Description

Thesis

Longfin (LFIN) is a $4 billion market cap stock promotion run by a professional Indian stock promoter whose share price is highly likely to implode in the next 6 months as a toxic financing starts to result in significant share issuance. Assuming LFIN actually has any real business (and there are lots of reasons to believe the company is a complete and utter fraud), LFIN shares are egregiously overvalued trading at roughly 100x peak year pro forma revenues and over 550x peak year profit after tax for a business whose profits declined over 50% in 2017. While the stock is very expensive and difficult to borrow due to the stock’s very limited float, the stock does have a reasonably liquid options market. We recommend buying June and September $35 puts as the stock is almost certainly worth less than $5 share and probably closer to $1/share.

Rough Capital Structure

 

 

LFIN’s financial disclosure is quite terrible. LFIN hasn’t filed any financial statements since going public so there isn’t any particularly good information on their current cash or debt position. That said according to the financial statements in their prospectus they basically had de minimus cash and no debt at the time of the IPO, raised around $6 million in the IPO, and then did a financing that closed in February which netted them around $42 million in cash.

 

According to the company’s most recent proxy statement, LFIN’s shares are tightly controlled with the CEO controlling 55.1% of the stock and Stampede Capital -- a company where the LFIN CEO is chairman -- controlling 27.6% of the stock. Stampede Capital is a publicly traded company in India whose chairman is LFIN's CEO and whose CEO is LFIN's CTO.

 

Rough Financial Information

The company has yet to file its 10-K and hasn’t filed pro forma financial statement to reflect the ziddu.com acquisition. According to the financial data reported on LFIN’s website the company had a sharp decline in revenues and profit before tax in H1 2017 versus 2016.

 

Stampede Capital filed its Q4 earnings in February. Longfin is included in Stampede’s financial statements. Based on how a “share of profits of associates” line item appears in the financials in the same time period that assets from Stampede were transferred to Longfin I believe this line item represents Longfin’s financial performance.

 

http://www.stampedecap.com/results/Q3-2017-18-Stampede.pdf

 

 

I believe the share of profit of associates in these financials relates to their ownership in Longfin. These financial statements would then imply that Stampede’s 55.1% stake in Longfin flowed through 395.5 lakhs ($608k) of net income implying Longfin had profit after tax of roughly $1.1MM for H2 2017 or $2.9 million for 2017 an over 50% decline from 2016 levels.

 

Background

Longfin was founded in February 2017 by Venkat Meenavalli. In June 2017 Stampede Capital (NSE: STAMPEDE or SCAP:IN.) transferred its Stampede Tradex Pte. Singaporean subsidiary to Longfin effectively making Longfin a holding company for this business as well. Stampede Tradex Pte. was founded in 2010 and commenced operations in 2014. At the time of its acquisition by LFIN, Stampede Tradex Pte Ltd was 55% owned by Stampede Capital and 45% by Venkat Meenavalli. Stampede Capital was founded by Venkat Meenavalli -- where he is chairman.

 

Longfin conducted a Reg A+ IPO underwritten by Network 1 Financial. LFIN’s “best efforts” IPO was super cold with the company after roughly a month long road show only managing to sell a little over 1 million shares out of the 10 million it was attempting to sell at $5/share.

 

2 days after the IPO, LFIN issued an 8-k announcing that it had acquired an affiliated company called Ziddu.com for 2.5MM shares. After the ziddu.com acquisition, LFIN’s share price spiked to over $142/share in less than a week.

 

 

The IPO lockup expires sometime before June 11th.

The Ziddu.com Acquisition

2 days before trading in LFIN’s stock began and undisclosed by the company until 12/15 or 2 days after trading began, LFIN acquired an affiliated entity called Ziddu.com that was 86% owned by an entity that was 95% owned by LFIN’s CEO.

 

On December 11, 2017, Longfin Corp., (the “Company”), a Delaware corporation (“LFIN”), entered into a definitive asset purchase agreement (the “Agreement”) with its affiliate Meridian Enterprises Pte.Ltd., a Singapore corporation (“Meridian”) and with related affiliates collectively represented by the Galaxy Media Ltd., Hong Kong, for the purpose of purchasing Meridian’s website, www. Ziddu.com, in exchange for 2.5 million restricted Class A common shares of the Company.

The website www.Ziddu.com presents a blockchain solution for micro lending and warehouse financing. It offers Trade and Micro finance in the form of warehouse Coins to the small and medium imports/exports against collateralization of traders warehouse receipts. Ziddu Warehouse Coin is a smart contract that enables Importers and Exporters to use their Ziddu coins that are loosely pegged to Ethereum Crypto Currency.

 

Pursuant to the Agreement, the Company issued 2.5 million restricted Class A shares to Meridian and certain affiliated parties. These assets include intellectual property associated with the website www.Ziddu.com and all of its content, and any other rights associated with the website, including, without limitation, any intellectual property rights, copyrights to designs, graphics, logos, customer lists and agreements, programming, database, email lists, passwords, usernames and trade names; and all of the related social media accounts including but not limited to, Twitter, Facebook, Instagram, and Pinterest and all internet traffic to the www. Ziddu.com.

 

Meridian Enterprises Pte. Ltd, is a Singapore a private company in which 95% of the equity is owned by the CEO and chairman of Longfin Corp, Venkat S. Meenavalli.

 

The other investors in Ziddu were a Hong Kong entity called Galaxy Media Ltd. and 2 Bollywood actors.

 

Exhibit B.

 

Purchase Price.   The total purchase price for the Assets purchase shall be 2,500,000 restricted class A common shares of Longfin.

 

1.Meridian Enterprises Pte Ltd- 2.150,000 Shares

2.Galaxy Media Ltd-100,000 Shares

3.Bachchan Abhishek-125,000 Shares

4.Bachchan Amitab-125,000 Shares

---------------------

Total- 2,500,000 Shares

 

The Bachchan’s are prominent Indian entertainers.

 

https://en.wikipedia.org/wiki/Abhishek_Bachchan

https://en.wikipedia.org/wiki/Amitabh_Bachchan

 

The Bachchan’s involvement in Ziddu was questioned in Indian media when their investment was made in 2015. It’s worth noting at that time Ziddu was an enterprise file sharing company, ie a Dropbox wannabe. Also its worth watching Venkat ramble for 40 minutes trying to explain what Stampede does in the video attached to this article on the Bachchan investment.

 

http://rakesh-jhunjhunwala.in/amithabh-bachchan-portfolio-stampede-capital-ziddu-com-big-b-burns-fingers-in-quest-for-mega-bucks-from-dubious-micro-cap/

 

At the time of its acquisition by LFIN, Ziddu was in the process of repositioning itself from a mobile gaming company into a crytocurrency company. In LFIN CEO’s interview with CNBC linked to later in this write up he clearly indicates Ziddu was only in beta mode and had no revenues from crytocurrency. The theoretical business Ziddu is claiming to enter is a micro finance lending business using ethereum.

 

The current ziddu.com home page describes the company as a “smart contract” company. The company explains what its “solutions” do on this webpage

 

https://ziddu.com/industry.aspx#ml

 

It is also worth pointing out that Ziddu has been experiencing massively negative website traffic since 2015. According to data from Alexa, daily page views are around 58k down from over 300k 3 years ago. It’s not like this website was a rousing growing success at the time it was acquired by LFIN.

 

 

Ziddu is effectively a quasi thought out business plan with minimal to no revenues and few customers.

 

Its extremely bizarre that the acquisition of a failing business in a related party transaction with a company’s CEO would cause a company to gain billions in market cap over night.

Longfin’s Core Business

In its prospectus, Longfin attempts to describe its business as being something akin to an electronic market maker in some foreign exchange markets. I’ve included the relevant text where they describe their business opportunity and plan which I think gives a good idea at how the company uses lots of words to basically say nothing about what the company actually does. I suspect the company’s actual business (if there is one) is money laundering but I can’t prove it.

 

“Our endeavor is to solve complex problems in the field of “Structured Finance” using ultra-low-latency trading platforms and SDEs [Stochastic Differential Equations] that are not easily solved by contemporary financing techniques.

We are one of the emerging Financial Technology Houses (Fintech) in the global arena combining the power of Structured Finance, Derivatives, Asset Securitizations, Carry Trade and Trade Finance with the help of High Frequency Trading on an ultra-low-latency network connectivity to multiple Exchanges.  

We trade across global markets on ultra-low-latency platforms in various asset classes Viz., Currencies, Commodities, Fixed Income and Real Estate.  

We also handle the real-time risk management notwithstanding the nuances of the market movements.

