LongFin CEO Faces Accusations of Fraud Amidst Stock Plunge
LongFin, a fintech company that went public under the JOBS Act in 2017, has found itself embroiled in controversy with its stock plummeting 92% from its peak. CEO Venkat Meenavalli appeared on CNBC to address the allegations, but his response has done little to quell the storm.
Meenavalli claims the company is profitable and has a positive cash flow. He attributes the company’s drop in stock price to short sellers, specifically citing Citron Research’s accusations of fraud and stock manipulation. Meenavalli refutes these claims, asserting that the company is fully compliant with SEC regulations and that all relevant information is publicly disclosed in its 10K filings.
However, questions remain about LongFin’s business operations. Despite claiming to conduct billions of dollars in derivatives transactions, the company operates from a small three-person office with no apparent employees. Additionally, a transfer of 11 million shares to Stampede Capital, a company controlled by Meenavalli’s wife, which then sold the stock, raises eyebrows. Meenavalli brushes off these concerns, stating that all transactions were disclosed publicly.
Further complicating the situation is the revelation that LongFin is not currently registered with the Commodity Futures Trading Commission (CFTC) to operate as a market maker. Meenavalli claims that the company acts as a market maker "for particular contracts," and that its operations in Singapore are regulated by the exchange itself.
The SEC is currently investigating LongFin for potential "material weaknesses" and lack of qualified accounting personnel. Meenavalli maintains that the company is not under investigation for any wrongdoing, but rather that the SEC is simply asking standard questions for companies operating in the blockchain and cryptocurrency space.
With its stock price struggling, and accusations of fraud swirling, LongFin faces an uphill battle to regain investor confidence. Meenavalli’s appearance on CNBC may have done little to reassure investors, and the company’s future remains uncertain. While Meenavalli insists that the company is transparent and its finances are sound, the SEC investigation and the concerns raised by short sellers cast a long shadow over LongFin’s trajectory.
Longfin CEO Defends Company Amidst SEC Investigation and Stock Plunge
Longfin, a company that claims to be a leader in blockchain technology, has been under intense scrutiny in recent weeks. The company’s stock price has plummeted by over 92% from its peak, it was kicked off the Russell 2000 index, and it is currently the subject of an SEC investigation for potential accounting irregularities. Despite these challenges, Longfin’s Chairman and CEO, Venkat Meenavalli, maintains that the company is sound and its financials are accurate, even going so far as to claim that short sellers are orchestrating a campaign to unfairly target the company.
Key Takeaways:
- Longfin’s stock price has plummeted by over 92% from its peak, and the company has been removed from the Russell 2000 index.
- The SEC is investigating Longfin for potential accounting irregularities, including material weaknesses and a lack of qualified personnel with proper GAAP understanding.
- Longfin CEO Venkat Meenavalli maintains the company’s financial statements are accurate and blames short sellers for the company’s woes.
- The CEO also denies that the company is a "stock scheme," as alleged by short seller Citron.
Longfin Claims Growth and Transparency, But Critics Remain Skeptical
During a recent appearance on CNBC, Meenavalli defended Longfin’s business practices and financials. He pointed out that the company was initially formed under the JOBS Act, which allows emerging companies to go public with less stringent requirements. He also emphasized that Longfin is a profitable company with a strong positive cash flow, as evidenced by its 10K filing.
However, Meenavalli’s statements were met with skepticism from CNBC commentator Brian Sullivan, who pointed out several inconsistencies between Longfin’s public pronouncements and its actual operations. Sullivan raised concerns about:
- Size and Staffing: While Longfin claims to engage in billions of dollars worth of derivatives transactions, the company’s physical office is small and sparsely staffed.
- Blockchain Operations: Longfin’s blockchain-based cryptocurrency, "Longfin Coin," has experienced very little trading activity, with the last transaction occurring over 30 days ago for a measly $100.
- Share Transactions: Sullivan pointed out the transfer of 11 million shares to Stampede Capital, a company controlled by Meenavalli’s wife, suggesting potential insider dealings and conflicts of interest.
Meenavalli Responds to Criticisms
Meenavalli vehemently denied Sullivan’s accusations, claiming that the company is fully transparent and that all required disclosures have been filed with the SEC. He further argued that the short sellers are biased and are seeking to profit from manipulating the stock price. He also blamed the company’s removal from the Russell 2000 on a “mistake” by the index provider and downplayed the significance of the SEC investigation.
He attributed the decline in the company’s share price to short-selling, claiming that over 1.4 billion dollars worth of shares are being shorted, artificially depressing the stock price. Meenavalli stated his intention to file complaints with both the SEC and the FINRA regarding these short-selling activities.
A Deep Dive into the SEC Investigation
While Meenavalli dismisses the SEC investigation as routine, the agency has historically been cautious about issuing inquiries into publicly traded companies. This investigation, coupled with the other criticisms, raises serious questions about Longfin’s business model and financial transparency.
The SEC’s investigation focuses particularly on:
- Material Weaknesses: The SEC inquiry focuses on the lack of qualified personnel with proper GAAP knowledge and concerns about the sufficiency of the company’s cash flow.
- Blockchain Operations: The SEC is also scrutinizing Longfin’s blockchain technology and its cryptocurrency, questioning the company’s claimed involvement in high-volume trading and the actual use of the cryptocurrency.
- Transparency: The SEC is examining Longfin’s disclosures regarding its accounting practices, particularly relating to the significant transfer of shares to Stampede Capital, and the company’s overall level of financial transparency.
The Potential Impact on Longfin
The SEC investigation and the negative media coverage surrounding Longfin have already had a significant impact on the company. The stock price drop reflects investor concerns about the company’s future, and the resulting loss of confidence could make it difficult for Longfin to attract further investment.
The SEC investigation could have various outcomes, ranging from a simple reprimand to civil penalties or even criminal charges, depending on the findings. If the SEC ultimately concludes that Longfin engaged in fraudulent activities, the company could face significant financial and legal repercussions, potentially including delisting from the Nasdaq exchange.
Looking Ahead: Uncertainty Over Longfin’s Future
The future of Longfin remains uncertain. The company faces significant headwind due to the SEC investigation, the negative media coverage, and the actions of short sellers. However, Meenavalli remains confident in Longfin’s future, predicting significant growth in the coming years. Only time will tell whether his optimism is justified or if Longfin will be able to regain investor trust and overcome its current challenges.