The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Longfin Corp, a company that saw its price jump more than 2,000 percent late last year after it announced the acquisition of a blockchain startup.
The SEC alleged Friday that the company’s CEO, Venkata Meenavalli, and three other individuals were involved in stock sales made after Longfin’s dizzying price increase last December that raked in millions in profits.
According to statements, Longfin issued “more than two million” unregistered, restricted shares to Amro Altahawi, as well as “tens of thousands of restricted shares” to Dorababu Penumarthi and Suresh Tammineedi, all of whom were named as defendants in a newly unsealed complaint.
“The SEC alleges that Amro Izzelden “Andy” Altahawi, Dorababu Penumarthi, and Suresh Tammineedi then illegally sold large blocks of their restricted Longfin shares to the public while the stock price was highly elevated. Through their sales, Altahawi, Penumarthi, and Tammineedi collectively reaped more than $27 million in profits,” the agency said.
The agency also announced Friday that it had obtained a court order freezing the $27 million in stock proceeds.
LongFin was one of a number of startups to see its stock fortunes rise after announcing a pivot to blockchain or cryptocurrency services.
In December, Longfin’s stock price exceeded $70 at one point – as of today, that price is hovering around $28, according to market data published by Google. Shortly before the SEC’s announcement, Nasdaq announced that it was halting trading of Longfin’s stock.
The SEC’s chairman, Jay Clayton, disclosed in January that the agency was scrutinizing such moves by public firms.
“The SEC is looking closely at the disclosures of public companies that shift their business models to capitalize on the perceived promise of distributed ledger technology and whether the disclosures comply with the securities laws, particularly in the case of an offering,” Clayton remarked at the time.
Meenavalli notably appeared on CNBC earlier this week to defend his firm, declaring that he wouldn’t sell any of his shares for the next three years. He blamed short sellers for market moves that saw Longfin’s price drop close to $8 on April 4.
SEC emblem image via Shutterstock
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