“Blockchain” Stocks Completely Disintegrate

Black Friday for them. Meet the OTC’s “skull and crossbones.”

I’ve never seen a sector skyrocket and totally collapse this fast – in four months – as these newfangled “blockchain stocks.” Now they’re surrounded by debris and revelations of scams. These fly-by-night or near-failure outfits used the hype of “blockchain” and the whole media razzmatazz about cryptocurrencies to manipulate up their stocks, sometimes by several thousand percent in a matter of days.

I vivisected some of these outfits and their stock manipulation schemes on the way up. And on January 25, I documented Phase One of the collapse. This is now Phase Two of the collapse. And dip buyers are still not through getting crushed.

UBI Blockchain International got totally mangled. When I last wrote about UBIA on January 25, it was down 93% from the peak six weeks earlier. Since then, all heck has broken loose. On Friday, OTC Market, where the shares had been demoted to, slapped a “skull-and-crossbones” icon next to the ticker and no longer displays a quote.

It started out so promising: Over the course of a few days in mid-December, UBIA skyrocketed 1,500% to $115 a share intraday.

  • December 28, I tarred and feathered the company, its executives, their shenanigans, and their Chinese connection [for details, read, I’m in Awe of How Far the Scams & Stupidities around “Blockchain Stocks” are Going].
  • January 9, the SEC halted trading in UBIA, for two reasons: lacking “accuracy” in disclosures and funny trading activity. The trading halt froze the share price at $22.
  • January 23, when trading resumed, shares plunged further.
  • January 25, when I last wrote about it, they were at $8.25, down 93% from the peak.
  • February 9, the company disclosed in its quarterly SEC filing that it had zero revenues and a quarterly loss of $1.24 million. It repeated that its ability to go on as a “going concern” depended on getting new financing and its “ability to achieve and maintain profitable operations.” Fat chance.
  • February 15, shares closed at $6, down 95% from the peak.

Friday, February 16, OTC Markets Group stopped displaying quotes of UBIA, labeled the shares “Caveat Emptor (Buyer Beware),” and placed the skull-and-crossbones icon next to the stock symbol. It told investors to “exercise additional caution and perform thorough due diligence before making an investment decision in that security.”

In other words, the normal ways of obtaining a quote – on otcmarkets.com, MarketWatch, Yahoo, Bloomberg, WSJ, etc. – have disappeared. These shares are essentially goners.

Riot Blockchain down 75% from the peak. The vultures are circling. This was a failing biotech outfit called Biotix with annual revenues of less than $200,000 over the past four years, generating a total of $34 million in losses. Shares were trading at around $4.50. But on October 4, it announced that it would change its name and start investing in cryptocurrency and blockchain startups. BAM went the shares – up nearly 1,000% to $46.20 by December 19. But by January 25, they’d plunged 61% to $17.92.

On Friday, shares plunged 33.4% to $11.46 after CNBC published the results of its investigation into the shenanigans of the executives, a major investor, and the company.

Later that day, I received an email from U.S. Market Advisors Law Group PLLC. The law firm “represents investors in antitrust, securities and shareholder litigation.” It announced “the completion of an initial investigation on behalf of investors” into “whether Riot Blockchain and certain of its officers and directors violated federal securities laws”:

As a result of its findings, the firm has prepared, but not yet filed, a proposed class action complaint to recover losses suffered by Riot Blockchain investors.

The law firm explained how the biotech company changed its name and used the hype around blockchain announcements to manipulate up its shares. Then…

On December 29, 2017, after the market closed and heading into a three-day holiday weekend, John O’Rourke, the Company’s new Chief Executive Officer, made an SEC filing revealing he had sold over 30,000 Riot Blockchain shares. On this news, Riot Blockchain’s stock price declined more than 14% over two trading days.

On January 31, 2018, before the market opened, the Wall Street Journal published an article detailing investor Barry Honig’s involvement with Riot Blockchain and his trading of the company’s shares. On the same day, Riot Blockchain announced that its annual shareholder meeting would be postponed for a second time. On this news, Riot Blockchain’s stock price declined more than 14% over two trading days.

