The U.S Securities and Exchange Commission (SEC) filed fraud charges against fintech firm Longfin Corp. and its CEO Venkata Meenavali. The SEC had shared the press release on June 5.
As per the press release, the SEC accuses the firm and its CEO of committing fraud by fabricating the revenue numbers to secure a listing on the NASDAQ exchange.
In 2017, Longfin Corp. had witnessed a massive surge in its share price when the firm purportedly claimed to have averted its business model by announcing a blockchain pivot. These charges are a result of the firm’s involvement in distributing unregistered shares, which have resulted in a preliminary injunction.
The US SEC’s filing reads as follows –
“The complaint alleges that Longfin and Meenavalli obtained qualification for a Regulation 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.”
Both Longfin and its CEO have allegedly distributed over 400,000 shares to insider and affiliates, without obtaining payment, only to meet NASDAQ’s listing criteria.
Besides the CEO’s involvement in the charges, SEC also alleged Longfin’s consultant Andy Atahlwi of misrepresenting the number of qualifying shareholders and the shares sold.
The SEC’s filing further alleges Longfin and Meenavali of falsifying the accounting reports by “recording more than $66 million in sham revenue”. However, Longfin voluntarily discontinued its operations in November 2018.
Continuing the allegations, Associate Director of the Division of Enforcement, Anita B Bandy said – “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.”
In April 2018, The SEC accused Meenavali of issuing unregistered shares worth more than $2 million to Amro Atahlwi and affiliated individuals Dorababu Penumarthi and Suresh Tammineedi. The Securities commission professed the defendants of generating profits worth $27 million.
Penumarthi and Tammineed, who are yet to admit or deny to the charges, are adviced to clear the charges for trading in unregistered securities. Meanwhile, Atahlwi is barred from serving as a public company officer or as director for five years.