It was just last October that Bioptix, a small biotech company based in Colorado, caused a stir when it changed its name to Riot Blockchain (NASDAQ:RIOT) and started to invest strategically in blockchain businesses and cryptocurrency mining.
The move by the company, which specialized in developing veterinary and life science diagnostic tools, was welcomed in the markets at least. Indeed, the value of this penny stock nearly quadrupled in less than three months on the Nasdaq to hit a 52-week high of US$46.20.
Riot shareholder Barry Honig generates attention for selling Riot shares after price surge
Four months after the October 4 announcement of its radical transformation into a crypto-company, an article appeared in the Wall Street Journal about Barry Honig, one of Riot’s biggest shareholders. He generated attention for quickly selling a “significant” portion of his shares in the company in the immediate wake of both its name change and the surge in the price of its stock.
“When stock goes up, you take a profit,” Honig told the Journal. “Every good investor does that.”
Fast forward to this week and Honig’s name is once again in the frame.
Honig and Riot's CEO John O'Rourke charged by SEC
According to a complaint filed by the Securities and Exchange Commission, a group of microcap fraudsters operating out of Florida and led by Honig, manipulated the share price of the stock of three undisclosed companies in classic pump-and-dump schemes.
Honig was pinpointed by the SEC as the mastermind of the operation as he orchestrated the acquisition of large quantities of the issuer’s stock at steep discounts.
“As alleged, Honig and his associates engaged in brazen market manipulation that advanced their financial interests while fleecing innocent investors and undermining the integrity of our securities markets,” said Sanjay Wadhwa, a senior associate director with the SEC’s division of enforcement.
Honig's associates included Riot’s ex-CEO John O’Rourke who has resigned in disgrace from the company after allegedly engaging in what the SEC describes as “illegal promotional activity and manipulative trading” designed to artificially boost share prices and give the appearance of active trading volumes.
SEC case is a flashback from previous suit against Riot and Honig
This isn’t the first time Riot and Honig have been embroiled in a legal tangle. Shareholders who purchased Riot shares between November 13, 2017 and February 15,2018 also filed a lawsuit in February against Riot and Honig in which they accused the company and its controlling shareholder of breaking US securities laws.
The law suit charges that the company changed its name to Riot Blockchain to generate enthusiasm from investors and tie Riot to the rise in the price of cryptocurrencies despite its lack of a significant blockchain business.
It further charges that the name change was designed to aid an insider trading scheme that would allow Honig and his associates to sell their Riot securities at artificially inflated prices.
“As a result of defendants’ false statements and omissions during the Class Period, the prices of Riot’s securities were artificially inflated, with its stock trading at more than US$38.00 per share,” according to a release about the complaint brought by Robbins Geller Rudman & Dowd LLP.
“Honig and other investors were effectively controlling Riot and its operations and exerting undisclosed influence over the company and its CEO,” the lawyers’ statement added.
Honig and his associates who sold their shares profited greatly from the company’s move to shed its roots as a biotech company. Riot investors, meanwhile, were left holding the can.
Wither Riot?
Indeed, the price of Riot’s shares has since taken a sharp tumble, starting its decline in January after questions were raised about the company’s governance standards following the company’s dismissal of another one of its auditors.
Riot itself was not accused by the SEC of any wrongdoing as part of the case against O’Rourke and Honig for their alleged involvement in pump-and-dump schemes.
However, the biotech-turned-blockchain company was subpoenaed by the SEC last April for information regarding its financial statements as well as its acquisition of a minority stake in Canadian crypto exchange Coinsquare.
Thus far, investors don’t seem to be brushing off news of O’Rourke’s departure from the company and the related SEC investigations. Riot shares fell nearly 8% to US$4.14 in Tuesday’s afternoon trade.
A spokesman for Riot couldn’t be reached for comment on this article.