The SEC has obtained a court order freezing more than $27 million in trading proceeds from allegedly illegal distributions and sales of shares of defendant Longfin’s securities, according to a Commission press release(SEC v. Longfin Corp., April 4, 2018).
Purported cryptocurrency business. According to the Commission’s complaint, Longfin was incorporated in Delaware on February 1, 2017. On December 13, 2017, Longfin's Class A shares started trading on the Nasdaq under stock symbol "LFIN." On or about December 15, 2017, Longfin issued a press release announcing that, on December 11, 2017, it had acquired Ziddu.com.
According to Longfin, Ziddu.com was a "blockchain-empowered solutions provider" that "offers a variety of sources, including microfinance lending against collateralized warehouse receipts in the shape of Ziddu coins." But the complaint claimed that Ziddu.com had no ascertainable value; the website produced no revenue and as of the date of its acquisition, Longfin assigned a value of zero to Ziddu.com. But after the Ziddu acquisition was announced, Longfin’s stock price rose dramatically and its market capitalization exceeded $3 billion. The Commission claimed that certain defendants then illegally sold large blocks of their restricted Longfin shares to the public while the stock price was elevated and, through these sales, those defendants, collectively, gained more than $27 million in profits.
Alleged securities law violations. The Commission alleged that Venkata Meenavalli, as founding CEO and controlling shareholder, caused the company to issue more than two million unregistered, restricted shares to Izzelden "Andy" Altahawi, the corporate secretary and a director of Longfin and tens of thousands of restricted shares to two other affiliated individuals who were allegedly acting as nominees for Meenavalli. The subsequent sales of those restricted shares violated federal securities laws that restrict trading in unregistered shares distributed to company affiliates, the Commission claimed.
Relief. The SEC asked for an order imposing an asset freeze upon certain defendants; directing an accounting and expedited discovery against all defendants; and directing the repatriation of all profits from the illegal stock transactions. The SEC also requested an order permanently enjoining that all defendants from any further violations of Securities Act Section 5; an order requiring the defendants to disgorge, with prejudgment interest, all of the ill-gotten gains derived from the illegal stock transactions described in the complaint; and an order for the defendants to pay civil penalties pursuant to Section 20(d) of the Securities Act.
"We acted quickly to prevent more than $27 million in alleged illicit trading profits from being transferred out of the country," said Robert Cohen, chief of the SEC Enforcement Division’s Cyber Unit. "Preventing defendants from transferring this money offshore will ensure that these funds remain available as the case continues."
The case is No. 18-cv-2977.
MainStory: TopStory Enforcement FraudManipulation NewYorkNews
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