SOS Ltd. (NYSE:SOS) stock is proving a cautionary tale in cryptomining. The accusation that it’s a alleged pump and dump via fraudulent operations is a tug-of-war pitting believers against non-believers. I’ll get to that narrative in a minute.
But first, it bears mentioning that the pace of wild market narratives seems to be increasing. Riskier investments seem to be the norm in 2021. And with Bitcoin prices reaching new highs regularly, investors need to beware.
Bitcoin mining operations are going to be a sector drawing lots of investment interest. As SOS is proving, be very careful before placing your investment dollars into this sector. Not Bitcoin, but rather mining operations with opaque and scant operations.
Hindenburg/Culper Allegations
In late February, short seller firms Culper Research and Hindenburg Research released allegations of fraud by Chinese Bitcoin mining operator SOS Ltd. SOS stock Immediately fell 23% following the reports.
The reports allege that SOS Ltd’s listed business address in SEC filings is simply a hotel. That leads skeptics to assume SOS Ltd. is simply a shell company. The report also supposedly showed photographs of SOS Ltd’s mining rigs which may simply have been lifted from a competitor’s site. All of this evidence is detailed here, and indeed seems convincing.
Another point in the report was that SOS Ltd. claimed that it had placed a $20 million order with HY International Group New York Inc. for 15,645 mining rigs. The company listed the specific mining rigs as “A10 Pro 780M” and “T2T 37T” miners. SOS Ltd. claimed to have received 5,000 of these miners ahead of schedule but photos seem to show different models.
There are also significant questions regarding delivery timelines for such mining rigs.
Other cryptomining operations including Riot Blockchain (NASDAQ:RIOT) and Marathon Patent Group (NASDAQ:MARA) recently reported order delays for such rigs ranging from 67 to 156 days. Thus, SOS Ltd’s claim to have received 5,000 in 19 days has raised significant suspicion.
The report went on to allege other fraudulent activity including largely fabricated mining operations, and a letter of intent to acquire a possibly fictitious company among others. SOS Ltd. would soon punch back.
SOS’ Rebuttal
In response, SOS Ltd. refuted the short sellers’ claims days later calling them “distorted, misleading and unsubstantiated.” The firm went on to explain that “These attacks were purposefully designed to manipulate the price of the company’s shares, with the aim of causing a stock price decline in order to economically benefit the short sellers.”
In the days that followed, SOS released a press release on its additional 5,000 mining rigs, as well as a couple videos on their website that allegedly show the chief technical officer walking through their mining facility.
Shares of SOS stock rebounded 22% subsequent to the first statement, and have been chopping around for weeks.
As an outsider viewing this fiasco this is clearly a case of he said, she said. Each person has to make their own subjective judgment based on what they believe.
Culper Strikes Again
On March 12, Culper Research issued another statement regarding addresses and further evidence of SOS Ltd. operating as a shell company. It appears to indicate that SOS Ltd board members established operations under another company name. The company is listed as the China address of the HY International Group referred to above.
To me, the evidence strengthens prior claims that the company is a shell company. All of this looks fairly damning. It also shines light on this particular industry and ought to leave investors with a sense of “buyer beware.”
Obviously I don’t suggest buying into SOS stock at this point. But I’m not at all surprised that shares jumped by 22% when SOS Ltd. simply refuted the allegations against them. Markets are crazy. But saner minds will prevail. A law firm is investigating the claims.
Generally, be on the lookout for Bitcoin mining scams. Expect them to have scant operations, difficult to verify operations, and to be pivoting from other sectors. It will take a lot to get me to invest in Bitcoin mining stocks right now. And SOS may be among the worst actors in a scam-ridden sector. Bitcoin itself makes infinitely more sense.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
