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16 Feb

CNBC Investigates Barry Honig trading in Bitcoin Company $RIOT

We witnessed somewhat of a reporting miracle today! CNBC TV journalist Michelle Caruso-Cabrera and her producer Scott Zamost took on an on-the-ground investigation into the questionable activities of micrcocap investor Barry C. Honig and got out from behind the desk to do some real reporting.

In 2016, I was first to expose that Honig and a fellow investor John O’Rourke were named in an SEC investigative subpoena regarding trading in MGT Capital. My reporting at trade publication Growth Capitalist explained the SEC could be looking at how a group of investors, including Honig, trade as a group without disclosing their affiliation. The investigation appeared to also be looking at stock promotion and how it was disclosed along with the timing of public announcements as to who owns how much of the stock. Today we see CNBC try to take on reporting with a similar fact pattern through Honig’s investing in a company called Riot Blockchain ($RIOT).

Riot made the rounds of financial news when its stock flew up in December from $8 to over $40 after a simple name change to a company in the Bitcoin business. CNBC reports “Until October, its name was Bioptix, and it was known for having a veterinary products patent and developing new ways to test for disease.” SEC filings show that Honig was considered an insider in the company because he owned more than 10 percent of the stock. John O’Rourke was gifted shares when he suddenly became the company CEO after Honig pulled an activist move that magically put O’Rourke in charge of the company and axed previous board members. Honig does a bridge loan, gets cheap cashless warrants and boom sells the stock on its high while retail investors pile in. Then the stock tanks. This type of investing is a rinse and repeat move for Team Honig and mirrors what we saw in MGT Capital.

CNBC actually did some good question-asking-reporting here although they didn’t get a lot of truthful detailed answers. Caruso-Cabrera went to Honig’s Boca Raton office at 555 S. Federal Highway Suite 450 after she couldn’t get anyone at the company to do an interview. We see Caruso-Cabrera enter Honig’s office and find none other than John O’Rourke there. O’Rourke comically runs away from her and almost slams her fingers in the door but then comes back out to promise an ‘off camera’ interview. Honig and O’Rourke both deny that they “work together” but then Honig later admits O’Rourke did at one time have an office in his office. If the CEO of the company had his office in a major shareholders office that claims not to control the company that doesn’t look good. You can read CNBC’s print story and see on-camera footage here.

A lot of the CNBC coverage focuses on if O’Rourke currently works out of Honig’s office. Their reporting indirectly tries to point out both of these men could be lying. If CNBC wanted to drive home this point they also could have done some SEC filing research, like I did. where John O’Rourke office address is Honig’s office address in this filing from December 2016.

I have previously reported O’Rourke has worked out of Honig’s office after I interviewed a person who saw him working there. Which is just odd he goes and denies it to CNBC. I reached out to O’Rourke’s attorney Nick Morgan at Paul Hasting this morning to ask what CNBC didn’t clarify. When did O’Rourke stop working out of Honig’s office and what is his new office address? Attorney Morgan said he would get back to me but as of press time I have no answer. Honig was also contacted through his Attorney Charles Harder and asked when O’Rourke stopped working out of his office. At press time Attorney Harder did not respond.

While we really enjoyed the gotcha moments Caruso-Cabrera captured on camera, it was disappointing not to see CNBC mention the elephant in the room. Honig and O’Rourke are named in an SEC subpoena for their role trading and investing in MGT Capital. On January 31st the WSJ did a similar story on Riot looking at Honig and his role in the company which included their reporter Ianthe Dugan asking Honig flat out about the SEC subpoena. The WSJ reported “Mr. Honig said that he hasn’t been contacted by the SEC and doesn’t believe he is a target. “I am 120% not worried,” he said.” A government agency investigating securities violations usually doesn’t knock on the subjects door and let them know they are gathering evidence against them until they have a case built. So Honig’s public denial doesn’t carry much weight in my book.

There is also something else alarming in the CNBC story. Honig’s longtime deal attorney Harvey Kesner, who is now a named partner at Sichenzia Ross Ference Kesner LLP, was reached on the phone by CNBC and said “he didn’t know anything about Riot Blockchain and Barry Honig.” And then he hung up on them. What??? Kesner is the named deal lawyer on multiple Honig investments. He is the attorney I have called multiple times, and has responded for Honig on deal questions and his law firm is on SEC filings for Riot. On top of all that CNBC figured out Kesner also owns an investing company called Paradox Capital Partners, which I previously reported on, who also owns RIOT stock. I emailed Kesner this morning to give him a chance to clarify his comment but so far he is radio silent.

