The chief executive of Longfin and three of its stockholders have been charged with illegally selling shares in the cryptocurrency company after it went public through a Regulation A+ “mini-IPO.”
The U.S. Securities and Exchange Commission said one of the shareholders — stock promoter Amro Izzelden “Andy” Altahawi — made more than $25 million in illicit profits from sales of restricted shares that Longfin CEO Venkata Meenavalli had issued him in return for his “purported legal and business consulting services.”
An online biography describes Altahawi, the president of broker-dealer Adamson Brothers, as a specialist in Regulation A+ fundraising.
Also charged in a civil complaint are Indian citizen Suresh Tammineedi and Dorababu Penumarthi, a U.K. citizen, who allegedly realized a total of more $2.8 million in illegal profits from sales of their Longfin shares. Both are allegedly business associates of Meenavalli.
The SEC said it had obtained a court order freezing the trading proceeds from the Longfin stock sales. It is also seeking civil penalties against the four defendants.
“We acted quickly to prevent more than $27 million in alleged illicit trading profits from being transferred out of the country,” Robert Cohen, chief of the SEC Enforcement Division’s Cyber Unit, said in a news release. “Preventing defendants from transferring this money offshore will ensure that these funds remain available as the case continues.”
The “mini-IPO” rules introduced after the financial crisis lowered regulatory hurdles to make it easier for smaller, early stage companies to raise capital.
Longfin’s shares began trading on Dec. 13 2017 and soared 2,662%, to a $6 billion market capitalization, after the company announced two days later that it had acquired “blockchain-empowered solutions provider” Ziddu.com from an entity controlled by Meenavalli.
According to the SEC, Altahawi received more than two million restricted shares in September 2017 and sold them between Feb. 8 and March 23 even though “No registration statement was filed or in effect for these sales, and no Securities Act exemption applied to them.”
Longfin and Meenavalli allegedly “participated in and are liable for” the Securities Act violations of Altahawi, Tammineedi, and Penumarthi.