An Indian ex-CEO of a publicly traded American fintech firm has been indicted for orchestrating a multi-million dollar accounting fraud to inflate the revenue of the now-defunct cryptocurrency company to get it listed on the Nasdaq, a US attorney has said.
Venkata Meenavalli, 49, and others orchestrated the fraud in 2017 and 2018 relating to Longfin Corp, a publicly traded company purportedly engaged in sophisticated commodities trading and so-called "cryptocurrency" transactions, including "blockchain-empowered solutions."
He has been indicted for allegedly orchestrating the scheme to defraud investors and others by recognising more than USD 66 million in fake revenue to fraudulently get the company listed on the Nasdaq, US Attorney Craig Carpenito said on Wednesday.
The Nasdaq is an American stock exchange.
The charges carries a maximum potential penalty of 20 years in prison and a USD 5 million fine.
The company's share price jumped some 2,000 per cent in 2017 after announcing a blockchain pivot, it said.
Simultaneously, the US Securities and Exchange Commission (SEC) also filed a new fraud action against Longfin and Meenavalli for falsifying the company's revenue and, together with a former Longfin consultant, for fraudulently securing the company's listing on the Nasdaq.
Federal prosecutors alleged that Longfin did not engage in any revenue-producing cryptocurrency transactions, and did not use the blockchain to empower any solutions.
Cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.
Longfin reported as revenue millions of dollars of commodities transactions, which were actually sham events between Longfin and separate entities Meenavalli controlled, using phony bills of lading and other fraudulent documents, the Department of Justice alleged.
Longfin fraudulently reported in its public filings with the SEC more than USD 66 million of revenue that was never actually earned and should never have been recognised.
By including this phony revenue in the company's public filings, Meenavalli and others made Longfin's shares more attractive to potential investors, according to court papers.
Longfin's 2017 Form 10-K (a required annual report to the SEC) claimed that its primary source of revenue was from "structured trade finance", including "the sale of physical commodities".
"Longfin falsely reported million in accounts receivable in purported physical commodity sales that never occurred. In fact, Meenavalli allegedly owned or controlled several entities that purportedly did business with Longfin, and did not disclose those relationships to Longfin's shareholders or the investing public," federal prosecutors said.
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