Fraud Prevention Startup Gets Busted for Fraud
Posted on 09/18/2020
Las Vegas-based NS8, Inc. raised around US$ 123 million in capital from a series of investors. NS8 provides services of flagging suspicious orders for fraud. Founded around 2016, yhe company is a cyberfraud prevention company that developed and sold electronic tools to help online vendors assess the fraud risks of customer transactions. NS8 recently laid off hundreds of employees as the U.S. Securities and Exchange Commission (SEC) investigates the startup for alleged fraud, per reports.
The the Acting United States Attorney for the Southern District of New York and the FBI announced that Adam Rogas, a co-founder and former CEO and CFO of NS8 was charged in a Complaint in Manhattan federal court with securities fraud, fraud in the offer and sale of securities, and wire fraud. Rogas used fraudulent financial data to obtain over US$ 123 million in financing for NS8, of which he personally obtained approximately US$ 17.5 million. Rogas resigned from NS8 on or about September 1, 2020. After, Rogas was arrested in the District of Nevada. The investigation into NS8 started in November 2019.
According to the DOJ press release, “ROGAS altered the bank statements before providing them to NS8’s finance department to show tens of millions of dollars in both customer revenue and bank balances that did not exist. In the period from January 2019 through February 2020, between at least approximately 40% and 95% of the purported total assets on NS8’s balance sheet were fictitious. In that same period, the bank statements that ROGAS altered reflected over $40 million in fictitious revenue.
ROGAS used these materially misleading financial statements to raise approximately $123 million from investors in the fall of 2019 and the spring of 2020. During the fundraising process, ROGAS also provided the falsified bank records he had created to auditors who were conducting due diligence on behalf of potential investors. After these fundraising rounds concluded, NS8 conducted a tender offer with the funds raised from investors, and ROGAS received $17.5 million in proceeds from that tender offer, personally and through a company he controlled.”
Through an investigation, the FBI believes that Rogas created fraudulent customer revenue statements and bank statements — in the form of the Customer Revenue Spreadsheets and the Fraudulent Bank Statements — both of which reflect substantially inflated levels of customer revenue and assets, and both of which caused the financial statements of NS8 to be materially misleading.
In the complaint, Special Agent Nicholas Kroll of the FBI said, “I believe that for the period from January 2019 through February 2020, the percentage of total reported assets from the NS8 balance sheet that were fictitious ranged from at least approximately 40% to over 95%.”
Source: Complaint.
Investors
In June 2020, NS8 raised US$ 123 million in a Series A round co-led by Lightspeed Venture Partners and AXA Venture Partners. Many of Lightspeed’s venture limited partners are U.S. pension funds.
In March 2019, NS8 raised US$ 26 million in a round led by Edison Partners. In December 2017, NS8 raised US$ 7.5 million in a round led by Arbor Ventures and was joined by Hanna Ventures and TDF Ventures.
Source: Twitter.