SEC Crypto Task Force strikes again – LongFin execs charged with fraud

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It is one thing for a crypto-related company to sell tokens in an Initial Coin Offering that are most definitely securities under the law, but when a company professes a shift to blockchain, then lists on the Nasdaq, its management team better be up to speed on required SEC filing protocols and share registrations. Apparently, the executives at LongFin Corp. played far too loose with security regulations, necessitating a major crackdown by the SEC on the firm and its top management. This news followed an action against Kik, a crypto startup, for the “illegal” sale of unregistered securities”.

The SEC and the DOJ clamped down hard on LongFin Corp., its CEO, Venkata Meenavalli, and three other individuals for allegedly committing securities fraud on a variety of counts:

The complaint alleges that Longfin and 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 engaged in an accounting fraud, recording more than $66 million in sham revenue.

The SEC had been suspicious since 2017, when the company’s share price jumped an amazing 2,000%. Upon further investigation, it became apparent to authorities that the executives had committed fraud to obtain a listing on the Nasdaq exchange. LongFin had quickly pivoted its positioning publicly to focus on blockchain developments, when the market was most receptive to this notion, miss-represented its revenue, and then allegedly “distributed 400,000 shares to insiders and affiliates without actually selling these shares, simply to meet listing criteria for the Nasdaq”.

The SEC had also accused the firm in a previous motion of issuing another two million restricted shares to an assortment of individuals, who quickly sold the shares for $27 million in profits. Meenavali was the perceived mastermind behind the LongFin fraud and will be prosecuted, but three other executives, Andy Altahawi (consultant), Dorababu Penumarthi (associate), and Suresh Tammineedi (associate), have all settled with the SEC, returned ill-gotten gains, and paid penalties.

The action came on the heels of another crypto-related crackdown on Kik Interactive, a startup that had raised $100 million in token sales from an ICO that did not conform to the new guidelines that the SEC had published two months earlier. Robert A. Cohen, Chief of the Enforcement Division’s Cyber Unit, added:

Kik told investors they could expect profits from its effort to create a digital ecosystem. Future profits based on the efforts of others is a hallmark of a securities offering that must comply with the federal securities laws.

Although LongFin claimed to have crypto aspirations, it appears that the alleged fraud was simply the act of shady business characters committing basic securities fraud. According to Anita Bandy, SEC associate director of the Division of Enforcement: “We allege a multi-pronged fraud involving fake revenue, misrepresentations to the SEC, and false statements to Nasdaq. Today’s filings reflect the work of a dedicated SEC staff who, after moving swiftly on behalf of investors to freeze assets last year, continued investigating to uncover the alleged fraud.” The company closed its doors for business in November of 2018.

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SEC Crypto Task Force strikes again – LongFin execs charged with fraud

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