Shares of LongFin Corp. (OTC:LFIN) surged on Friday prior to being halted by Nasdaq for "additional information requested" from the company. About an hour later, the SEC announced that it was seeking an emergency freeze on $27 million of proceeds from illegal stock sales. The SEC accused three defendants of conducting sales that violated Section 5 of the Securities Act of 1933, claiming that LongFin and CEO Venkata Meenavalli participated in and are liable for these violations. Shares of LongFin were up 47% at 10:01 a.m. EDT, the time of the halt, and were still halted as of 1:30 p.m. EDT.
The SEC accused Amro Izzelden Altahawi, Suresh Tammineedi, and Dorababu Penumarthi of conducting illegal sales of LongFin securities. The SEC provided the following timeline:
- June 16, 2017 to December 11, 2017: LongFin sold 1.14 million shares under SEC Regulation A, which allows companies to publicly sell shares with less burdensome procedures compared to Section 5 of the Securities Act of 1933.
- September 15, 2017: LongFin and Meenavalli issued Altahawi about 2 million shares "in consideration of purported legal and business consulting services performed by Altahawi." These shares were restricted securities that could not be resold, with limited exceptions.
- December 13, 2017: LongFin shares began trading on the Nasdaq exchange.
- Around December 15, 2017: LongFin announced the acquisition of Ziddu.com, which the SEC refers to as "a purported cryptocurrency business" owned by an entity at least 92%-owned by Meenavalli. Ziddu.com has no ascertainable value, according to the SEC. This acquisition drove a 2,662% gain within three days of the stock's first day of trading.
- January 9, 2018: LongFin was out of compliance with its Exchange Act periodic reporting obligations, failing to file any quarterly and annual reports until April 2.
- Between February 9, 2018 and March 23, 2018: Altahawi sold 475 thousand shares in the public market. No registration statement was filed, and no Securities Act exemption applied to the sale. Altahawi booked a profit of over $25 million.
- Between December 2017 and March 2018: Tammineedi and Penumarthi sold shares of LongFin they acquired in December for a $2.8 million profit. These transactions were also prohibited.
The SEC is seeking to freeze the proceeds from these sales and seek further monetary and injunctive relief against the defendants.
This new SEC action comes just a few days after LongFin disclosed that the SEC had requested documents related to the company's IPO and acquisition of Ziddu.com. LongFin also disclosed at that time that it had serious problems with its internal controls regarding financial reporting. This also comes two days after Meenavalli defended the company on CNBC.
Friday's developments add yet another reason to stay far away from LongFin stock.