SEC Hits Blockchain Company Longfin with Additional Fraud Charges Related to Reg A+ Offering, Longfin CEO Hit with Criminal Charges

The Securities and Exchange Commission (SEC) has added new fraud charges against Longfin Corp. and its CEO for falsifying the company’s revenue. Longfin’s former consultant Andy Altahawi was also included in the action for “fraudulently securing the company’s listing on Nasdaq.”

In April of 2018, the SEC filed an injunction freezing more than $27 million in Longfin assets alleging illegal trading proceeds from unregistered distributions of Longfin stock.

Longfin completed a Reg A+ offering in 2017 at $5 a share. The company went on to trade shares on the NASDAQ and quickly purchased blockchain firm Ziddu, a company that would ostensibly provide microfinance lending against collateralized warehouse receipts in the form of ERC20 “Ziddu Coins.” Shares in Longfin rocketed to over $140/share.

Longfin CEO Venkat Meenavalli soon found himself on CNBC defending his company and the rapid rise in valuation.

The SEC’s complaint alleges that Longfin and Meenavalli obtained qualification for a Reg A+ offering by falsely representing in SEC filings that the company was principally managed and operated in the U.S. when, in fact, the company’s operations, assets and management remained offshore. Meenavilli resides in India.

The SEC alleges that Longfin and Meenavalli engaged in a “fraudulent scheme by distributing over 400,000 shares of Longfin to insiders and affiliates to meet certain Nasdaq listing criteria, without obtaining payment for any of these shares.” In brief, the SEC is alleging there was nothing there.

The SEC is charging that Altahawi misrepresented to Nasdaq the number of qualifying shareholders and shares sold in the offering. The SEC’s complaint alleges an accounting fraud, recording more than $66 million in sham revenue, representing nearly 90% of Longfin’s total 2017 reported revenue.

Unsurprisingly, Longfin voluntarily delisted from Nasdaq in May 2018. The SEC states that the company shut down later that year.

Simultaneously, the U.S. Attorney’s Office for the District of New Jersey has announced related criminal charges against Meenavalli.

“In our complaint against Longfin and Meenavalli and our amended complaint against Altahawi, we allege a multi-pronged fraud involving fake revenue, misrepresentations to the SEC, and false statements to Nasdaq,” stated Anita B. Bandy, Associate Director of the Division of Enforcement. “Today’s filings reflect the work of a dedicated SEC staff who, after moving swiftly on behalf of investors to freeze assets last year, continued investigating to uncover the alleged fraud.”

Calculating the Incalculable?

The SEC’s prior action alleged that Longfin, Meenavalli, Altahawi, and two affiliated individuals, Dorababu Penumarthi and Suresh Tammineedi, illegally distributed and sold more than $33 million of Longfin stock in unregistered transactions.

The SEC reports that Altahawi, Penumarthi, and Tammineedi have agreed to settlements, subject to court approval, that would fully resolve the SEC’s charges and have agreed to surrender the previously frozen funds towards paying monetary relief.

Without admitting or denying the charges, Altahawi has agreed to settle the fraud charges and the prior charges of trading in unregistered securities.

The potential settlement would require Altahawi to return $21 million of allegedly ill-gotten gains, pay a $2.9 million penalty, and surrender all his Longfin shares.

Altahawi also agreed to be barred from serving as a public company officer or director for five years, and to an industry bar to be issued in an administrative proceeding.

Penumarthi and Tammineedi, without admitting or denying the charges, agreed to settle all pending charges for trading in unregistered securities.

The proposed settlements require Penumarthi to pay more than $1.7 million and Tammineedi to pay more than $241,000, in addition to injunctive relief.


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Crypto Related Company Longfin “Voluntarily” Delists from NASDAQ as SEC Receives Continuing Freeze of $27 Million in Company Assets

Longfin Corp. has announced its intent to “voluntarily” delist from the NASDAQ. The move comes as an ongoing enforcement action by the Securities and Exchange Commission saw allegations of illegal distributions and sales of restricted shares.

Longfin raised capital using the Reg A+ crowdfunding exemption in 2017. Soon after the offering, Longfin shares listed on NASDAQ trading under the symbol “LFIN.” Soon after the listing, Longfin announced the acquisition of a blockchain based firm “Ziddu,” a company that ostensibly would provide micro-finance lending backed by an initial coin offering.  The announcement caused the share price of Longfin to rise dramatically while simultaneously catching the attention of the SEC. Last December, Venkata Meenavalli, CEO of LFIN, visited the studios of CNBC where he struggled to explain the trading activity in his company.

The SEC first revealed a freeze of more than $27 million in trading proceeds from allegedly illegal distributions and sales of shares of Longfin involving the company, its CEO, and three other affiliated individuals in April.  A federal judge unsealed the SEC’s complaint while shares in Longfin were halted.

Longfin has made multiple announcements in the following weeks including a notice of its intent to cooperate with the SEC.

