The United States Securities and Exchange Commission (SEC) has charged YouPlus, a Startup building a machine-learning tool to analyze videos on the internet, and its founder and CEO Shaukat Shamim with fraud charges for defrauding investors by falsifying and misleading statements about the finances and sources of revenue for years.
On Monday's announcement, the SEC detailed that Shamim misrepresented the accounts from 2018 to 2019 when approaching investors and also managed to raise funds from them and continued this fraud multiple times.
The complaint detailed that Shamim falsely told investors that YouPlus earned millions of dollars in annual revenue and had more than 100 customers, including Fortune 500 companies. But none of them were true.
When an investor pressed Shamim to furnish details of those claims, he allegedly provided the investor with falsified bank statements in an effort to conceal the fraud.
Could not back with falsified documents for long
Shamim's plan, however, crumbled in late 2019, and he confessed to certain investors that YouPlus had, in fact, earned less than $500,000 and obtained only four paying customers from the company's inception in 2013, way less than his astronomical claims.
"As we allege in our complaint, Shamim and YouPlus drummed up interest in the company by providing false information about its financial performance and customer base," Erin E. Schneider, director of the SEC's San Francisco regional office, said. "Private companies engaged in early-stage fundraising must tell the truth when selling securities to investors."
In its complaint with the District Court of Northern California, the regulator charged the startup and Shamim with violation of antifraud provisions of the federal securities laws and seeks permanent injunctions, civil money penalties, disgorgement with prejudgment interest, and an officer-and-director bar against the CEO.
He is also facing criminal charges brought by the US Attorney's office in parallel with the SEC's charges.
