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Item 3. Legal Proceedings

2022-03-16 compared with 2021-03-31 · 122 added, 78 removed, 21 unchanged (90% of the section changed)

LEGAL PROCEEDINGS.

The Company, and its subsidiaries, are subject at times to various claims, lawsuits and governmental proceedings relating to the Company’s business and transactions arising in the ordinary course of business.

The Company cannot predict the final outcome of such proceedings.

Where appropriate, the Company vigorously defends such claims, lawsuits and proceedings.

Some of these claims, lawsuits and proceedings seek damages, including, consequential, exemplary or punitive damages, in amounts that could, if awarded, be significant.

Certain of the claims, lawsuits and proceedings arising in ordinary course of business are covered by the Company’s insurance program.

The Company maintains property, and various types of liability insurance in an effort to protect the Company from such claims.

In terms of any matters where there is no insurance coverage available to the Company, or where coverage is available and the Company maintains a retention or deductible associated with such insurance, the Company may establish an accrual for such loss, retention or deductible based on current available information.

In accordance with accounting guidance, if it is probable that an asset has been impaired or a liability has been incurred as of the date of the financial statements, and the amount of loss is reasonably estimable, then an accrual for the cost to resolve or settle these claims is recorded by the Company in the accompanying consolidated balance sheets.

If it is reasonably possible that an asset may be impaired as of the date of the financial statement, then the Company discloses the range of possible loss.

Paid expenses related to the defense of such claims are recorded by the Company as incurred and paid and included in the accompanying consolidated statements of operations.

Management, with the assistance of outside counsel, may from time to time adjust such accruals according to new developments in the matter, court rulings, or changes in the strategy affecting the Company’s defense of such matters.

On the basis of current information, the Company does not believe there is a reasonable possibility that, other than with regard to the Class Action described below, any material loss, if any, will result from any claims, lawsuits and proceedings to which the Company is subject to either individually, or in the aggregate.

We, and our subsidiaries, are subject at times

to various claims, lawsuits and governmental proceedings relating to our business and transactions arising in the ordinary course of business.

We cannot predict the final outcome of such proceedings.

Where appropriate, we vigorously defend such claims, lawsuits and proceedings.

Some of these claims, lawsuits and proceedings seek damages, including, consequential, exemplary or punitive damages, in amounts that

could, if awarded, be significant.

Certain of the claims, lawsuits and proceedings arising in ordinary course of business are covered

by our insurance program.

We maintain property, and various types of liability insurance in an effort to protect ourselves from such claims.

In terms of any matters where there is no insurance coverage available to us, or where coverage is available and we maintain a retention

or deductible associated with such insurance, we may establish an accrual for such loss, retention or deductible based on current available

In accordance with accounting guidance, if it is probable that an asset has been impaired or a liability has been incurred

as of the date of the financial statements, and the amount of loss is reasonably estimable, then an accrual for the cost to resolve or

settle these claims is recorded by us in the accompanying consolidated balance sheets.

If it is reasonably possible that an asset may

be impaired as of the date of the financial statement, then we disclose the range of possible loss.

Paid expenses related to the defense

of such claims are recorded by us as incurred and paid and included CECL.

Management, with the assistance of outside counsel, may from

time to time adjust such accruals according to new developments in the matter, court rulings, or changes in the strategy affecting our

defense of such matters.

On the basis of current information, we do not believe there is a reasonable possibility that, other than with

regard to the Class Action described below, any material loss, if any, will result from any claims, lawsuits and proceedings to which

we are subject to either individually, or in the aggregate.

Class Actions and Related Claims

On February 17, 2018, Creighton Takata filed an action asserting putative class action claims on behalf of the Company’s stockholders in the United District Court for the District of New Jersey, Takata v.

On February 17, 2018, Creighton Takata filed

an action asserting putative class action claims on behalf of the Company’s stockholders in the United District Court for the District

of New Jersey, Takata v.

Riot Blockchain Inc., et al.

The complaint asserts violations of federal securities laws under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of stockholders that purchased stock from November 13, 2017 through February 15, 2018.

The complaint alleges that the Company and certain of its officers and directors made, caused to be made, or failed to correct false and/or misleading statements in press releases and public filings regarding its business plan in connection with its cryptocurrency business.

