The U.S. Securities and Exchange Commission (SEC) has reached a $400,000 settlement in its fraud action against the CEO of Longfin, Venkata Meenavalli. The complaint alleged that the company had falsely claimed that it was "managed and operated" in the U.S. as well as the fact that 90% of its reported revenue for 2017 came from "sham commodities transactions".

What has happened?

The SEC has settled its fraud action against Longfin CEO Venkata Meenavalli, who has agreed to pay $400,000 in disgorgement and penalties.

What does this mean?

The SEC's complaint alleged that Longfin and Meenavalli obtained qualification for a Regulation A+ offering by falsely representing in public filings that the company was "managed and operated" in the U.S.

According to the complaint, Longfin and Meenavalli then distributed over 400,000 Longfin shares to Meenavalli's affiliates, and misrepresented the offering to Nasdaq to meet its listing requirements.

The complaint also alleged that more than 90% of Longfin's reported revenue for 2017 was "fictitiously derived from sham commodities transactions".

"As alleged in our complaint, Meenavalli abused the Reg. A+ process to conduct a fraudulent offering, list Longfin on Nasdaq, and entice investors with falsified revenue," said Anita B. Bandy, Associate Director of the Division of Enforcement.

The settlement is subject to court approval. If approved, it would require Meenavalli to pay $159,000 which he received in salary while acting as Longfin CEO, interest of $9,000 and a $232,000 civil penalty.

Meenavalli would also have to surrender all of his Longfin stock, and be barred from acting as an officer or director of a public company in the U.S, and be enjoined from selling penny stocks.

Meenavalli agreed to settle the charges without admitting or denying the allegations.

The settlement concludes the SEC's action against Longfin, Meenavalli, and three other executive officers in which the regulator had secured over $26 million of ill-gotten gains. The SEC said it will establish a Fair Fund to redistribute the money to victims.

The SEC previously obtained a default judgment against Longfin that ordered nearly $6.8 million in monetary relief.

A parallel criminal action against Meenavalli, filed by the U.S. Attorney's Office for the District of New Jersey, is still ongoing.

The SEC filed a separate action alleging that Longfin, Meenavalli, and three affiliated individuals illegally distributed and sold more than $33 million of Longfin stock in unregistered transactions. In June 2019, the court ordered over $26 million in disgorgement and penalties against the three affiliates and, in August, entered default judgements ordering civil penalties of $284,139 and $27, 416 against Longfin and Meenavalli, respectively.