SEC Obtains $6.8 Million Fraud Judgment Against Purported Cryptocurrency Company Longfin Corp.
Litigation Release No. 24625 / September 30, 2019
Securities and Exchange Commission v. Longfin Corp. and Venkata S. Meenavalli, No. 19-cv-5296 (S.D.N.Y. filed June 5, 2019)
The Securities and Exchange Commission today announced that a federal court in New York has ordered Longfin Corp. to pay $6,755,848 in penalties and disgorgement for conducting a fraudulent public offering and falsifying revenue from sham commodities transactions.
On September 26, 2019, the Honorable Denise L. Cote of the U.S. District Court for the Southern District of New York entered a default judgment against Longfin ordering a total of $3,532,235 in disgorgement of all proceeds raised in Longfin's 2017 Regulation A+ offering and prejudgment interest. The court also ordered Longfin to pay a $3,243,613 civil money penalty.
The SEC's complaint alleged that Longfin and its CEO, Venkata S. 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. Longfin and Meenavalli, as alleged, then 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. The SEC's complaint also alleged that Longfin and Meenavalli recorded more than $66 million in fictitious revenue from sham commodities transaction, amounting to more than 90% of Longfin's total 2017 reported revenue. Both the SEC's action against Meenavalli, and a related criminal action filed by the U.S. Attorney's Office for the District of New Jersey, are ongoing.
In a prior action, which is now resolved, the SEC alleged 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.
The SEC intends to establish a fair fund to distribute all money received from the defendants in these two related actions to harmed Longfin investors.
The SEC's investigation was conducted by Ernesto Amparo, Adam B. Gottlieb, Eric Hubbs, and Robert Nesbitt, and supervised by Mark Cave and Anita B. Bandy. Hope Augustini of the SEC's Office of General Counsel and Sarah Heaton Concannon of the Division of Enforcement provided invaluable assistance. The litigation is being conducted by Samantha M. Williams and Mr. Gottlieb and supervised by Stephan J. Schlegelmilch. The SEC appreciates the assistance of the Federal Bureau of Investigation and the U.S. Attorney's Office for the District of New Jersey.