U.S. charges ex-CEO of cryptocurrency company Longfin with $66 million fraud (updated)

Longfin

05/06/2019 22:26

(Adds allegations, additional defendants and settlements,
background on Longfin, case citations)
    By Jonathan Stempel
    NEW YORK, June 5 (Reuters) - U.S. prosecutors said on
Wednesday the former chief executive of Longfin Corp  LFIN.PK 
has been indicted for engineering an accounting fraud that
inflated the revenue of the now-defunct cryptocurrency company
by more than $66 million.
    The securities fraud charge against Venkata Meenavalli, 49,
of India, was announced 18 months after Longfin shares went on a
roller-coaster ride as cryptocurrencies were coming into
fashion, rising more than 13-fold over a few days and briefly
making the company worth more than $3 billion.
    Prosecutors said Meenavalli generated fraudulent documents
that caused Longfin to report as revenue millions of dollars of
commodities "transactions" that were actually "sham, round-trip
events" between the company and entities he controlled.
    U.S. Attorney Craig Carpenito in New Jersey said the more
than $66 million of revenue should never have been recognized,
and made Longfin shares look more attractive to investors.
    Longfin, which was based in New York and had offices in
Lyndhurst, New Jersey, shut down last November.
    Meenavalli could not immediately be reached for comment, and
a lawyer for him could not immediately be identified.
    A default judgment was entered in January against Meenavalli
in a related U.S. Securities and Exchange Commission civil case
filed in April 2018 against him, Longfin and three associates.
    In that case, the SEC won a court order freezing $27 million
of trading proceeds after accusing Veenamalli of arranging the
issuance of Longfin shares to Andy Altahawi, Dorababu Penumarthi
and Suresh Tammineedi, which were sold after the stock soared.
    The SEC said those three defendants agreed to settle.
    It said Altahawi will pay a $2.9 million fine, return $21
million of alleged wrongful gains, and accept a five-year public
company officer and director ban, and Penumarthi and Tammineedi
will pay more than $1.7 million and $241,000, respectively. None
of those defendants admitted or denied wrongdoing.
    The cases are U.S. v. Meenavalli, U.S. District Court,
District of New Jersey, No. 19-cr-00402; and SEC v Longfin Corp
et al, U.S. District Court, Southern District of New York, No.
18-02977.

 (Reporting by Jonathan Stempel in New York
Editing by Susan Thomas and Matthew Lewis)
 ((jon.stempel@thomsonreuters.com; +1 646 223 6317; Reuters
Messaging: jon.stempel.thomsonreuters.com@reuters.net))