this below is sad, now that I read it to the end
sloppy work by DD folks
Let's see what happens at Nikola
forbes.com
How A Cyber Fraud Company CEO Raised $123 Million In Months — And Got Arrested For Fraud
David Jeans08:42am EDT
Enterprise Tech
I cover tech companies for Forbes.
Adam Rogas was cornered. Until that hot Las Vegas afternoon on September 1, he was the only person at his company NS8 with access to one of the company’s two bank accounts where all the customer revenue was sent. But, in the preceding weeks, executives at the cyber fraud software startup had begun asking questions about how much money it actually had.
Following pressure to show those bank statements, he agreed to meet NS8’s vice president of finance at a Bank of America branch on Charleston Boulevard, where he would hand over the account’s login credentials, according to people with knowledge of the matter.
But minutes before the scheduled meeting time, NS8’s board received an email from Rogas, announcing his resignation as CEO. Effective immediately.
NS8 is now in the process of winding down after laying off most of its 200-plus employees last week. Some of its blue chip investors, who poured in more than $150 million, have informed their partners that there may be little or no financial recovery.
For those left wondering what happened at one of Las Vegas’ hottest tech startups — and one of its most bizarre alleged frauds — some questions were answered on Thursday when Rogas was arrested by the FBI in Las Vegas. The 43-year-old was charged with multiple counts of fraud by the Justice Department and Securities and Exchange Commission, alleging that he fabricated bank statements and misled investors for years. He is facing penalties up to 20 years in prison, and is expected to appear in court Friday.
As recently as June, Rogas had allegedly shared falsified bank statements with employees and investors that showed the company’s BOA account had $62 million. According to the SEC complaint, the actual figure was closer to $28,000. Such deceit enabled Rogas to pocket more than $17.5 million selling his shares to investors in April, the SEC claims.
In communications with Forbes prior to his arrest, Rogas said that investors had pushed to buy more shares in the company after it almost ran out of money in September 2019. He went on to say that he had left the company for personal and family reasons. “I just couldn’t do it anymore and knew I didn’t have what it would take to go back to my board and other investors to raise more funds to keep the company going and moving forward,” he wrote to Forbes via LinkedIn.
In a statement, NS8 spokesperson Genevieve Haldeman said that the federal investigation is ongoing, though no one else has been charged. Upon an internal probe, she said, the board had learned “much of the company’s revenue and customer information had been fabricated by Mr. Rogas.”
But some of NS8’s departed employees told Forbes they had been raising flags to NS8 executives about major discrepancies in its financial figures for some time. “I’ve said for a while now that NS8 is a Potemkin Village,” says Matt Zehner, a former sales director at NS8 who told executives in June he believed the company could be involved in fraud.
Beyond Rogas’ actions, questions remain about how high-profile investors — including Lightspeed Venture Partners, Sorenson Capital Partners and AXA Venture Partners — could have missed signs that NS8 was allegedly committing fraud as they poured in millions of dollars.
“The bottom line is some of us were probably lied to.”
Tiffany Kleemann, NS8 interim CEOThat point has been further highlighted after the SEC disclosed this week that it had been investigating NS8 since December 2019, four months before the company received $73 million in an April funding round led by Lightspeed to buy existing shares, including the $17.5 million paid to Rogas.
Neither AXA or Lightspeed would respond to questions about whether they knew that NS8 was under investigation at the time of their recent investment, nor would they discuss what due diligence was done. Sorenson Capital did not respond to requests for comment.
Lightspeed said in a statement that it “believes that we and other investors were deceived in the due diligence process by the company and were defrauded of millions of dollars.”
For NS8’s former employees, who now find themselves without a job in the middle of the Covid-19 pandemic, the investors' oversight is baffling. “Lightspeed Ventures, they’re rich as hell — for them, this is a drop in a bucket,” says Zehner, the former employee. “But you would still think they’d have done better due diligence. I guarantee you someone’s head should be rolling there.”
Before NS8, Rogas had a seemingly solid track record. He held executive roles at a medical marketing company and a website hosting firm, and in 2012 launched a Las Vegas-based company called Catch5 that claimed to prevent advertising fraud. While Catch5 didn’t take off, it served as a launching pad for NS8, which he co-founded in 2016.
