Longfin CEO Settles Fraud Action
Litigation Release No. 24706 / January 3, 2020
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 Longfin Corp. CEO Venkata S. Meenavalli has agreed to pay $400,000 in disgorgement and penalties to resolve the SEC's fraud action against him. The settlement, which remains subject to court approval, concludes the SEC's actions against Longfin, its CEO, and three other individuals, in which the SEC has secured over $26 million of ill-gotten gains. The SEC intends to establish a fair fund to distribute money received from the defendants to harmed investors.
The SEC's complaint in this action alleged that Longfin and Meenavalli obtained qualification for a Regulation A+ offering by falsely representing in public filings that the company was managed and operated in the U.S. According to the complaint, Longfin and Meenavalli then distributed over 400,000 Longfin shares to Meenavalli's affiliates, and misrepresented the offering to Nasdaq in order to meet its listing requirements. The complaint also alleged that more than 90 percent of Longfin's reported revenue for 2017 was fictitiously derived from sham commodities transactions.
The SEC charged Meenavalli with violations of the antifraud provisions of Section 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. Meenavalli was also charged with violating the internal controls and books-and-records provisions of Section 13(b)(5) of the Exchange Act, falsifying accounting records in violation of Exchange Act Rule 13b2-1, lying to accountants in violation of Exchange Act Rule 13b2-2, and violating the certification provision of Exchange Act Rule 13a-14, and with aiding and abetting Longfin's violations of the reporting, books-and-records, and internal controls provisions of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13.
If approved, the settlement would require Meenavalli to disgorge $159,000 (his full salary received while acting as Longfin's CEO) plus prejudgment interest of $9,000, and to pay a $232,000 civil penalty. It would also require Meenavalli to surrender all of his Longfin stock, permanently bar him from acting as an officer or director of a public company, and enjoin him from participating in the offer or sale of penny stocks. Meenavalli has agreed to settle the charges without admitting or denying the SEC's allegations. The SEC previously obtained a default judgment against Longfin that ordered nearly $6.8 million in monetary relief. A parallel criminal action against Meenavalli, filed by the U.S. Attorney's Office for the District of New Jersey, remains ongoing.
The SEC filed a separate action alleging 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's investigation, which is continuing, was conducted by Adam B. Gottlieb, Ernesto Amparo, Eric Hubbs, and Robert Nesbitt, and supervised by Mark Cave and Ms. 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 was 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.