In Which “Happy Vulture” Asks Great Questions — New Content — And SEC Lesson Book… Results.

An Anon. commenter (known to me) offered this, overnight:

“…Given how well the vulture lenders made out here and that everyone seems content to trade RIOT as a proxy for bitcoin regardless of how poorly the company performs, what’s to keep the Company from just doing another convertible note offering when they’re out of money again at the end of April (especially given that its clear as day that parties are manipulating the stock price with no regulatory intervention)?….”

And… here is my answer:

Great stuff, here “Happy”!

Bear with me: here’s some hedge fund / venture capital / vulture lender SEC rules arcania….

In sum, the SEC’s Section 16 and Section 13 so-called ten, and five per cent thresholds, respectively — are significant impediments.

Under the ’34 Act Section 13 (old Williams Act) rules, the whole game falls apart if any lender or group of lenders crosses five per cent of outstandings (even on an as-converted basis). Then they are no longer free to privately sell or buy shares without registration, and without nearly immediate disclosures, at the SEC. Those are called Schedules 13D or 13G. [And we know Riot cannot get its S-3 cleared at the SEC, due to the still very active (and clearly material) enforcement subpoena production underway.]

Similarly, under ’34 Act Section 16, the SEC Form 4 rules require immediate disclosures at 10 per cent — and also then label the vulture as an “affiliate” of Riot, meaning that one cannot sell at all, without a registration statement being effective.

So — by my math, this was the only chance for it — unless they all decide to engage in willful violations of SEC law and rules — but there’re orange jumpsuits in that course of action, in the near future — especially since the able but overworked SEC staffers are closely watching Riot.

[This is EXACTLY why all the vulture documents recite that no conversion shall result in the lenders reaching the five (or in certain cases, the ten) per cent threshold. The company agrees to “not issue” shares, in that case — until the lenders can sell down enough shares to stay under the SEC regulatory ceiling, and then accept the new shares.]

Obviously, if the vulture lenders have unloaded all their shares from the first funding, they might have a little additional room — but not much. So I highly doubt this group will be a repeat lender. That is, doing it repeatedly with the same three lenders, over time, would suggest to the SEC that the company and the lenders have (arguably) engaged in a fraudulent and manipulative scheme to avoid the registration- and reporting- sections of the ’33 and ’34 Acts. With the lenders acting as so-called Section 11 statutory “underwriters” for Riot, but not complying with the SEC law and lore applicable to that relationship. Not a good look. [The chance to play this game is usually a one time opportunity, in most cases I’ve watched.]

Finally, there is always the possibility that the vulture is not “sitting in a chair” — when the music stops. An involuntary bankruptcy, one filed by Riot’s other creditors — at an inconvenient time, for the lenders — could mess up this game of Musical Chairs, for the lenders.

Thanks, and Namaste!