Dec 13 2017. Marathon Patent Group: Bright Red Flags With This NewFangled 'Blockchain' Play

1. Marathon Patent Group: Bright Red Flags
With This Newfangled 'Blockchain' Play
 Marathon recently announced an agreement for the acquisition of Global Bit Ventures
Inc. that will leave prior common shareholders with just 19% of the company.
 GBV was an entity set up only in August of this year and appears to have an undisclosed
security interest with the former CFO, EVP and Secretary of Marathon.
 Marathon has multiple concerning parallels to Riot Blockchain, which recently
engineered a similarly dubious pivot to the “blockchain."
 BDO resigned as auditor November 27. Per the filing “the resignation of BDO was
not recommended by the Company’s audit committee."
Introduction
We are urging strong caution to investors in Marathon regardless of one’s views on blockchain
technology.
With “blockchain mania” in full swing, Marathon Patent Group Inc. (NASDAQ:MARA) has
seemingly hitched itself to the blockchain wagon and rode the wave to nearly 5x returns in a matter
of weeks. The company’s blockchain focus has come about through a series of rapid shifts that are
eerily similar to the questionable moves we identified in our recent piece on Riot
Blockchain (NASDAQ:RIOT).

2. In Marathon’s latest 10-Q filed on November 20th
the company describes its business as being “to
acquire patents and patent rights and to monetize the value of those assets to generate revenue and
profit for the Company.”
Yet despite that stated business model, the company has seemingly abandoned much of its focus on
patents and patent rights and instead shifted gears toward blockchain assets including cryptomining.
Global Bit Ventures Inc. (GBV) Acquisition Raises Questions
Rather than purchase cryptomining assets directly from manufacturers or suppliers, the company
decided instead to purchase an entity that owned the cryptomining assets. On November 2, 2017, the
company announced via press release that it had “entered into a definitive purchase agreement to
acquire 100% ownership of Global Bit Ventures Inc. (“GBV”), a digital asset technology company
that mines cryptocurrencies.”
The company has been scant with details on the transaction thus far. On a conference call following
the announcement, the company detailed that the acquisition includes 1,000 Ethereum mining servers,
though it failed to disclose the cost or value of the servers when asked by an investor. Another investor
asked “How long has the company (GBV) been in existence?” The company declined to disclose this
information as well, suggesting instead that they would wait until an S-4 was filed before disclosing.
We found the above non-disclosures to be troubling. The agreement with GBV stipulates that the
company is to issue 126,674,557 shares of common stock in exchange for 100% of the shares of GBV,
which represented roughly $188.7 million at the time of the announcement (and roughly $750 million
at current share prices.) The Agreement And Plan of Merger filing by Marathon detailed the ownership
of Company Shareholders (ie: GBV shareholders) at the closing of the transaction:
“Immediately after the conversion of the Company Shares, the Company Preferred Shares and
the conversion of the Company Debt, the Company Shareholders will own 81.0% of the
Parent’s capital stock on a fully diluted basis at the time of Closing.”
Consequently, the agreement and merger plan leaves current Marathon common shareholders with
only 19% of Marathon on a fully diluted basis at the time of closing. Given the extremely high cost of
the acquisition, we would have fully expected the company to answer basic questions about the value
of the assets being acquired and details around the entity.

3. We decided to check the Nevada Secretary of State filings on GBV for ourselves and we found that
the entity was established August 9, 2017, mere months before the transaction was announced.
We also found that one beneficiary of the transaction appears be none other than Marathon’s former
CFO, EVP and Secretary, John Stetson. A Uniform Commercial Code (UCC) filing shows what
appears to be a previously undisclosed security arrangement between HS Contrarian Investments LLC
(“HS Contrarian”) and GBV. HS Contrarian is run by John Stetson, according to the firm’s website.
Stetson’s previous roles at Marathon are described in SEC filings.
It's unclear from the UCC filing what the amount of HS Contrarian’s interest is, but the filing notes
that GBV had agreed not to grant a security interest in the named collateral to any other entity.
Therefore, HS Contrarian’s interest appears to represent the highest seniority in GBV’s capital
structure.
We have contacted Marathon's investor relations and asked about the relationship between GBV and
Stetson, and whether there was any public disclosure of the relationship. Should we receive a reply
from the company we will update this accordingly.

