We’ve officially achieved oracle status.
We anticipated the restatements at Riot and Marathon by calling out the discrepancy between asset values, revenue recognition, and actual cash conversion in our November post on crypto red flags. Details are below.
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March 1st was the annual reporting deadline for many larger companies. A few well known names missed the deadline this year.
Since February 1st, approximately 150 companies have missed an SEC deadline, down from about 170, a 15% drop from the same period last year.
Last year saw more deadline misses than usual due to widespread delinquency on the part of Special Purpose Acquisition Companies. Read our post from last year, “Non-timely filings increase by 40%+ in 2022, fueled by SPACs”.
Multiple crypto players missed their annual reporting deadlines last week:
Silvergate Capital Corp (SI) disclosed that it is dealing with ongoing regulatory investigations and is reevaluating its business. This week, it announced it is shutting down its operations and liquidating!
Riot Platforms (RIOT) is restating its financials due to inaccurate bitcoin valuations.
Marathon Digital Holdings (MARA) is also restating its bitcoin valuations and revising its accounting presentation of revenue.
We wrote about the complexity of crypto accounting and widespread internal control issues in “FTX: Anomaly or norm? Field notes on the crypto mining space”.
New feature launch: Hudson Labs Impact Assessments - the context you need to evaluate risk. Keep scrolling for details.
Crypto reporting deadlines missed last week
Failing to meet an SEC/NYSE/Nasdaq-required deadline is never a good sign, especially for larger companies. For these crypto players, missing filing deadlines comes after a string of missteps and red flags, some of which we documented here.
Silvergate Capital, Riot Platforms, and Marathon Digital were among the notable delinquent filers. Riot and Marathon both filed late due to issues with crypto accounting. Neither development should be a surprise to our subscribers.
Riot missed its 10-K deadline, filing a day late on March 2nd. The delay was primarily due to accounting restatements related to its valuation of bitcoin on its balance sheet. Riot determined that it was not appropriately calculating impairment on its bitcoin assets in accordance with US GAAP.
We’re not surprised by this development. In November, we wrote…
For the year ended December 31, 2021, the restated net loss for the company increased from $7.9 million to $15.4 million. Wow.
Riot finally came to the painfully obvious conclusion that they were overvaluing the bitcoin on their books. If we knew that in Q3, it begs the question, where were the auditors?
Marathon is filing late for the same reason as Riot: inaccurate bitcoin valuations. These restatements, however, were triggered by comment letters from the SEC.
In November, we wrote the following about Marathon:
As a result of these restatements, Marathon will have to revise its presentation of bitcoin mining revenue. However, this revision will not impact the company’s total margin, operating income, or net income.
Marathon has yet to publish its restated financials. The company has a net loss of $36 million in 2021. Like Riot, could the loss now be double?
This deadline miss was not unexpected given that Silvergate Capital, a crypto-focused bank, had been making headlines for a liquidity crisis that is threatening their business.
This notification of late filing proved to be a fatal sign: On March 8, 2023, the company announced “its intent to wind down operations and voluntarily liquidate the Bank in an orderly manner in accordance with applicable regulatory processes.”
Last week, Silvergate disclosed that it needed additional time to “perform analysis, record journal entries related to subsequent events, and complete management’s evaluation of internal controls over financial reporting.” In other words, Silvergate still had a whole lot of accounting to do before filing with the SEC.
Due to the crypto collapse in late 2022, Silvergate Capital borrowed from the Federal Home Loan Bank of San Francisco in order to have sufficient cash for withdrawals from its crypto depositors. Now the company has to repay those loans by selling a lot of its investment securities, but at a significant loss. Silvergate had to finish its accounting for these last minute loan repayments and also assess whether it will still meet its regulatory capital requirements after these sales.
Scrambling to complete its accounting has now become the least of Silvergate’s problems. Due to regulatory and operational developments, the company plans to shut down.
Hudson Labs Impact Assessments
We’re thrilled to launch a long anticipated feature, Hudson Labs Impact Assessments, the context you need to assess risk in context.
Impact assessments provide in-platform answers to questions like:
How risky is this company relative to the average?
Does this audit firm have high risk clients?
Is there a history of delinquency?
How frequent is management turnover?
Late filings in context:
It is relatively uncommon for public companies to miss SEC deadlines. Only 3% of mid cap companies missed an SEC deadline this year, making the deadline misses from companies like Webster Financial, Nutanix, Flowserve etc. all the more notable.
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