Having the best Statistical and Quantitative financial engineering team at the helm and offices in USA, Singapore, India while expanding foot print into Europe and South America in the fields of Structured Finance, Trade Finance, Real Estate, Electronic Markets and High Frequency Trading.  

 

More details on their “business model” and the nonsense they use to explain it is included in the appendix.

The Hudson Bay Financing

On January 23rd, LFIN entered into a usurious $52.7MM financing with Hudson Bay Capital Management, a hedge fund based in New York. The financing closed on February 13th. This financing was arranged by fifth tier investment bank Joseph Gunnar. Under the terms of this financing starting on May 13th and then on the 13th of each month thereafter until August 2019, provided that the share price is over $15 on a vwap basis in one of the prior 20 trading days and the company has a valid registration statement and remains listed, LFIN will pay Hudson Bay $3.5MM in stock at a price equal to the lower of $38.5493 or 88% of the lesser of the average of the 2 lowest vwaps of the prior 10 days or the prior day vwap. Hudson Bay has the option to defer these payments or to take up to 3 payments at the same time. LFIN also gave Hudson Bay 752k 5 year warrants with an exercise price of $38.5493.

 

Assuming Hudson Bay decides to take up to 3 payments each month, on the 13th of each month starting in May and for the next 5 months, Hudson Bay will get at least 270k shares of stock it can dump onto the stock market. With LFIN’s float only around 1.2MM shares each one of these share sales will significantly increase LFIN’s float likely causing pressure on the share price and reducing the borrow costs.

 

I’ve included the terms of the financing in the appendix and bolded the most important parts.

 

When the company had come to terms on this financing it put out a press release announcing the rough terms.

 

https://www.sec.gov/Archives/edgar/data/1699683/000169968318000001/pr.htm

 

90 minutes later the company put out a seperate press release stating: “NEW YORK, Jan. 22, 2018 (GLOBE NEWSWIRE) -- We are advised by LongFin Corp that journalists and other readers should disregard the news release, "Multibillion Dollar Fund to Invest $52.7 million into Longfin Corp." issued today, over GlobeNewswire. “

Red Flags Galore

What’s truly amazing about LFIN are the many gigantic red flags at the company. How the SEC or NASDAQ ever allowed this company to go public utterly amazes me.

 

1. Longfin’s corporate headquarters listed in its SEC filings is on the 16th floor of 85 Broad St in lower manhattan. This just happens to be WeWork space.

 

https://www.wework.com/buildings/85-broad-st--new-york-city--NY

2. On December 11th, 2 days before the company’s shares started trading both of Longfin’s CFO Krishanu Singhal and COO Raj Mondraty resigned.

 

Vivek Ratakonda was named the new CFO. On Page 33 of LFIN’s final Form 1-A filing (from November 3rd 2017) with the SEC Mr. Ratakonda is listed as LFIN’s COO.

https://www.sec.gov/Archives/edgar/data/1699683/000169968317000037/pos9.htm

 

 

However on page 65 of the same document he is listed as LFIN’s chief compliance officer and Raj is listed as the COO.

 

 

Interestingly, on February 8th 2018, Mr. Ratakonda resigned as a director of Stampede Capital. No reason was given for Mr. Ratakonda’s resignation from Stampede though it is worth pointing out that Mr. Ratakonda was chairman of Stampede’s Audit Committee.

 

 

As far as I can tell, Mr. Ratakonda still works for LFIN. That said you wouldn’t know it from his LinkedIn page.

 

https://www.linkedin.com/in/vivek-kumar-ratakonda-950241142

 

 

3. After the share price rocketed in late December, Longfin’s CEO had one of the most awkward interviews I’ve ever seen on CNBC where he just kept spewing buzzword nonsense for 11 minutes. In the interview, LFIN’s CEO describes his company’s share price as overvalued.

 

https://www.youtube.com/watch?v=31eI-O1ZW1E

4. Stampede’s stock promotion collapsed in 2016

 

Stampede Capital (SCAP:IN) was a giant 2016 stock promotion. Interestingly, Stampede’s 55% stake in LFIN at current share prices is worth $2.1 billion yet Stampede’s market cap is around $34 million (INR 2.2 billion.) If Stampede and LFIN were real companies and there was borrow, what an incredible arbitrage opportunity!

 

 

The Indian media openly questioned how a company with only 2,700 stockholders had such massive trading volumes.

 

https://www.moneylife.in/article/stock-manipulation-stampede-capital/43651.html

 

You can watch the fancy video Stampede put on Youtube to explain its business when it was engaging in its stock promotion back in 2015 here:

 

https://www.youtube.com/watch?v=D2AI1PfMtQc

5. Perhaps it’s just me but I find it super bizarre that Stampede Capital finds it necessary to have a left side link to its “Code of Insider Trading Policy” on its ir website

 

 

6. LFIN solicited investors for its Reg A+ IPO by hiring a third party marketing firm called Adamson Brothers. Adamson Brothers was paid ~2mm shares for its work on the IPO (which is interesting since only 1.1MM shares were sold in the IPO.) It’s not clear from LFIN’s SEC filings if the shares paid to Adamson are registered and if they are subject to an IPO lockup.

 

We intend to market the shares in this offering through one or more third party marketing platforms.  To date, we’ve started marketing this offering through IPOFlOW’s website, www.ipoflow.com relying on June 16th qualification, a third-party marketing platform owned by Adamson Brothers Corp., an entity of which Mr. AndyAltahawi has voting and dispositive control. We have entered into an agreement with Adamson Brothers Corp. in February 2017 pursuant to which Mr. Altahawi has provided the Company with legal and business development advisory services to the Company since inception and in connection with this offering in consideration for $65,000 and an aggregate amount of 2,025,000 unregistered shares of Class A Common Stock (representing 3% of the outstanding shares common stock pre-offering). Pursuant to an agreement, dated September 25, 2017, between Adamson Brothers Corp. and the Company, the parties memorialized the parties’ agreement that the Company would be listed on www.ipoflow.com for marketing purposes for no additional compensation to Adamson Brothers Corp. or Mr. Altahawi for such services.Presently, we do not have any oral or written agreements to market this offering on any other third-party marketing platforms.  In the event we decide to do so, we will amend this offering circular to disclose the name of such third-party market platform as well as the terms and conditions of our agreement or arrangement with them.

 

According to amended versions of the company’s 1-A POS filings with the SEC at some point between late May and early July Mr. Altahawi “became affiliated with the company and he is considered to be part of our management team.” That disclosure was then removed in subsequent drafts of the 1-A POS starting in August. The SEC issued correspondance with the company to clarify the role of Mr. Altahawi (who was listed as a director on LFIN’s website at the time but not in their offering documents) and his daughter Sarah who is LFIN’s associate Vice President.

 

Sarah Altahawi’s linkedin profile lists her as an employee of Adamson Brothers

 

https://www.linkedin.com/in/sarah-altahawi-2139ab110

 

That said in the legal documents related to the Hudson Bay financing she is listed as the contact person for Longfin using a Longfin email address.

 

.  Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party) or electronic mail (provided that such sent email is kept on file (whether electronically or otherwise) by the sending party and the sending party does not receive an automatically generated message from the recipient’s email server that such e-mail could not be delivered to such recipient); or (iii) one (1) Business Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same.  The addresses, facsimile numbers and e-mail addresses for such communications shall be:

If to the Company:

Longfin Corp

16-017

85 Broad Street

New York, New York 10004

Telephone:  (347) 277-2691

Attention:  Sarah Altahawi

E-Mail:  sarah@longfincorp.com

Sarah was also listed in the final form of the 1-A filing as an associate vice president on page 67

 

 

7. CEO Venkat Srinivas Meenavalli’s background can be found in his bloomberg profile here.

https://www.bloomberg.com/research/stocks/private/person.asp?personId=27275476&privcapId=31095277

 

Interestingly, his background mentions that he has a masters degree in Computer Science from Suffield University. Suffield University was a fake diploma mill.

 

http://www.philly.com/philly/news/Man_pleads_guilty_in_5M_diploma_mill_scheme.html\

https://en.wikipedia.org/wiki/Suffield_University

 

8. On February 7th Longfin switched auditors from Indian auditing firm AJSH & Co. LLP to CohnReznick LLP. CohnReznick does not have any offices in Singapore where most of LFIN’s subsidiaries are supposedly located though they do have an office in Chennai about 500 miles away from Stampede Capital’s offices in Hyderabad.

 

9. Prior Stampede Capital stock promotions have been unmitigated disasters for investors. One such example Northgate Technologies can be read about here:

 

https://www.moneylife.in/article/stock-manipulation-green-fire-agri-commodities/46867.html

 

 

10. LFIN is currently asking its shareholders in its proxy to increase its authorized share count from 200 million to 300 million shares. Longfin is currently soliciting shareholder approval for share issuance since the Hudson Bay financing could potentially result in the issuance of more than 20% of the company’s shares which would require a shareholder vote under NASDAQ rules.

