A recent trend for companies in trouble has been to rebrand with a blockchain focus. So far it’s been a sure recipe for stock market success. Last month Kodak, the previously all-powerful camera company, which has suffered from the digitalisation of photography, announced that it was launching an ICO.

Other companies’ crypto switches have been even more striking. The most famous perhaps is the Long Island Iced Tea Corporation which abruptly changed direction to the “Long Blockchain Corporation”, without having had any previous experience in the blockchain world. Nevertheless, it’s share price spiked on the news.

However, authorities have warned that they will not allow these kinds of change to pass without notice. In his disposition to US Congress earlier this month, SEC head Jay Clayton said that his organisation was “looking closely at the disclosures of public companies that shift their business models to capitalize on the perceived promise of distributed-ledger technology.”

Now it seems that others are doing some close looking of their own.

Last October Bioptrix, Inc startled its shareholders by rebranding as Riot Blockchain and changing its business model from the development of veterinary equipment to investments in blockchain companies. It has now been hit with a class action lawsuit.  

The lawsuit has been brought by a group of disgruntled shareholders and alleges that the company has violated the US Securities Exchange Act of 1934 by making false and misleading statements. The case states that the name change was solely to take advantage of rising public interest in cryptocurrencies to artificially inflate the share price. This then allowed the major shareholder, Barry Honig, to sell his shares at a misleadingly high price.

According to the Shareholders Foundation, there were a number of “red flags” around the company. Examples of these were “annual meetings being postponed at the last minute” and perhaps most startling, “insider selling soon after the name change”. The share price rose from $8 to $38 after the change of business direction.

Meanwhile, Long Blockchain has received notice from Nasdaq that it will be striking the companies securities from the exchange. According to a report filed with the SEC, Long Blockchain received a letter from Nasdaq saying that it believed the company aimed to “mislead investors and to take advantage of general investor interest in bitcoin and blockchain technology”. For their part Long Blockchain “strongly disagrees with the Staff’s determination and, accordingly, has appealed to a Hearings Panel.”

However, to stand any hope of the ruling being overturned the company’s market value must stay over $35 for 10 or more consecutive days. Its market cap is around $29 million at time of writing.

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