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HomeStartupsIndian Founder In Valley Accused Of $11 Mn Funding Fraud

Indian Founder In Valley Accused Of $11 Mn Funding Fraud


YouPlus founder Shaukat Shamim has been accused of elevating $17 Mn in VC cash for his allegedly bogus “world’s first video opinion search engine” by making false & deceptive statements

As an alternative of AI tech, the corporate was paying staff in India to look at movies and file their impressions

He has additionally been accused for faking financial institution statements, utilizing investor cash for private bills, together with spends on luxurious clothes, eyewear, and duty-free shops

YouPlus founder and CEO Shaukat Shamim has been accused of fraudulently elevating over $17 Mn for a synthetic intelligence firm by making false and deceptive statements concerning the firm’s expertise and its income. In response to US Lawyer David L. Anderson and FBI Particular Agent John L. Bennett., Shamim is charged with securities and wire fraud within the criticism filed with the SEC.

In response to the criticism, Shamim allegedly raised over $17 Mn in funds for his startup, YouPlus after years of feeding false info to present & potential buyers.

To woo buyers, Shamim falsified YouPlus’ financials, revenues, claimed false shoppers and even submitted faux financial institution statements.

Shamim based YouPlus in 2013 and by the top of October 2019, the corporate had raised roughly $17.5 Mn in seed funding from over 50 buyers. In response to the criticism, out of this $17.5 Mn, about $11 Mn was raised between 2018 and 2019 from 30 buyers.

Whereas going by way of YouPlus’ Pitchbook and Crunchbase profiles, we discovered that the corporate counts 500 Startups, Freestyle Capital, Nimble Ventures, The CXO Fund, DN Capital, and Prashant Gulati’s The Sensible Begin Fund amongst its buyers.

Shamim had based 4 corporations prior to now out of which two have been acquired, together with Rhythm NewMedia (acquired by Blinkx) and Buysight Inc (acquired by AOL). He was amongst the common audio system at a few of India’s largest tech conferences.

He has been accused of sharing a faux financial institution assertion with the buyers in August of 2019 claiming $600Okay income from 35 totally different shoppers & corporations, together with Coca-Cola, Kraft, and Netflix. Nevertheless, it was discovered that the corporate solely had one shopper, and a complete of $65Okay in revenues. The funding cash was additionally used for private bills, together with purchases at luxurious clothes, eyewear, and duty-free shops, the criticism famous.

The corporate had claimed to have developed proprietary synthetic intelligence software program that might interpret video opinions posted by clients of explicit merchandise, to assist corporations analyse how their manufacturers have been trending on-line.

Shamim allegedly showcased Youplus’s software program because the “world’s first video opinion search engine,” telling buyers that “similar to how Google is indexing the textual web by looking inside and indexing keywords, Youplus is using computer vision, audio, and text analysis to look inside videos” to know market developments. It was discovered that the corporate has not developed any such AI, as a substitute, it was paying staff by way of its company places of work in India to look at movies and file their impressions.

“In other words, the market analysis Youplus was producing was the result of human intelligence, rather than AI software,” mentioned the press doc.

Indian Founder In Valley Accused Of $11 Mn Funding Fraud For Faking Revenues & AI Tech

Shamim was served with a summon on 20th July in San Francisco.

If convicted of wire fraud below 18 U.S.C. § 1343 (wire fraud), Shamim will face a most sentence of 20 years’ imprisonment, a high-quality of $250Okay, and restitution if applicable.  If convicted of securities fraud below 15 U.S.C. § 78j(b) and 78ff, and 17 C.F.R. § 240.10b-5, Shamim will face a most sentence of 20 years’ imprisonment, a high-quality of $5 Mn and restitution if applicable.

Of Fudged Revenues And Altering Projections

The whole fiasco began in June 2018, when Shamim instructed buyers that YouPlus anticipated revenues of $eight Mn in 2018 and over $40 Mn in 2019. Later in September 2018, he despatched out a spreadsheet that showcased $1.5 Mn because the precise income by way of June 2018. Once more, a number of days later, he despatched one other electronic mail to buyers (together with to the investor who acquired the earlier spreadsheet) stating that YouPlus earned income of over $1.1 Mn by way of June 2018 and with $7.eight Mn as projected income for 2018.

A enterprise fund (not named within the criticism) invested practically $2 Mn in YouPlus between 2018 and 2019 primarily based on these numbers. A couple of members of the enterprise fund’s funding committee had made private investments within the firm throughout the identical time.

As soon as once more, In April 2019, Shamim despatched purported “financial statements” to potential buyers claiming contradictory revenues of $4.6 Mn, $3.55 Mn & $3.97 Mn throughout a number of monetary fashions & investor updates.

“At the time these representations were made, Defendants knew, or were reckless in not knowing, that YouPlus had earned only a small fraction of the millions of dollars in revenue represented to investors. Indeed, by the end of October 2019, Shamim had acknowledged to the venture fund investor that YouPlus had not even earned $500,000 in total revenue since the company was founded in 2013,” the criticism filed with SEC famous.

Of Disappearing Prospects And Buyers 

The corporate’s June 2019 investor replace talked about 10 excessive paying clients (together with Three corporations paying ~$1 Mn every) together with a “customer pipeline” of practically $1 Mn in “MRR,” together with an inventory of 150 purported YouPlus clients.

Nevertheless, it was later discovered that none of those corporations have been its paying shoppers. Apparently, as per the criticism, YouPlus had solely managed to acquire roughly 4 paying clients in the course of the lifetime of the corporate.

He was additionally discovered mendacity about investor commitments of about $Three Mn – $Four Mn for the corporate’s Collection A spherical.

In September 2019, Shamim approached the identical enterprise investor for emergency funding to fulfill payroll bills, elevating flags. The enterprise fund invested one other $300Okay in YouPlus and, within the meantime, requested for YouPlus’ financials for proof of revenues.

Later, Shamim shared YouPlus’ monetary paperwork which didn’t match its earlier income representations. It seems that he had shared falsified paperwork, together with financial institution statements. “The bank statements were falsified to show deposits into YouPlus’s bank account from purportedly paying customers. In fact, the deposits were never made,” criticism famous.

On October 18, 2019, the enterprise fund confronted Shamim about its considerations, and Shamim agreed that YouPlus had exaggerated its historic revenues and buyer traction, and conceded that he “got ahead of [himself].”

Shamim additionally admitted that YouPlus had solely “earned $499,972 in sales and other revenue since inception (from both USA and India)” and that he had personally acquired roughly $1.Three Mn from the corporate.

Simply two days in the past, one other notorious Indian angel investor and mentor, Mukund Mohan was arrested within the US for forging paperwork to accumulate over $5.5 Mn from the coronavirus aid funds meant for startups to retain staff. The previous Amazon and Microsoft Ventures director, Mohan had allegedly claimed these advantages by exhibiting fraudulent tax filings and altered incorporation paperwork of six shell corporations.

In an expose in 2015, Inc42 had scrutinised Mohan’s many claimed investments and firms that he based and raised questions on the authenticity of the identical. A few of the corporations talked about within the report are amongst the six shell corporations talked about within the criticism above.

Previous to 2015, Mohan was a key influencer within the Indian startup ecosystem. Many ecosystem influencers rushed to defend Mohan when Inc42’s report broke.

Whereas “hustling” is an indispensable a part of the startup tradition, the place does one draw the road on the “Fake it till you make it” angle?




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