Venkata S. Meenavalli, CEO of a publicly traded commodities trading company was last week indicted for allegedly orchestrating an accounting fraud that inflated the revenue of in the public filings of the now-defunct cryptocurrency company by more than $66 million.
Meenavalli, 49, of India was charged by indictment with securities fraud on June 5 by the Securities and Exchange Commission. In a parallel action, the U.S. Attorney’s Office for the District of New Jersey also announced related criminal charges against Meenavalli, CEO of Longfin Corp, which was based in New York and had offices in Lyndhurst, New Jersey, before it shut down last November.
The lawsuit was filed in federal district court in Manhattan alleging that Longfin and its CEO conducted a fraudulent public offering of Longfin shares.
The count of securities fraud with which Meenavalli is charged carries a maximum potential penalty of 20 years in prison and a $5 million fine, according to the NJ U.S. Attorney’s office.
It said 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.
The SEC 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.
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, according to a press release.
Longfin and Meenavalli allegedly 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 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.
According to Bloomberg executive profile, Meenavalli served as CEO and Founder at Longfin Corp since February 2017. He also serves as Chairman and Managing Director of Social Media India Ltd and as the Chief Mentor and lead all Global Operations of Exchanges.
The SEC said 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, the SEC said, adding that 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 administrative proceeding.
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.
“In our complaint against Longfin and Meenavalli and our amended complaint against Altahawi, we allege a multi-pronged fraud involving fake revenue, misrepresentations to the SEC, and false statements to Nasdaq,” said Anita B. Bandy, Associate Director of the Division of Enforcement.
“Today’s filings reflect the work of a dedicated SEC staff who, after moving swiftly on behalf of investors to freeze assets last year, continued investigating to uncover the alleged fraud.”
News reports quoting Reuters news agency said June 5 Meenavalli could not immediately be reached for comment, and a lawyer for him could not immediately be identified.