Wolf Richter wolfstreet.com, www.amazon.com/author/wolfrichter
11 days after I lambasted the outfit. Billions went up in smoke already.
This is my biggest blockchain hero, and now the Securities and Exchange Commission is taking all the fun out of it. The SEC has “temporarily suspended” trading in the shares of UBI Blockchain Internet, a Hong Kong-based company whose shares [UBIA] are traded in the US. This came 11 days after I lambasted the shenanigans of UBI and its executives.
The SEC cited two reasons – “accuracy” in UBI’s disclosures and funny trading activity:
- “Questions regarding the accuracy of assertions, since at least September 2017” by UBI in SEC filings “regarding the company’s business operations.”
- “Concerns about recent, unusual and unexplained market activity in the company’s Class A common stock since at least November 2017.”
The suspension of trading is effective through January 22. The SEC added this warning:
The Commission cautions broker-dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company.
The last phrase is good: “…and any information subsequently issued by the company.” So don’t believe whatever the company might say in the future.
By hyping the word “blockchain” in its name, and by hook or crook, this outfit with zero revenues and a disconnected phone number in its SEC filings got its shares to spike by over 1,100% in a few days, from $7.20 on December 11 to $87 by December 18, pushing its market capitalization to $8 billion. On December 26, the company filed with the SEC to sell 72.3 million shares owned by six executives, including CEO Tony Liu, to allow them to bail out.
Shares closed at $22 when last traded on Friday, and now no one can sell them – however dubious they might turn out to be.
Even at $22 a share, if the share sale were to succeed – if the “public” were stupid enough to go for it, which by the looks of it might have been the case in this “blockchain” hype era – the executives would still transfer $1.6 billion from the public into their own pockets.
UBI’s history in the US doesn’t pass the smell test. In October 2016, the Hong Kong company acquired a publicly traded shell corporation registered in Las Vegas, changed the name and ticker symbol, and off it went, as I pointed out in my piece, I’m in Awe of How Far the Scams & Stupidities around “Blockchain Stocks” are Going
There were some glaring red lights in the prospectus for people who bother to read it, who likely wouldn’t be the people who’d buy the shares. It said, for example, that “due to the uncertainty of our ability to meet our financial obligations and to pay our liabilities as they become due,” UBI’s auditors questioned “our ability to continue as a going concern.”
“Without any additional funding, the Company will be unable to operate,” it said, and it “must raise additional capital in order to continue operations.” But all the shares would be sold by its executives and the company “will not receive any proceeds from the sale of the common stock by the selling stockholders.”
So even after the sale of the shares, UBI would still have nothing – no revenues, no business model, no cash. You have to hold your nose while reading the prospectus, wondering who’d be stupid enough to fall for this. But enough people were stupid enough. Hence the multi-billion dollar market cap.
Regulators finally woke up to this game, issuing a series of warnings about the entire crypto and “blockchain” hype. On December 11, the SEC issued a warning that commenced this way:
The world’s social media platforms and financial markets are abuzz about cryptocurrencies and “initial coin offerings” (ICOs). There are tales of fortunes made and dreamed to be made. We are hearing the familiar refrain, “this time is different.”
On January 4, the North American Securities Administrators Association (NASAA) warned:
Investors should go beyond the headlines and hype to understand the risks associated with investments in cryptocurrencies, as well as cryptocurrency futures contracts and other financial products where these virtual currencies are linked in some way to the underlying investment.
The recent wild price fluctuations and speculation in cryptocurrency-related investments can easily tempt unsuspecting investors to rush into an investment they may not fully understand.
Cryptocurrencies and investments tied to them are high-risk products with an unproven track record and high price volatility. Combined with a high risk of fraud, investing in cryptocurrencies is not for the faint of heart.”
The same day, the SEC warned once again about “cryptocurrencies” and “Initial Coin offerings,” commending the NASAA for its “timely and thoughtful reminder to Main Street investors to exercise caution.” It added:
The release recognizes that cryptocurrencies, while touted as replacements for traditional currencies, lack many important characteristics of traditional currencies, including sovereign backing and responsibility, and now are being promoted more as investment opportunities than efficient mediums for exchange.
UBIA, at the $22 a share, still has a market cap of $2.4 billion on paper. From its peak, nearly $6 billion has evaporated. And there’s a good chance that the rest of it will evaporate too.
So here we go (I’m just kidding, but others are not, and people are falling for it). Read… Wolf Street Changes Name to Wolf Blockchain, Shares Soar 2,000%, Company & Founder Sell 10 Million Shares