On February 16, 2018, CNBC reported that Riot Blockchain’s operations raise a number of “red flags,” including: (i) insider selling; (ii) making no apparent effort to timely hold annual shareholder meetings; and (iii) diluting the common stock. On this news, Riot Blockchain’s stock price fell more than 30% during intraday trading.

Not that dip buyers won’t plow in and drive up the shares for a little while. But RIOT is likely a goner too.

Long Blockchain Corp down 66% from the peak. LBCC is a failing beverage-maker that was called Long Island Iced Tea until December 18. With the name-change announcement, it manipulated its shares up by 360% from $2.06 on December 18 to $9.49 a few days later.

This scheme was hatched as the company had received a delisting notice from the Nasdaq, which it disclosed on October 13, 2017 in an SEC filing. The reason was that its market capitalization had dropped below the minimum of $35 million for 30 consecutive trading days.

It averted a delisting with the scheme of changing its name to “Long Blockchain” and peppering the announcement with gobbledygook about its new “blockchain” business model. Its market cap surged along with the shares. But…

  • January 5, when it announced that it would sell 1.6 million shares in a secondary offering, shares crashed 21%.
  • January 9, under intense scrutiny, it canceled the stock offering.
  • January 25, when I last wrote about it, shares had plunged 61% from the peak to $3.72 and continued to drop until they hit $2.82 on January 30. Then dip buyers piled in and pushed shares back to $3.63.

On Friday, February 16, shares plunged 11% to $3.23. This leaves them down 66% from the peak. What caused the plunge?

On Thursday, the company had disclosed in an SEC filing that it had received another delisting notice from the Nasdaq. The company can appeal the delisting. But even if it wins the appeal, it will have to keep its market cap above $35 million for a minimum of 10 trading days in a row by April 9. As of Friday’s close, its market cap was $33 million.

Longfin down 76% from the peak. LFIN went public in November. On December 15, the company announced a mix of gobbledygook, hype, and silliness about having acquired a “Blockchain-empowered solutions provider,” namely some website that belonged to a Singapore corporation that is 95% owned by Longfin’s CEO. It didn’t pass the smell test.

But shares skyrocketed 2,700% over the three-day period to an intraday high of $142.82 on December 18, pushing the company’s market cap to a fabulous $7 billion and making it the role model of every “blockchain” scammer out there. By January 25, LFIN had plunged 71% to $41.61. On Friday shares plunged 18%. At $34.40, shares are now down 76% from the peak.

DPW Holdings down 70% from the peak. This was a penny stock before it came up with its blockchain scam. The company makes power supplies for computers. But when it announced that it would market its power supplies to cryptocurrency miners, shares skyrocketed 880% from $0.56 on November 21 to an intraday high of $5.95 on December 18. On Friday, the stock fell 6.4%. At $1.76, shares have plunged 70% from the peak.

On-line Blockchain [OBC] down 44% from the peak. This is another name-change scam. The company was called On-line Plc, a thinly traded penny stock in London. After it changed its name, its shares spiked nearly 1,000%, from 14 pence to 152 pence by January 9. By January 25, shares had plunged 35% from the peak to 97 pence. On Friday, shares dropped 7% and closed at 84.55 pence, down 44% from the peak.

Eastman Kodak [KODK] down 47% from the peak. Kodak’s blockchain-and-crypto manipulation scheme wasn’t a name change but an announcement on January 9 of a “blockchain initiative,” including its own cryptocurrency, KodakCoin. Shares soared 300% in two days, from $3.10 to $12.40. Interestingly, on January 8, the day before the announcement, seven independent directors awarded themselves big-fat stock grants. By January 25, shares had dropped 23% from the peak to $9.50. On Friday, shares dropped 7.8% to $6.55, and are down 47% from the peak.