Earlier this week, the SEC announced an extension of the asset freeze until the conclusion of the case that alleges illicit activity by Longfin, its CEO, Venkata Meenavalli, and three affiliated individuals, Andy Altahawi, Dorababu Penumarthi, and Suresh Tammineedi.

 

Longfin stated yesterday that the Company believes that it is preferable for the Class A Common Stock to trade on the Over The Counter market as soon as possible as opposed to proceeding with an extended review process with the Nasdaq Stock Market.

Longfin intends to file a Form 25 with the SEC on May 14, 2018, with the delisting becoming effective 10 days after the filing. The company anticipates that the last day of trading on NASDAQ of its Class A Common Stock will be on May 14, 2018.

The Company believes that its Class A Common Stock will be eligible for quotation on the OTC Market following its delisting from the Nasdaq Stock Market.

The SEC has asked that anyone with information about potential securities law violations involving Longfin to contact them by emailing longfin-info@sec.gov.

 

Longfin Receives Reprieve from SEC Temporary Asset Freeze

Longfin Corp. (NASDAQ:LFIN), is reporting that Judge Denise L. Cote has vacated the Temporary Restraining Order (TRO) that froze the assets of the company.

The Securities and Exchange Commission (SEC) obtained a court order freezing more than $27 million in trading proceeds from allegedly illegal distributions and sales of restricted shares of Longfin Corp. stock involving the company, its CEO Venkat Meenavalli, and three other affiliated individuals.

A federal judge unsealed the SEC’s complaint on April 6. Shortly before the SEC’s complaint was unsealed, the Nasdaq Stock Market halted trading in Longfin’s stock.

Previously, Longfin initiated a Reg A+ offering and quickly listed its shares on NASDAQ after the sale of the shares. Soon after the listing, Longfin announced the acquisition of an apparent blockchain based micro-lender Ziddu that intended to issue Ziddu coins. The price of shares soared following the announcement.  Subsequently, Meenavalli visited the studios of CNBC defending that actions of his company following the extreme price change in his company’s shares.

At the  time of the asset freeze, Robert Cohen, Chief of the SEC Enforcement Division’s Cyber Unit stated;

“We acted quickly to prevent more than $27 million in alleged illicit trading profits from being transferred out of the country. Preventing defendants from transferring this money offshore will ensure that these funds remain available as the case continues.”

Longfin is still not out of the woods as the case SEC v. LongFin et al., 18 Civ. 2977 (DLC), remains pending before Judge Cote. The SEC has created a dedicated email address for Investors with questions about Longfin and for anyone with information about potential securities law violations involving Longfin: longfin-info@sec.gov.

Longfin IPOs at $5/Share on NASDAQ Under Reg A+, Buys Blockchain Company Ziddu & Stock Soars to Over $140

This is an example of how crazy the Crypto/Blockchain sector is right now. Longfin (NASDAQ:LFIN) listed its shares on NASDAQ on December 13th at $5 a share. The company used the Reg A+ crowdfunding exemption to raise the money apparently selling 2.3 million shares out of a possible $50 million raise.

Two days later, Longfin announced the acquisition of Ziddu.com, a Blockchain powered platform that is said to offer Microfinance Lending against Collateralized Warehouse Receipts in the form of ERC20 “Ziddu Coins.” If you want to have a better understanding of how Longfin was doing prior to the IPO you can read their offering circular here where the company is required to share its operating information. What happened next? The stock soared right through the roof. On Friday, the day of the announcement, shares jumped more than 200%.

Venkat Meenavalli, Chairman of LFIN, released a statement on the trading activity following the Ziddu announcement;

“The advent of Blockchain technology has caught the imagination of the global financial services industry; blockchain is emerging as a technological revolution that is set to disrupt the financial services infrastructure. Cryptocurrencies such as Bitcoin and Ethereum will act as a global financial currency to avail credit against hard currencies of many emerging markets.”

Today, with little or no justification at all, Longfin shares rocketed to over $142 per share before dropping back down a bit. According to NASDAQ, the previous days close was $22.01 per share. Shares closed at $72.38 having increased 228.85%.

Noticing the strange trading activity, the CNBC crew at FastMoney invited Longfin CEO Meenavalli to try and explain why Longfin deserved such a hefty premium. He admitted the price activity was not justifiable. Even for him, shares had moved too high too fast.

It’s Insane

Meenavilla proceeded to give one of the most confusing explanations of a company, along with the Ziddu acquisition, I have ever seen. Meenavilla admitted the price increase was not justified simply saying “it’s insane.” He did say he has no intent of selling any shares within the next three years. Is it his fault share in LFIN went Sybil crazy?

Shares in Longfin declined during the CNBC interview, closing after hours trading lower by 14.69%. Let’s see where Longfin opens up tomorrow.

Watch the video interview for yourself below.

 

Small-cap Longfin soars 2,000% after acquiring blockchain company from CNBC.