The US Securities and Exchange Commission (SEC) has charged e-commerce startup Benja and its CEO for allegedly defrauding investors.
According to charges made public on Monday, the US agency believes the San Francisco-based firm -- together with its co-founder and chief executive Andrew Chapin -- fabricated an e-commerce empire by "misleading investors about purported contracts with well-known consumer brands."
SEC's complaint alleges that from 2018 to the present year, 32-year-old Chapin told investors that the startup had secured deals with popular clothing retailers and brands including Nike and Patagonia. To give these claims weight, the executive allegedly enlisted others to impersonate these 'customers' and their representatives.
"In reality, Benja never did business with the companies," the agency says.
One of the individuals involved in the scheme apparently also pretended to be a founder of a venture capital fund that made a "large" investment in the startup.
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Investors were told that Benja "generated millions of dollars in revenue" from these sources, according to SEC.
Forged contracts and bank statements that had been tampered with were also allegedly waved under venture capitalist investor noses to back up claims of $6.2 million in generated revenue in 2018 and $13.2 million in 2019.
It has been alleged that misrepresentation extended to banks, too, in which a line of credit was secured -- growing from $1 million to $5 million.
"Bank records from 2018 to 2020 indicate that Benja was generating almost no revenue from its purported ad placement business and almost all the customers Chapin claimed Benja had were lies," US regulators say. "Chapin used almost the full $5 million line of credit to pay off other creditors and investors, to pay Chapin's credit cards and personal expenses, and to send funds to a personal cryptocurrency exchange account."
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The complaint, filed in the US District Court for the Northern District of California, seeks permanent injunctions, civil penalties, and disgorgement. Investors were allegedly scammed out of at least $1 million in funding and $100,000 in purchased securities due to Benja's misrepresentations.
"We allege that Chapin violated the federal securities laws by deceiving investors about the most fundamental aspects of Benja's business by falsely portraying it as a successful e-commerce technology company that in a short period of time had generated significant revenue from several high-profile clients," said Erin Schneider, Director of the SEC's San Francisco Regional Office. "We will continue to pursue companies and executives who mislead investors."
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Separately, the US Attorney's Office for the Northern District of California has filed criminal charges against Benja's CEO. The office is charging Chapin with bank fraud, wire fraud, and securities fraud.
US Attorney Anderson said that tech financing cannot become a "lemon's market," and so charging figures like Chapin who allegedly defraud investors will ensure future investors will have "confidence in the truthfulness of startup representations."
Chapin is due to appear in court on Tuesday before US Magistrate Judge Jacqueline Corley.
ZDNet has reached out to Benja and will update when we hear back.
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