Longfin Faces Long List of Alleged Wrongdoings in Stockholder’s Securities Suit

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Longfin Corp. and its CEO have been named in a proposed class action alleging the defendants misled stockholders regarding the company’s business and operations and caused them to suffer losses when adverse facts came to light.

The complaint begins in December 2017, when Longfin went public and then announced its intention to purchase Ziddu.com, involving itself in blockchain technology. This news reportedly caused stock prices to increase more than 1,200 percent over two days. Effective March 16, 2018, the case continues, the company was added to the Russell 2000 Index and the Russell 3000 Index, further increasing demand for its shares.

On March 28, 2018, market commenter Citron Research accused Longfin of “inaccuracies in its financial reporting and fraud,” and Russell announced the company would be removed from its indices due to Longfin’s failure to meet certain requirements, the suit claims.

April 2018 brought more bad news, according to the case, when the company released its 2017 year-end results and revealed that it was being investigated by the SEC, “suffered from a multitude of material weaknesses in its internal controls over financial reporting,” and “may not be able to continue as a going concern.”

In combination, the adverse events discussed above caused Longfin stock prices to fall by nearly 86 percent, the suit says.

The case concerns investors who purchased Longfin Class A common stock between December 15, 2017 and April 2, 2018, and claims that during this period the defendants touted the success of their business while failing to disclose the following facts:

• that Longfin had misrepresented the location of its offices and the identity of certain key employees;
• that the company, despite undergoing a stock price increase of 1,200 percent in two days, had “numerous material weaknesses in its operations and internal controls over financial reporting”;
• that Longfin was ineligible for inclusion in the Russell 2000 and Russell 3000 indices and would be removed only 12 days after being added.