Investing in a Blockchain Technology IPO Can Be Just as Risky as an ICO

Blockchain, ICOs, Investors, News

Hot on the heels of the news that JPMorgan Chase is being sued in a class action lawsuit for allegedly overcharging customers for cryptocurrency purchases comes another lawsuit against a blockchain technology business. This time the class action is directed at Delaware-registered Longfin Corp and its CEO.

Since ICOs became popular in 2017, there have been constant reminders of the financial risks involved for participants but no mention of similar risks for blockchain technology IPOs. The assumption has been that an IPO registered with the SEC in the U.S. is a low-risk bet, even if the main focus of the business is in blockchain technology.

Investors are invited to join the class action lawsuit if they purchased a significant number of shares from December 15, 2017, to April 2, 2018, and still hold the shares. The plaintiffs Karthik Reddy and others are being represented by New York attorneys Scott Scott, L.L.P. The U.S. District Court papers list Longfin Corp and Venkat S Meenavalli as the defendants with details of the alleged offenses.

Financial records, audited by AJSH & Co LLP of New Delhi, India, show that Longfin was incorporated in the U.S. February 1, 2017, with Venkat S Meenavalli owning all the issues shared capital. The price paid for the 7.5 million shares was just $75 or $0.00001 per share. Just as all things crypto were reaching fever pitch in December 2017, Longfin bought out a Singapore-registered business, Meridian Enterprises Pte. Ltd. Meridian was also owned by Meenavalli, and the purchase price was 2.5 million Longfin shares, equivalent to just $25 at $0.00001 per share. The purchase of Meridian was completed December 11, 2017, two days before the NASDAQ listing for Longfin.

One of Meridian’s assets was the Ziddu website that offers “Smart Contract Solutions to FinTech Industry,” which was sure to make the IPO popular. The shares being offered for sale in the IPO were priced at $5 and raised $5 million on the first day of NASDAQ trading as confirmed in this YouTube video. In less than a week, the shares were trading at $72 and, with 50 million shares available, it valued the company at a staggering $3.6 billion.

On April 5, 2018, after the share price had plummeted and rumors circulated of restricted share sales, Meenavalli was grilled on CNBC. Longfin share trading was suspended the following day due to some irregularities picked up by the SEC. The SEC press release states it “has obtained a court order freezing more than $27 million in trading proceeds from allegedly illegal distributions and sales of restricted shares of Longfin Corp. stock involving the company, its CEO, and three other affiliated individuals”.

As the class action lawsuit is only for investors that are still holding shares in Longfin, presumably those that sold at a huge loss will not be compensated. It means the Longfin IPO offered little more protection than an ICO.

Financial analyst, smartphone app designer, technical writer, and crypto enthusiast. Blockchain verified graduate of MOOC 9, DFIN-511: Introduction to Digital Currencies, run by the University of Nicosia.

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