The complaint requests damages in unspecified amounts, costs and fees of bringing the action, and other unspecified relief.

The complaint asserts violations of federal securities

laws under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of stockholders that purchased

stock from November 13, 2017 through February 15, 2018.

The complaint alleges that the Company and certain of its officers and directors

made, caused to be made, or failed to correct false and/or misleading statements in press releases and public filings regarding its business

plan in connection with its cryptocurrency business.

The complaint requests damages in unspecified amounts, costs and fees of bringing

the action, and other unspecified relief.

On April 18, 2018, Joseph J.

Klapper, Jr., filed a complaint against Riot Blockchain, Inc., and certain of its officers and directors in the United District Court for the District of New Jersey ( Klapper v.

Klapper, Jr.,

filed a complaint against Riot Blockchain, Inc., and certain of its officers and directors in the United District Court for the District

of New Jersey ( Klapper v.

Riot Blockchain Inc., et al.

The complaint contained substantially similar allegations and the same claims as those filed by Mr.

Takata, and requests damages in unspecified amounts, costs and fees of bringing the action, and other unspecified relief.

On November 6, 2018, the court in the Takata action issued an order consolidating Takata with Klapper into a single putative class action.

The complaint contained substantially similar

allegations and the same claims as those filed by Mr.

Takata, and requests damages in unspecified amounts, costs and fees of bringing

the action, and other unspecified relief.

On November 6, 2018, the court in the Takata action issued an order consolidating Takata

with Klapper into a single putative class action.

The court also appointed Dr.

Golovac as Lead Plaintiff and Motely Rice as Lead Counsel of the consolidated class action.

Lead Plaintiff filed a consolidated complaint on January 15, 2019.

Golovac as Lead Plaintiff and Motely Rice as Lead

Counsel of the consolidated class action.

Lead Plaintiff filed a consolidated complaint

on January 15, 2019.

Defendants filed motions to dismiss on March 18, 2019.

In lieu of opposing defendants’

motions to dismiss, Lead Plaintiff filed another amended complaint on May 9, 2019.

Defendants filed multiple motions to dismiss the amended complaint starting on September 3, 2019.

On April 30, 2020, the court granted the motions to dismiss, which resulted in the dismissal of all claims without prejudice.

On December 24, 2020, Lead Plaintiff filed another amended complaint.

Defendants filed multiple motions to dismiss the amended complaint starting on February 8, 2021.

Because this litigation is still at this early stage, we cannot reasonably estimate the likelihood of an unfavorable outcome or the magnitude of such an outcome, if any.

In lieu of opposing defendants’ motions to dismiss,

Lead Plaintiff filed another amended complaint on May 9, 2019.

Defendants filed multiple motions to dismiss the amended complaint starting

on September 3, 2019.

On April 30, 2020, the court granted the motions

to dismiss, which resulted in the dismissal of all claims without prejudice.

On December 24, 2020, Lead Plaintiff filed another amended

Defendants filed multiple motions to dismiss the amended complaint starting on February 8, 2021, which were fully briefed.

On February 28, 2022, the court issued an order instructing the parties to submit supplemental briefing by March 14, 2022 on particular

issues raised in the motions to dismiss.

Because this litigation is still at this early stage, we cannot reasonably estimate the likelihood

of an unfavorable outcome or the magnitude of such an outcome, if any.

Shareholder Derivative Cases

On April 5, 2018, Michael Jackson filed a shareholder derivative complaint on behalf of the Company in the Supreme Court of the State of New York, County of Nassau, against certain of the Company’s officers and directors, as well as against an investor ( Jackson v.

On April 5, 2018, Michael Jackson filed a shareholder

derivative complaint on behalf of the Company in the Supreme Court of the State of New York, County of Nassau, against certain of the

Company’s officers and directors, as well as against an investor ( Jackson v.

Riot Blockchain, Inc., et al.

The complaint contains similar allegations to those contained in the shareholder class action complaints and seeks recovery for alleged breaches of fiduciary duty, unjust enrichment, waste of corporate assets, abuse of control and gross mismanagement.

The complaint seeks unspecified monetary damages and corporate governance changes.

At the last preliminary conference, the court adjourned the conference until August 10, 2021 in lieu of staying the action.

Defendants do not anticipate any other activity on this case until the next preliminary conference.

