LongFin Corp (LFIN)

[DoubleJackie]

Longfin: Short Of The Century?
Feb. 21, 2018 12:07 PM ET
Summary
Longfin has a market cap of $2.5 billion, yet appears to have few if any business operations.

CEO Venkat Meenavalli has a history of promoting similar "concept" companies whose stocks spike on low volume and then collapse.

The toxic converts deal with Hudson Bay will increase the share count and overwhelm demand.

Huge black eye for regulators.

Even bigger opportunity for shorts.

I have been involved in financial markets for the past two decades, including three of the craziest manias in history, and yet…the story of Longfin is truly remarkable. This “company”—I hesitate to call it that, because it appears to consist almost entirely of CEO/chief promoter Venkat Meenavalli—reminds me of the infamous listing referenced by Charles Mackay in his classic Extraordinary Popular Delusions and the Madness of Crowds: “For carrying-on an undertaking of great advantage but no-one to know what it is!!”

More remarkable is that this scam—which, let’s be honest, is right out of the fraud playbook—is being perpetrated not on some third-rate exchange in a developing market with lax regulations…but right here on NASDAQ! The fact that this listing was ever allowed, particularly given it is one of the first so-called A+ listings authorized under the 2012 JOBS Act, is a black eye for NASDAQ. And how it has not yet been shut down to prevent credulous investors from gifting even more cash to Meenavalli and his minions—who must be truly stunned at their success—remains a mystery.

This is a long and complicated (but fascinating!) story, so let’s dive in.

Longfin, which went public December 13 at a price of $5—giving it a market cap of about $400 million— currently trades in the mid-30s, with a market cap somewhere north of $2.5 billion (it’s hard to say for sure given their extremely limited disclosures). This puts it in the same league as companies such as Liberty Expedia (20,000 employees, $1.6 billion revenues); Tenet Healthcare (131,000 employees, $19.6 billion revenues); and Vienna Insurance Group (25,000 employees, $10.4 billion revenues).

Longfin? Other than Meenavalli and an eight-person board of directors (including Meenavalli) I can find no evidence of any other employees. In the “you can’t make this stuff up” category, the company's chief financial officer, Krishanu Singhal, and chief operating officer, Raj Mondraty, both resigned on Dec. 11…i.e., two days before the IPO. The company’s listed address is 85 Broad St. in New York, but the building manager lists no tenant by that name. There is, however, a WeWork location, so perhaps Meenavalli has commandeered a desk.

There is also no phone number listed on the Longfin website, nor any way to actually engage the company for…anything. (I did find a phone number on one of their 8-Ks; it went straight to a generic voicemail.) Other than a generic email address and an IR firm, the website seems designed entirely to offer the promise of something groundbreaking and exciting, but it always remains tantalizingly out of reach.

As for financials, the Longfin website claims (unaudited) revenues of $28 million for 2017-18, with net profit of just under $2 million. Why unaudited? Well, Longfin has been without an accountant for most of the past year, including the time it was approved for its IPO and subsequently went public. Longfin recently announced it had hired CohnReznick as its accountant, and fired prior accountant AJSH & Co. (CohnReznick, you may recall, was also the auditor for Platinum Partners, the hedge fund recently charged by regulators with operating a $1 billion Ponzi scheme.) What it did not announce, but was included in the 8-K, was AJSH’s letter stating the shocking fact that “we have performed no work for the company subsequent to February 2017.”

Indeed, Longfin has provided little documentation of any actual business activities. It claims to be the sole source for the “Ziddu coin,” and says Ziddu.com is “currently the only marketplace for decentralized smart contracts,” but its own press release claimed a total of (wait for it…) 10 smart contracts that had been executed as of January 19, worth a notional $9.5 million. How much did Longfin clear from…whatever it is supposed to have done? No clue. My guess is these transactions aren’t real, either, as I can find no record of anyone claiming to use, or even be familiar with, Ziddu coins or “smart contracts.”

In fact, the claims for what Longfin does seem to frequently change. Ziddu.com, which was originally some sort of file-sharing service (again—not clear to what degree it actually served this purpose) was touted after the December acquisition by Longfin as “a Blockchain-empowered solutions provider that offers Microfinance Lending against Collateralized Warehouse Receipts in the form of Ziddu Coins.”

Ziddu is also mentioned in a 2010 (yes…2010) press release from one of Meenavalli’s prior companies, Northgate Technologies—now called Green Fire Agri Commodities—that also showcases Meenavalli’s penchant for making grand, completely unsupported claims:

The Board of Directors have taken cognizance of the negative impact on the operations of the Company due to global melt down and been deliberating on the deteriorating level of business for the last one year, though the Company has made pioneering mark in creating the world class web assets like bharatstudent.com, ziddu.com, axill.com and globe7.com. During October 2009 Mr. Venkat S Meenavalli, Managing Director proposed to bring in new business apart from scaling up of the existing business by introducing algorithm trading etc.

The piece about algorithm trading is a nice touch, and presages Meenavalli’s current strategy of comparing Longfin to trading giant Virtu Capital, much as he also compared Stampede Capital—another Meenavalli-owned firm, from which Longfin last year acquired a subsidiary called Stampede Tradex—to Citadel and Renaissance Technologies. (Longfin appears to have also been a subsidiary of Stampede Capital prior to listing on NASDAQ.)

https://seekingalpha.com/instablog/48181402-eric-winig/5119123-longfin-short-century