I have to wonder if Kesner is trying to finally distance him self from Honig because of questions about the timing of Honig’s self reporting of RIOT stock ownership. You see since Honig went above owning 10% of the stock (he reported he owned 11%) ,and then sold to own about 2%. if he did that selling within 6 months he is subject to the rules that prevent sell-then purchase or vice versa within six months. Honig should have filed a Form 3 which I can’t seem to find in SEC filings. And all of this could be a section 16(b) violation of the Exchange Act. Which creates the opportunity for the company (RIOT) to sue Honig for any profits he made from a short swing and the profits go back to the company. But I guess if your friend John O’Rourke is running the company he is not going to file that lawsuit! And we don’t know when Honig officially sold because of his lack of timely reporting. Something we saw him also do with MGT Capital.

Here is an example of a lawsuit for a 16(b) violation with a company called WPCS. A stock Honig and O’Rourke also invested in.

John O’Rourke told Benzinga after the first CNBC video aired that their coverage was Garbage and a Hit Piece. That means Michelle Caruso-Cabrera is on the right track. Riot saw a $5 drop in its stock price today which is about a 34% decrease since the CNBC story aired. Ambulance chasing securities lawyers have also announced that they plan file a class action lawsuit for securities violations against RIOT.

Editor’s Note: Honig previously sued me for reporting he was named in an SEC subpoena. He dropped that litigation against me in January and I am here reporting again. Lawsuits are a pain and risk me having to disclose sources but they will never deter me from staying on the story. Donations to this free publication are greatly appreciated and always needed. Tips can be sent to teribuhl@gmail.com .

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22 Oct

Mastercard Hates Bitcoins

The new boss in charge of giving out a MasterCard licenses has no intention of allowing the brand or any bank that does private label cards to use Bitcoins. In fact, he nearly bragged to me about killing the BitInstant deal with a U.S. bank for the first planned $BTC card this year.

Stephen Ruch, the MasterCard executive, is just a year into his job with the company, and while he monitors the Bitcoin space he told me he is still under the impression it’s one big Ponzi scheme. Even after meeting with this person socially multiple times, where I explained the mechanics of how digital currencies actually work, he still had a blind eye to its legitimacy. His biggest fear was it would ‘hurt the MasterCard’ brand.

RT’s most popular TV journalist, Max Keiser, weighed in on MasterCard’s fearful attitude telling me, “We can say without equivocation that firms like MasterCard, Visa and the TBTF banks like JPMorgan and Goldman hate the idea of ever having to compete for business again. They have grown comfortable in their corrupt world of writing laws for themselves without any regulatory oversight. They enjoy the exorbitant privilege of bilking the American economy with extortionary transaction rates. They are scared of Bitcoin. And they should be. It offers transparency, cost efficiency and anonymity.”

Now Ruch isn’t blind to helping MasterCard make every penny it possibly can but it appears it’s going to take the likes of someone like Jon Matonis to have a little sitdown to open this man’s mind. On October 18th Ruch sent me a link to a story on ‘Why Bitcoin will fail’ that his staff pulls together for him to monitor the Bitcoin space. I thanked him for the link and responded I was a little behind on $BTC news. Ruch then said responded he thought a lot of people involved in the Bitcoin business were not on the up and up.

I thought WOW he is really afraid of this thing. Whenever I hear anyone think the digital currency is a Ponzi scheme it makes me realize they are just not educated on the subject or they are close minded to the viability of a currency outside the paper money sphere. Now Ruch is an intelligent person but this is also a man who told me he thinks Fox News in the morning is a credible source of information.

Peter Vessenes of CoinLab has often drilled into me that $BTC has to get accessible to scale, to get in the hands of mass main street, and draw the interest of institutional money. But if we’ve got a major road block, at one of the two most powerful institutions who could open the floodgates for Bitcoin accessibility with a debit-like BTC card, then the digital currency space could have problem.

Well at least there is always Visa right?

