MGT Capital Faces Lawsuit Over Penny Stock Pumps

 In Exchanges

The crypto miner, listed as an OTC penny stock, is facing a class-action lawsuit for pumping its share price.

The risk of cryptocurrency mania is not limited to the volatile price of coins and tokens. OTC market companies touting the usage of crypto technology have also added to the hype. Now, MGT Capital (OTCQB:MGTI), the operator of one of the largest US-based crypto mining facilities, is facing a class action lawsuit for deliberately organizing pump-and-dump events for its shares.

Much like the movement of Bitcoin (BTC) prices, the price of MGTI stock rose to a peak around $7 in December 2017, and went on to slide, crashing to current levels of around $0.13. This is typical behavior of penny stocks that affects other small-scale companies on the OTC markets. However, blockchain-based companies had their special day of attention, adding to the risk.

In addition to the class action lawsuit by former MGTI owners, the firm is under investigation by the US Securities and Exchange Commission (SEC) for pumping the stock price in a concerted campaign. The SEC has tracked penny stock companies for the past few years, in an attempt to curb stock pumps related to hot and overhyped business models, including marijuana stocks.

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While MGTI seems to be a legitimate mining operation, the central problem was the hyping of the stock price and the mining facility in Washington with the help of John McAfee. In the fall of 2018, pictures of McAfee on the mining facility grounds were circulating, as more mining facilities were deployed to use the hydroelectric power of Washington.

MGTI ended its relationship with McAfee, issuing an official statement in January 2018.

MGTI is also affected by the rising hashrate and difficulty on the Bitcoin network. In an earlier disclosure, MGTI announced its participation in the mining ecosystem as follows:

“Operating in facilities in Washington State, MGT Capital Investments, Inc. (OTCQB: MGTI) ranks as one of the largest U.S. based Bitcoin miners. MGT oversees the operation of approximately 6,800 Bitmain S9 miners, and 50 GPU-based Ethereum mining rigs.”

In a recent letter to shareholders, MGTI detailed the changing environment and economics of crypto mining, fully disclosing its obstacles. Recently, sellers of cloud mining services have seen an inability to make contracts profitable, and even leading providers had to freeze or discontinue contracts.

Previously, Riot Blockchain (OTCQB:RIOT) also faced a class action lawsuit. The price movement closely recalls that of MGTI.

Other OTC companies or pink-sheet stocks using the “blockchain” word in their title include Blockchain Solutions, Inc. (BLSC), as well as Blockchain Industries, Inc. (BCII), both with an SEC warning and no information disclosure.

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