On May 22, 2018, two additional shareholder derivative complaints were filed on behalf of the Company in the Eighth Judicial District Court of the State of Nevada in and for the County of Clark ( Kish v.

O’Rourke, et al.

The complaint contains similar allegations to those contained in the shareholder class action complaints and seeks recovery for alleged

breaches of fiduciary duty, unjust enrichment, waste of corporate assets, abuse of control and gross mismanagement.

The complaint seeks

unspecified monetary damages and corporate governance changes.

At the last preliminary conference, the court adjourned the conference

until August 10, 2021 in lieu of staying the action.

Defendants do not anticipate any other activity on this case until the next preliminary

On May 22, 2018, two additional shareholder

derivative complaints were filed on behalf of the Company in the Eighth Judicial District Court of the State of Nevada in and for the

County of Clark ( Kish v.

O’Rourke, et al.

A-18-774890-B & Gaft v.

O’Rourke, et al.

A-18-774896-8).

The two complaints make identical allegations, which are similar to the allegations contained in the shareholder class action complaints.

The shareholder derivative plaintiffs also seek recovery for alleged breaches of fiduciary duty, unjust enrichment, waste of corporate assets, and aiding abetting a breach of fiduciary duty.

The shareholder derivative plaintiffs also seek recovery for alleged breaches of fiduciary duty, unjust enrichment, waste of corporate

assets, and aiding abetting a breach of fiduciary duty.

The complaints seek unspecific monetary damages and corporate governance changes.

On September 24, 2018, the court entered an order consolidating the Gaft and Kish actions, which is now styled as In re Riot Blockchain, Inc.

Shareholder Derivative Litigation , Case No.

On September 24, 2018, the court entered an

order consolidating the Gaft and Kish actions, which is now styled as In re Riot Blockchain, Inc.

Shareholder Derivative

Litigation , Case No.

A-18-774890-B.

The plaintiffs filed a consolidated complaint on March 15, 2019.

The consolidated action has been temporarily stayed until the resolution of the motion(s) to dismiss in the securities class action pending in the United District Court for the District of New Jersey.

On October 9, 2018, another shareholder derivative complaint was filed on behalf of the Company in the United District Court for the Eastern District of New York ( Rotkowitz v.

O’Rourke, et al.

The consolidated action has been

temporarily stayed until the resolution of the motion(s) to dismiss in the securities class action pending in the United District Court

for the District of New Jersey.

On October 9, 2018, another shareholder derivative

complaint was filed on behalf of the Company in the United District Court for the Eastern District of New York ( Rotkowitz v.

2:18-cv-05632).

As with the other shareholder derivative actions, the shareholder plaintiff alleges breach of fiduciary duty, waste of corporate assets, and unjust enrichment against certain of the Company’s officers, directors, and an investor.

The complaint’s allegations are substantially similar to those made in the other securities class action and shareholder derivative complaints filed in 2018.

As with the other shareholder derivative actions, the shareholder plaintiff alleges breach of fiduciary

duty, waste of corporate assets, and unjust enrichment against certain of the Company’s officers, directors, and an investor.

complaint’s allegations are substantially similar to those made in the other securities class action and shareholder derivative

complaints filed in 2018.

The complaint seeks unspecific monetary damages and corporate governance changes.

The parties filed a motion with the court to temporarily stay this action until the resolution of the motion(s) to dismiss in the securities class action pending in the United District Court for the District of New Jersey.

In response, the court dismissed the action without prejudice with leave to refile a complaint following the resolution of the motion(s) to dismiss in the securities class action pending in the United District Court for the District of New Jersey.

On October 22, 2018, another shareholder derivative complaint was filed on behalf of the Company in the United District Court for the Southern District of New York ( Finitz v.

O’Rourke, et al.

The parties filed a motion

with the court to temporarily stay this action until the resolution of the motion(s) to dismiss in the securities class action pending

in the United District Court for the District of New Jersey.

In response, the court dismissed the action without prejudice with leave

to refile a complaint following the resolution of the motion(s) to dismiss in the securities class action pending in the United District

Court for the District of New Jersey.

On October 22, 2018, another shareholder derivative

complaint was filed on behalf of the Company in the United District Court for the Southern District of New York ( Finitz v.

1:18-cv-09640).