 

11. Longfin Tradex Pte. Ltd, LFIN’s Singapore subsidiary and main operating asset had a qualified audit opinion for FY 2016. (hat tip to this seeking alpha article. https://seekingalpha.com/instablog/48027887-bubbleception/5128297-rise-and-precipitous-fall-longfin-corporation-volume-1-violations-selective-disclosure )

 

 

12. CEO Meenavalli is on the Indian government’s Ministry of Corporate Affair’s Director’s “Defaulters List” for another company “VAR Quant Tech Securitites Private.”

 

http://www.mca.gov.in/LLP/dca/Defaulters_List/DIRLIST1_00000000_00120000.pdf

 

13. Meridian Enterprises Pte. Ltd. the holding company for Ziddu stopped filing financial statements with the Singaporean government after 2015. According to their final financial statements that they did file with ARCA they had an accumulated loss of over $20MM after losing $18MM in 2015.  (hat tip once again to this seeking alpha article. https://seekingalpha.com/instablog/48027887-bubbleception/5128297-rise-and-precipitous-fall-longfin-corporation-volume-1-violations-selective-disclosure )

 

14. LFIN’s outsourced IR firm Dragon Gate Investment Partners LLC specializes in providing IR services for Chinese reverse mergers. DGIP’s other public company clients include IFMK, CNIT, HX, and NDMT. Why an Indian company would want to use an IR firm that specializes in getting investors for micro cap Chinese companies trading in the U.S. is a good question.

 

15. According to Bloomberg, Venkata Meenavilli is listed as the chief executive officer of a San Francisco based Internet Media company named Axill. Axill is a subsidiary of Proseed India the current name of Northgate Technologies..

 

http://www.axill.com/

 

https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=31095277

 

16. Some no name equity research firm called SeeThruEquity founded by 2 Indians and located in Midtown NY issued a “research report” on LFIN in September 2017 right around the time the company was beginning marketing for its IPO. Needless to say SeeThruEquity’s estimates are comically laughable. Even with laughable estimates, their DCF comes back with a fair value of $8.42/share

 

https://www.scribd.com/document/358325732/LongFin-A-Global-FinTech-House

 

 

17. On the SEC’s website LFIN’s fiscal year end is listed as 3/31. This would coincide with Stampede’s fiscal year reporting. However, on Longfin’s website in the investor Q&A section it lists its fiscal year end as 12/31.

 

18. Longfin’s website lists as one of the company’s office locations an address in Saint Vincent and the Grenadines.

 

 

A company called FW Markets lists the exact same P.O. Box as its address. I can’t find any relation between the 2 companies though FW Markets appears to no longer be in business.

 

http://www.forexwings.com/about-forex-trading/about-us.php

 

In addition, the Cedar Hill Crest location is the headquarters of Loyal Bank of St. Vincent & the Grenadines.

 

https://www.loyalbank.com/eng

 

 

It just so happens that the CEO of loyal bank was indicted by the U.S. Attorney for the Eastern District of New York earlier this month in a stock price manipulation and money laundering probe

 

https://www.justice.gov/usao-edny/pr/six-individuals-and-four-corporate-defendants-indicted-50-million-international

 

As alleged in the indictment, between March 2014 and February 2018, Beaufort Securities, Beaufort Management, and managers Kyriacou and Canaye, collectively the “Beaufort Defendants,” together with their co-conspirators, engaged in a scheme to defraud investors and potential investors in various U.S. publicly traded companies by concealing the true ownership of various U.S. publicly traded companies and manipulating the price and trading volume in the stocks of those companies.

Beginning in or about October 2016, an Undercover Agent contacted Kyriacou and stated that he was interested in opening brokerage accounts at Beaufort Securities from which he could execute trades in several multi-million dollar stock manipulation deals.

In furtherance of the scheme, the Beaufort Defendants opened brokerage accounts for their clients in the names of off-shore shell companies with nominee shareholders and directors, and then conducted manipulative trading of stocks of U.S. publicly traded companies listed on U.S. over-the-counter exchanges.  Beaufort Securities facilitated at least ten “pump and dump” schemes involving U.S. publicly traded stocks, generating over $50 million in proceeds for its clients.  Notably, Beaufort Securities had affirmed to the Financial Conduct Authority (“FCA”) in the United Kingdom in July 2016 that it had taken remedial measures to correct deficiencies in the firm’s financial crime controls and anti-money laundering processes.

Additionally, between January 2011 and February 2018, the Beaufort Defendants; Loyal Bank; Loyal Agency; Baron, the Chief Business Officer of Loyal Bank and a Director of Loyal Agency; and Bullock, the Chief Executive Officer of Loyal Bank and a Director of Loyal Agency, together with their co-conspirators, devised and engaged in a scheme to launder securities fraud proceeds for their clients.  To facilitate this scheme, Beaufort Securities transferred funds to corporate bank accounts at Loyal Bank opened in the names of off-shore shell companies that were controlled by the bank’s clients.  Loyal Bank then provided debit cards to its clients to withdraw funds from those accounts in an untraceable manner to hide the source of the money and facilitate ongoing securities fraud.

 

19. Hat tip once again to Bubbleception on Seeking Alpha.

https://seekingalpha.com/instablog/48027887-bubbleception/5130900-longfin-corporation-corporation-know-financial-year-can-still-chew-shorts-and-spit

 

On February 28th, Longfin HK Ltd was incorporated in Hong Kong.

 

https://drive.google.com/file/d/18PgD23Goq2vcMlqwnES3QiSwUq4H4h9W/view

 

The address used in these incorporation documents is the same that was used for Meridian Tech HK and Galaxy Media Ltd.

 

Avilash Dehliwala is the owner of Galaxy Media Ltd. He renamed that company Galaxy EXIM ltd. Galaxy Media received 200k shares of LFIN in the Ziddu transaction.

 

The shareholder for Longfin HK Ltd. is listed as Venkata Surya Prakash Rao Dasigi. That is the same name as the CEO of Proseed India, the company formerly known as Northgate Technologies and referenced in red flag #9. Mr. Dasigi does not have any role at LFIN and his name does not appear in any of their SEC filings.

 

According to its financial statements filed with the Singaporean government Northgate has lost over $103MM since its inception and has not received unqualified opinions from its auditors.

 

 

Proseed uses the same accountants as Stampede Capital.

 

20. LFIN’s CTO is a man by the name of “Linga Murthy Gaddi”

 

 

A man named Gaddi Lingamurthy was added as a director of Northgate n/k/a Proseed India in 2012 and according to bloomberg remains a director of that company.

 

https://www.bloomberg.com/research/stocks/private/person.asp?personId=113811128&privcapId=32881968&previousCapId=128057163&previousTitle=Bio%20Ethanol%20Agro%20Industries%20Limited

 

The CEO of Stampede Capital is Gaddi Linga Murthy.

 

 

In all liklihood these are all the same person. Why he uses 3 different spellings of his name is a tad bit bizarre.

 

21. Colonial Stock Transfer Company is suing LFIN’s former CFO Krishanu Singhal and Longfin in order to settle whether or not to register 3.375 million shares Singhal claims that Longfin paid him. Longfin claims that Singhal was no longer entitled to those shares.

 

 

 

The trial docket can be found here

 

https://www.pacermonitor.com/public/case/23802691/Colonial_Stock_Transfer_Company,_Inc_v_LongFin_Corp_et_al

 

Obviously if Singhal gets control of these shares (roughly 3x LFIN’s current float) he’s highly likely to sell them which could cause the stock price to crater. Knowing this, LFIN is likely to use every legal means it has to stall the registration of these shares.

 

It’s also a little weird that Colonial Trust felt the need to sue to force resolution of this dispute, ie that Singhal didn’t sue LFIN directly.

 

 

Also worth pointing out, LFIN has neither issued a press release or filed an 8-k to reflect this lawsuit.

 

22. When Longfin changed auditors in February, it included a letter from AJSH & Co LLP. That letter states that AJSH hasn’t performed any work for Longfin since February 2017.

 

 

What makes this particularly peculiar is that Longfin was created in February 2017 and didn’t acquire its main operating asset until June 2017. This means that no audit work was performed on Longfin or its operating assets between at least the end of February 2017 and when CohnReznick was hired in February 2018. It will be interesting to see if CohnReznick can complete audit work on the company by March 31st.

 

6.    DESCRIPTION OF BUSINESS

Longfin Corp. was formed in the State of Delaware on 1 February 2017. The Company principal execution office is 16-017, 85 Broad Street, New York NY 10004.

