- Longfin, a tech company who rode the blockchain wave in 2017, has been ordered to repay $223 million to investors
- The company’s share price rose 2,000% after it acquired a crypto firm in December 2017
- Longfin executives have been found guilty of fraud and insider trading
Longfin, a now shuttered firm whose share price surged 1,000% in 2017 following the purchase of an undervalued cryptocurrency company, has been ordered to repay over $223 million to investors over securities fraud. The ruling comes ten months after the U.S. Securities and Exchange commission (SEC) was granted a $6.75 million judgment against Longfin after a New York federal court found the firm guilty of fraudulently qualifying for its Regulation A+ offering.
Longfin Fraudulently Gained Regulation A+ IPO Status
Longfin was founded in January 2017 as an independent finance and technology company offering commodity trading, hedging and risk management solutions, and more. In September 2017, Longfin launched an IPO as a Regulation A+ offering which allowed them to raise funds from both accredited investors and non-accredited investors, closing it on December 8, 2017 for $27 million.
News outlets reporting on the IPO noted the “interesting and unusual language” used in the IPO filing, in particular that “you should be able to bear a complete loss of your investment.”
The same month Longfin announced that it had acquired Ziddu.com, a cloud storage platform that claimed to have transformed into a “blockchain technology empowered solutions provider.” This led to the company’s share price rocketing over 2,000% in 48 hours, with the news outlets again concerned, this time over the amount of “confusion and volatility” regarding the deal.
Shareholders Turn on Executives
These grey clouds quickly turned into thunderstorms as shareholders turned on executives, claiming that they had issued false and misleading statements in order to achieve Regulation A+ status and drive up the share price before selling at the top. News of an SEC investigation in April 2018 sent the Longfin stock price crashing, with the proceeds of the executives’ share sales seized the following month, totaling $27 million. Fraud charges associated with the company’s NASDAQ listing were added to the docket a month later.
Fraudulent Chickens Come Home to Roost
In September 2019 a federal court in New York ordered Longfin to pay $6.75 million in penalties and disgorgement for conducting a fraudulent IPO and falsifying revenue from fake commodities transactions. In January this year, Longfin CEO Venkat Meenavalli was ordered to pay $400,000 in disgorgement and penalties as a result of the fraud charges, a bill to which he can now add his share of the $223 million plus interest that is to be returned to plaintiffs in the case.
The action should bring an end to the SEC’s case against Longfin, whose attempt to ride the crypto wave of 2017 has ended in disaster and ignominy three years later with a share price now firmly in the gutter.