The shareholder plaintiffs allege breach of fiduciary duty, waste of corporate assets, and unjust enrichment against certain of the Company’s officers, directors, and an investor.

The complaint’s allegations are substantially similar to those made in the other securities class action and shareholder derivative complaints filed in 2018.

The complaint seeks unspecific monetary damages and corporate governance changes.

Upon the parties’

stipulation, the court issued an order temporarily staying this action until the resolution of the motion(s) to dismiss in the securities class action pending in the United District Court for the District of New Jersey.

On December 13, 2018, another shareholder derivative complaint was filed on behalf of the Company in the United District Court for the Northern District of New York ( Monts v.

O’Rourke, et al.

The shareholder plaintiffs allege breach of fiduciary duty, waste of corporate assets, and unjust

enrichment against certain of the Company’s officers, directors, and an investor.

The complaint’s allegations are substantially

similar to those made in the other securities class action and shareholder derivative complaints filed in 2018.

The complaint seeks unspecific

monetary damages and corporate governance changes.

Upon the parties’ stipulation, the court issued an order temporarily staying

this action until the resolution of the motion(s) to dismiss in the securities class action pending in the United District Court for the

District of New Jersey.

On December 13, 2018, another shareholder derivative

complaint was filed on behalf of the Company in the United District Court for the Northern District of New York ( Monts v.

1:18-cv-01443).

The shareholder plaintiffs allege claims for violation of Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, unjust enrichment, waste of corporate assets, and aiding and abetting against certain of the Company’s officers, directors, and an investor.

The complaint’s allegations are substantially similar to those made in the other securities class action and shareholder derivative complaints filed in 2018.

The complaint seeks unspecific monetary damages and corporate governance changes.

Upon the parties’

Defendants intend to vigorously contest plaintiffs’

allegations in the shareholder derivative actions and plaintiffs’

right to bring the action in the name of Riot Blockchain.

But because this litigation is still at this early stage, we cannot reasonably estimate the likelihood of an unfavorable outcome or the magnitude of such an outcome, if any.

Kashwise Demand

On February 18, 2020, the Company received a demand letter from Kashwise Global Funding, Inc.

(“Kashwise”) for the payment of fees pursuant to an alleged arrangement between the Company and Kashwise in connection with the January 2019 private exempt offering of the Company’s securities to a group of accredited investors (the “Kashwise Demand”).

The Company timely responded to the Kashwise Demand;

however, on April 13, 2020, Kashwise Global Funding Solutions, Inc.

filed suit against the Company in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida (the “Kashwise Suit”) alleging substantially similar claims as in the Kashwise Demand.

The Company has removed the Kashwise Suit to Federal District Court in and for the Southern District of Florida where it remains pending with a scheduled trial date (if not delayed by the COVID-19 pandemic) in June of 2021.

The Company continues to vigorously dispute the allegations made in the Kashwise Suit.

However, the Company cannot reasonably estimate the likelihood of an unfavorable outcome or the magnitude of such an outcome, if any.

SEC Subpoena and Other Matters

On April 9, 2018, the Company received a subpoena from the SEC, requesting documents and information.

The Company fully cooperated with the SEC in that investigation.

On January 29, 2020, the SEC notified the Company that it had concluded its investigation as to Riot and based on the information the SEC had as of the date of the letter, it did not intend to recommend an enforcement action against Riot.

The shareholder plaintiffs allege claims for violation of Section 14(a) of the Securities Exchange

Act of 1934, breach of fiduciary duties, unjust enrichment, waste of corporate assets, and aiding and abetting against certain of the

Company’s officers, directors, and an investor.

The complaint’s allegations are substantially similar to those made in the

other securities class action and shareholder derivative complaints filed in 2018.

The complaint seeks unspecific monetary damages and

corporate governance changes.

Upon the parties’ stipulation, the court issued an order temporarily staying this action until the

resolution of the motion(s) to dismiss in the securities class action pending in the United District Court for the District of New Jersey.

Defendants intend to vigorously contest plaintiffs’

allegations in the shareholder derivative actions and plaintiffs’ right to bring the action in the name of Riot Blockchain.

because this litigation is still at this early stage, we cannot reasonably estimate the likelihood of an unfavorable outcome or the magnitude

of such an outcome, if any.

MINE SAFETY DISCLOSURES.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 3. Legal Proceedings