Kerrisdale Capital Shorts Riot Platforms Amid Safety And Import Concerns
By: Eva Baxter
Kerrisdale Capital has raised serious safety and ethical concerns regarding Riot Platforms, a prominent cryptocurrency mining company. In a detailed complaint sent to Texas officials on June 5, Kerrisdale cited numerous safety hazards and questionable equipment sourcing practices at Riot's facilities.
According to the complaint addressed to Navarro County Texas Judge H.M. Davenport Jr. and four commissioners, a former operations specialist at Riot's Rockdale facility highlighted several dangerous working conditions. These included hazardous spills, unsafe electrical equipment, and the absence of protective gear. The former employee also alleged that the company's management was indifferent to these safety concerns.
Further issues were pointed out regarding Riot's use of ExxonMobile's Spectrasyn 2C as an immersion coolant in 2022, which ExxonMobile does not recommend for data center use. Kerrisdale urged officials to confirm the type of coolants currently in use at Riot's Rockdale and Corsicana centers, emphasizing the need for safer alternatives.
Questionable Manufacturing Claims
Kerrisdale's complaint also scrutinized Riot's $453 million purchase agreement with Chinese manufacturer MicroBT for mining equipment. Despite promises that this deal would generate jobs in Pennsylvania, Kerrisdale alleges that US facilities were merely assembling parts imported from China.
In addition, Kerrisdale expressed doubts about the efficiency and employment opportunities at MicroBT's US manufacturer, Synos Corp., describing it as highly automated with minimal positions for highly skilled workers. Kerrisdale suggested that the primary motive behind this setup might be to sidestep import tariffs rather than to create local employment.
Notably, Kerrisdale disclosed a potential conflict of interest, admitting that it has taken a short position on Riot's stock. The firm stands to benefit if Riot's stock price falls.
Impact on Texas Energy Grid
In a related investment report, Kerrisdale criticized the broader Bitcoin mining industry, labeling it as having one of the worst business models, and noting that Riot has yet to produce positive cash flows. The report also highlighted the strain that Bitcoin mining places on Texas's electrical grid, particularly during the high-demand summer months.
Kerrisdale referenced a Dallas Morning News report indicating that increased summer demand linked to air conditioner use could cause prices to surge. The vulnerability of Texas’s energy grid was particularly emphasized, given the region's history of electricity issues.
Earlier in 2023, Texas was involved in another mining-related controversy when the Texas Blockchain Council and Riot objected to an executive order requiring detailed energy usage reports from mining firms. Despite the initial push, government agencies halted the survey by March following significant legal backlash.
