What is wire fraud and list of wire frauds in Indian startup ecosystem
The phrase “wire transfer fraud” stems from the original version of this crime, which included transferring payments between banks over telegraph wires and, later, phone lines.
Wire transfer fraud has expanded to include any bank fraud that uses electronic communication channels rather than a face-to-face conversation with a financial institution. It also includes obtaining banking information under false pretenses in order to get access to another person’s bank account.
Wire fraud is one of the most prevalent federal criminal accusations. Phone, fax, text message, radio, television, internet message, social media message, email, or any other type of airwave or cable communication are all examples of the “wire.” The use of deliberate deceit for monetary or personal advantage is referred to as “fraud.”
Telecommunications, like the mail, is an interstate commerce tool. This means that wire fraud can be prosecuted on a federal level. The Federal Bureau of Investigation (F.B.I.) or the Federal Trade Commission are usually the ones to look into it, although state laws might sometimes lead to criminal prosecution.
The crime of wire fraud is explained in this article, along with instances of state and federal crimes.
This type of wire transfer fraud assault on businesses and other organizations (particularly governments and schools) has become a substantial danger to an organization’s financial well-being. Much of today’s work is done remotely, either over the phone or (more commonly) over email.
Without that in-person identity confirmation, an attacker could deceive either party to a transaction into transferring money to their bank account rather than the one of the intended recipient, or persuade a party that a transfer of funds is necessary when it is not, and provide false information about their bank account.
Definition of Wire Fraud
Wire Fraud is defined as a type of fraud that takes place through the Internet.
Wire fraud is a wide term that encompasses any transmission of letters, indications, signals, photos, or sounds.
The wire fraud legislation of the United States Department of Justice (18 U.S.C. 1343) lists the following four components of wire fraud:
The defendant devised or assisted in the creation of a scheme to defraud another of money or property.
With the aim to deceive, the defendant did so.
The defendant’s use of wire communications was fairly predictable.
In reality, the defendant used interstate wire connections.
Both white-collar and organized crime criminals are prosecuted using federal wire fraud charges. Telemarketing fraud, phishing, identity theft, and spam-related financial crimes are just a few of the scams that take place via interstate wires.
Wire Fraud’s Components
“Robert truly came to my aid! He actually came through for me when I was falsely accused. I was terrified, and Robert was able to reassure me that I was in excellent hands. I can’t speak highly enough about his abilities.”
To be convicted of wire fraud, the prosecution must show that specific elements of the crime are present. While the exact list of criteria varies from one federal circuit court to the next, they are often relatively similar and can be described as follows:
-An elaborate scam scheme
-With a specific aim to defraud
-To enhance that strategy, use wire, radio, or television transmission.
Each of these components, as well as the function they play in showing that a defendant is guilty of wire fraud, is discussed in further detail below.
1. A ruse to defraud someone.
To convict you of wire fraud, the prosecution must show that you participated in a scheme to defraud another person or party. In other words, you intended to get money or something of value from someone else by making a false statement, promise, or misrepresentation.
While deceit or dishonest tactics are essential elements of a wire fraud plan, you do not have to speak an open lie to be convicted. Deception may also be defined as failing to reveal certain information in a way that is deceptive.
2. Intention to defraud in a certain way
You cannot be convicted of wire fraud unless it can be established that you acted intentionally or with the express aim to deceive someone else. Participation in a wire fraud scheme is not enough to win a conviction; you must have been aware of the scheme and participated in it with the intent of defrauding someone else of money or goods.
You can also be charged with wire fraud if you induced a wire transfer that was utilized as a part of a fraudulent plan and that transmission was a foreseen component of the company.
The criterion of “specific intent to conduct fraud” ensures that wire fraud cannot be committed by mistake. However, even if you don’t have a “specific purpose,” you can still commit wire fraud if you act with “reckless indifference.”
For example, if you claimed in an email to potential investors that your product was “50% more effective than the competitor” in order to secure their financial support without having any factual evidence to back up that claim, you could be charged with wire fraud for displaying a “reckless indifference” to the truth, even if you did not lie.
You might even be charged with wire fraud even if you haven’t duped anyone. All that is required is proof that you planned to deceive someone by using a wire transfer.
