Riot Blockchain Class Action and Investigation

Riot Blockchain Securities Class Action and Investigation

U.S. Market Advisors Law Group PLLC (“USMA Law Group”) announces that a securities fraud class action has been initiated against Riot Blockchain Inc. (“Riot” or the “Company”) (NASDAQ:RIOT).  At least three complaints have been filed against the Company.  The most exapanisve  Class Period alleged to date is between October 4, 2017 and February 15, 2018.

All of the lawsuits have similar allegations, and specifically seek to recover damages for Riot Blockchain investors under the federal securities laws.  Procedurally, the three lawsuits (and any further lawsuits) will be consolidated into one action around the same time as the appointment of lead plaintiff.   The magnitude of losses suffered is critical criteria in the court’s selection of lead plaintiff.

Based on our assessment of this particular action, investors with Riot losses in excess of $73,500 should consider seeking appointment as lead plaintiff. If you wish to serve as lead plaintiff or desire more information, please complete the Contact Request Form below. You may also contact David P. Abel, Managing Attorney of USMA Law Group to discuss this matter at no obligation or cost: 202-274-0237;

The deadline for making a motion to serve as lead plaintiff is April 18, 2018.

USMA Law Group Investigation

USMA Law Group has independently conducted a thorough investigation of Riot and certain insiders. USMA Law Group has uncovered numerous substantive allegations not included in the Complaint that initiated the class action process. Takata v. Riot Blockchain, Inc. et al, No. 18-cv-02293 (D.N.J. Feb, 17, 2018). Among other thins, the firm’s investigation covers a period extending back to 2015 and entails significant information not contained in the class action Complaint.

USMA Law Group’s independent investigation uncovered the following allegations, many of which were included in the subsequent complaints:

  • An expanded complaint be might be filed in Colorado, Florida or Nevada. Riot is headquartered in Colorado, its key people reside in Florida and it is incorporated in Nevada. The initial action was filed in the District of New JerseyAfter the release of our summary findings, subsequent complaints were filed in the District of Colorado and Southern District of Florida.  The Colorado complaint expanded the Class Period. 
  • Riot directors were nominated and/or supported by Barry Honig, including: John O’Rourke, Michael Beeghley and Mike Mai.  Barry Honig was named as a defendant in a subsequent complaint.
  • Barry Honig had other business relationships and activities with Riot insiders, including: (i) as co-investor with John O’Rourke in MGT Capital Investment, Inc., and later a co-plaintiff in a shareholder lawsuit against the company; and (ii) c0-director with Andrew Kaplan at PolarityTE, Inc.
  • Barry Honig and other select investors were able to participate in Riot’s private placements offerings, purchasing securities as discounts, leading up the Company’s announced name change. These securities were conveniently  issued and exercised in time to receive a special dividend announced on October 3, 2017.
  • Between the Company’s issuance of an amended private placement registration statement on September 25, 2017, and its third quarter of 2017 financial report on November 12, 2017, the number of common shares outstanding had increased by 53%, from 5.44 million shares to 8.32 million shares. And the dilution to shares outstanding increased even more during the Class Period.
  • The Company’s repeated promotion of its activities, touting positive news and not disclosing negative news, caused Riot’s stock price to skyrocket by nearly 500% during the Class Period, closing at $28.40 per share on December 29, 2017, an increased of $22.65 from its close price of $5.75 per share on October 2, 2017.
  • On October 3, 2017, the Company announced a special dividend. The timing of the special dividend appears strategic, helping to reduce stock volatility for when they would tell investors the following day about their radical change in business. Investors may have been enticed to hold on to their shares despite the surprising news, else they would lose out on the special dividend payout.
  • Leading up to the Class Period, insiders changed the Company’s equity incentive plan to substantially increase share available and then began awarding themselves stock. On April 28, 2017, the Company’s board of directors adopted the “2017 Equity Incentive Plan,” allowing the Company to grant cash and equity-linked awards to certain officers, directors, consultants and others. The 2017 Equity Incentive Plan authorized the issuance of 895,000 shares of the Company’s common stock, which represented approximately 17% of the Company’s issued common stock as of April 20, 2017.”
  • On December 19, 2017, Riot was suspected of front running. After the market closed, CNBC’s Fast Money aired an interview with Andrew Left, founder of Citron Research, who made surprising comments about Riot.
  • On January 31, 2018, before the market open, the Wall Street Journal published an article entitled “Investor Who Rode Pivot From Biotech to Bitcoin Sells Big Stake.” The article disclosed how Barry Honig’s began  investing in Riot and his efforts to oust the old board of directors.

Following are summary allegations from the initial Complaint.