He was seen as a talented coder at NS8, and until recently, was well-liked. “I always enjoyed working with him,” says one senior employee who reported to Rogas on a weekly basis. “If he was a super smart guy but not nice to a person, or a strange guy, I’d be like ‘yeah, makes sense.’” The employee adds: “It feels like the perfect con.”
Rogas’ happy-go-lucky persona wooed investors, too. In 2017, NS8 landed $7.5 million in a seed funding round led by Arbor Ventures. The product was a software tool for small and medium businesses that claimed to use data analytics to detect fraud in e-commerce transactions. Part of the key to NS8’s purported success relied on partnership programs it had with major e-commerce platforms such as Shopify and Magento, which would recommend NS8’s product to their own merchants.
But from an early stage, Rogas was allegedly reporting false financial statements to investors. His ability to conceal the alleged fraud hinged on the fact that he had sole access to NS8’s account with Bank of America where the company sent customer payments and revenue; the company didn’t employ a chief financial officer. (A separate account with Silicon Valley Bank, used for operations and where investor money was deposited, was accessed by multiple people.)
Starting in at least January 2018, Rogas allegedly doctored the Bank of America statements to show revenue figures that were grossly inflated. In September 2019, the same month that NS8 raised $50 million, its false bank statements showed $23.7 million. According to the SEC, the real number was $5,636.
By the end of 2019, authorities were investigating NS8. The company, Rogas and two other executives received subpoenas from the SEC in December requesting information related to claims that investors had been misled — a probe the company believed had been triggered by a whistleblower complaint, according to internal documents.
The timing couldn’t have been worse. Rogas was in talks to raise another major funding round led by Lightspeed Venture Partners — a deal in which he could sell millions of dollars worth of shares back to investors. Before handing over the capital, Lightspeed hired the accounting firm EY to conduct due diligence, people with direct knowledge of the funding round tell Forbes.
Despite pressure from the SEC probe — the agency issued another round of subpoenas in March — and a massive windfall on the horizon, Rogas allegedly continued to doctor NS8’s bank statements. When a consultant working on behalf of an investor found discrepancies in NS8’s bank statement in March, according to the SEC, Rogas allegedly fixed the statement to include a false deposit of $1 million, shoring up the balance.
“It’s really, really hard for me to believe that no one knew what was happening.”
Brandon Storms, former NS8 employeeAround the same time, employees — kept in the dark about the SEC probe — were asking questions. In a memo sent to multiple executives at the start of June, Zehner, the former sales director, used SalesForce data to show that almost 70% of NS8’s “partners” — companies which supposedly directed customers to NS8 — had never communicated with NS8.
“If I was able to uncover this evidence in a rudimentary audit, imagine what a potential acquisition partner would uncover!” Zehner wrote. “I'm initially inclined to assume that we're victims of an elaborate fraud scheme.”
Zehner says he never received any feedback; NS8 didn’t respond. But eight days after he sent the memo, NS8 announced its closing of a $123 million funding round led by Lightspeed — a deal that allowed Rogas to pocket $17.5 million by selling shares.
EY, whose chairman recently called for auditors to play a greater role in detecting fraud after the firm was embroiled in a massive scandal at German payments startup Wirecard, where $2 billion went missing, declined to comment on its due diligence of NS8 because “it is a client matter.”
NS8’s remaining executives, meanwhile, are trying to deal with the fallout. A week after Rogas failed to show at the Las Vegas bank and resigned, NS8’s new CEO Tiffany Kleemann appeared on a Zoom call to deliver the news to employees that they were being laid off without severance.
Breaking down in tears, Kleemann told employees that she, along with them, had been deceived by Rogas. “I came into this company having been told a number of things by Adam,” Kleemann said, according to a recording obtained by Forbes. “The bottom line is some of us were probably lied to.”
Kleemann, who joined NS8 in June as president, went on to say that the SEC investigation was ongoing. “We can agree at least,” she said, “that if there was any wrongdoing, that individual, or those individuals, are held accountable.”
Brandon Storms, a former NS8 business development manager tells Forbes that he hasn’t been able to sleep since losing his job. He adds: “It’s really, really hard for me to believe that no one knew what was happening.” |
