Ethics In The Accounting
Read SEC litigation Release 24492 dated June 5,2019 on Longfin Corp
What was the fraud accusation? Which element of the Fraud triangle was involved? Support your answer by using some of the language of the litigation release
The Securities and Exchange Commission today filed a new fraud action against Longfin
Corp. and its CEO for falsifying the company’s revenue and, together with a former
Longfin consultant, for fraudulently securing the company’s listing on Nasdaq. The SEC’s
prior charges against these defendants and two others resulted in a preliminary
injunction freezing more than $27 million in allegedly illegal trading proceeds from
unregistered distributions of Longfin stock.
The action filed today in federal district court in Manhattan alleges that Longfin and its
CEO, Venkata S. Meenavalli, conducted a fraudulent public offering of Longfin shares.
The complaint alleges that Longfin and Meenavalli obtained qualification for a Regulation
A+ offering by falsely representing in SEC filings that the company was principally
managed and operated in the U.S. when, in fact, the company’s operations, assets and
management remained offshore. Longfin and Meenavalli, as alleged, then engaged in a
fraudulent scheme by distributing over 400,000 shares of Longfin to insiders and
affiliates to meet certain Nasdaq listing criteria, without obtaining payment for any of
these shares and, along with Longfin consultant Andy Altahawi, misrepresented to
Nasdaq the number of qualifying shareholders and shares sold in the offering. The SEC’s
complaint alleges that Longfin and Meenavalli also engaged in an accounting fraud,
recording more than $66 million in sham revenue, representing nearly 90% of Longfin’s
total 2017 reported revenue. Longfin voluntarily delisted from Nasdaq in May 2018 and
shut down in November 2018.
The SEC’s actions charge Longfin, Meenavalli, and Altahawi with violations of the
antifraud provisions of Section 10(b) of the Securities and Exchange Act of 1934
(“Exchange Act”) and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of
1933. Longfin was also charged with violating the reporting, books-and-records, and
internal controls provisions of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the
Exchange Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, while Meenavalli was
charged with violating the internal controls and books-and-records provisions of Section
13(b)(5) of the Exchange Act, the lying-to-accountants provision of Exchange Act Rule
13b2, and the certification provision of Exchange Act Rule 13a�14. Meenavalli was also
charged with aiding and abetted Longfin’s violations of the reporting, books-and-records,
and internal controls provisions of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the
Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a 11, and 13a-13.
In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today
announced related criminal charges against Meenavalli.
SEC Adds Fraud Charges AgainstSEC Adds Fraud Charges Against
Purported Cryptocurrency CompanyPurported Cryptocurrency Company
Long9n, CEO, and ConsultantLong9n, CEO, and Consultant
Litigation Release No. 24492 / June 5, 2019Litigation Release No. 24492 / June 5, 2019
Securities and Exchange Commission v. Long9n Corp.Securities and Exchange Commission v. Long9n Corp.
and Venkata S. Meenavalliand Venkata S. Meenavalli, No. 19-cv-5296 (S.D.N.Y., No. 19-cv-5296 (S.D.N.Y.
9led June 5, 2019)9led June 5, 2019)
Securities and Exchange Commission v. Long9n et. alSecurities and Exchange Commission v. Long9n et. al,,
No. 18-cv-2977 No. 18-cv-2977 (S.D.N.Y. 9led April 6, 2018)(S.D.N.Y. 9led April 6, 2018)
Accounting and Auditing
ALJ Initial Decisions
Amicus / Friend of the
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ABOUT DIVISIONS & OFFICES ENFORCEMENT REGULATION EDUCATION FILINGS NEWS
Modified: June 6, 2019
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The SEC’s prior action alleged that Longfin, Meenavalli, Altahawi, and two affiliated
individuals, Dorababu Penumarthi and Suresh Tammineedi, illegally distributed and sold
more than $33 million of Longfin stock in unregistered transactions.
Altahawi, Penumarthi, and Tammineedi have agreed to settlements, subject to court
approval, that would fully resolve the SEC’s charges and have agreed to surrender the
previously frozen funds towards paying monetary relief. Without admitting or denying
the charges, Altahawi has agreed to settle the fraud charges and the prior charges of
trading in unregistered securities. The proposed settlement would require Altahawi to
return $21 million of allegedly ill-gotten gains, pay a $2.9 million penalty, and surrender
all his Longfin shares. Altahawi also agreed to be barred from serving as a public
company officer or director for five years, and to an industry bar to be issued in an
Penumarthi and Tammineedi, without admitting or denying the charges, agreed to settle
all pending charges for trading in unregistered securities. The proposed settlements
require Penumarthi to pay more than $1.7 million and Tammineedi to pay more than
$241,000, in addition to injunctive relief.
The SEC’s investigation was conducted by Ernesto Amparo, Adam B. Gottlieb, Eric
Hubbs, and Robert Nesbitt, and supervised by Anita B. Bandy, Associate Director, and
Robert A. Cohen, Chief of the SEC’s Cyber Unit. Hope Augustini of the SEC’s Office of
General Counsel and Sarah Heaton Concannon of the Division of Enforcement provided
invaluable assistance. The litigation is being supervised by Stephan Schlegelmilch. The
SEC appreciates the assistance of the Federal Bureau of Investigation and the U.S.
Attorney’s Office for the District of New Jersey.