Update: Included statement from Longfin.
On the back of the Bitcoin craze, investors couldn’t seem to get their hands off a so-called blockchain company with roughly half-a-dozen employees in New York—Longfin. After its debut in December, the company was bestowed a valuation of as much as $6.2 billion.
Now, on Friday, investors can’t get out of the company, even as the Securities and Exchange Commission (SEC) alleges that the Nasdaq-traded company violated federal securities laws. According to the commission, it has frozen roughly $27 million in trading proceeds individuals associated with Longfin had gained by unlawfully selling restricted shares to the public.
“We acted quickly to prevent more than $27 million in alleged illicit trading profits from being transferred out of the country,” said Robert Cohen, chief of the SEC Enforcement Division’s Cyber Unit, in a statement. “Preventing defendants from transferring this money offshore will ensure that these funds remain available as the case continues.”
Investors, however, have not been able to react yet to the SEC’s complaint. About 30 minutes ahead of that announcement, the Nasdaq halted trading of Longfin’s stock under the code “T12″—a halt requiring additional information from the company.
Thus, at first blush, Longfin shares appear up 47% for the day with a valuation of about $2 billion. But that uptick is something of a time capsule—capturing sentiment from a Wednesday CNBC interview with Longfin’s CEO Ventaka Meenavalli, in which the executive defended his firm and blamed short sellers for his stock’s fall.
Investors who have gotten involved with Longfin then, either betting in or against the stock, will be in for a bumpy ride. Halts often last mere minutes or in some cases, hours—but T12s can be unpredictable.
“T12s can last anywhere from a few hours to a few weeks or even months,” says a day trader Max of MadazMoney (who declined to provide his full name). “There’s no definitive timeframe to these, which answers your question why it’s the halt from hell. People could have their funds stuck for an indefinite amount of time.”
Longfin said that it has received the Nasdaq’s request for additional information.
“Longfin… plans to fully comply with such request,” the company said in a statement Friday. “In addition, Longfin has received a civil complaint and related asset freeze from the SEC and intends to fully cooperate and address the concerns the SEC has raised regarding the stock sales referenced in the SEC’s complaint.”