An Indian-origin entrepreneur Venkat Meenavalli is being investigated by the US Securities and Exchanges Commission (SEC) for alleged securities fraud with his cryptocurrency company Longfin (LFIN).The company was suspended last week from trading on the Nasdaq Stock exchange, according to a statement by the regulator. Meenavalli, his associates, and Longfin are being investigated by the SEC.
In December, Longfin listed on the Nasdaq with a $300-million market cap riding on the Bitcoin craze among investors. Its stock price jumped over 10 times taking the market cap to over $3 billion, the SEC statement said.
On April 6, the US Securities Exchange Commission (SEC) suspended the stock, which had a market cap of $2.1 billion, after it found that the company illegally sold a large block of restricted Longfin shares when the stock price was high, in violation of securities rules.
SEC has alleged that Longfin's chief executive Meenavalli had issued shares to his associates Andy Altahawi, Dorababu Penumarthi and Suresh Tammineedi who held it on his behalf and later sold stocks at elevated prices, booking a profit of $27 million. The SEC has obtained a court order to freeze the $27 million.
The SEC's complaint, which was filed on April 4, charges Longfin, Meenavalli, Altahawi, Penumarthi, and Tammineedi for violating Section 5 of the Securities Act of 1933. The complaint seeks injunctive relief, disgorgement of ill-gotten gains, and penalties, among other relief.
Meenavalli claimed that the trading of Longfin Corp shares has been halted due to delay in filing its Form-10-Q for the third quarter.
"The alleged probe by the US market regulator SEC was primarily owing to some confusion over the applicability of the said securities laws to 'Reg A' IPO firms like the company", said Meenavalli, chief executive of LongFin Corp. "There were no criminal charges slapped on the company and that the SEC is put a temporary freeze on assets as a civil case."
Meenavalli, however, said he is hopeful of convincing the SEC to revive trade of its stock.
"They (regulators) are saying that restricted shares are sold. But shares sold are of IPO float except Mr. Andy (Altahawi) whose shares restriction expired on March 11," Meenavalli told over phone from the US. "The regulators are saying these people sold restricted shares with my permission. No lock-in shares are sold. The people sold IPO shares," he said.
Meenavalli said the company was taking time for compiling and hoped that "trading will start next week, subject to compliance." He said the SEC allegations for freezing of assets of individuals has nothing to do with the company.