Venkata S. Meenavalli, an Indian ex-CEO of a once Nasdaq-listed American fintech firm Longfin, has settled with the US Security and Exchange Commission (SEC) for conducting a $27 million accounting fraud scheme to inflate the revenue of the now-defunct cryptocurrency company in order to get it listed on the Nasdaq. The company's share price jumped some 2,500 percent in 2017 after jumping on the Blockchain bandwagon and announcing a blockchain pivot during the height of the bubble.
The Longfin CEO has agreed to pay $400,000 in disgorgement and penalties to resolve the SEC’s fraud action against him.
“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,” said Anita B. Bandy, Associate Director of the 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.”
The settlement, which remains subject to court approval, concludes the SEC’s actions against Longfin, its CEO, and three other individuals in which the SEC has secured over $27 million of ill-gotten gains. The SEC intends to establish a Fair Fund to distribute money received from the defendants to harmed investors.
The SEC’s complaint alleged that Longfin and Meenavalli obtained qualification for a Regulation A+ offering by falsely representing in public filings that the company was managed and operated in the U.S. According to the complaint, Longfin and Meenavalli then distributed over 400,000 Longfin shares to Meenavalli’s affiliates and misrepresented the offering to Nasdaq in order to meet its listing requirements. The complaint also alleged that more than 90 percent of Longfin’s reported revenue for 2017 was fictitiously derived from sham commodities transactions.
If approved, the settlement would require Meenavalli to disgorge $159,000 (his full salary received while acting as Longfin’s CEO) plus prejudgment interest of $9,000 and to pay a $232,000 civil penalty.
It would also require Meenavalli to surrender all of his Longfin stock, permanently bar him from acting as an officer or director of a public company, and enjoin him from participating in the offer or sale of penny stocks.
Meenavalli has agreed to settle the charges without admitting or denying the SEC’s allegations. The SEC previously obtained a default judgment against Longfin that ordered nearly $6.8 million in monetary relief. A parallel criminal action against Meenavalli, filed by the U.S. Attorney’s Office for the District of New Jersey, remains ongoing.
The SEC filed a separate action alleging that Longfin, Meenavalli, and three affiliated individuals illegally distributed and sold more than $33 million of Longfin stock in unregistered transactions. In June 2019, the court ordered over $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.
“In our complaint against Longfin and Meenavalli and our amended complaint against Altahawi, we allege a multi-pronged fraud involving fake revenue, misrepresentations to the SEC, and false statements to Nasdaq,” said Anita B. Bandy, Associate Director of the Division of Enforcement.
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.
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.
Also published on Medium.