The Blockchain Name-Change Game And Securities Fraud

The Blockchain Name-Change Game And Securities Fraud by Dave Kranzler – Investment Research Dynamics

The rape and pillage of the blockchain name-change game took on a whole new dimension with Kodak (KODK) this week.  KODK was on the way to its second bankruptcy filing this decade (first one was January 2012).  On January 9th it announced that it implement a “major blockchain initiative.  This “initiative” would use digital ledgers to help photographers license and get paid for their work.  The stock soared:

Notwithstanding whether or not this “block chain initiative” will ever generate meaningful profits for KODK, it turns out that insiders at the Company filed S-4’s with the SEC disclosing that they were awarded 10’s of thousands of “restricted stock units.” The problem with this? The RSU’s were awarded on January 8th, the day before the “blockchain” announcement was released on January 9th.  The timing of this filing is quite curious.

The Company released its Q3 10-Q on November 8th.  Revenues plunged 32% yr/yr for the 3rd quarter; operating income swung from $15mm in Q3 2016 to a $54mm loss in Q3 2017. The Company is dying on a vine.  Ordinarily compensation stock in the form of RSU’s is awarded at the end of each quarter. The issuance of RSU’s is disclosed in the 10-Q.  No mention whatsoever of management or employee stock compensation awards.  No mention whatsoever in the MD&A of a plan to incorporate “blockchain” in any part of the business model.

All of the above, in conjunction with the sudden disclosure of large quantities of free stock in the form of RSU’s the day before KODK’s “blockchain initiative” announcement tells me that this was a scheme hatched sometime well after the Q3 10-Q was filed by unscrupulous corporate executives who saw an opportunity to exploit the massive blockchain stock and cryptocurrency bubble.

In all probability, these insiders have likely arranged to hedge the gains on the underlying stock represented by the RSU’s using OTC derivatives underwritten by Wall Street banks. These would be derivatives structured in a way that would escape the requirement to disclose the transaction in an SEC filing.  Instant profits on derivative stock that was awarded the day before news was released by the Company – news that upper management knew would send the stock to the moon.

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Dave Kranzler

I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for Bankers Trust. I have an MBA from the University of Chicago, with a concentration in accounting and finance. My goal is to help people understand and analyze what is really going on in our financial system and economy. You can follow my work and contact me via my website Investment Research Dynamics. Occasionally, I publish on Seeking Alpha too. As a co-founder and principal of Golden Returns Capital, LLC Mr. Kranzler co-manages the Precious Metals Opportunity Fund, a metals and mining stock investment fund.