Fintech company Longfin has had quite a ride. After listing on the NASDAQ in December 2017 and enjoying almost immediate 200 percent share price gains, stocks have plummeted by over 30 percent in the past 24 hours since it has been revealed the company is currently under investigation by the Securities and Exchange Commission (SEC).
A Purchase Leads to Big Gains
In early March, the SEC requested documents from Longfin executives relating to its IPO and its recent purchase of Ziddu.com, a “microlending company” that runs on blockchain technology. Ziddu was purchased from Meridian Enterprises, a private firm based in Singapore, and the required 10-K filing was submitted last Monday.
“We are in the process of responding to this document request and will cooperate with the SEC regarding its investigation,” Longfin commented. The company is also being examined by several legal firms that have questions regarding its trading activities.
Following the purchase of Ziddu, Longfin shares shot up by nearly 1,200 percent over a two-day period and stood at $142 on December 18th, but things took a turn for the worse in late March when Andrew Left of Citron Research tweeted that the company was a “pure stock scheme.” He claimed that the company’s filings and press releases were riddled with “inaccuracies and fraud.” He later predicted that an SEC investigation would soon follow.
A Little Late to Fight Back
Lijie Zhu, managing director of Longfin’s investor relations firm Dragon Gate Investment Partners, fought back by exclaiming:
“Citron is known as a short seller. They have no evidence. There is no content for this report, and we see no fraud as a third-party investor relations firm.”
Zhu later implied that the company would be taking legal action against Left and Citron. Unfortunately, the damage had already been done, as following the tweet, Longfin stocks fell by nearly 17 percent. The next day, Longfin shares fell by a record 41.5 percent after the company’s cryptocurrency stock was removed from the Russell 2000 Index. At $34 per share, the move marked a massive drop from the previous December high.
Longfin Wants to Be Friends with Russell Again
The Russell Index cited Longfin’s several “free-floating shares as of February 14” as the reasons behind its decision. Longfin has since explained that it is “reapplying for inclusion,” on both the 2000 and 3000 Indexes and that the stock’s free float had shot up beyond the minimum five percent as of mid-March thanks to the “expiration of a lockup period” on a consultant’s stock holdings.
At press time, the company has reportedly lost nearly $26 million over the last three months.
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