SEC issues subpoena to cryptocurrency company Riot Blockchain

The Securities and Exchange Commission has issued a subpoena to Riot Blockchain, the cryptocurrency company whose stock skyrocketed after changing its name, the company said on Tuesday.

Riot Blockchain Chairman John O’Rourke did not immediately respond to a request for comment. The SEC declined to comment.

In a news release, O’Rourke said, “We continue to focus on the expansion of our cryptocurrency mining operations and the active investigation of launching a cryptocurrency exchange in the United States. We see a strong integration opportunity of supply and demand between our mining operation and a potential exchange.’

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.”

In the 10k report, the company said it “believes that many companies engaged in blockchain and cryptocurrency businesses have received subpoenas from the SEC which presents an additional industry risk.”

“SEC Chairman Jay Clayton warned that it is not acceptable for companies without a meaningful track record in the sector to dabble in blockchain technology, change their name and immediately offer investors securities without providing adequate disclosures about the risks involved, As a result, we could be subject to substantial SEC scrutiny that could require devotion of significant management and other resources and potentially have an adverse impact on the trading of our stock.”

As bitcoin hit record highs in late December, a hot new stock was making news on a daily basis. Riot Blockchain’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.

The company said that it is not profitable and expects “to continue to incur losses for the foreseeable future, and these losses could increase as we continue to develop our business.’

It will focus on bitcoin mining and establishing a cryptocurrency exchange and future brokerage operations, the report said. A bitcoin mining facility in Oklahoma City is in the early stage of development and the company’s current strategy is “new and unproven” in an industry “that is in itself new an evolving.’

Riot warned that it “may never become profitable.”

“Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods,” the report said.