Longfin Ordered to Repay $223M to Investors

A Manhattan federal judge has ruled that Longfin — a now defunct firm whose shares surged 1000% in 2017 after it bought an undervalued crypto company  —  must repay $223 million plus interest to investors over alleged securities fraud.

In a July 29 order, Judge Denise Cote determined the nine-figure sum is collectively owed by Longfin, its chief executive Venkata Meenaalli, CTO Vivek Ratakonda, and the director of two related companies, Suresh Tammineedi.

The ruling granted a default judgment that had been requested by lead plaintiff Mohammad Malik in January. Malik’s argument emphasized a request from Longfin’s counsel to withdraw from the case in December 2018 noting that it was no longer “in the interest of the creditors of Longfin Corp” to continue fighting the case.

Judge Cote’s order stated that Malik “offered sufficient evidentiary support through declarations and exhibits submitted in support of his claim for damages,” adding that “no evidentiary hearing is required.”

Longfin obtains approval for ‘mini-IPO’

In September 2017, Longfin launched its IPO as a Regulation A+ offering — allowing the firm to raise funds from both accredited investors and non-accredited investors while claiming exemption from many registration requirements of the Securities Exchange Act of 1934.

Upon closing its $27 million IPO on Dec. 8, 2017, Longfin announced it had become “the first public-listed fintech company under Reg A+ on Nasdaq.” The same month Longfin announced that it had purchased Ziddu.com — a cloud storage platform that claimed to have morphed into a “blockchain technology empowered solutions provider.” As Cointelegraph reported back in December 2017, Longfin’s shares surged over 1,000 percent after the news broke.

Shareholders quickly accused Longfin and its executives of issuing false and misleading statements that drove up the price of its shares from $5 at listing to $140 in early 2018. 

Allegations that company insiders had sold Longfin shares prompted an investigation from the U.S. Securities and Exchange Commission (SEC) in April 2018, resulting in the stock quickly crashing.

SEC takes action against Longfin

In September 2019, the SEC was granted a $6.8 million judgment against Longfin, with a New York federal court finding that the firm had fraudulently qualified for its Regulation A+ offering.

The ruling found that the firm had falsely claimed to be principally operated in the United States, misrepresented the number of qualifying shareholders and shares sold in the offering, and had recorded $66 million in “fictitious revenue from sham commodities transaction” — equating to 90% of Longfin’s purported earnings.

Meenavalli agreed to pay $400,000 in disgorgement to resolve the SEC’s action against him in January. In June, the court also approved the SEC’s proposed plan for the distribution of more than $26 million to Longfin investors.