The SEC secured a court order freezing proceeds from the distribution and sale of restricted shares of Longfin Corp. ("Longfin"), a financial technology company, and filed charges against its CEO and three affiliates. According to the SEC, the sales of restricted shares took place following an announcement by the technology company that it had acquired a "blockchain-empowered solutions provider."
In a Complaint filed in the U.S. District Court for the Southern District of New York, the SEC claimed that the CEO of Longfin authorized the company to issue significant quantities of shares to three Longfin affiliates. The shares were transferred via unregistered transactions, and so the affiliates were restricted from selling the shares unless they were either registered or eligible for an exemption. In addition, the SEC alleged that two of the affiliates were acting as nominees for Longfin's CEO.
Shortly after Longfin stock began trading on the NASDAQ exchange, Longfin announced that it acquired Ziddu.com, a supposed blockchain-driven company. The SEC determined that Ziddu had "no ascertainable value" at the time of the acquisition, and was majority-owned by the Longfin CEO. The announced acquisition caused the price of Longfin stock to surge; during this time, the affiliates allegedly sold their shares without filing a registration statement and without an exemption from registration, reaping more than $27 million in profits. The SEC also asserted that Longfin failed to meet its reporting obligations pursuant to the NASDAQ listing.
On April 6, 2018, NASDAQ halted trading of Longfin stock. The SEC is seeking permanent injunctions, disgorgement and other civil penalties against the defendants.
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