Last Updated on September 17, 2020 by merchantfraudjournal
NS8, Once a rising star in online fraud prevention, fired nearly all its employees and its CEO is under investigation by the SEC and now has been arrested by the FBI.
Up until very recently, the Las Vegas based NS8 was on a rocket trajectory. It was hailed as a profitable and leading ecommerce fraud solution available to small and medium merchants. It raised $123M in Series A funding from high profile investors like LightSpeed Ventures and AXA Venture Partners, to go along with a $23M seed round. And it was even covered in our own Most Promising Fraud Prevention Startups in America report.
However, last week all that came crashing down in spectacular fashion and sent shockwaves through the fraud prevention industry. Initially, news broke out that NS8 is under investigation for fraud by the SEC (the irony is not lost here). At the time it was unclear exactly what kind of fraud occurred at NS8. Shortly after the SEC investigation news broke out, NS8 layed off almost its entire workforce – more than 200 employees. In a letter sent to employees on September 11 (see below), no details were given as to the reason for the layoffs besides “sudden and unforeseen business circumstances”.
Source says CEO of NS8 Inc. (a “comprehensive fraud prevention platform”) abruptly resigned last week, about 240 employees are being laid off today, 75 in Las Vegas. Here’s the letter sent to staffers. https://t.co/PWWf7dOpYR pic.twitter.com/xKBZqD73Xw
— Vital Vegas (@VitalVegas) September 11, 2020
Shortly after the SEC announcement it was revealed that the CEO, Adam Rogas abruptly resigned from the company earlier this month after claiming he was leaving for personal and family reasons.
Earlier today, the FBI announced the arrest of Adam Rogas for allegedly misleading investors. FBI Assistant Director William F. Sweeney Jr. said: “It seems ironic that the co-founder of a company designed to prevent online fraud would engage in fraudulent activity himself, but today that’s exactly what we allege Adam Rogas did. Rogas allegedly raised millions of dollars from investors based on fictitious financial affirmations, and in the end, walked away with nearly $17.5 million worth of that money. Within our complex financial crimes branch, securities fraud cases remain among our top priorities. We’ve seen far too many examples of unscrupulous actors engaging in this type of criminal activity, and we continue to work diligently to weed out this behavior whenever and wherever we find it.”
In its complaint, filed in the Southern District of New York, the Justice Department alleged that from January 2019 to February 2020, between 40% and 95% of NS8’s assets were made up. During that period, the agency alleged, Rogas presented doctored bank statements to reflect over $40 million in fictitious revenue.
In the separate SEC’s complaint, the agency alleged that Rogas doctored NS8’s bank statements to show millions of dollars in payments from customers, before sending the falsified statements and revenue figures to NS8’s finance department. The Security and Exchange Commission states: “Beginning in at least 2018 and continuing through the summer of 2020, Defendant Adam P. Rogas, a founder and the former Chief Executive Officer of NS8, Inc., a private technology company, defrauded NS8 investors in at least two securities offerings by falsifying NS8’s bank statements to give the appearance that NS8 was generating millions of dollars in customer revenue with tens of millions of dollars of assets on hand. In fact, NS8 generated only a fraction of the revenue and had far less assets than what appeared in the doctored bank and financial statements provided to investors.”
It appears that Rogas is facing multiple charges, including securities fraud and wire fraud, in separate complaints filed by both the Justice Department and Securities and Exchange Commission on Thursday. The Justice Department charges alone carry penalties up to 20 years in prison.
In a statement released by the NS8 board of directors which states: “The government investigation and an internal investigation into this conduct are ongoing. At this time, no one else has been charged and the company is cooperating fully with federal investigators. The NS8 Board of Directors has learned that much of the company’s revenue and customer information had been fabricated by Mr. Rogas. These events created significant cash flow issues for the company and required a significant downsizing impacting all of its employees. The remaining NS8 leadership and Board of Directors is working to determine financial options for the company and its stakeholders going forward.”
As this story is still developing we will provide additional updates as they become available.
