Longfin CEO Ordered to Pay $6.8 Million in Crypto Fraud Case

Longfin and its former Indian CEO are accused with generating fake documents that recorded over $66 million in “sham revenue”

Longfin Corp’s CEO and his now-defunct cryptocurrency company have been ordered to pay $6.8 million to the US Securities and Exchange Commission (SEC) to settle charges relating to accounting fraud and unregistered ICO.

On Monday, the US regulator announced the ruling in the case, which revolved around Longfin and its CEO, Venkata Meenavalli, who is accused of orchestrating a scheme to inflate its revenue.

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In its first action, the watchdog accused Longfin of selling more than $33 million of stock in unregistered transactions. In addition, Longfin and its former Indian CEO, who has been indicted by US prosecutors, are accused of generating fake documents that recorded “sham revenue” of more than $66 million.

Indeed, not all was as it seemed as the crypto firm did not actually engage in any revenue-producing transactions, and thus those earnings should never have been recognized. The multimillion-dollar accounting fraud allowed Longfin to report roughly 90 percent of its 2017 revenue as commodities transactions, while, in fact, that were mere “round-trip events” between the company and entities it controlled.

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Longfin misrepresented location to meet IPO criteria

To generate further excitement, Longfin secured SEC’s Regulation A+ crowdfunding exemption to go public on the Nasdaq exchange, where its shares promptly rose 13-fold over a few days and briefly making the company worth more than $3 billion.

While applying to obtain Regulation A+ exemption, which allows the firm to raise up to $50 million in its token sale, Longfin falsely claimed to be managed and operated in the US. In fact, the company’s operations, assets, and management remained offshore, the SEC said.

The SEC also alleges that Longfin distributed 400,000 free shares to its insiders and affiliates in order to meet the criteria for Nasdaq’s fast-track IPO process, without obtaining payment for the shares.

Longfin, which was based in New York and had offices in New Jersey, was ordered in June 2019 with three associates to pay over $26 million in disgorgement and penalties. In that case, the SEC also won a court order of $284,139 and $28,416 in fines against Longfin and Meenavalli, respectively.

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