3. Using wire, radio, or television to advance that scheme
The use of interstate communications equipment to transfer content distinguishes wire fraud from other similar forms of fraud, such as mail fraud. A telephone, fax machine, email, internet communication, television, or radio are all examples of devices that may transfer messages across state boundaries. You can also be charged with wire fraud if you inadvertently cause someone else to utilize a wire transfer as part of a plan.
Wire fraud is used to commit a variety of fraud-related activities, including insurance fraud, tax fraud, and bank fraud. False bank statements or warranties, as well as representations made to customers or investors, such as those participating in a purported Ponzi scheme, may be conveyed in these circumstances.
It is important to note that the wire transmission does not have to play a critical part in the defrauding plan; it simply has to be done to progress the scam. The use of a wire, for example, is the preparation of a fraudulent operation over the phone.
Wire Fraud Schemes Examples
While many wire fraud charges involve scamming organizations like insurance companies or banks, or other entities like the I.R.S., individuals perpetrating wire fraud are just as likely, if not more often, to seek an individual’s money or personal financial information. Many of these scams take advantage of a victim’s credit cards or bank accounts. The following are some of the most prevalent methods by which an individual’s money or financial information is obtained fraudulently through the wire:
-Phishing is the practice of sending unwanted emails to a large number of personal email accounts.
Many people are acquainted with the “Nigerian prince scam,” in which the offender sends an email posing as a Nigerian prince who has been unable to access money in his Nigerian bank account due to a series of unfortunate events.
The sender then asks for the email recipient’s bank account details so that he can deposit his money temporarily. If the receiver agrees, the culprit will access the money in their account using the recipient’s account details.
While certain fraud schemes and frauds are clear to the untrained eye, others are more difficult to detect. Individuals should be careful of any request for personal information received through email, television, phone call, or text message and should report cases of wire fraud to the Federal Trade Commission.
Offenses Involving Wire Fraud
The wire fraud Act was adopted by Congress in 1952 as a way of broadening the scope of mail fraud statutes to include fraud committed by means other than mail. While there are many similarities between the wire and postal fraud, the key difference is the use of wire vs. mail. A conviction for mail fraud, like wire fraud, requires proof that the defendant participated in a plot to conduct fraud and did so knowingly.
Because fraud schemes sometimes use numerous modes of communication, such as telephone, email, and mail, postal fraud is frequently charged with wire fraud in the same instance.
Mail fraud and wire fraud are both federal offenses. Mail fraud can result in a sentence of up to twenty (20) years in federal prison and/or a fine. If the fraud includes a presidentially proclaimed catastrophe or emergency, or a government financial institution, the jail term might be enhanced to up to thirty (30) years.
Securities fraud is a wide phrase that refers to a variety of deceptive practices involving investment securities, such as the acquisition or selling of securities. In some circumstances, such as the use of wire communication in a scheme involving investment securities, this conduct may be prosecuted alongside wire fraud.
The penalty for securities fraud can be severe because it is a federal and state offense. For federal securities fraud, the penalties include fines of up to ten million dollars (10,000,000) and a jail sentence of up to five (5) years, with an additional prison sentence of up to twenty (20) years.
Fraud on the Internet
“Cybercrime” is a term used to describe fraud committed over email or elsewhere on the Internet. Hacking and phishing are two typical kinds of cybercrime used to gain computer data or financial information without permission. In the case of work-at-home scams or other popular schemes, the use of email in a fraud scheme is sometimes prosecuted as wire fraud. Cybercrime that isn’t classified as wire fraud can be punished under federal or state law.
Attempting to commit wire fraud or conspiring to do so
Even if you fail to utilize wires to perpetrate fraud, you may be charged with “attempted wire fraud” or “participation in a conspiracy to commit wire fraud.”
Despite the distinction in terminology, federal law does not discriminate between successful and failed fraud attempts. The same sanctions apply to attempted wire fraud and conspiracy to conduct wire fraud as they do to successful wire fraud. Strict fines and up to twenty (20) years in federal prison are possible penalties (explained in greater detail below).