Summary Allegations

According to the Complaint, defendants throughout the Class Period made false and/or misleading statements and/or failed to disclose that: (1) Riot Blockchain’s principle executive offices were not in Colorado, but rather in Florida in the same location as a large, influential shareholder, Barry C. Honig who had a previous working relationship with Riot Blockchain CEO & Chairman John O’Rouke; (2) Riot Blockchain insiders never intended to hold its Annual General Meetings scheduled for December 28, 2017 and February 1, 2018; and (3) as a result, Defendants’ statements about Riot Blockchain’s business, operations and prospects were materially false and misleading and/or lacked a reasonable basis at all relevant times.

On February 16, 2017, CNBC published the article “CNBC investigates public company that changed its name to Riot Blockchain and saw its shares rocket” regarding questionable practices at Riot. On this news, shares of Riot fell $5.74 per share or over 33.37% to close at $11.46 per share on February 16, 2018, damaging investors.

Company Information

Riot has had a tumultuous past. The Company has changed its name and business strategy three times in as many years. In 2015, Riot was known as Venaxis, Inc. (“Venaxis”). Venaxis purported to be a diagnostic company focused on commercializing a test to detect appendicitis in children. In the same year, small cap investor Barry Honig  began accumulating significant shares of the Company.

In September 2016, Venaxis acquired Bioptix Diagnostics, Inc (“BDI”), a company offering an “Enhanced” Surface Plasmon Resonance (“SPR”) instrument. SPR is an optical technique used for detecting molecular interactions. SPR has many commercial applications including analyzing whether a biologic, or small molecule drug, will be efficacious in humans and at what dose a drug should be administered. With the purchase of BDI, Venaxis announced it would change its name to Bioptix, Inc. and change its business focus to expanding the commercialization of Bioptix’s Enhanced SPR instrument.

On October 4, 2017, the Company issued a press release announcing changes to its name and business focus. The Company would be called Riot Blockchain, Inc., and have the Nasdaq ticker symbol “RIOT.” Riot’s new focus would purportedly be as a strategic investor and operator in the blockchain markets.

Riot Class Period Stock Performance

Timeline of Significant Events

  • 2015 – Riot is known as Venaxis, Inc. In the same year, Barry Honig begins accumulating significant shares of the Company.
  • 2016 – Venaxis acquires Bioptix Diagnostics, Inc., and changes its name to Bioptix Inc.
  • January 6, 2017 – Bioptix board members and managment are removed and replaced.
  • February 2017 – Bioptix engages in private placement offerings to select investors and begins granting stock awards to new management.
  • October 3, 2017 – the Company announces a special dividend to shareholders.
  • October 4, 2017 – Riot issues a press release announcing it is changing its name and business focus to blockchain.
  • November 13, 2017 – the Company files its third quarter of 2017 financial report with the SEC (but does not issue a press release). The Company reports a substantial loss.
  • December 19, 2017 – Riot announces another private placement offering of approximately 1.64 million units of the Company’s securities to be sold at a discount to select investors. On the same day, CNBC’s Fast Money airs an interview with Andrew Left, founder of Citron Research, who makes surprising revelations about Riot.
  • December 27, 2017 – the Company announces the adjournment of its annual meeting of stockholders scheduled for the following day.
  • On December 29, 2017 – After the market closed and going into a three-day holiday weekend, CEO and Chairman John O’Rourke files a Form 4 with the SEC disclosing the sale of 30,383 shares of Riot for proceeds of $869,256.
  • January 5, 2018 – Riot files a registration statement for the disposition of 3.3 million more shares and warrants.
  • January 31, 2018The Wall Street Journal publishes an article entitled “Investor Who Rode Pivot From Biotech to Bitcoin Sells Big Stake.” The article discloses some of Barry Honig’s connections to Riot and its insiders. On the same day, Riot announces that its previously scheduled annual meeting would be adjourned for a second time.
  • February 16, 2018CNBC airs a segment on Riot and publishes the article “CNBC investigates public company that changed its name to Riot Blockchain and saw its shares rocket” regarding
    questionable practices at Riot.

  • Follow-Up Form For More Information
    Please complete the form to request more information.

    • Please provide the approximate number of Riot Blockchain shares you purchased or otherwise acquired between October 3, 2017 and today.
    • The submission of this form does not create an attorney-client relationship, nor any obligation on the part of U.S. Market Advisors Law Group PLLC, or you to file a legal action. Any information you submit will be maintained as confidential. If U.S. Market Advisors Law Group PLLC, in its sole discretion, believes that you might be an appropriate class representative, U.S. Market Advisors Law Group PLLC, will contact you to discuss the matter and to determine whether to establish an attorney-client relationship.

Information subject to change without notice
Prior results do not guarantee future results