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"Founder of A.I. Company Faces Charges of Investor Fraud and Document Manipulation"

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Founder of Data Analytics Firm Indicted for Investor Fraud in Manhattan Federal Court

Fraudulent Actions and Collapse of Centricity

Michael Brackett, the founder of a data analytics firm called Centricity, has been indicted in Manhattan federal court for allegedly defrauding investors by manipulating bank statements and revenue numbers. Brackett raised $2.5 million from angel investors in 2019, promising real-time consumer demand forecasting. However, Centricity collapsed after Brackett failed to attract further investors and ran out of funds.

Fabricated Customer Base and False Revenue Claims

Prosecutors allege that Centricity falsely claimed to have 13 large U.S. manufacturers and retailers as customers, while in reality, only two firms were counted as clients. The company presented documents claiming $3.7 million in annual revenue to investors and lenders. An unnamed victim firm wired $500,000 to Centricity, unaware of the false information provided by Brackett.

Discovery of Fraud and Legal Consequences

The victim firm discovered the fraud within days, but neither their bank nor Centricity could return the funds. Brackett allegedly transferred the victim firm's funds out of the account, leading to the eventual collapse of the company. Brackett, a U.S. citizen residing in Switzerland, now faces charges of securities fraud and wire fraud. He was arrested by federal authorities in Maine.

Similar Cases and Consequences

Centricity's case bears resemblance to other instances of fraud in the startup world. Charlie Javice, founder of fintech startup Frank, allegedly manipulated metrics to secure an acquisition by J.P. Morgan. SoftBank's Vision Fund also recently filed a lawsuit against a startup accused of defrauding them of $150 million using similar techniques. In conclusion, the indictment of Michael Brackett and the collapse of Centricity highlight the importance of transparency and integrity in the business world. Startups and investors must remain vigilant against fraudulent activities to protect their interests and maintain trust within the industry.

Implications for New Businesses

The indictment of Michael Brackett and the downfall of Centricity underscore the critical importance of ethical business practices and transparency.

Importance of Ethical Practices

New businesses must understand the severe consequences of fraudulent activities. Not only can these actions lead to legal implications, but they can also result in the loss of investor trust and business failure, as seen in the case of Centricity.
Transparency and Investor Trust
Transparency is key to building and maintaining investor trust. Misrepresentation of facts, as alleged in Brackett's case, can lead to severe damage to a company's reputation and investor relationships.

Learning from Others' Mistakes

The cases of Centricity, Frank, and the startup sued by SoftBank's Vision Fund serve as cautionary tales for new businesses. They highlight the need for accurate reporting and honest communication with investors and other stakeholders. In conclusion, the "hot take" for new businesses from these cases is clear: ethical practices and transparency are non-negotiable aspects of running a successful business. Any short-term gains from fraudulent activities are vastly outweighed by the long-term damage to reputation, investor relationships, and legal standing.
Article First Published at: https://www.cnbc.com/2023/08/15/tech-founder-pumped-revenue-to-defraud-venture-investors-prosecutors.html
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