Longfin Corp., a company that generated news cycles at the height of crypto mania in 2017, has been ordered by a federal court judge to pay the SEC a $6.8 million penalty for a fraudulent public offering of its tokens and for conducting sham commodities transactions.

Longfin was previously in the news for its acquisition of a crypto company Ziddu.com, an action that resulted in its stock price skyrocketing by more than 2,000 percent in a single day. That jump drew the SEC’s attention, which commenced an investigation into the company.

A Web of Deceit and Accounting Fraud

Longfin crafted an elaborate path to its offering and profited handsomely after it. It moved a couple of employees from its offices in Singapore and India to the United States to claim eligibility for a Reg. A+ offering, a type of secondary offering of up to $50 million in which accredited investors and the general public can invest, within the country. According to the SEC’s complaint, Longfin’s operations, assets and management remained offshore even after it claimed to have offices in the United States. Longfin CEO Venkata S. Meenavilli is from India and claimed to have offices in Dubai, India, and Singapore in a CNBC interview (see below).

The SEC complaint further states that Meenavilli “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.”

After the offering, when Longfin’s share price spiked, the company’s insiders sold their shares “for millions of dollars in profits”, according to the SEC. Longfin also used a “massive accounting fraud” to report fictitious revenue of $66 million for 2017 by producing false receipts for commodity transactions that never occurred. Longfin voluntarily delisted from Nasdaq in May 2018 and closed down in November of the same year.     

The SEC has been investigating Longfin for some time now. Andy Altahawi, the Miami-based independent consultant hired by Longfin for its offering, settled with the agency earlier this year. As part of the settlement, he was required to return $21 million of the money he made from selling Longfin’s shares, pay a $2.9 million penalty, and surrender his Longfin shares. He has subsequently issued clarifications regarding his role online.