LongFin Corp., is currently strategically operating its business operation via direct control and coordination from its principal place of business in the City and the state of New York by the Director and Chief Executive Officer, Mr. Venkata S Meenavalli, the director/ Global Head Executive Officer, Mr. Yogesh Patel and Chief Financial Officer, Mr. Krishanu Singhal.

Longfin is primarily finance and technology company (“FINTECH”) specializes in structured trade finance solutions and physical commodity finance solutions for finance houses and trading platforms for North America, South America and Africa regions.

LongFin business operations does not involve in any activities relating to securities, as defined in Section 2(a)(1) of the Securities Act. Longfin has no interest in becoming a market maker to effect trading in securities as per US rules and regulations.

Longfin Corp is an independent finance and technology company (“FINTECH”) specializes in structured trade finance solutions and physical commodities finance solutions for finance houses and trading platforms for North America, South America and Africa regions and has acquired 100% of the global trade finance technology solution provider, Stampede Tradex Pte. Ltd., a Singapore incorporated entity (“Stampede”) and the acquisition has been consummated on June 19, 2017, post the commission qualifications which was on June 16, 2017. Longfin Corp has issued the following common shares:

 

23. In the original Form 1-A for the offering in March 2017 (ie before LFIN had acquired any operating businesses) the company lists its number of employees as 20.

 

https://www.sec.gov/Archives/edgar/data/1699683/000169968317000001/xsl1-A_X01/primary_doc.xml

 

After the SEC requested more information on the number of employees, the next iteration of the Form 1-A in April 2017 listed the total number of employees as 2.

 

https://www.sec.gov/Archives/edgar/data/1699683/000169968317000006/xsl1-A_X01/primary_doc.xml

 

In the May 2017 iteration of the filing this is changed to 3 employees

 

https://www.sec.gov/Archives/edgar/data/1699683/000169968317000010/xsl1-A_X01/primary_doc.xml

 

By July 2017, the filing is changed to 15 employees

 

https://www.sec.gov/Archives/edgar/data/1699683/000169968317000014/xsl1-A_X01/primary_doc.xml

 

In August 2017 the filing is changed back to 3 employees

 

https://www.sec.gov/Archives/edgar/data/1699683/000169968317000027/xsl1-A_X01/primary_doc.xml

 

The final version of the 1-A filing from November 2017 lists the company having 3 employees.

 

https://www.sec.gov/Archives/edgar/data/1699683/000169968317000037/xsl1-A_X01/primary_doc.xml

 

With the CFO and COO leaving in December right before the IPO, does LFIN actually have any employees other than Venkat?

 

24. According to Form 3s filed in mid February none of the independent directors of the company own any shares of stock in the company and the only insiders that own any stock are Venkat, Gaddi Lingamurthy with 50,1000 shares (weird that the Stampede shares don’t flow up to his name since he is the CEO of Stampede -- I assume they used a different spelling of his name and didn’t associate the Stampede shares with his name so the SEC wouldn’t catch on that the CEO of a 27% stockholder is also the company’s CTO) and Vivek Rataconda with 50,100.

 

https://www.sec.gov/cgi-bin/own-disp?action=getissuer&CIK=0001699683

 

25. LFIN’s final 1-A filing indicates that the company entered into a 180 day lockup arrangement which would imply the IPO lockup would expire on June 11th if taken from the date the shares started trading. If taken from the date of the final prospectus -- which is how the legal languate is written -- the lockup would expire May 2nd. Stampede and Vivek agreed to further lockup their shares until Hudson Bay has fully converted its notes.

 

 

However, paragraph 33 of the Colonial litigation filing (included in red flag #21) indicates that there was only a 90 day lockup for some shares and that lockup expired on March 14th.

 

By my calculations there are around 6.75MM shares of LFIN not owned by Stampede or Venkat or LFIN’s other named executive officers. (76.5MM shares minus 27.5MM owned by Stampede minus 42.15MM owned by Venkat minus 50k owned by Gaddi and 50k owned by Vivek.) We know Adamson owns 2MM shares and Singhal in theory owns 3.375MM shares and around 1.1MM shares were issued in the IPO. So that basically accounts for all the shares of the company’s stock. If there was only a 90 day lockup on Singhal’s shares that might imply that the Adamson shares only have a 90 day lockup and could imply a significant increase in the float is coming over the next few weeks if Adamson is unlocked and can start to dump its shares.

 

26. Prior to acquiring Stampede Tradex Pte. Ltd. in its first 2 months of operations, LFIN was engaged in the business of transacting with other entities controlled by Venkat.

 

 

 

Funny how these transactions resulted in no operating cash flows

 

 

Valuation

Without clear financial statements it’s pretty difficult to value LFIN. That said if we assume that LFIN has a real business and is actually engaging in commercial transactions with third party customers and that they can double 2016 revenues and profit after tax in 2018 they would have $80MM in revenue and $14MM in net income. At VIRT’s multiple of 21x EBITDA, the business would be worth roughly  $300MM or about $4/share. This strikes me as an upper limit of what this business could be worth. Most likely this company is a total fraud and isn’t worth more than the roughly $50 million in cash they have raised from their financings -- assuming it is still on their balance sheet and hasn’t been stolen (I mean spent on services provided by Venkat or Stampede's other comapnies). That would imply a share price around $0.70/share.

Appendix

Hudson Bay Financing Note

Please note that we have included the full summary of the terms and bolded the most important parts.  

 

The Notes

 

Principal Amount

 

The aggregate principal amount of the Notes is $52,700,000.

 

Maturity Date

 

Unless earlier converted or redeemed, the Notes mature 18 months from the Closing Date.

 

Interest and Payment of Interest

 

The Notes were issued at a 12% original issue discount and shall not bear interest unless and until an Event of Default has occurred, in which event the Notes will bear interest at a rate of 18% (the “Default Rate”). Interest on the Notes is computed on the basis of a 360-day year and twelve 30-day months. Accrued and unpaid interest is payable by way of inclusion of such interest in the Conversion Amount or upon any redemption or any required payment upon any Bankruptcy Event of Default. Interest shall cease to accrue on the calendar day immediately following the date of cure.

 

Amortization of Principal

 

The Notes provide that the Company will repay the principal amount of Notes in equal monthly installments beginning three (3) months after the original date of issuance (each a “Installment Date”). On each Installment Date, assuming the equity conditions described below are met, the installment payment shall be converted into shares of Class A Stock, provided however that the Company may elect prior to any Installment Date to pay all or a portion of the installment amount in cash.

 

With respect to any given date of determination, the “Equity Conditions” include:

 

(i) on each day during the previous thirty (30) calendar days the shares of Class A Stock into which such Notes are convertible (the “Underlying Securities”) shall be registered for resale pursuant to one or more registration statements filed with the SEC pursuant to the Registration Rights Agreement or eligible for sale pursuant to Rule 144 promulgated under the 1933 Act (or a successor rule thereto) (collectively, “Rule 144”);

 

(ii) on each day during such thirty (30) day period (or such other period as set forth in the Notes) (the “Equity Conditions Measuring Period”), the Class A Stock (including all Underlying Securities) is listed or designated for quotation on an eligible market and, subject to limited exceptions, shall not have been suspended from trading on an eligible market nor shall delisting or suspension by an eligible market have been threatened or reasonably likely to occur or pending;

 

(iii) during the Equity Conditions Measuring Period, the Company shall have delivered all shares of Class A Stock issuable upon conversion of the Notes on a timely basis and all other shares of capital stock required to be delivered by the Company on a timely basis as set forth in the other transaction documents;

 

 

 

(iv) any shares of Class A Stock to be issued in connection with the event requiring determination (or otherwise issuable pursuant to the terms of the Note) may be issued in full without violating the rules or regulations of the eligible market on which the Class A Stock is then listed or designated for quotation (as applicable);

 

(v) on each day during the Equity Conditions Measuring Period, no public announcement of a pending, proposed or intended Fundamental Transaction (as defined in the Notes) shall have occurred which has not been abandoned, terminated or consummated;

 

(vi) the Company shall have no knowledge of any fact that would reasonably be expected to cause (1) any registration statement required to be filed pursuant to the Registration Rights Agreement to not be effective or the prospectus contained therein to not be available for the resale of the applicable Required Minimum Securities Amount of Registrable Securities in accordance with the terms of the Registration Rights Agreement or (2) any Registrable Securities to not be eligible for sale pursuant to Rule 144 without the need for registration under any applicable federal or state securities laws (in each case, disregarding any limitation on conversion of the Notes, other issuance of securities with respect to the Notes and exercise of the Warrants) and no Current Information Failure exists or is continuing;

 

