Longfin Corp., the now-defunct cryptocurrency firm, has been ordered by the United States District Court for the Southern District of New York to pay $6.8 million to SEC (US Securities and Exchange Commission) for settling charges related to accounting fraud and unregistered ICO.
The official announcement from the SEC that came on Monday, states that Longfin and its CEO, Venkata S. Meenavalli, misguided information in SEC filings. Meenavalli reported that his company was operating only in the U.S. But, a major chunk of its operations, assets, and management remained to be held and executed 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 noted.
In addition, the US regulator also announced that Meenavalli and Longfin were accused of orchestrating a falsified scheme to inflate its revenue. The watchdog, primarily, had accused Longfin of selling over $33 million of stock as unregistered transactions. Those charges have been temporarily resolved as Longfin and Meenavalli were recently ordered to pay $284,139 and $28,416 worth of civil penalties, respectively. And in June 2019, the court ordered disgorgement and penalties worth over $26 million against the three affiliates.
Meenavalli has also been accused of generating fake documents recording “sham revenue” of more than $66 million. This multimillion-dollar accounting scam paved the way for Longfin to report as much as 90 percent of its 2017 revenue as commodities transactions, whereas, those, in reality, were merely “round-trip events” between the company and the entities that it had been controlling. Consequently, Longfin’s stock price surged by over 2,000% in 2017 after the firm announced the acquisition of a blockchain startup.
However, the case still remains ongoing as it represents a criminal action brought by the U.S. Attorney’s Office for the District of New Jersey. The SEC, as of now, has asserted that it will set up a “fair fund” with the money returned by Longfin in order to refund all the “harmed” Longfin investors. The company voluntarily delisted itself from Nasdaq in May 2018 and eventually shut down in November 2018.