Editor’s Note: I met Ruch socially and not in an official interview but he knew he was speaking with a journalist who has written about Bitcoins. This is just one of those factual events I felt was important to publish and didn’t think getting MasterCard’s permission to go on the record was needed. The Stamford, Conn. resident, Ruch, official title is SVP/Global Head of Growth Innovation & Planning- Franchise Development

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6 Aug

The Mess the WSJ Made: Famed trader Joe Lewis not Investing in Bitcoins

The Wall Street Journal had Bitcoin investors all excited Monday morning after it reported legendary currency trader turned investor Joe Lewis was spending a whopping $200 million on a Bitcoin miner company. Except it took only a few hours for CNBC reporter Scott Wapner to call his friends at Joe’s investing firm, Tavistock Group, and confirm the story was completely unfounded. The WSJ had major egg on its face and the story reported by Harriet Agnew and Robin Sidel was pulled down from their online publication. So how did a story like this get past a seasoned reporter like Sidel and the layer of editors that are ultimately responsible for hitting the print button?

The news of a Bitcoin miner, Avalon, getting any VC or Angel money started Sunday at a Bitcoin blog called Bitcoinexaminer.org . I spoke with Danny Ashton who runs the site and he said they had the tip from an unnamed source that had pieced together a series of details that looked like the investment could be coming from something called the Phoenix Fund which is supposed to be Swiss-based.

Bitcoin Examiner writes:

There might be a major deal being made in the Bitcoin ecosystem in the next few days: a deal that mixes the names of BitSynCom LLC’s founder, Yifu Guo, and a Swiss private equity fund, which is allegedly about to invest $200 million to make sure the brand Avalon emerges as the leader in the mining technology race.

Then they go on to tell readers this is a rumor and their source is anonymous. They are setting up the story as speculative. Not the best method of journalism but perfectly ok if they state this is what ‘we are hearing’ but we don’t know if this is fact yet – which they did. Speculation can at times force a story into the light…it’s a method I’ve used. Their headline even said the word ‘might’ be getting a $200mn investment.

The Bitcoin blog then goes on to tie in a man named Andrew Laurus who is allegedly setting up this huge investment. Laurus is sourced as being related to Bitcoins based on his twitter profile which says: ‘taking time off for Bitcoin mining project’. Danny Ashton, of Bitcoin Examiner, said he didn’t know if Laurus was the source for the story.

Here is where a game of Telegraph starts. This unnamed source throws out Laurus is working with ‘the Travistock bunch’ — a firm Joe Lewis does actually own. Then all of a sudden there is this unexplained jump that Lewis owns The Phoenix Fund.

A bunch of other names are thrown into this deal; a Taiwan microchip manufacturer TSMC, Bitsyncom, and the unknown private equity guys at The Phoenix Fund.

The team at Bitcoin Examiner closes out the story reminding readers once again this is all rumor, their source is anonymous, and they have to actually confirm all this. Then BOOM – the Wall Street Journal has taken this mess of maybes and printed it as FACT with a big bold photo of Mr. Lewis and a promotion of the story above the fold in their Money and Investing – C Section.

WSJ: Bitcoin's New Champion by Teri Buhl

The Journal didn’t only get the fact that Joe Lewis was putting that much money into a Bitcoin miner deal wrong but they also printed Mr. Lewis “leads the Phoenix Fund, a Zurich-based private equity fund that on Tuesday plans to invest $200 million in Avalon, a company that makes computer servers aimed at creating Bitcoins, according to people familiar with the situation.”

There is so much wrong about that sentence that could have been fact checked it’s scary. 1) Mr. Lewis public relations person Lauren Morgan told me today the WSJ NEVER even called for comment. If they had they would have learned what CNBC got on the record, which was Mr. Lewis has nothing to do with the Phoenix fund. 2)If you regularly report on Bitcoins like I’ve had the chance to for a year now, you know computer servers do not make Bitcoins. They might help distribute the digital formula that moves the Bitcoin volume and pricing but no one or no machine makes a Bitcoin- that’s why it’s called a digital currency. 3)I have not found a real private equity fund called The Phoenix Fund that has $200 million to invest in Bitcoins.

The simple lack of fact checking that appears to have gone on with the Sunday night editors at the WSJ is amateur beyond belief.

I’ve reached out to the lead byline reporter on the story, Harriet Agnew, who appears new/young and recently been covering UK hedge funds, but she refuses to answer who her editor was. The only answer I got from her was this:

Fyi we have just published a correction:

Correction

05 Aug 2013

Investor Joe Lewis isn’t investing in a bitcoin venture called Avalon and doesn’t lead a Zurich-based private-equity fund called the Phoenix Fund. An article on the supposed investment was inaccurately published and has been removed.

