Longfin Sale Proceeds Frozen as SEC Alleges Illegal Trading

(Bloomberg) -- A federal court in Manhattan froze more than $27 million in proceeds from sales of Longfin Corp. shares as regulators claimed the gains flowed from illegal trades by insiders after the financial technology firm touted ties to blockchain technology.

A Longfin executive and two people affiliated with the company violated securities laws by selling unregistered shares granted by founder and Chief Executive Officer Venkata S. Meenavalli, the U.S. Securities and Exchange Commission said in a statement Friday. Those sales came after Longfin's announced acquisition of a cryptocurrency business -- 92 percent owned by Meenavalli -- boosted its market capitalization to $3 billion, the SEC said.

“We acted quickly to prevent more than $27 million in alleged illicit trading profits from being transferred out of the country,” said Robert Cohen, head of the SEC's enforcement division's cyber unit.

The SEC is seeking penalties including fines and disgorgement of ill-gotten profits from Longfin, Meenavalli and the other three people. Longfin's shares, which soared in December after the firm said it bought Ziddu.com, slid this week after the company announced that it was being investigated by the SEC.

An attorney representing Longfin didn't respond to a request for comment.

Longfin shares nearly doubled Thursday, and climbed 47 percent to $28.19 Friday before being halted by the Nasdaq for an information request at 10:01 a.m. in New York. The trading halt preceded the SEC's announcement of its enforcement action.

--With assistance from Lily Katz and Brad Olesen

To contact the reporter on this story: Matt Robinson in New York at mrobinson55@bloomberg.net.

To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Gregory Mott

©2018 Bloomberg L.P.