4. Aside from the security interest between GBV and Stetson’s firm, we also noticed another interesting
connection. GBV’s officer/director filings with the Nevada Secretary of State only listed one
individual, Jesse Sutton. Sutton was the former CEO and co-founder of Majesco Entertainment,
according to his Linkedin Profile. The Majesco entity morphed late last year into a company called
PolarityTE through a reverse merger. Stetson is currently the CFO, EVP, and Director of
PolarityTE (NASDAQ:COOL), highlighting that the interwoven business interests of Stetson and
Sutton appear to have converged with GBV.
(On a related note, we wrote an article last week about PolarityTE and its public entity which has been
reverse merged at least six times into a variety of different businesses and which we believe is replete
with its own unique set of red flags.)
Alarming Parallels With Another Newfangled “Blockchain”
Company, Riot Blockchain
On the subject of executive crossover, Marathon appears to have significant overlap in the individuals
involved with Riot Blockchain, another public company that abruptly reinvented itself as a blockchain
play. A recently amended S-3 filing for Riot shows that Stetson participated in common stock,
convertible preferred stock, and warrant transactions with Riot (note that Riot has recently changed
its name from Bioptix Inc. and that the amended S-3 filing still reflects the old company name). Aside
from Stetson, the recently named CEO of Riot Blockchain, John O’Rourke, is to hold an approximate
41.04% stake in the common stock of Marathon per a November 29th prospectus amendment.
Aside from the links with key individuals, we noticed several other parallels with Riot. In our piece
about Riot we described how Riot also decided to purchase an entity containing cryptomining
equipment and how we believed it to be an irregular transaction. When examining Riot’s transaction
side by side with Marathon's we identified the following:
 Riot announced the purchase of its cryptomining entity on November 2nd, the exact same day that
Marathon announced its own purchase of an entity containing cryptomining assets.
 Both entities being acquired were incorporated in Nevada.
 Both entities being acquired had short corporate histories.
 Both deals were non-cash, dilutive stock transactions.
 Both Riot and Marathon seemingly paid above-market rates to acquire entities containing
cryptomining equipment that could have been purchased directly.

5. We find it concerning that these two separate companies both enacted dramatic pivots toward
blockchain business models seemingly in lockstep and in such unusual fashion.
BDO Resigned As Auditor Just Weeks Ago
The company recently announced that BDO had resigned as its auditor near the end of November.
Per an 8-K filing:
“On November 27, 2017, the Company received notice from its independent registered public
accounting firm, BDO USA, LLP (“BDO”), that it resigned as the Company’s auditor effective
immediately. The resignation of BDO was not recommended by the Company’s audit
committee nor was the audit committee’s approval required.”
Per the same 8-K filing, on November 30, 2017, the board appointed RBSM LLP as the company’s
independent registered public accounting firm. We checked the Public Company Accounting
Oversight Board (PCAOB) website and found the latest inspection report on RBSM. The report
highlighted what appeared to be some significant deficiencies:
“Certain deficiencies identified were of such significance that it appeared to the inspection
team that the Firm, at the time it issued its audit report, had not obtained sufficient appropriate
audit evidence to support its opinion that the financial statements were presented fairly, in all
material respects, in accordance with the applicable financial reporting framework. In other
words, in these audits, the auditor issued an opinion without satisfying its fundamental
obligation to obtain reasonable assurance about whether the financial statements were free of
material misstatement.”
The report went on to detail individual failures relating to audit procedures on several of its issuer
clients. In one instance it noted a “failure to perform sufficient procedures to test the existence,
completeness, and valuation of assets acquired and liabilities assumed in business combinations."
Given the unusual business combination with GBV as detailed above, we hope that RBSM has taken
steps to ensure that going forward it follows audit procedures relating to business combinations (and
in general).
Note that the PCAOB report also underscored that “the fact that one or more deficiencies in an audit
reach this level of significance does not necessarily indicate that the financial statements are materially

6. misstated” and that inspection teams are limited to information available from the auditor.
Nonetheless, we view the resignation of BDO and the replacement with a lesser-known firm of
questionable quality to be another reason to tread carefully.
Conclusion
We have no strong bearish or bullish view on the future of blockchain technology. We genuinely hope
the technology is implemented broadly and that currency and information can be effectively
decentralized through its use. Regardless of one's views on blockchain technology however, we think
Marathon is a name that investors should avoid. We urge cautious investing to all.
Disclosure: I am/we are short MARA, RIOT, COOL.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.
I have no business relationship with any company whose stock is mentioned in this article.
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