By: Andrew Elbaz and Student-at-Law, Joseph Jamil
A growing concern among capital market regulators around the world is the surge in market capitalization after a company announces a change to its name or a change of business to anything relating to blockchain or cryptocurrency, while not actually conducting substantial business in the blockchain or cryptocurrency industry.
A British company changed its name from On-line Plc to On-line Blockchain Plc (ONL:LN), and saw its shares surge 394%; Colorado-based Bioptix Inc. changed its name to Riot Blockchain Inc. (NASDAQ:RIOT) and nearly doubled in value; and more recently, Long Island Iced Tea Corp changed its name to Long Blockchain Corp (NasdaqCM:LTEA) and its stock soared more than 200%. Long Island Iced Tea Corp will continue making beverages, but stated that its corporate focus will shift to “exploration of and investment in opportunities that leverage the benefits of blockchain technology.”
The Canadian Securities Administrators (the “CSA”) has raised concerns over the blockchain and cryptocurrency craze. The CSA issued a press release on December 18, 2017, reminding investors of the “inherent risks associated with products linked to cryptocurrencies.” The CSA is concerned with issues around volatility, transparency, valuation, custody, and liquidity, as well as the buying and trading that is taking place on unregulated exchanges with few controls and no investor protection. To date, no cryptocurrency exchange has been recognized in any jurisdiction in Canada.
In 2015, the medical cannabis sector went through a similar trend when Canadian issuers disclosed their intention to enter the medical cannabis industry. These issuers had an immediate increase in their share price, even in cases where little, or any, substantive information was provided to the public about their plans. The Ontario Securities Commission (the “OSC”) was concerned about the quick inflation in market cap so they, as part of the CSA, released a Staff Notice outlining disclosure requirements for issuers announcing their plans to enter the medical cannabis sector.
It is still unclear how or if the regulators will address this growing concern, but one can look to the disclosure-based approach the CSA took for when issuers announce prospective business plans of entering into a “trendy” sector. As we continue to see more companies changing their names or announcing prospective business plans related to blockchain or cryptocurrency, we will provide further updates on any regulatory responses.