Seven Stars Cloud Group [SSC] down 55% from the peak. The Chinese video-on-demand outfit, which is traded on the Nasdaq, manipulated its shares up by 200% from $2.33 on December 8 to $7.00 intraday on December 26, by claiming that it had taken a 27% stake in The Delaware Board of Trade Holdings, a private company. By January 25, shares had plunged 40% to $4.13. On Friday, they dropped 4.5% to $3.17 and are down 55% from the peak.

Siebert Financial Corp [SIEB] down 63% from the peak. Its shares had jumped nearly 400%, from $4.40 to $21.64 by December 21 after the 50-year-old New York brokerage announced on December 14 that it would venture into cryptocurrency trading. By January 25, they’d plunged 54% from the peak to $9.65. On Friday, they dropped 4% to $8.10, down 63% from the peak.

This amazing spectacle – these scams that caused stocks to soar and plunge over a period of four months – was brought to you by the greatest central-bank-fueled market ebullience and speculative fever mankind may have ever seen. And it may be a sign that the fever has broken.

Was the selloff in stocks just a brief correction, or a sign of greater significance? Read…  What’s Going on with Stocks, Gold, Silver, Oil, and Mortgages?

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  63 comments for ““Blockchain” Stocks Completely Disintegrate

  1. raxadian says:

    I am amazed it took four whole months. We live in the information age… oh wait that era is over! We live in the fake news and “You been hacked!” era but still, is amazing it took this long.

    • Nick Kelly says:

      Aren’t all investments caveat emptor?
      If it takes an obvious scam to be labelled such by the exchange, maybe we should think about applying caveat emptor to the exchange.

      • Javert Chip says:

        Of course all investments are caveat emptor (thus demonstrating a firm grip on the obvious).

        However, that normal caution is a long way from outright criminal manipulation.

  2. mean chicken says:

    Bitcoin is approaching $11k again, last I looked? Heard Soros bought some OSTK and so there ya go…… Heard that one’s sitting on nice gains due to getting in early.

    I don’t see the attraction myself, good way to blow up a portfolio unless you keep it small.

    • raxadian says:

      Simply put Bitcoin is the oldest; most stable one and is seems as an oasis in a desert of scamcoins.

      So some people traded scamscoins for bitcoins when they could.

      • Randy says:

        In case you haven’t noticed this fact yet, it’s ALL scamscoins!! My name for Bitcoin is BitCONJOB, because that’s all that it ever really was! How can any bookkeeping entries that are created out of thin air, be they on paper or a computer, last for very long? Don’t you know what the real, accurate and workable definitions of money and inflation are yet? Evidently not.

        Randy

        • KeepItReal says:

          “BitCONJOB” is too long, but I like “Bitcon”. Drop an ‘i’, and what do you have? Bitcon!

    • MC01 says:

      There are a number of explanations for this.
      Two in particular stand out for me.

      First is the need for miners to recoup the costs they have incurred in building or buying their own “rigs”: an Nvidia Quadro GPU alone costs several grands, and the main source for them these days is the “secondary market”, meaning price is not set by Nvidia (which hiked prices at the top of the line by 30% for 2018) but by a third party seller, who can ask as much as he wants.
      While everybody keeps on saying these rigs and/or their components will soon flood the market, the reality is miners work their equipment extremely hard, and they know it, so they are likely to run their rigs until they burn out.

      Second is the little known (to people with better things to do with their lives) phenomenon of using third party’s computers to mine cryptocurrency, whether they like it or not.
      This may take the form of malware, but more often than not it’s run like Pirate Bay’s scheme to use a Java-based cryptocurrency mining program called Coin Hive to tap into their visitors’ PC.
      These programs are just starting and are seen as an effective alternative to ads (even crypto-related ones ;-) ) to monetize traffic. Of course this assumes there will be something left to mine once the gold rush is over…

  3. Bobber says:

    I suppose the early investors did quite well, at the expense of the dreamers. We have too many gullible greedy people that need to learn their lessons.

