NY Court Orders Longfin to Pay $223M to Investors After Blockchain Pivot Turns Securities Fraud

Longfin, a now-defunct crypto firm that raised $27 million in 2017, has been ordered by a Manhattan federal judge to repay $223 million to its investors along with interest in the alleged security fraud case. Longfin acquired an undervalued company back in 2017, after which its share prices surged by 1000%.

The judgment came on July 29, where the federal judge concluded that Longfin, along with its chief executive Venkata Meenaalli, CTO Vivek Ratakonda, and the director of two related companies, Suresh Tammineedi collectively owned a nine-figure sum. The case’s ruling has granted a default judgment, as requested by lead plaintiff Mohammad Malik in January. The judge in his decision noted that Malik:

“offered sufficient evidentiary support through declarations and exhibits submitted in support of his claim for damages, and no evidentiary hearing is required.”

A Brief History of the Case

Longfin launched an IPO as a Regulation A+ offering back in September 2017, which allowed the firm to raise funds from both accredited and non-accredited investors. It also obtained waivers from several registration requirements of the Securities Exchange Act of 1934. It went on to raise $27 million by December and called its IPO a successful event.

At the time, the firm also claimed that it had become the first publicly listed fintech firm under Reg A+ on Nasdaq. Soon after a successful IPO, Longfin acquired Ziddu.com, a cloud storage solution that claimed it had incorporated blockchain technology. The price of Longfin’s share surged by 1000% from $5 a share to $140 in early 2018. However, shareholders accused the company of issuing false and misleading statements, which led to the 1000% surge.

The firm is also accused of selling its shares after the surge, which prompted the Security and Exchange Commission (SEC) to look into the firm’s working and investigate any wrongdoing. The SEC started their investigation in April 2018, and soon after, the price of the shares crashed.

In September 2019, the SEC received a judgment in its favor against Longfin, where a New York federal court found that the crypto firm falsified documents and data to receive Regulation A+ offering.

The court also found that Longfin lied about primarily operating from the US and lied about qualifying shares and shareholders sold in the offering. The court found that $66 million in revenue generated by the firm came from “fictitious revenue and sham commodities transaction” equivalent to 90% of the company’s revenue.

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Author: Rebecca Asseh

Will Blockstream’s Watchtowers Help Keep The Lightning Network Safe From Attacks?

The Lightning Network (LN) may be controlled and ordered by Watchtowers in the future. Watchtowers are guided by Blockstream’s c-Lightning team and would be a very important improvement on the Lightning Network, the second-layer scaling solution proposed to solve Bitcoin’s scalability issues.

Lightning Network Controlled By Watchtowers

At the moment, the Lightning network works with fraud proofs in order to avoid channels that steal funds. Watchtowers will solve this issue in a new enforcement proposal for the LN called Eltoo. Offline users can protect their funds by deferring to Watchtowers.

This is not the first time that this solution is proposed or tested. Indeed, Lightning Labs and other developers have been working with it. However, this is the first time that such a solution would be implemented on c-Lightning.

In order to protect users, Watchtowers register information from users and store it locally. At the same time, they would be very useful for those nodes that go frequently offline. Nodes that are run by cellphones and similar devices are generally less stable than others.

The c-Lightning developer Christian Decker explained that these Watchtowers are going to play a very important role when users run an unreliable network.

During the last years, the Lightning Network has been growing as a solution for the scalability issues that are affecting Bitcoin and other cryptocurrencies. However, it still needs some time to be developed and tested before it is able to reach the market.

In order for the new Watchtower solution to be approved, it is necessary for the Taproot Bitcoin Improvement Proposal (BIP) to be accepted by the whole Bitcoin community. It is worth pointing out that some months can pass before the market sees this implementation on the Lightning Network.

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Author: Carl T

CoinOne Exchange Ordered to Reimburse Investor’s 25 Million Won in Hacked Assets Case

A South Korean court has ordered CoinOne exchange to cover the losses for an investor whose funds were stolen from the exchange, reported a local daily. A hacker got hands on the investor’s login details for the platform and withdrew all his holdings in BTC.

The total amount of funds stolen from his account is estimated to be 45 million won ($20,800), while the daily withdrawal limit on the exchange was only 20 million won. The heist took place in December 2018, and the hacker used VPN to hide the IP address.

Investor argued in the court that the exchange failed to safeguard his assets and thus they are liable for the damages. He said the exchange should have noticed the withdrawal is being initiated from a foreign address and thus must have consulted him first before allowing withdrawal.

The court did not buy the argument and ruled that the safety measure suggested by the investor is not a reasonable measure that the exchange should have employed.

However, in the final judgment, the judge did account for the extra amount withdrawn than the limit set by the exchange, and thus held them accountable and ruled that they must reimburse the additional losses above the withdrawal limit.

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Author: Hank Klinger