Riot Blockchain,
the cryptocurrency company whose stock skyrocketed after changing its name
revealed that the Securities and Exchange Commission subpoena it received on
April 9 was "pursuant to a formal order of investigation," according
to a new filing.
Riot released its first-quarter earnings on Thursday after filing on Tuesday
that they would be delayed.
"The Company has received and responded to comments from the staff of the
SEC regarding certain developments and the Company's ongoing development of a
blockchain/cryptocurrency business model. These inquires include the proper
asset classification, applicability of the Investment Company Act [of] 1940, to
the Company's business and affairs and accounting treatment of its
cryptocurrency," according to the quarterly report.
Riot "intends to fully cooperate with the SEC request," according to
its annual report, filed in April.
A call Friday to John
O'Rourke, Riot's CEO, was not immediately returned.
"I cannot comment on the subpoena," said O'Rourke after a shareholder
meeting earlier this month. "We don't know the nature of the investigation
and that's all my attorney advised me to comment on."
The SEC declined
to comment.
Riot's stock closed up nearly 12 percent Thursday for unknown reasons. The
shares then fell in extended trading Thursday after the results were released
and were down more than 7 percent midafternoon Friday.
The earnings report shows a company in the red. Riot brought in less than $1
million in revenue during the first quarter while posting a loss. Most of that
revenue came from cryptocurrency mining, which was still being fully set up
last quarter. The company had $5.3 million in cash at the end of the first
quarter, down from $41.7 million in December. Riot has $4.3 million worth of
cryptocurrency.
"The Company expects to continue to incur losses from operations for the
near-term and these losses could be significant," the report said.
Over that last quarter, Riot spent $18.9 million on purchasing property and
equipment and used $5.6 million for operating activities.
"The Company expects the need to raise additional capital to expand our
operations and pursue our growth strategies," Riot said. It expects to be
able to meet its cash needs for at least one year, according to the filing.
A CNBC investigation in February found
a number of red flags in the company's SEC filings that might make investors
leery: annual meetings that are postponed at the last minute, insider selling
soon after the name change, dilutive issuances on favorable terms to large
investors, SEC filings that are often Byzantine and evidence that a major
shareholder was getting out while everyone else was getting in.
O'Rourke accused CNBC of publishing "a negative one-sided piece."
"We have made significant
inroads in building a diversified portfolio of investments and to begin
securing digital assets," O'Rourke said in a letter to shareholders the day the
investigation aired.
As bitcoin hit record highs in late December, Riot was making news on a daily
basis. The company's stock shot from $8 a share to more than $40, as investors
wanted to cash in on the craze of all things crypto.
But Riot had not been in the cryptobusiness for long. Until October, its name
was Bioptix, and it was known for having a veterinary products patent and
developing new ways to test for disease.
Riot warned it "may never become profitable," in its latest annual
report.
"Even if we achieve profitability in the future, we may not be able to
sustain profitability in subsequent periods," the report said.