SEC Pursues Fraud Charges against LongFin

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Long Fin is a fintech company that was incorporated in February 2017 and got listed on NASDAQ after acquiring cryptocurrency company, Ziddu, which was owned by Meridian Enterprises. When the purchase was made, LongFin’s CEO Venkat Meenavali owned 92% of the stock. When the company got listed on NASDAQ, it was worth $6 billion! This figure came up after the company’s stock soared by 1000% in a span of two days. The company however started to attract the attention of the SEC because it was not clear what their operations were. In fact the company was based in Singapore and its credibility at the time could be staked on only one thing, the fact that they had invested in cryptocurrency, which still no one had any sufficient information about.

Come 2018, the company suffered massive losses of close to 90% after capable short sellers went after it, and fueled by Meenavali’s comments that he would not be selling his shares despite the short position taken against the company. At the time, information in the cryptocurrency space was that the company was shorted on a bet of about $1.4 billion. As if on cue, the SEC Enforcement Division opened an investigation regarding the trading of the company’s shares, as well as documentation on the acquisition of Ziddu and the IPO launch, which the SEC deemed to be fraudulent.

In April 2018, an article was posted regarding the scrutiny of the SEC that was also attracted due to some questionable actions by the management of the company, where they sold, albeit illegally (in violation of the Section 5 of the Securities Act 1933), large blocks of their LongFin shares to the public and claimed profits of about $27 million. After that, the SEC filed an injunction freezing the trading funds, which also included the profits made by the individuals that illegally traded personal shares. In the recent developments, the SEC states that LongFin duped its investors into believing that the company was based in the United States so that they could qualify for Regulation A+ offering. After gaining approval, the company then proceeded to give 400,000 shares to close associates to meet NASDAQ requirements then fraudulently listed $66 million in false revenue.

The company is basically one that could be said got caught up in the 2017 bull-run that saw cryptocurrency prices hit levels that are yet to be seen again as at this time. And, at the time, putting up a crypto start-up was easy in the sense that anyone could come up with an organization, a team and voila, raise capital. It was a mad rush. What failed, was the grossly unhinged method with which Long Fin chose to pivot, and obviously the book cooking that landed them on the radar of the SEC. and the other fact that the company was not based in the US but literally rented office space from WeWork, an office sharing provider company and the said office was comprised of a single 23yr old individual. Ok you can laugh. The company had balls.

This case encompasses the role of the SEC in regulating cryptocurrencies. It has taken a very active role in ensuring that the relatively volatile cryptocurrency field that has all kinds of opportunities for growth and fraud in equal measure, is to some extent accountable. The efforts of the SEC are not compounded to them alone as there are other bodies such as the Department of Financial Services, Financial Crimes Enforcement Network, and the Commodities Futures Trading Commission. The SEC is normally involved in regulating cryptocurrency activities such as Initial Coin Offerings which are highly regulated under the Securities Exchange Act 1933. Another role they play is in regulating Exchanges, Exchange traded funds (case of the Winklevoss brothers ETF still awaiting SEC approval), Investment companies (Via the Investment Company Act 1940).

 

 

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