•Riot BlockChain (RIOT): Pump & Dump or Disruptive Blockchain Company?•

The rise of Bitcoin and Blockchain has led to the rise of many companies attempting to capitalize on the craze. One such company that has been throwing off huge red flags is Riot Blockchain. Riot was formerly a biotech company that made the "transition" into a blockchain company just months ago, and the stock has soared since.

Consider these 16 Glaring Red Flags before investing:

RED FLAG 1:
One glaring red flag to look at is Riot overpaying for their mining equipment. On November 1st 2017, Riot Blockchain spent over $12 Million in stock and also $1 Million in future royalties for crypto mining equipment that was worth around $2 Million from a company called Kairos Global Technology Inc. Kairos was formed October 19th 2017, under 2 weeks before the purchase.

Here is the PR that Riot put out on November 2nd:
https://www.prnewswire.com/news-releases/riot-blockchain-enters-agreement-for-acquisition-of-1200-bitcoin-mining-machines-manufactured-by-bitmain-300548261.html

Riot’s stock price was $6.95 on November 1st. Riot purchased the mining equipment for 1,750,001 shares of Riot stock and also $1,000,000 in future royalties to “Certain of the shareholders of Kairos” So, they paid $12,162,500 worth of Riot stock and $1,000,000 in cash for equipment worth around $2 million.

Riot purchased 700 AntMiner S9s and 500 AntMiner L3s, all manufactured by Bitmain.
https://ir.riotblockchain.com/sec-filings-email/content/0001079973-18-000010/riot_s3.htm

Anybody can easily purchase this equipment online from Bitmain (the company who made the mining equipment) The Antminer S9 was $1,265 and the Antminer L3 was $2,040 on October 16th.  This can be verified by typing https://shop.bitmain.com into the Archive.org site.
700 * $1,265 + 500 * $2,040 = $1,905,500

Kairos paid exactly $2,089,679 for the mining equipment:
https://ir.riotblockchain.com/sec-filings-email/content/0001079973-18-000009/ex99x1.htm
It does not make sense for a company to buy mining equipment from another company that was just formed 2 weeks earlier and pay over 6 x the value of the equipment. They could have bought the same equipment directly from the manufacturer and waited 2-3 months. Or, they could have bought similar equipment directly from another company.

The following shows who owns Kairos:
http://nvsos.gov/sosentitysearch/CorpDetails.aspx?lx8nvq=fmE0EMNZjWiD8qFICJyf1w%253d%253d
President: Michael Ho
Registered agent: LAXAGUE LAW INC
The 2 directors are Bryan Pascual and Moses D Silverman

Here is one potential smoking gun:
The lawyer who set up Kairos, Joe Laxague, Esq. Laxague Law, Inc also did a filing in the past for one of Riot's largest shareholders, Catherine Johanna DeFrancesco.  Defrancesco also happens to be one of the shareholders who initiated the movement of forcing out old Bioptix associates to transition into a blockchain company.
https://www.sec.gov/Archives/edgar/data/1167419/000165495417000149/defrancesco13da_jan52017.htm  (Bioptix, Inc is one of the former names of Riot)

https://www.sec.gov/Archives/edgar/data/1167419/000107997317000048/ex10x1.htm (forcing out old board members)

RED FLAG 2:
On October 17th, Riot announced that they acquired a majority stake in another Bitcoin company named Tess, Inc.
https://ir.riotblockchain.com/press-releases/detail/11/riot-blockchain-to-acquire-majority-interest-in-tess-a )

Riot paid $320,000 and issued 75,000 shares for a 52% stake in Tess on October 20th 2017.  Riot’s stock price closed at $7.79  on October 19th 2017.  So, Riot’s investment in Tess was a little under a $1 million in cash and stock.

Tess happens to have some direct connections back to the Kairos company.  Tess's Chief Software Architect is Sorin Tanasescu. On October 19, 2017 Laxague Law set up Kairos, and they also set up an entity called Ingenium Global, Inc. on the exact same day, which has a unique name that is similar to an entity in which Tanasescu manages (Ingenium IT Compusoft). Ingenium Global, Inc. listed the exact same officers/directors as Kairos (Michael Ho, Bryan Pascual and Moses D Silverman) and registered the exact same par value and share count. Given that Riot announced the acquisition of Tess the very next day (October 20, 2017), one cannot help but wonder whether the selling parties in the Kairos deal were in any way related to the shareholders of Ingenium, and ultimately to the selling parties in the Tess deal. (https://seekingalpha.com/article/4131031-riot-blockchain-sudden-business-pivot-suspicious-acquisitions-questionable-special-dividend  )

Both Michael Ho and Laxague Law appear to be connected to both Kairos and Tess.

