The report that Tesla Motors Inc (TSLA) acquired Riviera Tool, an automotive supplier based in Grand Rapids, Michigan, caused market confusion and sent a penny stock as much as 12,000% higher.
Investors bought the shares of Riviera Tool Company, which is trading on the pink sheets market as RIVT. The RIVT stock was worth less than a penny per share and it went up to as much as $0.60 per share around lunchtime Thursday following reports that Tesla (TSLA) acquired the company.
However, Tesla purchased Riviera Tool LLC. That company is private. Investors were confused because Riviera Tool LLC and Riviera Tool Company appeared to have a similar address. They assumed that both companies are the same without conducting due diligence.
An article published by Auspex Research on Seeking Alpha explained that Riviera Tool Company previously traded on AMEX in the mid-2000s. At the time, the company entered into a financing agreement with Laurus Master Fund. In 2007, the Laurus foreclosed the assets and intellectual property of Riviera Tool Company, and its stock was delisted from AMEX.
Laurus sold the foreclosed assets and intellectual property of Riviera Tool Company in an arms-length transaction with Riviera Tool LLC doing business as Riviera Tool Acquisition, a privately held North American company.
RIVT stock halted
The Financial Industry Regulatory Authority (FINRA) halted the trading of RIVT following the sudden surge of the stock.
In a statement, FINRA spokesman George Smaragdis said, “Riviera Tool has been halted because there is significant confusion over the status of the publicly traded shares,”
The stock price of Riviera Tool Company closed at $ 0.225 per share, up by 4,400% on Friday.
“Tomorrow could be a sobering day for many traders as they realize that they quite possibly are holding what are essentially close-to-worthless shares in a defunct, non-reporting, Pink Sheet shell,” according to Auspex Research.