(vii) the holder of the Note shall not be in (and no other holder of Notes shall be in) possession of any material, non-public information provided to any of them by the Company, any of its subsidiaries or any of their respective affiliates, employees, officers, representatives, agents or the like;

 

(vii) on each day during the Equity Conditions Measuring Period, the Company otherwise shall have been in compliance with each, and shall not have breached any representation or warranty in any material respect (other than representations or warranties subject to material adverse effect or materiality, which may not be breached in any respect) or any covenant or other term or condition of any transaction document, including, without limitation, the Company shall not have failed to timely make any payment pursuant to any transaction document;

 

(viii) as of such applicable date of determination, (A) the aggregate daily dollar trading volume of the Class A Class A Stock during the twenty (20) Trading Day period ending on the trading day immediately preceding such date of determination, is more than $1 million or (B) the volume-weighted average price of the Class A Stock on any trading day during the twenty (20) trading day period ending on the trading day immediately preceding such date of determination is more than $15.00 (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions occurring after the subscription date);

 

(ix) on the applicable date of determination (A) while any of the Notes remain outstanding the Company has a sufficient number of authorized and unreserved shares of Class A Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes a number of shares of Class A Stock equal to at least 200% of the number of shares of Class A Stock as shall from time to time be necessary to effect the conversion of all of the Notes then outstanding (the “Required Reserve Amount”), and all shares of Class A Stock to be issued in connection with the event requiring this determination (or otherwise issuable pursuant to the terms of the Note) are available under the certificate of incorporation of the Company and reserved by the Company to be issued pursuant to the Notes and (B) all shares of Class A Stock to be issued in connection with the event requiring this determination (or otherwise issuable pursuant to the terms of the Note) may be issued in full without resulting in the Company’s failure to maintain the Required Reserve Amount;

 

(x) on each day during the Equity Conditions Measuring Period, there shall not have occurred and there shall not exist an Event of Default (as described below) or an event that with the passage of time or giving of notice would constitute an Event of Default; and

 

(xi) the shares of Class A Stock issuable pursuant to the event requiring the satisfaction of the Equity Conditions are duly authorized and listed and eligible for trading without restriction on an eligible market.

 

 

 

 

The Company may elect to pay each monthly amortization amount, in whole or in part, in cash at an amortization price equal to 105% of the such portion of the monthly amortization amount elected to be paid in cash or by that number of shares of Class A Stock equal to (a) such portion of the monthly amortization amount to be paid in shares of Class A Stock divided by (b) the lesser of (i) the then existing conversion price and (ii) the greater of (x) the Floor Price (as defined below) and (y) the Amortization Market Price (as defined below), provided that on each such date (1) the Company meets standard equity conditions, (2) all shares of Common Stock delivered in satisfaction of such Share Amortization Amount are delivered without restrictive legends and are immediately eligible for resale without restriction or limitation and (3) if the Amortization Market Price is less than the Floor Price, the Company makes a concurrent cash payment to such Investor reflecting the cash value of the applicable Note corresponding to such portion of the Amortization Market Price below such Floor Price. The Company shall make such election no later than the twenty-first (21st) trading day immediately prior to the applicable amortization date.

 

The price at which the Company will convert the installment amounts is equal to the lowest of (i) the then prevailing conversion price as described below and (ii) initially 88% of the arithmetic average of the lower of (x) the two lowest daily weighted average prices of the Class A Stock during the ten (10) consecutive trading day period ending on the trading day immediately preceding the Installment Date and (y) the weighted average price of the Class A Stock on the trading day immediately preceding the Installment Date; provided that the amount determined in this clause (ii) shall in no event be less than the lower of (1) $6.80 and (2) such lower price as mutually agreed by the Company and Investor, subject to the prior consent of NASDAQ (the “Floor Price”) (such lowest amount the “Amortization Market Price”). In the event such amount is less than $8.00, the Company is obligated to make a concurrent cash payment reflecting the cash value of the applicable Note corresponding to such portion of the amount determined in clause (ii) is below $8.00.

 

Any holder of a Note may by notice to the Company accelerate up to three future installment payments to any applicable Installment Date, in which case the Company will deliver shares of Class A Stock for the conversion of such accelerated payments. The holder of a Note may also by notice to the Company defer any installment payment to a later Installment Date.

 

Conversion of the Notes

 

The Conversion Price shall be equal to the higher of (A) the Floor Price, and (B) the lower of (x) the volume weighted average prices (“VWAP”) of the Class A Stock on the trading day immediately prior to the conversion date, (y) the average of the VWAP for two lowest trading days during the ten (10) consecutive trading days ending on the trading day immediately prior to the conversion date payment date (such price, the “Variable Conversion Price”) and (z) $38.5493 (the “Fixed Conversion Price”), subject to adjustment, including full ratchet anti-dilution upon the issuance of any shares of Common Stock or securities convertible into shares of Common Stock below the then-existing Fixed Conversion Price. Anti-dilution adjustments to the conversion price of the Notes shall be downward only. Customary exceptions apply including stock options issued to employees.

 

Beneficial Ownership Limitations on Conversion and Issuance

 

In addition to the conversion limitations described above, the Notes may not be converted and shares of Longfin Common Stock may not be issued under the Notes if, after giving effect to the conversion or issuance, the Investor together with its affiliates would beneficially own in excess of 9.99% of the outstanding shares of Longfin Class A Stock and Class B common stock. At the Investor’s option, the ownership limitation blocker may be raised or lowered to any other percentage not in excess of 9.99%, as applicable, except that any raise will only be effective upon 61-days’ prior notice to Longfin. In addition, the Notes may not be converted and shares of Class A Stock may not be issued under the Notes if such conversion or issuance would be in excess of that amount permitted under the rules of the NASDAQ Capital Market prior to effectiveness of stockholder approval of the Financing.

 

 

 

Covenants

 

The Company has made certain negative covenants in the Notes, pursuant to which the Company agrees not to, and will cause each of its subsidiaries not to: (a) incur or guarantee, assume or suffer to exist any indebtedness, other than permitted indebtedness; (b) allow or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets of the Company or any of its subsidiaries other than permitted liens; (c) redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents all or any portion of any indebtedness other than the Notes if at the time such payment is due or is otherwise made or, after giving effect to such payment, an Event of Default has occurred and is continuing; (d) redeem, repurchase or declare or pay any cash dividend or distribution on any of its capital stock; (e) permit any indebtedness of the Company or its subsidiaries to mature or accelerate prior to the ninety-one (91) calendar day anniversary of the maturity date; (f) make any changes in the nature of its business nor modify the Company’s or any of its subsidiaries’ corporate structure or purpose; or (g) issue any Notes or any other securities that would cause a breach or default under the Notes or the Warrant.

 

The Company has made certain affirmative covenants in the Notes, pursuant to which the Company agrees to, and will cause each of its subsidiaries to: (a) maintain and preserve its existence, rights and privileges, and become or remain, and cause each of its subsidiaries to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary; (b) maintain and preserve all of its properties which are necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted, and comply, and cause each of its subsidiaries to comply, at all times with the provisions of all leases to which it is a party as lessee or under which it occupies property, so as to prevent any loss or forfeiture thereof or thereunder; and (c) maintain all of its intellectual property rights that are necessary or material to the conduct of its business.

 

Events of Default

 

The Notes contain standard and customary Events of Default including but not limited to: (i) failure to register Class A Stock within certain time periods or failure to keep the registration statement effective as required by the Registration Rights Agreement; (ii) failure to maintain the listing of Class A Stock; (iii) failure to make payments when due under the Notes; (iv) breaches of covenants and (iv) bankruptcy or insolvency.

 

Following an Event of Default, the Investor may require Longfin to redeem all or any portion of the Notes. The redemption amount may be paid in cash or with shares of Longfin Class A Stock, at the election of the Investor, at a price equal to the Event of Default Redemption Price.

 

Longfin must immediately redeem the Notes in cash upon the occurrence of a Bankruptcy Event of Default.

 

The Event of Default Redemption Price will be computed as a price equal to the greater of (i) 130% of the principal, interest and late charges to be redeemed and (ii) the product of (X) the principal, interest and late charges to be redeemed divided by the Conversion Price multiplied by (Y) the product of (1) 130% multiplied by (2) the greatest Closing Sale Price of Class A Stock on any Trading Day during the period commencing on the date preceding such Event of Default and ending on the date Longfin makes the entire payment required to be made under the Notes.

 

Fundamental Transactions

 

The Notes prohibit Longfin from entering into specified transactions involving a change of control unless the successor entity, which must be a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market, assumes in writing all of Longfin’s obligations under the Notes. The transactions contemplated under the SPA shall not be deemed, either individually or collectively, as a “Fundamental Transaction” under the Notes.