Harriet

Neither Harriet or the other experienced reporter on the story, Robin Sidel, have admitted who came up with the lede in this report – meaning whose idea was it to link Joe Lewis to this apparent non-deal? Lauren Morgan at Joe Lewis’s firm also told me the WSJ won’t tell them who the editor is. It’s a massive duck and cover by what is supposed to be a pillar of business journalism.

Here is where the story gets even more troublesome. It’s clear that Harriet, Robin and their editors are not really well sourced or well versed in the Bitcoin investing space. A quick email to VC’s I’ve sourced and reported as investing in real Bitcoin companies like Bitpay or CoinLab said, “The BTC market is only worth around $1 billion now so why would someone make a single investment of 20% of the market ($200 million) into one company?” Then we have the fact that the highest round of investment in a BTC company at one time has been what Coinbase got with around $5 million. We have yet to see any BTC company get a double-digit million investment so how does it makes sense that triple digit millions are getting put into a deal. The WSJ also could have called around to VC’s and asked if any Bitcoin miner deal will get funded and how much is likely to be spent… like I did. The answer I got was ‘high single digit millions is all the Bitcoin miner space is worth right now.’

This is basic high-finance gut-instinct reporting skills that most journalist trying to report on a subject like Bitcoin investing would ask BEFORE you hit the print button.

And even if the WSJ editors didn’t figure out the math on this deal doesn’t it make sense to do a quick google search to see what active Bitcoin players are talking about over at chatroom bitcointalk.org. It would have shown as early as Sunday they were challenging the notion that you barely need $20 million to build out a better mining technology and were making fun of the idea that Avalon would use the rest of the money to hold a long position in Bitcoins.

These chatroom users also point out that the only link to $200 million and the word Avalon comes from a press release in Jan 2011 when San Diego-based VC firm Avalon Ventures closed a fund with $200 million. I called the VC firm to see if this fund was designed to invest in Bitcoins or if they have ever invested in Bitcoins and the answer was NO.

That leaves us with what is the motive of this anonymous source. It’s possible this person was writing Bitcoin Examiner and the WSJ reporters trying to get something printed but knowing how the WSJ likes to lift other original reporting and source it as their own I’m going with they just lifted a rumor story from Bitcoin Examiner and really screwed up by trying to turn it into deal-making news reported as FACT.

Joe Lewis firm made this statement yesterday, “”Unfortunately, many immature investments and investors would like the association of private investors like Joe Lewis. They bring instant credibility,” said Douglas McMahon, senior managing director of Tavistock Group, a private investment organization founded by Lewis.”‘Our’ Joe Lewis has nothing do with Bitcoin, Phoenix Funds or Andrew Laurus,” said McMahon.

A few motives come to mind here: Someone with a sizeable long position in Bitcoin coins (lets say $500k – $1 million) wanted the daily trading value of Bitcoins to go up so they could cash out. This sucks because there is already so much miss-reported on how the value of Bitcoins can be manipulated and as journalist we shouldn’t be enabling traders to move a market on false info not vetted. There wasn’t much of a movement in BTC price yesterday so thank goodness it didn’t work.
Or
A Bitcoin miner company needed to get word out that they could get big investment money so whoever might really be considering to give them a few million would do it. Butterflylabs has the equipment Bitcoin miner pros use now. There has also been talk heard at the London Bitcoin conference in July that there is a better ASIC rig being worked on by some ex Silicon Valley hotshots. This of course is my SPECULATION based on reporting on this sector for a bit.

We might never get the answer to the motive of the story source but I strongly believe the Wall Street Journal editorial board owes the reader an investigation into what happen in this major failure of reporting check and balances. They need to admit who the editors were and explain how the story got to print. And honestly someone needs to get fired.

Now if hundreds of millions of dollars ever do get invested in a Bitcoin company I’m going to recommend checking www.bitcoinmagzine.com who is so dialed into what is happening in this market they’ll at least give you a fact checked, vetted, insightful report. The folks over at American Banker have also done some quality reporting on Bitcoins under the editorial leadership of Marc Hochstein and RT’s top Biz TV host Max Keiser often has excellent guest talking about the digital currency.

Here is the story the WSJ had to take down:

Who is Harriet Agnew's Editor?

Who is Harriet Agnew’s Editor?

8 Comments
17 Apr

Does Bitcoin Need a Central Market Maker?

