Indian-Origin Entrepreneur Under Probe for Alleged Securities Fraud

The U.S. Securities and Exchange Commission (SEC) is investigating an Indian-origin entrepreneur for an alleged securities fraud with his company Longfin Corp, a cryptocurrency company. Venkat Meenavalli is Longfin’s founding CEO and a controlling shareholder.

The SEC on April 6 froze more than $27 million in trading proceeds from alleged illegal distributions and sales of restricted shares of Longfin Corp., stock which involved the company, its CEO, and three other affiliated people, the SEC said in a statement.

The SEC claims that soon after Longfin began trading on Nasdaq and announced the acquisition of a cryptocurrency business, its stock prices rose dramatically. The market capitalization of the company exceeded $3 billion. The company has now been suspended from trading on the Nasdaq Stock exchange.

According to the complaint, a trio — Amro Izzelden “Andy” Altahawi, Dorababu Penumarthi, and Suresh Tammineedi — 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 gained a profit of more than $27 million.

Meenavalli is said to have made the company issue more than two million unregistered, restricted shares to Altahawi, who was the corporate secretary and a director of Longfin. The SEC has charged Longfin, Meenavalli, Altahawi, Penumarthi, and Tammineedi for violating a section of the Securities Act, the statement said.

Many of the restricted shares were issued to two of his associates — Penumarthi and Tammineedi — who were allegedly acting as nominees for Meenavalli. “The successive sales of those restricted shares violated federal securities laws that restrict trading in unregistered shares distributed to company affiliates.

“We acted quickly to prevent more than $27 million in alleged illicit trading profits from being transferred out of the country,” Robert Cohen, the chief of the SEC Enforcement Division’s Cyber Unit, said. “Preventing defendants from transferring this money offshore will ensure that these funds remain available as the case continues.”

Meenavalli had earlier said that short sellers were pulling down the price of the company, CNBC reported. “I’m going to write to SEC and Financial Industry Regulatory Authority (FINRA) because of the shorts,” Meenavalli was quoted as saying by CNBC. “We got information, we have a special investigation. According to us there are 28 billion shares shorted of $1.4 billion dollars bet against me,” he added.

The sale of securities that are not owned by the sellers or securities borrowed by the sellers is known as short selling. They try to make profit by believing that the price of a security will decline and that will enable it to be bought back at a lower price so they can make a profit.

Meenavalli said that that the trading of the shares of Longfin Corp was stopped because of a delay in filing its Form-10-Q — a company’s performance report to be submitted quarterly by all public companies to the SEC — for the third quarter. “There were no criminal charges slapped on the company and that the SEC is put a temporary freeze on assets as a civil case,” Meenavalli said, ET Tech reported.