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The Securities and Exchange Commission today filed a new fraud action against Longfin Corp. and its CEO for falsifying the company’s revenue and, together with a former Longfin consultant, for fraudulently securing the company’s listing on Nasdaq. The SEC’s prior charges against these defendants and two others resulted in a preliminary injunction freezing more than $27 million in allegedly illegal trading proceeds from unregistered distributions of Longfin stock.

The action filed today in federal district court in Manhattan alleges that Longfin and its CEO, Venkata S. Meenavalli, conducted a fraudulent public offering of Longfin shares. 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, as alleged, then engaged in a fraudulent scheme by distributing over 400,000 shares of Longfin to insiders and affiliates to meet certain Nasdaq listing criteria, without obtaining payment for any of these shares and, along with Longfin consultant Andy Altahawi, misrepresented to Nasdaq the number of qualifying shareholders and shares sold in the offering. The SEC’s complaint alleges that Longfin and Meenavalli also engaged in an accounting fraud, recording more than $66 million in sham revenue, representing nearly 90% of Longfin’s total 2017 reported revenue. Longfin voluntarily delisted from Nasdaq in May 2018 and shut down in November 2018.

The SEC’s actions charge Longfin, Meenavalli, and Altahawi with violations of the antifraud provisions of Section 10(b) of the Securities and Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. Longfin was also charged with violating the reporting, books-and-records, and internal controls provisions of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, while Meenavalli was charged with violating the internal controls and books-and-records provisions of Section 13(b)(5) of the Exchange Act, the lying-to-accountants provision of Exchange Act Rule 13b2, and the certification provision of Exchange Act Rule 13a14. Meenavalli was also charged with aiding and abetted Longfin’s violations of the reporting, books-and-records, and internal controls provisions of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a 11, and 13a-13.

In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced related criminal charges against Meenavalli.

The SEC’s prior action alleged that Longfin, Meenavalli, Altahawi, and two affiliated individuals, Dorababu Penumarthi and Suresh Tammineedi, illegally distributed and sold more than $33 million of Longfin stock in unregistered transactions.

Altahawi, Penumarthi, and Tammineedi have agreed to settlements, subject to court approval, that would fully resolve the SEC’s charges and have agreed to surrender the previously frozen funds towards paying monetary relief. Without admitting or denying the charges, Altahawi has agreed to settle the fraud charges and the prior charges of trading in unregistered securities. The proposed settlement would require Altahawi to return $21 million of allegedly ill-gotten gains, pay a $2.9 million penalty, and surrender all his Longfin shares. Altahawi also agreed to be barred from serving as a public company officer or director for five years, and to an industry bar to be issued in an administrative proceeding.

Penumarthi and Tammineedi, without admitting or denying the charges, agreed to settle all pending charges for trading in unregistered securities. The proposed settlements require Penumarthi to pay more than $1.7 million and Tammineedi to pay more than $241,000, in addition to injunctive relief.

The SEC’s investigation was conducted by Ernesto Amparo, Adam B. Gottlieb, Eric Hubbs, and Robert Nesbitt, and supervised by Anita B. Bandy, Associate Director, and Robert A. Cohen, Chief of the SEC’s Cyber Unit. Hope Augustini of the SEC’s Office of General Counsel and Sarah Heaton Concannon of the Division of Enforcement provided invaluable assistance. The litigation is being supervised by Stephan Schlegelmilch. The SEC appreciates the assistance of the Federal Bureau of Investigation and the U.S. Attorney’s Office for the District of New Jersey.