The digital currency, Bitcoin, needs world-class marketing making. That’s what RT’s popular TV host, Max Keiser, told millions of viewers around the world yesterday. After we watched Mt.Gox suffer a DDOS attack these last few weeks that led to Bitcoins dropping over $100 in value–the idea of trying to weed out crazy volatility swings through an added layer of market making might not be a bad idea. Keiser even breaks news on his show that Cantor Fitzgerald, a broker dealer, is secretly working on this.

You see Cantor bought a virtual market maker tech platform from Keiser many many years ago when he owned the Hollywood Stock Exchange with Michael Burns of Lionsgate. The U.S.-based brokerage firm could use Max’s virtual specialist technology to create a trading market in about anything. Right now it looks like they’re trying to figure out how to make money off the platform trading Bitcoins.

I am not going to bother asking Cantor to confirm if they are going to jump into the new-new world of Bitcoins because when I interviewed them in 2007 at Trader Monthly Magazine for a story on the Hollywood Stock Exchange they told me Max’s technology had been lost when their New York office was blown up in the 9/11 bombings. I found out later this was a lie. Cantor had the root technology Max had created and then added a few bells and whistle to it so they could back out of paying him and claim it was their own tech platform. It was typical back-stabbing dirty-deal making on Wall Street that Max eventually just gave up trying to collect on.

I don’t think the boys at Cantor are the right group to touch anything having to do with Bitcoin. But I like Keiser’s idea of finding one group or firm to help buyers and sellers of the digital currency find true price discovery the moment they want to make a transaction. Right now with more than one Bitcoin exchange we end up with these incredible spreads. I’ve written at Bitcoin Magazine last month about hedgies getting excited to make large block buys of Bitcoins through Coinlab’s new exchange. So we know the institutional money has arrived. Problem is these hedgies are setting up limit trades on buy or sell orders to buy at say anytime Bitcoin goes below $100. Since Bitcoin’s price depends on the number of buyers and sellers coming to a market at one time this creates an opportunity to screw up the price. Or to put it a nicer way you rarely ever buy or sell a Bitcoin at true market price. That’s why Max thinks we need a specialist, like they still have on the floor of the NYSE, to step in and buy when there is a mismatch of Bitcoin buyers and sellers.

Keiser told millions of his viewers “The exchange piece of the Bitcoin formula is its weakest link right now.”

Still even without a market maker in place, we are seeing record jumps in new people signing up to trade Bitcoins at Mt.Gox – the exchange blamed for forcing the price of $BTC to nose dive. Stacy Herbert told the Keiser Report yesterday in March Mt.Gox had 60,000 new clients. As of this week they are taking in 20,000 new clients a DAY! Stacy also gave us some damn funny history on Mt.Gox which stands for – Magic the Gathering Online Exchange. The exchange is based out of Japan and actually started out trading ‘Magic the Gathering Cards’ for cash. If you need a laugh I highly recommend watching Stacy explain this on the show.

People who write about finance, like me, are often prone to pigeon-hole a new asset into a type of group. There is a huge debate now on if Bitcoin is a commodity or a currency. My friend Josh Brown, at The Reformed Broker, laughs at anyone who calls Bitcoin a currency.

I started reporting on Bitcoins last year for Bitcoin Magazine because I was fascinated with any non-government controlled product that could possibly take away transaction fee revenue from our Too Big To Jail banks. Marc Hochstein, editor at American Banker, was also early in getting his team to write on the effect of how the Bitcoin Market could hinder bank revenue and change the way we transfer money. I don’t think either Marc or I have wanted to classify if Bitcoin is a commodity or a currency and Max points out on his show it doesn’t have to be. It’s simply a new asset class. One he says asset managers in London are now coming to him to learn how they should invest in it. Think about that–sophisticated money men in London need a TV journalist to help invest because he’s been the only TV jurno to learn and report on the Bitcoin market for over two years now.

Still if your going to trade Bitcoins, or hold them for a long-term investment, you have to understand why even the feds are now calling Bitcoins MONEY. Max got one of Bitcoin’s top entrepreneurs, Tony Gallippi of Bitpay, in an exclusive TV interview to explain Bitcoin’s intrinsic value. Tony ask us to think about it this way. What gives any type of money value? It’s utility – what can you buy with it and how many people/places can you make that transaction with. I’m not going rewrite Max’s great interview with Tony here so watch the show. It’s worth it.

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