Riot Blockchain Inc (NASDAQ:RIOT) shares have more than quadrupled over the past year, but the former medical supplies group saw more than a third wiped from its value after press reports cast doubts over its validity.
The stock has surged from just over US$3 this time last year to more than US$16 at the close of play on Thursday. At one point in December, shares had even broken above US$38.
The sharp rise coincided with a switch in focus from medicines to blockchain back in October, benefiting from investors rushing to put their money into all things crypto.
CNBC, which led the investigation, said the rapid pivot towards blockchain made Riot the type of company that the SEC has hinted it would look into.
Speaking to congress recently, SEC chairman Jay Clayton said: “Nobody should think it is ok to change your name to something that involves blockchain when you have no real underlying blockchain business plan and try to sell securities based on the hype around blockchain.”
A number of other red flags were also highlighted by CNBC, including annual meetings being repeatedly postponed, favourable stock issues to big investors, as well as evidence that a major shareholder was cashing out when everyone else was piling in.
Two securities fraud experts cited in the article warned investors that, based on its SEC filings and press releases, Riot Blockchain was a “highly speculative stock with a lot of red flags”.
Riot issued a statement defending itself, saying it had made “significant inroads” in building its blockchain business and securing digital assets.
“It is not uncommon for businesses to pivot and change their business strategy. Amazon started off selling books,” said chief executive John O’Rourke.
That wasn’t enough to reassure investors though, with the stock losing 36.4% to trade at US$10.94 come Friday afternoon.