Why did Marathon Digital Crash 27% Yesterday?

Shares of Marathon Digital Holdings, Inc. (MARA) crashed 27% on November 15 closing at $55.40, after the company issued a statement saying it received a subpoena from the Securities and Exchange Commission (SEC), and announced the offering of $650 million senior convertible notes.

Marathon Digital is one of the largest North American Bitcoin mining companies.

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SEC Subpoena

Marathon filed a 10Q report related to its third-quarter results on November 15. In the report, MARA mentioned that during Q3 the company and a few of its executives received a subpoena from the SEC to establish documents and communications related to the data center facility at Hardin, Montana.

Marathon entered multiple contracts with different parties on October 6, 2020, to design and build a data center with 100 megawatt capacity in Hardin, Montana.

In connection to a Data Facility Services Agreement, MARA issued 6 million shares of restricted common stock, which were exempt from registration under Section 4(a)(2) of the Securities Act of 1933.

According to the company, the SEC issued a subpoena to investigate whether there were any federal securities law violations related to the above-mentioned transactions.

Senior Notes Offering

In a press release yesterday, MARA increased the initial offering of 1.00% convertible senior notes from $500 million to $650 million. The issuance and sale of notes is expected to settle on November 18, and these notes are due in 2026.

Marathon expects to receive $633.2 million in net proceeds from the offering and intends to use the same for general corporate purposes, and to acquire bitcoin and bitcoin mining machines.

Target Price

The MARA stock has a Strong Buy rating with 4 unanimous Buys. The average Marathon Digital price target of $63.75 implies 15.07% upside potential to current levels. Shares have exploded 403.2% year-to-date.

Smart Score

According to TipRanks’ Smart Score rating system, Marathon Digital scores a “Perfect 10”, indicating that the stock has strong potential to outperform market expectations.

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