 

 

New Debt

 

With the exception of Permitted Indebtedness, Longfin has agreed that for a period of 90 days following payment in full of the Notes, it will not incur any other debt.

 

 

 

Investor Warrant

 

In addition to the Notes, Longfin issued the 5-year Warrant for the purchase of 55% of the shares of Class A Stock that would be issuable upon full conversion of the Notes immediately following the Closing Date (the “Warrant Shares”), at an exercise price of $38.5493 per share, the number of Warrant Shares and exercise price each being subject to adjustment provided under the Investor Warrant. If, after the six-month anniversary of the issuance date of the Warrant, there is no effective registration statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Investor, then the Warrant may also be exercised, in whole or in part, by means of a “cashless exercise”. The Warrant may not be exercised if, after giving effect to the exercise the Investor, together with its Attribution Parties (as defined in the Warrant), would beneficially own in excess of 9.99% of the number of shares of Class A Stock outstanding immediately after giving effect to the issuance of the Warrant Shares. At the Investor’s option, the ownership limitation blocker may be raised or lowered to any other percentage not in excess of 9.99%, as applicable, except that any raise will only be effective upon 61-days’ prior notice to Longfin. In addition, the Warrant may not be exercised and shares of Class A Stock may not be issued under the Warrant if such exercise or issuance would be in excess of that amount permitted under the rules of the NASDAQ Capital Market prior to effectiveness of stockholder approval of the Financing. In addition, initially only approximately 144,043 Warrant Shares may be issued upon exercise by the Investor, which amount shall be increased upon each Investor prepayment under the Investor Notes.

 

On or after the date of the SPA (the “Subscription Date”), if Longfin issues or sells common stock, or convertible securities or options issuable or exchangeable into Class A Stock (a “New Issuance”), under which such common stock is sold for a consideration per share less than the exercise price then in effect, the exercise price of the Warrant will be adjusted to the New Issuance price in accordance with the formulas provided in the Warrant. Upon any adjustment to the exercise price, the number of Warrant Shares that may be purchased upon exercise of the Warrant will be increased or decreased proportionately, so that after such adjustment the aggregate exercise price payable for the adjusted number of Warrant Shares will be the same as the aggregate exercise price in effect immediately prior to such adjustment. In addition, if Longfin sells Variable Price Securities (as defined in the Warrant) after the Subscription Date, the Investor will have a right to substitute the Variable Price (as defined in the Warrant) for the exercise price under the Warrant.

 

Registration Rights Agreement

 

Under the terms of a Registration Rights Agreement entered into with the Investor on the Closing Date, Longfin is required to register for resale the shares of Class A Stock that are issuable upon conversion of the Notes or upon exercise of the Warrant plus an additional number of shares so that the total number of shares of Class A Stock registered equals 150% of (i) the sum of the maximum number of shares issuable upon conversion of the Notes and (ii) the sum of the maximum number of shares issuable upon exercise of the Warrant. The Registration Rights Agreement requires Longfin to file the registration statement within 60 days after the Closing Date and to have the registration statement declared effective 90 days after the Closing Date (or 150 days after the Closing Date if the registration statement is subject to review by the SEC).

 

The Registration Rights Agreement provides for the payment of liquidated damages of 2% of the product of (x) the number of shares of Class A Stock required by the Registration Rights Agreement to be included in the registration statement and (y) the Closing Sale Price as of the Trading Day immediately prior to the date a Registration Delay Payment, defined as the failure to file the registration statement in the time required, the failure to have the registration statement declared effective in the time required, the failure to maintain the effectiveness of the registration statement or the failure to keep current public information in the marketplace.

 

Longfin is required to keep the registration statement effective (and the prospectus contained therein available for use) pursuant to Rule 415 for resales on a delayed or continuous basis at then-prevailing market prices at all times until the earlier of (i) the date as of which the Investor may sell all of the Class A Stock issuable pursuant thereto without restriction pursuant to Rule 144 or (ii) the date on which all of the Class A Stock covered by the registration statement shall have been sold.

 

 

 

Investor Note

 

The Investor Note was issued pursuant to an Investor Note Purchase Agreement between the Company and the Investor and be payable in full thirty years from the date of issuance (the “Closing Date”). The Investor’s obligation to pay Longfin the Investor Note Principal pursuant to the Investor Note is to be secured by $42,604,058.82, in the aggregate, in cash, cash equivalents, any Group of Ten (“G10”) currency and any notes or other securities issued by any G10 country or securities issued by a special purpose acquisition company. Longfin will receive the applicable portion of the Investor Note Principal then due upon each voluntary or mandatory prepayment of the Investor Note. The Investor may, at its option and at any time, voluntarily prepay the Investor Note, in whole or in part. The Investor Note is also subject to mandatory prepayment, in whole or in part, upon the occurrence of one or more of the following mandatory prepayment events:

 

(1) Mandatory Prepayment upon Conversion of Notes – At any time (i) if Longfin receives a conversion notice from the Investor in which all, or any part of the Notes to be converted included any Restricted Principal (as defined therein), and (ii) the Investor receives a confirmation from Longfin’s transfer agent that it has been irrevocably instructed by Longfin to deliver to the Investor the shares of Longfin Common Stock to be issued pursuant to the conversion notice.

 

(2) Mandatory Prepayment upon Mandatory Prepayment Notices – Longfin may require the Investor to prepay the Investor Note by delivering a mandatory prepayment notice to the Investor, subject to (i) the satisfaction of certain equity conditions, and (ii) the Investor’s receipt of a valid written notice by Longfin electing to effect a mandatory conversion of Restricted Principal (defined as $21.3 million on the 45th day following the resale eligibility date and an additional $21.3 million on the 165th day following such date).

 

The Investor Note also contains certain optional offset rights of Longfin and the Investor, which if exercised, would reduce the amount outstanding under the Notes and the Investor Note by the same amount and, accordingly, the cash proceeds received by Longfin from the Investor pursuant to the Financing.

 

Master Netting Agreement

 

The Company and the Investor have entered into a master netting agreement (the “Master Netting Agreement”) for the purpose of clarifying for each party its right to net obligations that may arise under the Purchase Agreement, the Investor Notes and the Series B Notes (collectively, the “Underlying Agreements”) upon the occurrence of certain events, including as described above.

 

Voting and Lockup Agreement

 

As a condition to closing the Note Financing, Venkata Meenavalli, the Chief Executive Officer and Chairman of the Board of Longfin, who owns approximately 27.6% of the issued and outstanding Class A Stock and 100% of the issued and outstanding Class B Stock and Stampede Capital Limited who owns approximately 62.4% of the issued and outstanding Class A Stock (collectively, the “Principal Stockholders”), have executed a Voting and Lockup Agreement with Longfin. Pursuant to the Voting and Lockup Agreement, the Principal Stockholders agree to vote in favor of Longfin’s issuance of the Securities. The Voting and Lockup Agreements also requires that, for a period beginning on the Closing Date and ending on the date when all of the principal outstanding under the Notes issued to the Investor consists of Restricted Principal thereunder, the Principal Stockholders will not (i) dispose of or agree to dispose of, directly or indirectly, any securities of Longfin, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any securities of Longfin owned directly by the Principal Stockholders (including holding as a custodian) or (iii) permit to exist any security interest, lien, claim, pledge, option, right of first refusal, agreement, or limitation on such Principal Stockholder’s voting rights, charge or other encumbrance of any nature with respect to such Principal Stockholder’s securities in Longfin or (iv) engage in any hedging or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of such Principal Stockholders’ securities in Longfin or (v) directly or indirectly initiate, solicit or encourage any person to take actions which could reasonably be expected to lead to the occurrence of any of the foregoing.

 

 

 

Placement Agent Warrants

 

As partial payment for its placement agent services, Joseph Gunnar & Co. LLC (“Gunnar”) was issued 5-year warrants (the “Placement Agent Warrants”) for the purchase of 10% of the number of shares of Class A Stock into which the unrestricted principal of the Notes becomes convertible (the “Gunnar Warrant Shares”), as and when applicable, at an exercise price equal to the exercise price of the Warrants and otherwise on the same terms as the Investor Warrant. If, after the first anniversary of the applicable issuance date of such Placement Agent Warrants, there is no effective registration statement registering, or no current prospectus available for, the resale of the Gunnar Warrant Shares by Gunnar, then the Placement Agent Warrants may also be exercised, in whole or in part, by means of a “cashless exercise”. The Placement Agent Warrants may not be exercised if, after giving effect to the exercise Gunnar, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of Longfin Common Stock outstanding immediately after giving effect to the issuance of the Gunnar Warrant Shares. Upon not less than 61 days’ prior notice to Longfin, Gunnar may increase or decrease the ownership limitation, provided that the ownership limitation in no event exceeds 9.99% of the number of shares of Class A Stock outstanding immediately after giving effect to the issuance of the Gunnar Warrant Shares. In addition, the Placement Agent Warrants may not be exercised and shares of Class A Stock may not be issued under the Placement Agent Warrants if such exercise or issuance would be in excess of that amount permitted under the rules of the NASDAQ Capital Market prior to receipt of stockholder approval of the Financing. In addition, initially only approximately 26,190 Gunnar Warrant Shares may be issued upon exercise by the Placement Agent, which amount shall be increased upon each Investor prepayment under the Investor Notes.

