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Home Analysis Long Fin Of The Law: SEC Slaps LongFin With Fraud Charges

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Long Fin Of The Law: SEC Slaps LongFin With Fraud Charges

LongFin executives suffer another blow. Is the SEC finally finished with them?

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Kik isn’t the only company facing regulatory blowback. LongFin, a fintech company which drew controversy for an abrupt blockchain pivot, is now fighting allegations of fraud from the Securities and Exchange Commission.

LongFin was a NASDAQ darling during the 2017 crypto boom. The company’s share price rose some 2,600 percent after its purchase of Ziddu.com, a blockchain solutions provider in the microfinance sector. Yesterday’s SEC filing today is the second against LongFin in a little under a year.


An Offering By Any Other Name

While the latest filing relates primarily to fraudulent public offerings, it also demonstrates the regulator’s distaste for corporate pivots toward buzz sectors like blockchain, which have the potential to mislead investors about the company’s actual activities.

SIMETRI Research

In the complaint, the SEC accused LongFin and its CEO, Venkata S. Meenavalli, of “conducting a fraudulent public offering of LongFin shares.” They also allege that the company falsely declared its location to be in the United States, in order to qualify for a Regulation A+ offering.


Anyone Want Some Free Shares?

Having gained approval to offer the shares, the SEC claims that LongFin then defrauded investors by granting over 400,000 shares to close associates. After giving out free shares to meet NASDAQ listing requirements, the company allegedly registered over $66 million in nonexistent revenue.

That figure represents roughly 90 percent of the company’s earnings for 2017.

The latest filing follows an April 6, 2018 court order, which froze around $27 million of trading funds belonging to LongFin, Meenavalli, and several other accused individuals. These funds were allegedly raised from the sale of securities to the public during the dramatic rise of share prices.


With Fraud Allegations Long In The Tooth, Longfin Had It Coming

LongFin voluntarily delisted from NASDAQ in May of 2018, and finally closed at the end of last year. Today’s filing came with simultaneous criminal charges by the U.S. Attorney’s Office in New Jersey against Meenavalli. The complaint argues:

“In our complaint against Longfin and [CEO] Meenavalli and our amended complaint against [consultant] Altahawi, we allege a multi-pronged fraud involving fake revenue, misrepresentations to the SEC, and false statements to Nasdaq.”Anita B. Bandy, Associate Director of the Division of Enforcement

Altahawi and two other individuals have agreed to settlements, which include returning the frozen funds. However, the former CEO still faces criminal charges.


Kik Remains Unperturbed

Today’s filing served as a blunt reminder of how the SEC deals with alleged securities violations, particularly in the blockchain sector. The investigation was undertaken in a sustained and cooperative effort by the SEC, the FBI, and the U.S. Attorney’s Office in New Jersey.

It also sends a message to other companies. Kik has famously refused to settle charges that it sold $100M in unregistered securities, as Crypto Briefing reported.

The company is currently crowdfunding for legal action and has raised over $4 million to date from the public, in addition to its own stockpile of $5 million. The right to invest in dodgy ICOs seems to be one that some crypto fans are willing to pay for.

Most ICO issuers prefer the past of least resistance. Several issuers, notably Paragon and Airfox, have agreed to pay penalties and disgorgements without admitting guilt. 


Big Girls Don’t Cry

The crypto sector has long railed against the SEC for dragging its feet on crypto regulations. And rightly so: the regulator is as slow a beast as any in the enforcement world.

But as long as there are bad eggs and frontmen for pretentiously-named altcoins , unsuspecting investors will continue to need protection. Heck, that’s true is regulated markets, too.

Someone needs to be there to remind leaders of certain tokens that silence is golden, and that image makeovers do little to make up for forged whitepapers. They also need to remind the Meenavallis that the SEC won’t look away.

If Meenavalli and his colleagues made off with millions of investors’ money, as alleged, they need to be afforded the same treatment as the other Madoff and left to rot in prison.

DISCLOSURE

Authors at Crypto Briefing are invested in cryptocurrencies. The author of this post may be invested in digital assets mentioned here.

Paul de Havilland
Paul de Havilland
Paul de Havilland is a fan of disruptive technologies, an active VC investor in promising startups, and has experience covering both traditional and emerging asset classes. He also writes on politics and the development sector. His real passion, though, is violin and opera - he is a long-time student of a protege of Placido Domingo and can belt out a Valjean classic like the best of ‘em.

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