Longfin's Wild Crypto Ride Goes Beyond Any Short Seller Attack

(Bloomberg) -- Longfin Corp.’s already tough 2018 just got worse. The U.S. Securities and Exchange Commission on Friday obtained a court order freezing more than $27 million in proceeds from sales of the fintech-turned-crypto company’s shares, claiming the gains came from illegal trades by insiders.

This comes after the firm was kicked out of the Russell 2000 Index less than two weeks after joining, and after Longfin saw its market value tank to less than $1 billion from more than $5 billion in just a few months.

Chief Executive Officer Venkata Meenavalli -- who has repeatedly said his company doesn’t deserve a $5 billion valuation -- recently pinned the stock’s plunge on short sellers. But the naysayers aren’t the ones to blame, according to financial-analytics firm S3 Partners.

“LFIN’s short activity does not back up Meenavalli’s narrative and this is yet another example of blaming short sellers for long shareholder selling activity,” S3’s Ihor Dusaniwsky wrote in a report Thursday. “There is very little stock loan availability in this name, with just scraps available to borrow. ... At these levels there is a strong headwind for short sellers.”

Longfin's Wild Crypto Ride Goes Beyond Any Short Seller Attack

Those seeking to short the stock are facing a borrow fee of around 183 percent per year, according to the latest data from S3 Partners. The financing rate has exceeded 200 percent on multiple occasions since Longfin’s initial public offering, and has been above 100 percent for much of that time.

Short interest sits at about one million shares, according to S3 Partners. While the firm has around 45 million shares outstanding, a significant portion are held by insiders, according to data compiled by Bloomberg data. Meenavalli is a controlling shareholder.

FTSE Russell said on March 26 that it was removing the company from its indexes because the New York-based firm failed to meet a rule requiring it to have at least 5 percent of its shares available to the public. A week later, Longfin said the U.S. Securities and Exchange Commission was investigating its IPO and acquisition of Ziddu.com, which it has described as “a blockchain-empowered solutions provider that offers microfinance lending against collateralized warehouse receipts in the form of Ziddu Coins.”

The stock skyrocketed 1,300 percent in a matter of days after Longfin’s IPO in December. It surged more than 300 percent alone on Dec. 15, when the firm announced its purchase of Ziddu.com. It then plummeted after Meenavalli told CNBC on Dec. 18 that the company’s sky-high market value wasn’t justified. The CEO agreed to appear on the news channel again Wednesday, telling anchors that he’s planning to “write to SEC and FINRA because of the shorts,” who are going to “destroy” his business.

Longfin shares nearly doubled Thursday, and climbed 47 percent to $28.19 Friday before being halted by the Nasdaq for an information request at 10:01 a.m. in New York.

©2018 Bloomberg L.P.