In this segment from the MarketFoolery podcast, host Chris Hill and senior advisor Bill Mann discuss the strange story of LongFin (LFIN), a company that came public via the JOBS Act. Shares have been extremely volatile, and the Securities and Exchange Commission on April 6 placed an emergency freeze on $27 million of proceeds from allegedly illegal stock sales. The Fools agree it's an example of investors giving too much credibility to a company just because it has cryptocurrency somehow attached to it.
A full transcript follows the video.
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This video was recorded on April 12, 2018.
Chris Hill: Earlier this month, the Securities and Exchange Commission here in the United States of America froze $27 million in trading profits involving the CEO of a company I'd never heard of before called Longfin, which is a cryptocurrency company. What about this story caught your attention?
Bill Mann: First of all, the CEO of Longfin has now twice gone on CNBC and has given the most unhinged interviews I have ever seen. Most of this company's business is in Singapore, to the extent that it's trackable at all. This company came public in the U.S. under the JOBS Act, which purportedly, as the name would suggest, is to bring jobs into the U.S. They came on CNBC and they said, "How many employees have you added?" And he said, "We have three. We'll probably get to 12."
Hill: [laughs] That doesn't seem like a big number.
Mann: No. It's not so job-y, not so deep in the jobs. Somehow, this company got to be worth $6 billion on the U.S. Stock Exchange, on NASDAQ, actually. And there's actually no telling what, if anything, that this company is actually worth. So finally, this last week, in an emergency stop, trading was halted in Longfin. The stock has dropped about 90%. The cryptocurrency that they have, almost no information is available on it, it's called Ziddu. As far as I can see, there's been one transaction ever in Ziddu. I literally have no idea what this company does, and yet it managed to be worth $6 billion, and it's on its way back down. I think it's probably a zero. I probably haven't used the word allegedly enough, we're creating for ourselves some issues, [laughs] but let's just assume that every other word I've used was allegedly.
Hill: Among my thoughts are that this is one more thing about cryptocurrency that isn't helping. For people like our colleague Aaron Bush, who is a believer in cryptocurrency and blockchain technology and looks at both of those and says, "There are viable futures for both of these," stuff like this doesn't help.
Mann: Yeah. This is such a great story!
Hill: Because at the moment, you have this clown, and let's just say, allegedly, a decent amount of illegal activity going on with cryptocurrency. Right now, a healthy portion of people who are using cryptocurrency are engaging in what we like to call "allegedly criminal activity."
Mann: Yeah, "alleged fraud," allegedly. It's a pattern that's as old as time. You can absolutely bet your bottom dollar that wherever there is a bull market, right underneath it, there's a bull market in fraud. Whatever segment it is, wherever it's been, no matter what. We saw it in 2006, when people could not get enough of Chinese small-cap companies. And it turned out that most of those Chinese small-cap companies that came public in the U.S. through reverse mergers probably came public through reverse mergers because they could not have gone public through the front door. I think, very much similarly, in 2017 with the absolute magnificent, stunning rise in the values of cryptocurrencies, it became an area where people gave way too much credibility to anything that had crypto attached to it, and this is one of them.
Hill: Long Island Iced Tea, just slapping the word blockchain on their name.
Mann: Yeah, exactly.