SEC wins $6.8M fraud case against crypto firm Longfin

The U.S. Securities and Exchanges Commission (SEC) has won a fraud case against Longfin Corp, the regulator revealed in a press release yesterday. The U.S. District Court for the Southern District of New York ordered the crypto company to pay $6.8 million in penalties and disgorgement for conducting a fraudulent public offering.

The presiding judge, Denise Cote entered a default judgment against Longfin on Thursday last week, ordering the firm to pay $3,532,235 in disgorgement of the proceeds that the firm raised in 2017. The judge also ordered Longfin to pay $3,243,613 in civil money penalty.

In the SEC’s complaint, the regulator alleged that Longfin obtained qualification for a Regulation A+ offering by making false representation in their SEC filings. Longfin is alleged to have misled the regulator into thinking that company was principally managed by and operated in the U.S. when the company’s operations, assets and management remained offshore.

Longfin, led by its CEO Venkata Meenavalli, who was also a defendant in the case, is then alleged to have distributed over 400,000 free Longfin shares to insiders and affiliates, misrepresenting the number of qualifying shareholders and shares sold in the offering to meet Nasdaq listing requirements.

In its complaint, the SEC further alleged that Longfin recorded $66 million in fictitious revenue from sham commodities transactions. This accounted for over 90% of the company’s 2017 reported revenue.

The charges against Longfin were leveled in June. As CoinGeek reported at the time, Longfin – which wasn’t a blockchain or crypto firm to begin with – announced that it was venturing into crypto through the acquisition of Ziddu.com, a blockchain-powered solutions provider. This was way back in 2017, and since the crypto hype was at an all-time high, Longfin’s stock price shot up by a factor of 13, with investors keen to capitalize on the crypto frenzy.

There was one slight problem, however, as the SEC later discovered – Ziddu was a sham. The regulator stated, “Ziddu.com produced no revenue, and Longfin did not acquire any physical facilities, employees, market distribution systems, or production techniques. By the acquisition, Longfin acquired merely the rights to use the Ziddu website and trade name.”

In a previous action by the SEC, Longfin was found to have sold more than $33 million of its stock in unregistered transactions by a New York court. The court ordered the firm to pay over $26 million in disgorgement and penalties.