On September 26, 2019, the U.S. District Court for the Southern District of New
York entered a default judgment against Longfin Corp. (“Longfin”), a defunct
fintech company that promoted cryptocurrency, holding it liable for more than
$6.8 million after missing a deadline to respond to SEC allegations that the company
and its CEO, Venkata Meenavalli, engaged in offering fraud and falsified Longfin’s
revenue in SEC filings. The SEC’s action against Meenavalli and a parallel criminal
action filed by the U.S. Attorney’s Office for the District of New Jersey are ongoing.
Longfin drew regulatory scrutiny in early 2018, which led to the company’s decision
to voluntarily delist from NASDAQ in May 2018 and ultimately cease operations last
- Falsification of Revenue – The SEC alleged that Longfin engaged in a largescale
accounting fraud in which it reported over $66 million in sham revenue,
representing nearly 90% of the company’s total reported revenue for 2017.
According to the SEC’s complaint, the scheme involved fictitious purchases
and sales of bills of lading for the shipment of physical commodities, such as
coal, copper, zinc, and nickel, for which Longfin never held title or ownership
interests. Longfin made the revenue from these transactions appear legitimate
by forging contracts and recording round-trip transactions that it entered
into with entities controlled by Meenavalli, who signed several false contracts
and invoices that were used in the transactions. Given this brazen fraud
with completely sham revenue, it is no surprise that the criminal authorities
determined this was an appropriate criminal action.
- Fraudulent NASDAQ Listing – According to the SEC’s complaint, Longfin
obtained qualification for a Regulation A+ offering in November 2017 after
falsely representing in SEC filings that it was principally managed and operated
in the United States and was therefore entitled to sell shares pursuant to
Regulation A+. Although Longfin was incorporated in Delaware, the firm
was managed entirely from Singapore. After qualifying under Regulation A+,
the company realized that it could not sell enough shares to meet NASDAQ
listing requirements, so it distributed shares to company insiders and affiliates
to create the false appearance that it had a sufficient public float to proceed with a NASDAQ listing. The insiders and affiliates never paid for the stock and
therefore could not be properly included in the public float.
- Prior Proceedings – In a separate prior action, the SEC charged Longfin,
Meenavalli, and other Longfin insiders and affiliates in connection with the
subsequent sale of more than $33 million of unregistered Longfin stock that
the company had distributed to meet NASDAQ listing requirements. Those
charges resulted in a preliminary injunction freezing more than $27 million in
allegedly illegal trading proceeds. Three individuals affiliated with Longfin have
agreed to pay roughly $26 million to settle the SEC’s prior charges. Presumably
the current charges resulted from the continuing investigation following those
The SEC’s complaint against Longfin and Meenavalli can be found here.
The SEC’s prior complaint against Longfin, Meenavalli, and other insiders and affiliates can be found here.
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