“You Have to Understand”: The Saga of Longfin Corp. Reveals the Danger of Trading Halts Imposed by Self-Regulating Exchanges

Authors

Thomas Davis

Abstract

Late 2017 marked, perhaps, the peak of Bitcoin frenzy. A number of specious, if not outright fraudulent issuers took advantage of this craze by publicly listing their stock while touting some connection to blockchain technology. One of these issuers, Longfin Corp., exploded to a $6 billion market cap despite being little more than an empty shell promoted by alleged fraudsters. Short sellers who investigated Longfin were seemingly correct about the company being worthless, but a lengthy trading halt instituted by Nasdaq caused many of these short sellers to suffer considerable losses instead of cashing out on what would otherwise be hugely profitable short positions. This Note proposes changes to the regulatory scheme that currently allows self- regulating exchanges like Nasdaq to issue such trading halts with almost no restrictions. The recommended changes would further the principles of free and open markets and transparency that are fundamental to the securities laws by preventing exchanges from arbitrarily halting trade for extended periods of time.

Recommended Citation

Thomas Davis, “You Have to Understand”: The Saga of Longfin Corp. Reveals the Danger of Trading Halts Imposed by Self-Regulating Exchanges, 72 Hastings L.J. 687 (2021).
Available at: https://repository.uclawsf.edu/hastings_law_journal/vol72/iss2/6