Venkata S. Meenavalli (49), of India and CEO of purported cryptocurrency company Longfin is indicted today on charges of accounting fraud.
Venkata S. Meenavalli – CEO, Longfin
Venkata S. Meenavalli was indicted by NJ U.S. Attorney Craig Carpenito in Newark for allegedly orchestrating an accounting scheme to defraud investors and others by recognizing more than $66 million in fake revenue in the company’s public filings.
Longfin was a Delaware corporation founded by Venkata S. Meenavalli with offices in New York, NY and Lyndhurst, NJ.
Serving as CEO and Chairman of Longfin, Meenavalli controlled, individually and through entities he owned or maintained an interest in, a majority of Longfin’s voting equity, and more than 20% of Longfin’s Class A shares.
Besides, Longfin, according to indictment of NJ US District Attorney, Meenavalli served as an officer of numerous entities that engaged in sham transactions with Longfin, including SA Global, Meridian Enterprises Pte. Ltd., Meridian Tech. HK Ltd., Stampede Enterprises, Stampede Capital Limited, and Source Media Inc.
Between December 2017 and May 2018, Longfin’s Class A common stock traded on the NASDAQ stock exchange under the symbol “LFIN.”
According to case documents filed:
In 2017 and 2018, Meenavalli and others orchestrated a multimillion-dollar accounting fraud relating to Longfin Corp., a publicly traded company purportedly engaged in sophisticated commodities trading and so-called “cryptocurrency” transactions, including “blockchain-empowered solutions.” In fact, Longfin did not engage in any revenue-producing cryptocurrency transactions, and did not use the blockchain to empower any solutions. Longfin reported as revenue millions of dollars of commodities transactions, which were actually sham events between Longfin and separate entities Meenavalli controlled, using phony bills of lading and other fraudulent documents.
Longfin fraudulently reported in its public filings with the U.S. Securities and Exchange Commission (SEC) more than $66 million of revenue that was never actually earned and should never have been recognized. By including this phony revenue in the company’s public filings, Meenavalli and others made Longfin’s shares more attractive to potential investors.
Longfin’s 2017 Form 10-K (a required annual report to the SEC) claimed that its primary source of revenue was from “structured trade finance,” including “the sale of physical commodities.” Longfin falsely reported million in accounts receivable in purported physical commodity sales that never occurred. In fact, Meenavalli allegedly owned or controlled several entities that purportedly did business with Longfin, and did not disclose those relationships to Longfin’s shareholders or the investing public.
SEC’s Case Against Longfin
The securities and accounting fraud case against Longfin was originally initiated by the Securities and Exchange Commission (SEC) in a complaint filed in federal court in Manhattan on April 6, 2018.
SEC filed charges against Longfin, and its CEO Venkata S Meenavalli, corporate secretary Amro Izzelden “Andy” Altahawi and two other affiliated individuals Dorababu Penumarthi and Suresh Tammineedi.
The SEC’s April 2018 charges against Venkata S Meenavalli, Dorababu Penumarthi, Suresh Tammineedi and Altahawi resulted in a preliminary injunction freezing more than $27 million in allegedly illegal trading proceeds from unregistered distributions of Longfin stock.
According to SEC complaint filed on April 6, 2018:
…shortly after Longfin began trading on NASDAQ and announced the acquisition of a purported cryptocurrency business, its stock price rose dramatically and its market capitalization exceeded $3 billion. 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.
…Longfin’s founding CEO and controlling shareholder, Venkata Meenavalli, caused the company to issue more than two million unregistered, restricted shares to Altahawi, who was the corporate secretary and a director of Longfin, and tens of thousands of restricted shares to two other affiliated individuals, Penumarthi and Tammineedi, who were allegedly acting as nominees for Meenavalli. The subsequent sales of those restricted shares violated federal securities laws that restrict trading in unregistered shares distributed to company affiliates.
SEC Adds Fraud Charges
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.
According to the second SEC complaint filed today in federal district court in Manhattan:
..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.
In a nutsehll, the trio of Indians Meenavalli, Penumarthi and Tammineedi along with Longfin’s corporate secretary Amro Izzelden “Andy” Altahawi allegedly:
- Orchestrated a multi-pronged fraud involving fake revenue
- Inflated Longfin’s revenue to defraud investors
- Made misrepresentations to the SEC
- Made false statements to Nasdaq
Meenavalli – Potential Penalty
On the count of securities fraud, Venkata S. Meenavalli faces a maximum potential penalty of 20 years in prison and a $5 million fine.
Penumarthi, Tammineedi and Altahawi Settlement
Penumarthi, Tammineedi and Altahawi entered into an agreement with SEC to settle all pending charges for trading in unregistered securities without admitting or denying the charges.
According to the proposed settlements, Penumarthi and Tammineedi would pay more than $1.7 million and $241,000 respectively in addition to injunctive relief.
And the proposed settlement of Altahawi would require him to return $21 million of allegedly ill-gotten gains, pay a $2.9 million penalty, and surrender all his Longfin shares.
Altahawi, while settling with SEC, 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 administrative proceeding.
The proposed settlements of Penumarthi, Tammineedi and Altahawi entered today with SEC are subject to court approval.
BTW, Longfin was shut down in November 2018.
The indictment is merely an accusation and CEO of Longfin Venkata S. Meenavalli must be presumed innocent until proven guilty by a court of law.