Riot Blockchain CEO defends switch to crypto industry amid shareholder lawsuit

In October, in the midst of skyrocketing bitcoin prices, a new player entered the game: Riot Blockchain, which had transformed overnight from a biotech company called Bioptix, billing itself as the first Nasdaq-listed company that could help investors get exposure to the cryptocurrency industry.

Almost immediately, Riot’s shares skyrocketed -- but in early February, a major sell-off dropped bitcoin prices by nearly 20%, its worst weekly performance in nearly five years. Now, Riot shareholders have filed a lawsuit against the Colorado-based company, accusing it of making “misleading statements” about its business.

“A common misconception is that we were one of those just looking to capitalize on the hype of the sector,” CEO John O’Rourke told FOX Business’ Charles Payne on “Varney & Co.” during an interview Wednesday.  “The reality is, we evaluated many different opportunities, including the blockchain sector.”

At its peak, Riot shares were trading around $38, a stunning increase from the $3.95 it was trading at prior to entering the cryptocurrency industry. Following the lawsuit -- which came after CNBC published a story questioning the legitimacy of the reasons behind Riot’s transformation -- shares were trading around $10.92.

In August, the U.S. Securities and Exchange Commission (SEC) warned investors to be leery of companies that suddenly switched tracks to cash in on the cryptocurrency industry in hopes of increasing stock prices.

“This is a reminder that investors should give heightened scrutiny to penny stock companies that have switched their focus to the latest business trend, such as cryptocurrency, blockchain technology, or initial coin offerings,” Los Angeles Regional Office director Michele Wein Layne said in a press release.

According to CNBC, the company raised a number of red flags in its SEC filings, including: annual meetings that are postponed at the last minute, insider selling after the name change, dilutive issuances on favorable terms to large investors, and evidence that major shareholders were exiting while everyone else was still investing. In September, Riot made an investment in a cryptocurrency exchange, and two months later purchased a company that has cryptocurrency mining equipment -- but paid more than $11 million when the equipment value was only $2 million, according to CNBC. The company recently raised $37 million, O’Rourke said, in hopes of funding the technology and power behind the cryptocurrency mining operation.

Ticker	Security	Last	Change	Change %
RIOT	RIOT PLATFORMS	12.67	-1.77	-12.29%

“Unfortunately, with any new technology that has a lot of hype around it, such as bitcoin and blockchain technology, ultimately it does attract some bad actors looking to capitalize on that,” he said.

But O’Rourke maintained the company, partially inspired by the privately-held Canadian company Coinsquare, made the jump to appease an investor base that was eager to take advantage of the burgeoning industry. “We knew and recognized that there was a growing appetite from investors looking to get exposed to this sector, and ultimately, part of thesis was that we could find a way to get investors exposure to this growing technology movement with a Nasdaq-listed and fully SEC reporting company,” he said.