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May 29, 2019

Motley Rice files consolidated amended complaint alleging pump-and-dump scheme that defrauded Riot Blockchain shareholders

On May 9, 2019, Motley Rice filed a consolidated amended complaint involving Riot Blockchain, Inc., and several of its current or former executive officers, directors, and largest shareholders, who allegedly conspired in a “pump-and-dump” scheme to mislead retail shareholders about the company’s supposed transformation from a maker of veterinary products to a miner of cryptocurrency so that company insiders could reap profits through insider stock sales and other related-party transactions.

The lawsuit alleges that Riot Blockchain initially piqued investor interest with its purported plans to capitalize off of the “$150 billion market opportunities for companies seeking to invest in blockchain technologies,” such as Bitcoin. In reality,  the amended complaint alleges, the defendants were acting as a group to:  amass a controlling interest in Riot; conceal their control; drive up the price and trading volume of Riot stock through manipulative trading, promotional activity, and false and misleading disclosures; engage in fraudulent related-party transactions at the expense of the Company and its shareholders; and dump their shares into the artificially inflated market on unsuspecting retail investors. The scheme was allegedly orchestrated by a former major shareholder, Barry Honig, a Florida-based investor who reaped millions of dollars of trading profits from this alleged scheme.

The complaint was filed on behalf of the court-appointed lead plaintiff and all other investors who purchased or acquired the securities of Riot Blockchain (formerly known as Bioptix Inc.) between April 20, 2017, and September 6, 2018. The complaint expands upon the allegations in lead plaintiff’s Jan. 15, 2019 complaint.

Previously known as Bioptix Inc., Riot Blockchain changed its name in 2017 after announcing that the company was transforming itself from a manufacturer of veterinary products to focus instead on breaking into cryptocurrency mining. As news this purported change reached the public, the company’s share value increased from $8 to more than $46 per share. However, concerns about the truthfulness of the company’s claims quickly followed.  

In February 2018, CNBC reported that Riot Blockchain made a series of “questionable moves” shortly after the change, including: company insiders allegedly selling of hundreds of thousands of shares worth millions of dollars within weeks of announcing the company’s ostensible change; paying at least $11.9 million in company stock to entities partly owned by company executives for cryptocurrency mining equipment actually worth no more than $2 million; and keeping investors in the dark by repeatedly canceling the company’s annual stockholders’ meeting.

The U.S. Securities and Exchange Commission has charged Defendants Honig, O’Rourke, Stetson, and Groussman with alleged similar pump-and-dump schemes at several other publicly traded companies.  On March 8, 2019, the SEC filed an amended complaint further detailing these alleged schemes. The SEC is also currently engaged in an investigation into the alleged scheme involving Riot Blockchain.

This case is Takata v. Riot Blockchain, Inc. et al, No. 3:18-cv-02293, in the U.S. District Court for the District of New Jersey. Defendants in the litigation are Riot Blockchain, Barry Honig, John O’Rourke, Catherine DeFrancesco, Michael Beeghley, John Stetson, Mark Groussman, Andrew Kaplan, Mike Dai, Jeffrey McGonegal, Jason Les, and Eric So.

Motley Rice was appointed lead counsel on Nov. 6, 2018, following the consolidation of two proposed securities fraud class actions related to the alleged misrepresentations the company made to shareholders.

If you purchased common stock in Riot Blockchain between April 20, 2017 and September 6, 2018, you are automatically included in the class action and no affirmative action is required to join the case. Further information for class members will be made publicly available in due course.

Read the complaint.