  4. Night-Train says:

    I wonder if this activity ultimately turns out to be fraudulent, will there be callbacks? Would clawbacks even be possible?

    • Javert Chip says:

      Yea, I’m sure if the nasty bad guys were asked to return the cash they stole from you, they would. Probably with interest and a note of apology.

      Geezzzz…

    • Frederick says:

      Good luck with that Train

  5. einwod says:

    Most of these ‘companies’ are still trading higher than dividend paying gold miners!

  6. OutLookingIn says:

    I have NO sympathy for the fool’s that have thrown their money away.
    For a fool and their money are soon parted.There is, nor ever was a free lunch, yet these fools still believe.
    I think it was P.T Barnum of Barnum & Bailey fame, that said:
    “A fool is born every minute”.

    • Night-Train says:

      I believe P.T. low-balled his estimate.:)

      • GSH says:

        The human rational brain (frontal cortex) is a relatively recent development. Even so, most of us don’t use it when making decisions.

        The average person is not very smart nor educated. That also means there are 4 billion of us below average. It is a miracle we have not yet had a major extinction event.

        • walter map says:

          “That also means there are 4 billion of us below average.”

          Half the people in any population are below average.

          If you got rid of that half, half the remainder would then be below average. And so on. This isn’t a game you can win unless you get rid of everybody or move to Lake Wobegon.

      • walter map says:

        Uncorrected for fool inflation. You have to make comparisons in constant fools, but volatility in fool indexes makes that impossible.

  7. John says:

    In about 3-4 years everybody will be aware of the utter stupidity of bitcoin.

    Bitcoin energy consumption: on par with Portugal

    https://digiconomist.net/bitcoin-energy-consumption

    To do 3-4 transactions per second (compared to Visa’s 1667 tps)

    http://www.altcointoday.com/bitcoin-ethereum-vs-visa-paypal-transactions-per-second/

  8. AG says:

    Is the urge to join the bitcon all that different from the urge to
    visit here?

  9. d says:

    Tulips.

    I am surprised it is taking so long for the Legislators to get off their behinds and actually do some Legislating to protect innocent People from criminals.

    • Memento mori says:

      No one is forcing innocent people to buy crypto crap. Why do you want my taxes to protect their losses?

      • Kent says:

        Fraud is a legitimate reason for government intervention. However, determining where simple stupidity becomes outright fraud is sometimes more art than science.

        • The value proposition says:

          Please. Fraud is now a business plan of many large corps. That Kodak scam is clearly a bunch of insiders cashing in. Will there be any prosecutions? Doubt it….Sure would be nice to have an SEC that actually enforced laws now and again…..

        • Kent says:

          Yes, regulatory capture is a significant issue. But the Citizens United decision was a clean coup d’etat. Not sure how we recover from that.

        • d says:

          You go all the way.

          Citicens can be imprisoned, but still have to meet their personal expenses.

          Therefore:

          A corporate should be subject to the same.

          IE prevented from buying and selling/providing the services it does for X period of months/years. But still bound to meet all its expenses unless it goes bankrupt with out chapter 11 protection. Just like any other “Citicen”.

          Suddenly I would expect a move to repeal citicens united.

      • Joe Dubyah says:

        Or to buy, and overdose on opiods… but that is for another thread of projected blame.

      • d says:

        Very selfish attitude.

        Would you allow a 100 pair of rattlesnakes to invade your house and breed in it.

        By not using YOUR TAXES to police these CRIMINALS. That is what you are doing.

        VERY ELFISH AND SHORT SIGHTED

  10. BTilles says:

    This looks like a fatal combination of low information investors, pump and dump oriented managements and extremely lax regulatory supervision. If there is such a thing as petri dish for financial fraud I think this is it.

  11. Jeremy says:

    The Kodak scheme was somewhat sensible – the idea was to provide a way to license and share stock photography – but I don’t think it will be able to dislodge the existing market for that. I.e. “nice idea, probably won’t work”.

  12. Agnostic says:

    And my friends label me a nutcase for buying physical silver.

