- Longfin, a 1-year-old fintech company, is under fire following SEC allegations that its CEO and his associates sold $27 million in restricted company stock.
- On Friday, the SEC obtained a court order to freeze the $27 million in question.
- NASDAQ halted trading for Longfin, which went public in December, following the court order.
- Longfin first made waves in December when its “pivot to blockchain” sent share prices up more than 2,400%.
It’s been a tough week for Longfin, the one-year-old company that raised eyebrows in December 2017 when its so-called pivot to blockchain sent shares soaring on the day of its initial public offering.
Trading in Longfin shares was halted by Nasdaq on Friday following news that the Security and Exchange Commission obtained a court order to freeze more than $27 million in trading proceeds that the agency believes the CEO and several associates gained by selling unauthorized stock in the company.
According to the complaint, Longfin CEO and controlling shareholder Venkata Meenavalli issued more than 2 million unregistered and restricted shares to Andy Altahawi, the corporate secretary and director of Longfin.
He also allegedly released tens of thousands of restricted shares to two other individuals, Dorababu Penumarthi and Suresh Tammineedi, who “illegally sold large blocks of their restricted Longfin shares to the public while the stock price was highly elevated,” the SEC alleges.
In a statement issued late Friday, Longfin said it plans to cooperate with the SEC investigation and comply with NASDAQ’s request for information.
The news comes as authorities are cracking down on shady operations and fraud within the booming blockchain and ICO market, and the allegations of the Longfin stock sales are likely to further damage investor confidence in the nascent market.
Longfin’s took off like a rocket and then plunged
Longfin first incorporated in February 2017 as a self-described financial technology company, according to company filings. Longfin’s “core technology platform,” as it describes it, connects “global exchanges” and uses “artificial intelligence and deep machine learning to trade and hedge the risk in continuous time.”
The company gained attention in December as one of the first companies to leverage bitcoin mania to skyrocket its company value. This pivot which came just days before the most infamous case of the Long Island Iced Tea company, which saved itself from getting kicked off the NASDAQ by changing its name to Long Island Blockchain, which propped up its slouching market cap.
Longfin listed on the NASDAQ on December 13 — seven months after it first launched — and raised $5.7 million thanks to a provision in the Jump Start Our Business Startups Act of 2012, which lowered the barrier for young companies to join the public markets.
Just two days before listing, the company acquired Ziddu.com, a startup which claimed to develop blockchain smart contracts for financial institutions. Longfin shares soared 2,400% in the early days of trading.
Longfin’s price has been tumultuous since that first week of trading, when shares spiked from an initial price of $5, to a high over $72. The share price hung around the $35 mark for a few months before spiking back up to $71 on March 23. By April 3, once the SEC’s investigation was revealed, the stock crashed down to $9.
Although Longfin described itslef as a blockchain company, details of its actual business and product remain unclear.
From February to December 31, 2017, the company claimed $75 million in revenue — $66 million of which came from “physical commodity contracts,” according to company filings. The company doesn’t make clear what these physical commodities entail.
In the same period, the company saw net losses of $26.37 million.