 

Gunnar is also entitled to receive 10% of the gross cash proceeds actually received by Longfin pursuant to payments by the Investor under the Notes and the Investor Note.

 

Business Description from SEC filings:

 

Business Model

 

Business Strategy

Longfin has acquired 100% of Stampede on June 19, 2017 post commission qualification on June 16, 2017 and is continuing to provide the services and products that Stampede has historically provided and will continue the flow of past operations with the plan to continue expanding as much as possible.

LongFin’s concept of business and success of products and services has been successfully tested by way of its subsidiary company Stampede’s historical operations. We have ready infrastructure in Singapore that provides significant operation capabilities in the near-term, allowing the company to focus on continuing operation. Our extensive experience and market research has helped us identify our priorities and target clients to grow our business. Our subsidiary is rapidly recognized as a premium technology provider and structured finance solutions provider in its existing global markets. We see that trade finance is a trillion dollar opportunity where the application of EMM is of paramount importance in having a cutting edge advantage. Our platform solutions include FX debt swaps, debt syndication, trade flow management and underwriting FX risk management. The global trade finance markets are all growth markets with increased focus on technology solutions that provide a stable outlook for both sales and profitability. We are focusing on expanding our global presence, increasing sales and revenue, marketing and market share.

We have a multi-fold marketing and growth strategy to increase our client base, revenue and profits.

Longfin and its subsidiary designed complete end-to-end solutions for Corporates and SMEs for Trade Finance / Interest Rate Swap Underwriting. Underwriting is nothing but insuring the Importers/Exporters by using derivatives to avert risks.

Longfin’s and its subsidiary structured finance platform will aggregate using Smart Order Routing Platform and provides customized solutions to global trade houses. The Company is currently working to build a world class B2B market place for Exporters, Importers, Trade Houses, and more. The global spot FX size is $5 trillion / day and global trade hedging is more than $60 trillion.

 

Short –Term Liquidity Solutions

We apply frameworks from market microstructure theory, machine learning and econometric modeling to construct intraday and high frequency strategies that will manage short term liquidity solutions for commodities houses. After 2008, commodity houses such as ADM, Bunge, Cargill, Cofco, Dreyfus virtually became the largest shadow banks mimicking the bank/hedge fund performances using structured finance solutions; most of the commodity houses globally work with a voice driven IDB (inter dealer broker platform). Large commodities generate short term liquidity by way of selling the commodities at site and buying at credit for around 180 days while looking at short term treasury solutions.

Longfin and its subsidiary Hosted Solutions include a Guaranteed VWAP - For Increasing profitability and Lead –Lag Arbitrage (Short term Yield Enhancement). Guaranteed VWAP is there to increase profitability, and can procure using iceberging and implementation shortfall technologies solutions which reduces the hedging cost between 50 to 100 basis points in comparison to the market solutions. (100 million USD/INR hedging cost on shore 600 basis points/ off shore 500 basis points). The guaranteed VWAP solutions will help clients reduce their hedging cost and increase profitability. Our connected Exchanges / OTC provides low cost routing hedging solutions. To maintain their profitability margins, trade house hedge their payments/ receipts in different currencies and our solutions provide lower hedging cost. Our lead lag arbitrage on ultra-low-latency platform enhances the returns and manages the short-term liquidity through exchange traded products which are settled on a monthly basis, helping commodity houses manage their short term treasury yield enhancement.

Product Overview

We are a primarily research driven global trade platform specialized in data handling (big data, law of large numbers and liquidity), data processing (trade flows & hosted management solutions) and data management. We also provides a platform for liquidity providers and market makers of multiple exchanges such as SGX, CME, DGCX, HKEX and ICE that has been driving millions of dollars of trading volume everyday across the globe in nano seconds. Our mission has been to process standardization and normalization across multi assets while creating a highly scalable global trade platform handling law of large numbers. We have been able to do this by providing a wide range of financial solutions.

Longfin and its subsidiary is a Fintech trade platform to global market makers (FX, FX derivatives and commodities) and liquidity providers in FICC Division (i.e. Fixed Income, Currencies and Commodities). Our FX platform aggregated global FX flows, binary options, exotic options and acted as a conduit for global trade houses. (Importers, Exporters, Arbitrages, Commodity Traders, Carry Traders, etc.). We have worked to build a world class B2B market place for exporters, importers and trade houses. Being a technology provider for market makers, we have recognized trade finance as a trillion-dollar opportunity where the application of EMM is of paramount importance to have a cutting-edge advantage. The company’s platform solutions involved FX debt swaps, debt syndication, trade flow management and underwriting FX risk management. The company has provided essential solutions for the needs of exporters/importers, hedge funds and corporations as they do not possess adequate advanced mathematical skills to process large data; We have been pioneers in servicing those in need of such advanced skills and has utilized tools such as R and SAS to process large data and in order to aggregate multiple data feeds into the FIX platform. We have aggregated the feeds from multiple banks, managed continuous dynamic hedging through our hosted solutions, helped clients to get multiple quotes in order to enable them to make the best decisions, and provided the ability for exporters and importers to manage to insulate the trading risk in an efficient manner with our OTC platform.

Our pricing solutions are based on its core expertise of electronic market making, and its proprietary algorithm is based on statistical probabilities like Bayesian Conditional probabilities. LongFin has aided makers and takers by providing technology able to aggregate the liquidity flows from global banks and helps price the flows in exchanges using yield curve and volatility surfaces.

 

We have provided individualized services and financial products to different exchanges. Our servers are connected and provide liquidity providers with the help of core engines mentioned below:

Feed Handlers and Parsers with compatible TCP Binary API and FIX.  

Proprietary API - IPC Middleware Message Broker for Order Routing.  

CEP (Complex Event Processing) for Populating Order Book.  

GPU (Graphical Processing Unit) for pricing the Options on Tick-by-Tick data  

Feed Handler layer performance with the help of IPC technology

 

 

 

 

 

Proprietary Technology

 

Tick-by-Tick Real-time Data: Tick Server is a high-scalable time-series ‘Tick’ engine, which includes an in-memory database for intra-day data to process the large amount of data including Client Order Flow, Market Events including Multi-asset Trades, Quotes and Full Order Book Depth. The functional components include Data Capture, Analytical Engine and a Graph Query Building Tool.

 

 

Scalable Platform on a low-latency

IPC Implemented to achieve the low-latency on a trading environment for the following models:

1.Algorithmic / High Frequency Trading

2.High Performance Computing

Algorithmic / High Frequency Trading

The basic input to any trading system is market data feed that consists of real-time pricing data for Options, Foreign exchange or Fixed Income. There are usually separate engines for each trading strategy and other components such as risk management and order routing applications.

High Performance Computing

Deployed a large-scale multi-core machine with shared memory allows the applications to interact more with greater ease and higher throughput resulting in complex tasks being completed more quickly.

 

Global Risk Management Products

a) Derivative Pricing Engine

Derivative Pricing & Volatility Skew and Cone

Statistical Calculator displays the Market Depth of Option Prices and IVs for selected strikes and also displays Future depth and Underlying depth

Calculates and displays Implied Volatility, Option Greeks –Delta, Gamma, Theta and Vega

Scientific Analytical Tractability and Graphical representation of customizable option strategies on real time feed

Probability of an option to be in In-the-Money will be displayed for each Strike

We can choose for the options data on Index  

b) Lead-lag Arbitrage

Our model of latency arbitrage consists of multiple contracts traded across different exchanges.

Product Highlights

Dynamically configuring the Contracts and Exchanges

Engine analyses Mean and Standard Deviation to enable the Basis Points  

Allocating the Capital Blocks to lock the Basis Points for rotating the Capital to increase the yield

Engine captures the required Basis Points to acquire the profits

c) Big Data Processing – Scalable Container of Multiple Data Structures

Our lending / borrowing model is a fully automated order-routing system that enables real-time execution of chosen strategies. No human intervention is required. With its low latency market data distribution - combined with the most unique and competent algorithms. The software Calculates Entry/Exit Basis Points on depth with block wise in Live and executes cash to future arbitrage for multiple scripts and multiple accounts simultaneously on the basis of predefined parameters, thus eliminating any form of human intervention.

d) Automated Arbitrage Trading Systems

Our Automated Arbitrage Trading platform is an advanced automated trading mechanism that ensures the following protective features to our clients without human intervention.

