenue on the company's current financial statements, I would think investors need to be very cautious of a highly speculative stock with a lot of red flags,” securities fraud expert Jacob Zamansky told CNBC.
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