    • JD says:

      Yes… same here. So instead of rejecting the meme that I’m a tin foil hat wearer .. I correct them by saying it is a silver foil hat .. lol

    • Javert Chip says:

      Silver: Down 66% from 6 years ago (not counting the front & back-end commissions).

      • Frederick says:

        That’s OK I bought mine at 11 and sold half on the way up to 49 so I’m still good I imagine the 4K oz remaining will be worth ALOT more soon

      • Agnostic says:

        It’s what happens when you buy low and sell high. When you are a value investor and you buy low everyone thinks you’re an idiot cause no one else is buying. When an ounce of silver costs less than lunch you know it’s underpriced.

  13. william says:

    Hyperledger is the real story behind the scenes. I recommend checking into the companies that are part of hyperledger.org and becoming familiar with this trend.

    • JonnyNova says:

      The problem with blockchains is that they have a very limited use case for when you need distributed concensus. If you don’t, a boring old cloud service will crush the blockchain implementation massively in every regard.

      Consider bitcoin’s 3 to 4 transactions per second to visas 2000ish. And that is with bitcoin consuming more power than Portugal to do it.

  14. Paulo says:

    True story.

    I have a dweeb of a nephew whose latest scam says it all. He is one of those kids kicked out of school in grade 10 for hacking into school district email accounts. Never completed high school as a result, but a supposed computer genius (according to his parents). When he was looking for investors for his virus alert business 20+ years ago, I asked, “Why? I can just buy McAfee or run Norton”. Then, a few years later he started up a ‘sharing’ program, and my son asked, “What’s with that? It’s just facebook for car buffs”. Then, it was a shopping scanner system and we all asked, “So people are just going to trust a cart scanner he builds? They already do that in some stores”. I heard from my son just yesterday the nephew has started up some new venture that has the word “Blockchain” in it.

    Every time he does this he bilks a few investors, starting with family. Of course immediate family are all wise to him, but now he is trying to tap boyfriends of cousins….that kind of thing. The serious investors (last group from California) always do the following: They cut off his expense account for travelling, (that takes about 1 year), they quit paying any salary, and after they discover he has no assets to recover, they take their losses gracefully and shut down.

    Like I said, his new venture has the word Blockchain in it. He has a storefront address and lists 5 employees on the business directory. That would be the young lady answering the phone. The hoodwinked ‘tech’ in the back, his two parents, and of course the Maestro Genius, himself, aka ‘Grade 10 droput computer geek who has never worked at a real job in his life.’

    There are always investors and duped employees. Always. Over the years The Kid has had his corvette repossessed, lost his jeep, lost his waterfront house (under construction), and I’m pretty sure he lives with his parents again….for the 6th time. Now he is in Blockchain mode.

    note: when my son was just 4 years old we forbade him to play with The Genius. We both thought something was amiss, even at that early age.

    Zeros and ones in the computer cloud nether world. Nah, nothing to go wrong, be hidden, or scammed. Step right up…….

  15. NY Geezer says:

    My suspicion is that the cryto-crooks lured mainly the dreamers who buy lottery tickets. This is a very blatant fraud that should have been prevented through regulatory action. Having failed to abort the fraud by regulatory action, the US Government should begin criminal prosecutions of corporations and individuals. There is almost no chance of recovering loses.

    But the US Government does not want to regulate the sale of fraudulent securities even a fraud like this that was always very obvious as such regulation would have to extend far beyond the crypto-stocks.

    • Bobby Dale says:

      It would probably take a minimum of 6 months to pass a law regulating any form of investment. Add to this the fact that the “blockchain” phenomenon is hard for rational humans to understand, not to mention the dolts inside the Beltway, including elected, appointed and idiot staff and you probably are looking at 2019 before any potential regulations are in place. I would imagine that most, if not all of these “investments” will be gone long before then.
      All any regulation would do is encourage those losing their money in these crypto scams to believe that the new “regulation” will protect them in the future.
      You can not fight human nature beyond the confines of your own body.