FX Lead-lag Arbitrage connects multiple global exchanges in a low-latency platform. LongFin’s servers are co-located with core Algo Engines in order to help liquidity providers. Our model of latency arbitrage consists of multiple contracts traded across different exchanges. The Latency Arbitrageur (LA) in the multiple-market model operates by first obtaining current price quotes in available markets, then checks whether an arbitrage situation exists based on configured Basis Points. The best price available over the exchanges to Buy/Sell is given by Sell at BID = max {BID1, BID2} at Ask = min {ASK1, ASK2}. This product dynamically configures the contracts and exchanges, allocates the Capital Blocks to lock the Basis Points for rotating the capital to increase the yield, and its engine can analyze Mean and Standard Deviation to enable the Basis Points as well as capture the required Basis Points to ensure profits.  

Multiple Time Frame (MTF) Engine is a fully automated order-routing system that enables real-time execution of chosen strategies, with its low latency market data distribution combined with the most unique and competent algorithms which handles multiple scrips. No human intervention is required. ATS receives buy and sell signals through the multiple quant scanners and executes the trades according to trading algorithms. ATS engine handles trading of multiple scrips with multiple time frames. This engine is used for the trading of higher time frame Buy/Sell signals as well as to further countertrade lower time frame signals that are triggered under the process of higher time frame signals.  

 

e) Risk Management Engine

Our real-time trading risk management system is built into automatic platform and which is an integral part of our trading life-cycle (i.e. analyzing tick by tick data, guarantee order execution within the pre-configured trading position limits).

Our risk management engine detects and generates the warning message to the risk team whenever it is crossing the pre-defined limits in three levels of the system and also automatically stops the current trading strategy and cancels all the open orders over the exchanges.

Our risk engine evaluates and controls risk exposure in tick-by-tick data and monitors all of the market positions and continuously reconciles internal order transactions against the order execution of the global exchanges.

Risk Management is at the core of our trading infrastructure.

We are intensely focused on risk management and monitor our activities on a continuous basis using our fully integrated technology systems.

 

Risk Management is at the core of our trading infrastructure; the Company is intensely focused on risk management and monitors its activities on a continuous basis using its fully integrated technology systems.

The pre-defined Risk Limits in all the three levels viz.:

Company (Product) Limit - Controls the overall risk at the Company level.

Gateway Risk Limit – Controls the risk at the Server level.

Trader Limit – Controls the risk at the individual  

 

 

f) Liquidity Management

Electronic Communication Network - Cross Engine

Our ECN is one of the largest and most technologically advanced liquidity pools in the forex market with an aggregated FX liquidity feed, an aggregated feed through FIX API and low latency API, an aggregated feed with assemble liquidity books, and an aggregated feed from the SGX, CME, NSE, DGCX, MCX-SX and ICE exchanges. This allows the company to provide the access to aggregated liquidity from the multiple sources viz., international exchanges, banks and other ECNs. Such technology can accept traders with any trading style or strategy preferences, including automated and high-frequency trading with an in-built trade risk mitigating mechanism. This also provides the aggregation of multiple liquidity and technology providers which allows access to tight pricing on a wide selection of global markets.

g) A-Li-En: FIX Liquidity Engine

Wide-range Connectivity: Co-located with exchanges and direct streaming from banks make sure our networks with participants in the markets Aggregate/Execute/Distribute the best Liquidity.

Our Solutions provide FIX Market Data and FIX Trading access solutions for automated trading strategies. Our Clients can access the LongFin platform via its trading interface as well as by its automated integration suite, which includes a proprietary API and FIX gateway.

A-Li-En is a limit order-driven ECN platform.

Real-Time Pricing and Matching Engine

Business objects level API that significantly simplifies the access to order book information from our ECN

Fully supported and maintained FIX Order Routing specific FIX Dialect  

Non-FIX API Support to FIX Connection

Based on high-performance FIX Engine implementations

Multithreaded and Message Queuing architecture

Low latency, High throughput

Available as Screen-trading GUI and API

A-Li-En (Alternative Liquidity Engine)

 

Ultra-Low-Latency:  Over 2500 transactions per second and less than 3-4 ms of execution latency.

Smart Machine Learning Algorithm on order management, execution & risk control, auto-calculating for the best fulfillment.

h) LP & OME Engine

LongFin Order Trade Matching Engine has the Scalability and Reliability to Perform on Strict Price/Time Algorithm.

Order Trade Matching Engine works according to a standard price/time priority algorithm, which means that at first order with better price will be matched. In case orders are at the same price, the one placed earlier will have priority in execution.

Execution speed of over 25,000 transactions per second

Less than 3-4 milliseconds of execution latency

Strict price/time priority matching algorithm

Open order book with full market depth (via FIX)

Advance type of orders

Connectivity

Our FX connects to various liquidity providers including exchanges, ECNs, single bank platforms and other aggregators.

Pricing & Distribution

Our FX pricing & Distribution engine controls and distributes streaming prices to the clients with highly scalable and low-latency API.

Assigns custom liquidity profiles to individual clients and distributes via API, FIX API, Tradair Bridge or MetaTrader 4 bridge.

Aggregation & Execution

Our FX packaged aggregation and execution engine provides easy access and taps more liquidity with order routing solutions. Our engines connected to multiple liquidity providers, including Exchanges, Banks and NDFs.  The trading platform comes with smart order routing specifically designed to achieve best prices to have an edge with liquidity providers.

Order Management System

OMS provides integrated, scalable platform for global connectivity, order and trade management, market execution, risk management and transaction cost analysis. Our technology suite is an integrated platform comprising Feed Handlers, Order Routing and Risk Management components that enables High Frequency Trading.

We utilized High-end infrastructure with co-located servers integrated directly with the exchanges on which we provide liquidity providers with the help of our of core engines. Monitor the order book exposure with respect to market proximity.  Back-to-back client executions in the market using the integrated our FX Risk Management & FX Aggregation modules.

i) Stampede Forest

Comprises of Quant Charts and Quant Scanners with live tick data. This was developed as an end-to-end proprietary platform that consists of encompassing Data Capture within the exchange together with ultra-fast Data Normalization and Data Dissemination. Such charting software provides charts for multiple timeframes viz., 1Min, 5Min, 15Min, 30Min, 60Min, Daily and Weekly data. Multiple Technical Indicators (Momentum, Volume and Volatility based) in charts like RSI, Macd, Stochastic, CCI, On Balance Volume, Accumulation Distribution, Money Flow Index, Average True Range, Bollinger Bands, Donchian Channels and Keltner Channels. Chart formats are viewed in candlestick format or Western Line(OHLC) pattern on tick-by-tick data environment.

Multiple Technical Indicators (Momentum, Volume and Volatility based) available in charts like RSI, Macd, Stochastic, CCI, On Balance Volume, Accumulation Distribution, Money Flow Index, Average True Range, Bollinger Bands, Donchian Channels and Keltner Channels.

Our charts can be displayed in Candlestick pattern or OHLC format on tick-by-tick data environment.

j) Manual Terminal – VPS (Virtual Private Server)

Manual Terminal is a trading tool with low latency data which can trade in multiple exchanges at a time. Key features of the trader terminal are live quotes with low latency, market depth order book, working orders with net positions, and pending orders with traded positions. This allows us to be able to trade on the following exchanges: National Stock Exchange (NSE), Chicago Mercantile Exchange (CME), Singapore Exchange (SGX), Dubai Gold and Commodities Exchange (DGCX), Intercontinental Exchange (ICE), and the Hong Kong Stock Exchange (HKEX).

 

 

Catalyst

The Hudson Bay Capital Management financing results in significant share issuance starting in Mid May which significantly increases the float and causes the share price to drop.

The 2MM Adamson shares become unlocked and are dumped onto the market. Their lockup either expired last week or sometime before June 11th.

Krishanu Singhal wins control over the 3.375 million shares owed to him from LFIN and dumps those shares on the open market. This would happen whenever the colonial litigation is settled.

The company reports its dismal earnings for H2 2017 or alternatively is unable to get CohnReznick to sign off on its audit report and is therefore unable to file its 10-K. The company decides to host an earnings call and the rambling mess of a CEO makes a fool of himself again like he does in his television interviews.

The SEC or NASDAQ halt trading in the stock as the company and the stock are clearly a scam.