RED FLAG 3:
Riot (formerly Bioptix) announced a special dividend of $1 a share that only applied to certain shareholders on Oct 3rd.
https://www.prnewswire.com/news-releases/bioptix-announces-special-cash-dividend-300529711.html

The next day, Riot announces that they are changing their focus to “Strategic Investor and Operator in Blockchain Technologies.” It does not make much sense for a company to issue most of their cash out to special shareholders and announce the next day that they are going to focus on a new business. This new focus would require more cash. They also announced an investment in Coinsquare for $3 million.

RED FLAG 4:
Riot previously announced a shareholder meeting for December 28th. I live about 30 minutes from the "country club type hotel" that the meeting was supposed to be at. I tried to call Riot for more information on the meeting around a week before the meeting, but they never answered the phone or responded to voicemail or email. Their IR email that they put on every PR ( IR@RiotBlockchain.com ) has been bouncing back as an invalid email for over 4 weeks. I tried calling the hotel earlier in the week of the December 28th meeting. 3 different people at the hotel told me that they never heard of any meeting for Riot. Riot ended up cancelling this meeting the day before the meeting and rescheduling it for February 2018.  https://www.prnewswire.com/news-releases/riot-blockchain-announces-adjournment-of-annual-meeting-of-stockholders-300575416.html

RED FLAG 5:
Riot also wants to increase its Equity incentive plan to 1,645,000 shares from 895,000 shares.
Riot only has 11.3 Million shares outstanding as of its last SEC filings.  Riot appears to be trying to dilute the common shareholders for the benefit of company insiders.

RED FLAG 6:
Riot’s CEO SOLD most of his shares on the last trading day of 2017.
https://ir.riotblockchain.com/all-sec-filings/content/0001140361-17-047827/0001140361-17-047827.pdf
Riot’s stock price has went straight down since the CEO sold.

RED FLAG 7:
Riot has put out PR with no actual news relating to their company. This PR is only to draw attention to new investors that are looking for ways to jump into the BlockChain / Crypto space. Here are 2 examples:

Riot Blockchain Director Featured in ABC7 News Interview on Cryptocurrency
https://www.prnewswire.com/news-releases/riot-blockchain-director-featured-in-abc7-news-interview-on-cryptocurrency-300574524.html

Riot Blockchain Featured in 5-Part Series on CBS Interactive This Week
https://www.prnewswire.com/news-releases/riot-blockchain-featured-in-5-part-series-on-cbs-interactive-this-week-300556557.html

Here are 5 videos of the CEO from the article :

https://www.techrepublic.com/search/?q=riot+blockchain
On the “How to get Started” video, the CEO even recommends people can invest in his company to get exposure to the BlockChain.

RED FLAG 8:
Before October 4th 2017, Riot was a small Biotech company with about 7 employees.  They have no previous experience in Blockchain.  Riot’s Ceo, John O'Rourke, appears to live in Florida, but the company’s business address is listed in Colorado.  The next shareholder meeting also appears to be in Florida.  On January 17, 2017 Riot appointed Jeffrey Vormittag as Chief Operating Officer of Riot Blockchain Canada Inc.  On January 9th 2018, Riot appointed Daniel Stefan Robertsen from Norway as president of a new subsidiary named Digital Green Energy Corp.  It’s hard to tell where Riot’s main operating base is.  Riot also does not have anyone listed as a Chief Technology Office, yet they now claim to be a Technology company.

RED FLAG 9:
On December 19th 2017, Riot announced a PIPE offering for the purchase of 1,644,444 restricted units of the company at a purchase price of $22.50 per unit (the "Investment"). Each unit consists of one share of restricted common stock and one warrant to purchase one share of restricted common stock at an exercise price of $40.00 per share for a period of three years. This was a big discount to the current market price at the time.
https://www.prnewswire.com/news-releases/riot-blockchain-announces-37-million-private-placement-300573173.html
Riot’s stock price was:
12/15 $28.50
12/18 $36.57
12/19 $38.60
12/20 $36.12

Riot offered a very big discount to the investors of the PIPE offering.