  16. Mike Earussi says:

    “There’s a sucker born every minute”
    “A fool and his money are soon parted”
    “Stupid is as stupid does”

    I don’t feel sorry for any of the idiots who bought any of these, they got exactly what they deserve. Scams have been around since the dawn of the human race and yet there are still people who haven’t learned. I guess if they get kicked in the head hard enough it might finally sink in.

    • Volvo P-1800 says:

      “A fool and his money are soon parted”

      Hm. That should mean there is a shortage of stupid rich people …

  17. Enrique says:

    Not like the SEC et al have one iota of credibility at this point, but if some of these “executives” aren’t in bracelets at some point behind all this one wonders who ever will go to jail for anything anymore.

    • Kent says:

      Steal $500 and you’re a criminal. Steal $5 million and you’re an entrepreneur.

  18. Reluctant Motorist says:

    If I had asked people what they wanted, they would have said faster horses
    Henry Ford

  19. Jon says:

    As long as they are above their pre blockchain price, which most are, then it’s a win and doesn’t matter how far it dropped from the highs, that’s just called volatility.

    • MD says:

      It’s only ‘volatility’ if they go back up again…otherwise it’s just the bursting of a baseless, short-term speculative bubble. Nothing more.

      Not a win for those suckered into buying speculative upside, of course…which is generally the person who can least afford to lose…

  20. reminds me of the B2B bubble. the efficiency that B2B was supposed to bring was going to revolutionize business, like the RFID tag device when it was first implemented by Walmart. It was going to give them instant inventory control. To be genuinely profitable any product or service needs a retail base.

    • JonnyNova says:

      Inventory control is literally what they are trying to accomplish with hyperledger right now. Because they want distributed concensus. When all they really need is a single standard

  21. MD says:

    As with all bubble nonsense, ya gotta get in and out early.

    I’m sure the smart money’s long gone (and now short of course).

    Anyone remember the good ol’ days when you designed, manufactured and exported a tangible product, and you ran a company prudently for planned, steady growth and for the benefit of employees as well as owners.

    No – me neither, although it really wasn’t that long ago. Guess massive investment and hedge funds coupled with executive stock option packages killed those days off, and we’re all expected to be speculators now.

    I’m sure it can only end well.

    • AG says:

      Timing, to get “in and out early” is the same for stocks and bonds. But since no one really knows what “early” is, the game continues. If you bought a bitcoin at $1,000, and then sold it for $2,000, you would have doubled your money! But would you then regret not keeping it as it shoots up another 1,000%, to $20,000?

  22. MASTER OF UNIVERSE says:

    Long Blockchain Corp. was my bellwether example of the prototypical pump n’ dump, but unlike you I thought the irrationality was going to continue on for years like Madoff did. You were right all along, Wolf, but Bitcoin is still hovering around the long term price of $10,000.00. Blockchain failed where I thought it could not, and Bitcoin maintained average price over time. Bitcoin will be here for quite some time.

    MOU

  23. michael Engel says:

    Very soon, – not this week, – take a BIS.

  24. Tang says:

    Blockchain…disintegrates….over 4 months. Small potatoes? Nothing like the Noble Group. Over more than 4 years. Bloomberg today says it is a carcass strip of all the meat. Creditors, Shareholders, Bondholders will fight for her bones. Inspite of years of repeated warnings by concerned observers, authorities adopted a not my problem attitude. A very very fascinating saga worth your reading. Google the details. Your afternoon will be very enlightening.

  25. Agnostic says:

    It’s what happens when you buy low and sell high. When you are a value investor and you buy low everyone thinks you’re an idiot cause no one else is buying. When an ounce of silver costs less than lunch you know it’s underpriced.

    • Rad says:

      No it’s not. The actual cost of production dictates it’s real value, and production costs aren’t very high right now. All precious metals are hard-assets scams, just like cryptocurrencies.

  26. Rad says:

    Great article, much appreciated too.

Comments are closed.