Cryptocurrency company LongFin Corp. and its CEO, Venkata S. Meenavalli, agreed to pay $400,000 in disgorgement and penalties to resolve the Securities and Exchange Commission’s fraud action against them, the SEC said Friday.
The settlement concludes the SEC’s actions against LongFin, Meenavalli and three other individuals in which the SEC said it’s secured more than $26 million of “ill-gotten gains.” However, the settlement remains subject to court approval, it noted.
The SEC’s complaint, filed June 5, alleged that LongFin and Meenavalli obtained qualification for a Regulation A+ offering — that is, a small offering with looser reporting requirements than a typical offering — by falsely representing in public filings that the company was managed and operated in the U.S. LongFin and Meenavalli then distributed over 400,000 Longfin shares to Meenavalli’s affiliates, then misrepresented the offering to Nasdaq in order to meet its listing requirements, the SEC said.
Back in 2017, LongFin stock enjoyed a four-day rally that reached 2,600% Dec. 18 that year, earning its CEO an appearance on CNBC.
However, the SEC’s complaint alleged that more than 90% of LongFin’s reported revenue for 2017 was fictitiously derived from “sham” commodities transactions.
“As alleged in our complaint, Meenavalli abused the Reg. A+ process to conduct a fraudulent offering, list Longfin on Nasdaq, and entice investors with falsified revenue,” according to Anita B. Bandy, associate director of the SEC’s Division of Enforcement. “The SEC staff’s quick actions exposed the full scope of Meenavalli’s fraud and resulted in additional monetary and prophylactic relief to prevent him from defrauding U.S. investors in the future,” she said in a statement Friday.
If approved, the settlement would require Meenavalli to disgorge $159,000 (his full salary received while serving as LongFin CEO) plus prejudgment interest of $9,000, and to also pay a $232,000 civil penalty, the SEC said. It would also require Meenavalli to surrender all of his LongFin stock, permanently bar him from acting as an officer or director of any public company, and enjoin him from participating in the offer or sale of penny stocks, according to the SEC.
Meenavalli agreed to settle the charges without admitting or denying the SEC’s allegations. The SEC previously obtained a default judgment against LongFin that ordered almost $6.8 million in monetary relief.
The SEC plans to establish a fair fund to distribute money received from the defendants to harmed investors, it said.
Meenavalli didn’t immediately respond to a request for comment about the settlement Monday. LongFin’s website, meanwhile, wouldn’t open.
A parallel criminal action against Meenavalli, filed by the U.S. Attorney’s Office for the District of New Jersey, remains ongoing, the SEC noted.
The SEC also filed a separate action in 2018 alleging that LongFin, Meenavalli and three affiliated individuals illegally distributed and sold more than $33 million of LongFin stock in unregistered transactions. The SEC alleged that Amro Izzelden “Andy” Altahawi, Dorababu Penumarthi and Suresh Tammineedi illegally sold large blocks of their restricted LongFin shares to the public while the stock price was highly elevated. Through their sales, Altahawi, Penumarthi and Tammineedi collectively reaped more than $27 million in profits. The SEC obtained a court order freezing those trading proceeds, it noted at the time.
The SEC also said at the time that Meenavalli caused the company to issue more than 2 million unregistered, restricted shares to Altahawi, who was the corporate secretary and a director of LongFin, and tens of thousands of restricted shares to Penumarthi and Tammineedi, who were allegedly acting as nominees for Meenavalli. The subsequent sales of those restricted shares violated federal securities laws that restrict trading in unregistered shares distributed to company affiliates, the SEC said.
In June 2019, the court ordered more than $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 said.
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 Bandy, the SEC said Friday.