The cryptocurrency industry is being rocked by news that the U.S. Securities and Exchange Commission (SEC) has filed charges against Longfin and its CEO, Venkata S. Meenavalli. The SEC announced on its website on April 5 that it had level charges of fraud against the company for falsifying transactions in 2017 and conducting a fraudulent public offering.
Those $66 million in transactions were essentially fake volume, with funds sent in round-trips between the company and other entities owned by Meenavalli. The motivation of these transactions were so that Longfin could get listed on NASDAQ.
It further alleges that Longfin didn’t have the U.S. presence it needed to have to be traded on NASDAQ, this making their initial public offering (IPO) illegal.
Once listed, and once the cryptocurrency markets reached their all-time highs in late 2017, Longfin broadcasted that it was getting into the crypto world by investing in Ziddu.com, a “blockchain-empowered solutions provider,” causing their stock price to multiple by a factor of 13 because of the crypto-frenzy at the time. The problem was this was all vapor. The SEC explains:
“In fact, Ziddu.com provided no services at all. Longfin assigned a carrying value of zero to the website in its accounting records. Ziddu.com produced no revenue, and Longfin did not acquire any physical facilities, employees, market distribution systems, or production techniques. By the acquisition, Longfin acquired merely the rights to use the Ziddu website and trade name.”
Thus, Longfin never really was a blockchain or a cryptocurrency company. It did publicize that it had though, and it’s owners profited mightily from the rise in their share prices.
Keen defenders of the cryptocurrency industry’s status quo will jump on this tidbit, and point out that as Longfin never was apart of the industry, it’s not an indictment of the rest of the industry that they’ve been accused of fraud. They’d be wrong though.
2018 should have taught everyone that with the rise of the markets, every snake-oil salesman who could fit the word “blockchain” or “crypto” into their business model would try to.
Some of those have been caught, but literally thousands of digital assets litter the market to this day, many of them showing no utility or real value, but still attempting to attract investors. Their ploy is so obvious that it’s hard to blame them anymore; it’s those who allow them to operate that are now at fault.