The Securities and Exchange Commission has obtained a court order freezing more than $27 million in trading proceeds from allegedly illegal distributions and sales of restricted shares of Longfin stock involving the company, its CEO, and three other affiliated individuals.
According to a complaint unsealed April 6 in federal court in Manhattan, shortly after Longfin began trading on NASDAQ and announced the acquisition of a purported cryptocurrency business, its stock price rose dramatically and its market capitalization exceeded $3 billion. The SEC alleges that Amro Izzelden “Andy” Altahawi, Dorababu Penumarthi, and Suresh Tammineedi then illegally sold large blocks of their restricted Longfin shares to the public while the stock price was highly elevated. Through their sales, Altahawi, Penumarthi, and Tammineedi collectively reaped more than $27 million in profits.
According to the SEC’s complaint, Longfin’s founding CEO and controlling shareholder, Venkata Meenavalli, caused the company to issue more than two million unregistered, restricted shares to Altahawi, who was the corporate secretary and a director of Longfin, and tens of thousands of restricted shares to two other affiliated individuals, Penumarthi and Tammineedi, who were allegedly acting as nominees for Meenavalli. The subsequent sales of those restricted shares violated federal securities laws that restrict trading in unregistered shares distributed to company affiliates.
The SEC’s complaint, which was filed under seal on April 4, charges Longfin, Meenavalli, Altahawi, Penumarthi, and Tammineedi with violating Section 5 of the Securities Act of 1933. The complaint seeks injunctive relief, disgorgement of ill-gotten gains, and penalties, among other relief.
Talking vs. walking
This case is yet another real-life example highlighting the difference between simply having a “Code of Business Conduct and Ethics,” and actually living by it and enforcing it. It also speaks loud and clear to the value of tone from the top, and what can happen to a firm when that's clearly not the case.
The very first paragraph of its 13-page, single-space Code of Business Conduct and Ethics states, "Longfin Corp. values honesty, integrity and adherence to the highest ethical standards. Each of us has a responsibility for upholding these values and maintaining a commitment to basic principles of business ethics and good judgment. This Code of Business Conduct and Ethics has been developed as a guide to our adherence to these legal and ethical responsibilities.
This code is designed to deter wrongdoing and to promote:
Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
Full fair, accurate, timely and understandable disclosure in reports and documents we file with or submit to the SEC and in our other public communications;
Compliance with applicable laws, rules and regulations;he prompt internal reporting of violations of this Code; and
Accountability for adherence to this Code.
It goes on to state, “This Code applies to all directors, officers and employees of Longfin Corp., its subsidiaries and any subsidiaries it may form in the future. This Code should help guide your conduct in the course of our business. Many of the principles described in this Code, however, are general in nature, and the Code does not cover every situation that may arise.”
“Use common sense and good judgment in applying this Code. If you have any questions about the Code, or are unsure about whether an action or inaction that you intend to take is permitted under the Code, please contact our chief compliance officer.”