By CCN.com: The “crypto” startup Longfin Corp. obtained spanked by each the SEC and the DOJ for fraud amid a broader regulatory crackdown on bitcoin and the digital forex business.
Particularly, Longfin’s CEO, Venkata Meenavalli, is accused of inflating the corporate’s income by $66 million in order to fraudulently safe an inventory on the Nasdaq in 2017.
Prosecutors: Longfin Cooked the Books
The Securities and Change Fee additionally accused Longfin executives of insider buying and selling, saying they illegally offered $33 million of inventory in unregistered transactions.
Whereas the screaming headlines counsel that the Longfin fraud is tied to crypto, in actuality, the corporate has a tangential relationship to the digital forex business. In response to the indictment:
“Longfin didn’t have interaction in any revenue-producing cryptocurrency transactions, and didn’t use the ‘blockchain’ to empower any options in any respect.”
“Slightly, Longtin reported as income hundreds of thousands of dollars of commodities ‘transactions’ which have been truly sham, round-trip occasions between Longtin and Meenavalli-controlled entities utilizing phony payments of lading and different fraudulent paperwork.”
Pivoted to Crypto Throughout Bitcoin Bull Market
Longfin was a fintech agency that went public in December 2017. In 2018, Longfin opportunistically pivoted to the crypto house amid the bitcoin bull market. The transition triggered the corporate’s inventory to spike 2,600% amid the bitcoin growth of the time.
In April 2018, a federal decide froze $27 million in property owned by Longfin amid accusations of insider buying and selling. Seven months later, the corporate shut down. On the time, the corporate’s CEO insisted that he had finished nothing incorrect (video beneath).
As a result of bitcoin mania was in full swing on the time, the media hyped Meenavalli’s shady dealings as crypto-centric. In actuality, it was merely a run-of-the-mill monetary crime (crooked accounting and insider buying and selling).
Longfin Engaged in Multi-Tier Fraud
In a June 5 assertion, the SEC accused Longfin’s CEO of conducting a fraudulent public providing of inventory stemming from misrepresentations about its funds.
“Longfin and Meenavalli engaged in an accounting fraud, recording greater than $66 million in sham income,” the SEC stated.
The company additionally accused Meenavalli of mendacity when he claimed in SEC filings that the corporate operated principally in the US when its operations and administration have been truly offshore.
The people named in the SEC lawsuit embrace:
- Venkata Meenavalli (CEO): Nonetheless being prosecuted.
- Dorababu Penumarthi (affiliate): Settled with SEC.
- Suresh Tammineedi (affiliate): Settled with SEC.
Justice Division Additionally Lowers the Growth
In a separate, parallel motion, federal prosecutors in New Jersey filed prison prices in opposition to Longfin CEO Venkata Meenavalli.
Within the DOJ lawsuit, prosecutors accused Meenavalli and his associates of participating in a “multi-pronged fraud” involving faux income, misrepresentations to the SEC, and false statements to Nasdaq.
Confronted with this barrage of lawsuits, three Longfin executives agreed to settle with the SEC by returning their allegedly ill-gotten positive factors and by paying penalties. Nonetheless, the CEO remains to be being prosecuted, presumably as a result of he was the mastermind behind this fraud conspiracy.
SEC Cracks Down on Crypto Business
All that is taking place in opposition to the backdrop of a sweeping SEC crackdown on the cryptocurrency business.
On June four, the SEC sued Canadian mobile-messaging firm Kik for allegedly conducting an unlawful, $100 million ICO.
As CCN.com reported, Kik reacted by launching a legal-defense fund referred to as Defend Crypto. Kik’s affiliated basis, Kin, seeded the fund with $5 million and is soliciting donations. The crypto business has since contributed about $four.three million.
Many firms settle to keep away from a protracted and costly authorized struggle. Nonetheless, Kik is digging in its heels, saying it desires to combat the SEC in courtroom so the company would lastly problem some regulatory readability. In courtroom, Kik will argue that its Kin token is just not a safety and subsequently shouldn’t be regulated by the SEC.
Final modified: Could 20, 2020 11:11 AM UTC