RED FLAG 10:
Riot fired their accounting firm on 1/5/18
 https://ir.riotblockchain.com/sec-filings-email/content/0001079973-18-000008/riot_8k-010518.htm

This will be their third auditor in just a 1 year period:
https://finance.yahoo.com/news/3-crypto-stocks-were-part-003000438.html

RED FLAG 11:
Barry Honig is a large shareholder of Riot. He has a well documented history with penny stocks. He was the one, along with Catherine Defrancesco, who called the meeting to force out the Bioptix people, thus beginning the transition into a blockchain company. A simple Google search for “Barry Honig” will bring up a wealth of information on his past dealings.

https://bizwest.com/2017/01/09/shareholder-forces-bioptix-board-members/

https://seekingalpha.com/article/4123062-pershing-gold-believe-shares-virtually-worthless

http://www.teribuhl.com/2017/02/09/california-doj-investigating-honig-and-the-frost-group-2/

RED FLAG 12:
Riot's CFO has already been accused of pumping this same exact company before it changed its name:
https://www.reddit.com/r/investing/comments/7npd0n/cfosecy_of_riot_blockchain_previously_sued_twice/

RED FLAG 13:
Riot put out another PR (1/10/18) about it forming a new subsidiary that is "identifying environmentally friendly projects with large energy capacity and a cost-efficient rate for cryptocurrency mining and data center operations."

https://ir.riotblockchain.com/press-releases/detail/24/riot-blockchain-establishes-digital-green-energy-corp-as

It looks like Riot bought their mining equipment first, and now they are exploring a good place to put this equipment.  There is no logical reason why Riot would need a separate subsidiary just for this purpose. Riot said "Daniel Stefan Robertsen was "most recently Chairman and CEO of Bitfury Norway AS". There is very well known blockchain company called Bitfury that was founded in 2011.  However, Mr. Robertsen was never the CEO of this well known Bitfury.  Bitfury Norway AS was recently formed on October 11th 2017.
https://opencorporates.com/companies/no/919779543

RED FLAG 14:
Riot put out a PR about TessPay on 1/17/18:
https://www.riotblockchain.com/news-media/press-releases/detail/25/riot-blockchains-tesspay-enters-definitive-agreement-for

Riot’s CEO said “The merger would be the first of Riot Blockchain's investments to become a stand-alone public company.”  This PR seems hyped up since Cresval Capital Corp has a market cap of only $1.5 Million and trades only 3,000 shares a day at around $0.05 a share.

RED FLAG 15:
From Riot’s Q3 2017 10-Q filing:
https://ir.riotblockchain.com/all-sec-filings/content/0001079973-17-000667/riot_10q-093017.htm

“The Company has experienced recurring losses and negative cash flows from operations.  At September 30, 2017, the Company had approximate balances of cash and cash equivalents of $13,140,000, working capital of $12,555,000, total stockholders' equity of $15,466,000 and an accumulated deficit of $120,823,000. To date, the Company has in large part relied on equity financing to fund its operations. The Company expects to continue to incur losses from operations for the near-term and these losses could be significant as we incur costs and expenses associated with our recent and potential future acquisitions and investments, as well as public company and administrative related expenses are incurred and winding-down BDI’s operations. “

Riot has already burned through over $100 million in the past of shareholder equity.  Their revenue for the quarter ending September 30, 2017 appears to be only $24,175.  This was exactly the same revenue that Riot received for the same quarter in 2016.  Riot has almost no revenue for a company with a $200 million market cap.

RED FLAG 16:

Riot released another non newsworthy PR today, 1/18/18

https://ir.riotblockchain.com/press-releases/detail/27/riot-blockchain-submits-bidder-registration-for-the-u-s

Almost anyone with $200,000 is eligible for this sealed bid auction:
https://www.usmarshals.gov/assets/2018/bitcoinauction/
Putting out a PR that says you are submitting a form to participate in a sealed auction serves no purpose other than to try to make your company sound more relevant in the news.  Riot appears to be taking advantage of the Bitcoin craze in order to attempt to hype up its company.

Conclusion:
As of 1/17/18 , Riot has a market cap of about $200 Million.  Their main asset seems to be the $37 million cash they recently raised.  They also own about $2 million worth of mining equipment, which they paid $12 million worth of stock and a $1 million royalty for.  They also invested about $1 million recently into Tess, and they invested $3 million into CoinSquare recently.  It is very hard to justify a $200 million market cap for this company.  Plus, it appears that company insiders will be receiving more shares in the near future, thus diluting current shareholders.

Disclosure: I am/we are short RIOT.

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