The Securities and Exchange Commission has announced that Longfin Corp. CEO Venkata S. Meenavalli has agreed to pay $400,000 in disgorgement and penalties to resolve the SEC’s fraud action against him.
Longfin was a blockchain-focused company that completed a Reg A+ securities offering and quickly listed on the NASDAQ at $5 shares. At one point, Longfin traded as high as $140 a share. At that time, Meenavalli graced the studios of CNBC calling the rapid rise in Longfin’s share price as insane.
Last September, the U.S. District Court for the Southern District of New York entered a default judgment against Longfin and the former CEO ordering a total of $3,532,235 in disgorgement of all proceeds raised in Longfin’s 2017 Reg A+ offering and prejudgment interest. The court also ordered Longfin to pay a $3,243,613 civil money penalty.
The settlement, subject to court approval, will conclude the SEC’s actions against Longfin, its CEO, and three other individuals in which the SEC has secured over $26 million of ill-gotten gains. The SEC said that it intends to establish a “Fair Fund” to distribute money received from the defendants to harmed investors.
According to the SEC’s complaint, Longfin and Meenavalli allegedly obtained qualification for a Reg A+ offering by falsely representing that the company was managed and operated in the U.S. According to the SEC complaint, Longfin and Meenavalli then distributed over 400,000 Longfin shares to Meenavalli’s affiliates and misrepresented the offering to Nasdaq in order to meet its listing requirements. The complaint also alleged that more than 90% of Longfin’s reported revenue for 2017 was fictitiously derived from sham commodities transactions.
Anita B. Bandy, Associate Director of the Division of Enforcement, said that Meenavalli abused the Reg. A+ process to conduct a fraudulent offering, list on Nasdaq, and entice investors with falsified revenue:
“The SEC staff’s quick actions exposed the full scope of Meenavalli’s fraud and resulted in additional monetary and prophylactic relief to prevent him from defrauding U.S. investors in the future.”
The settlement would require Meenavalli to disgorge $159,000 (his full salary received while acting as Longfin’s CEO) plus prejudgment interest of $9,000, and to pay a $232,000 civil penalty. It would also require Meenavalli to surrender all of his Longfin stock, permanently bar him from acting as an officer or director of a public company, and enjoin him from participating in the offer or sale of penny stocks.
The SEC said that Meenavalli has agreed to settle the charges without admitting or denying the SEC’s allegations.
The SEC noted that a parallel criminal action against Meenavalli, filed by the U.S. Attorney’s Office for the District of New Jersey, remains ongoing.
The SEC filed a separate action alleging 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.