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AI startup founder pumped revenue to defraud venture investors

U.S. Attorney for the Southern District of New York Damian Williams speaks during Martin Luther King Jr. Day at the National Action Network House of Justice headquarters.

Lev Radin | Pacific Press | Lightrocket | Getty Images

The founder of a data analytics firm, which purportedly used artificial intelligence technologies, was indicted in Manhattan federal court for allegedly attempting to defraud his investors by manipulating his bank statements and revenue numbers to give the false impression of success, prosecutors said Tuesday.

Michael Brackett raised $2.5 million from angel investors in 2019, according to PitchBook data, to start his company Centricity, which promised to forecast consumer demand in real time. Brackett told The Wall Street Journal he would raise $10 million in 2021.

Instead, Brackett resigned, and Centricity collapsed.

The fraud ground to a halt, prosecutors alleged, after Brackett was unable to attract further investors and simply ran out of funds. Centricity had claimed it had 13 large U.S. manufacturers and retailers as customers, according to prosecutors. It shopped documents claiming $3.7 million in annual revenue around to investors and various short-term lenders, prosecutors allege.

In reality, prosecutors say Centricity only counted two of those 13 firms as clients. Still, prosecutors allege, an unnamed victim firm wired $500,000 to Centricity, unaware that the CEO had provided false information.

The unidentified victim discovered “within days” that Brackett had perpetrated fraud, prosecutors say. But neither their bank nor Centricity were able to return the funds, prosecutors say.

Brackett allegedly “transferred Firm-1’s funds out of the account,” and the company soon collapsed.

Brackett, a U.S. citizen who was a resident of Switzerland, faces one count of securities fraud and one count of wire fraud. He was arrested by federal authorities Tuesday in Maine, prosecutors said.

Centricity’s tale echoes the fraud allegedly perpetrated by Charlie Javice, the troubled startup founder of the fintech Frank. Similar to the allegations against Brackett, Javice allegedly manipulated her metrics to convince JPMorgan to acquire her startup. The bank, similar to Brackett’s unnamed victim, only discovered the fraud after the transaction had been completed.

Earlier this month, SoftBank’s Vision Fund filed suit against a startup that it alleges defrauded the fund out of $150 million using similar techniques as Brackett and Javice.

WATCH: DOJ charges startup founder with fraud

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