Alleged crypto company Longfin Corp (OTCMKTS:LFIN) has received a penalty of around $6.8 million from the US District Court for the Southern District of New York. The fintech company will pay the SEC the amount in fines and disgorgement for allegedly engaging in fraudulent public offering and accounting fraud.
Longfin CEO falsified documents to receive Regulation A+ qualification
On Monday the SEC announced that the District Court had entered a default ruling against the company regarding the running of a sham IPO and falsifying its revenue. The SEC claimed that Longfin and CEO, Venkata S. Meenavali presented false information to receive Regulation A+ qualification by indicating that the company had operations in the US. The company’s assets, operations, and management were all outside the US.
The company and its CEO allegedly distributed more than 400,000 free stocks. Longfin sold the shares in unregistered transactions to affiliates and insiders to meet the requirements for fast-tracking the Nasdaq IPO process without receiving payment for the stock. They also lied about the number of qualifying shareholders and stock offered to meet the requirements of Nasdaq listing. The company secured the Regulation A+ through false claims to list on the Nasdaq exchange. Its shares gained 13-fold in just a few days making the company worth over $3 billion
Longfin generated sham revenue of more than $66 million
The CEO faces allegations of generating fraudulent accounts recording sham revenue of over $66 million. The fictitious revenue was from bogus transactions and contributed to over 90% of the company’s reported revenue in 2017. The crypto company, in essence, did not participate in any revenue-generating transactions, and the earnings recorded should never have counted anyway. The revenue it reported were actually “round trip transactions” of Longfin and its entities.
In 2017, Longfin’s stock price jumped more than 2,000% after the company announced the purchase of a blockchain firm. The firm closed shop in November last year.
In June this year, the New York-based company with offices in New Jersey received an order to pay more than $26 million in penalties and disgorgement. The SEC had previously accused the company and the CEO of unlawfully offering and selling its shares worth $33 million in unregistered transactions. The agency won the case with the CEO and the company orders to pay fines of $28,416 and $284,139 respectively.