On September 26, 2019, Judge Denise L. Cote of the U.S. District Court for the Southern District of New York entered a default judgment against Longfin and former CEO Venkata S. Meenavalli ordering a total of $3,532,235 in disgorgement of all proceeds raised in Longfin’s 2017 Regulation A+ offering and prejudgment interest. The court also ordered Longfin to pay a $3,243,613 civil money penalty.
Both the SEC’s action against Meenavalli, and a related criminal action filed by the U.S. Attorney’s Office for the District of New Jersey, are said to be ongoing.
Several years ago, Longfin completed a Reg A+ offering and quickly listed on the NASDAQ at $5 shares. The announcement of an acquisition of blockchain-based company Ziddu saw shares in Longfin trade at stratospheric heights. While being interviewed on CNBC, Meenavall himself called the valuation “insane.”
According to the documents filed with the SEC, Longfin’s vision was to become a global Fintech house extending the power of machine learning and artificial intelligence to structured trade finance, and securitization markets across the continents.
The SEC’s complaint alleged 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.” The SEC claimed that Longfin was, in fact, operating offshore.
The SEC claimed that Longfin and Meenavalli distributed over 400,000 free Longfin shares to insiders and affiliates, and misrepresented the number of qualifying shareholders and shares sold in the offering to meet Nasdaq listing requirements.
The SEC’s complaint also alleged that Longfin and Meenavalli recorded more than $66 million in fictitious revenue from sham commodities transaction, amounting to more than 90% of Longfin’s total 2017 reported revenue.
In a prior action, which is now resolved, the SEC alleged that Longfin, Meenavalli, and three affiliated individuals illegally distributed and sold more than $33 million of Longfin stock in unregistered transactions.
In June 2019, the court ordered over $26 million in disgorgement and penalties against the three affiliates, and in August entered default judgments ordering civil penalties of $284,139 and $28,416 against Longfin and Meenavalli, respectively.
The SEC said it intends to establish a fair fund to distribute all money received from the defendants in these two related actions to harmed Longfin investors.
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