Wire Fraud Conspiracies
Scam of the Nigerian Prince
The story of the Nigerian prince is one of the first and most well-known cases of email fraud. In that hoax, the sender pretends to be a Nigerian royal who has been banished and needs millions of dollars to be transferred out of the nation. He enlists the reader’s assistance in this endeavor, promising them a large prize if they succeed.
To transmit the funds, the reader merely needs to supply the Nigerian prince with his bank account information. The fraudster then utilizes this information to gain access to the money of the reader.
According to the Better Business Bureau, the latest variation of this scam includes criminals constructing bogus bank websites to give credence to their allegations. The victim may then go into the phony bank account to check how much money is “available” to them. They submit their own bank routing information, which provides the fraudsters with the information they want.
Wire fraudsters usually seek personal information such as credit card numbers, passwords, and financial information such as bank account numbers from their victims. Phishing is a fraud in which a scammer sends out an email that appears to be legitimate but is not. The reader is asked to provide personal information in response to the email.
Olayinka Olaniyi and Damilola Solomon Ibiwoye, both Nigerian nationals, were convicted in federal court in 2018 of conspiracy to conduct wire fraud, computer fraud, and aggravated identity theft. They were the masterminds behind a phishing scam that duped staff at a number of American institutions into giving their computer log-in and password.
They utilized that information to deposit payroll checks into bank accounts they controlled once they acquired it. They also got their hands on W2 forms. They filed false tax returns using such forms.
To accomplish the heist, the thieves employed yet another fraudulent scheme: a romance hoax. They enticed trusted love interests via dating sites and apps.
They’d eventually ask the new partner if they could wire money into their bank account to keep it secure. They’d then move funds from the colleges to these American accounts, which they’d then transfer to their personal accounts in Malaysia and other nations.
Telemarketing fraud is another typical type of wire fraud that takes place over the phone. Sahil Narang was one of six conspirators found guilty of a telemarketing operation that began in India in 2020. What are their objectives? The majority of the people were senior Americans who had computers but were not particularly tech-savvy.
Narang pleaded guilty to 10 charges of wire fraud and conspiracy to conduct wire fraud. “Tech Fraud” was the name of the plan, which entailed sending 20,000 phone calls about computer difficulties to call centers in India. Over 7,000 callers hung up, allowing the fraudsters to remotely access their computers for “repairs.” Computer fraudsters in India were able to download their financial information as a result of this deception.
Worse yet, a follow-up “Refund” fraud entailed phoning the original scam’s victims to inform them that they were qualified for a refund. Of course, they had to supply their banking information in order for the funds to be sent to them. The victims handed up their account details, eager to be repaid, and were created a second time.
Two real-world examples demonstrate the most typical ways used by these attackers to commit wire transfer fraud (neither of which needs any technical expertise):
Example 1 of Wire Transfer Fraud: The C.E.O.’s Urgent Request to Wire Money
An email arrives in the mailbox of a C.F.O. (he or she handles mergers and acquisitions). The email comes from the C.E.O., who informs the director that the earnest money for the new acquisition must be transferred by today’s closing of a business, or the deal will be canceled. The email included account details for the money transfer as well as a personal apology for the “fire drill,” but “you know how these things sometimes go apart,” according to the email.
The director sends money only to discover that the email was not sent by the C.E.O. and that the funds were moved to a bogus account and are now missing. The request was received on a Friday, and the truth of the issue was not revealed until Monday. There was a public record of a letter of intent to acquire the firm, and it was a publicly traded corporation. Given this exact information, the attacker crafted an extremely targeted and realistic-looking email that sounded convincing.
Example 2 of Wire Transfer Fraud: The Clever Reroute
Microsoft’s remote desktop protocol (RDP) is used by a company’s distant location to allow the central office to remotely connect to its systems for administrative purposes. This access was not restricted to specific source I.P. addresses and was open to everyone on the Internet. An attacker was able to seize control of the workstation by exploiting an unpatched vulnerability on the system.
They made their way via the network to a workstation in the finance department once they were on that system.
They monitored the host’s email on a regular basis and kept an eye on activities until they saw a huge transfer was being planned to an offshore manufacturer (they were on the system for over six months, waiting for something interesting to happen that they could exploit). They changed the account details on the sent form to link to another bogus account.
The money was moved (almost $1.5 million), and no one noticed until the supplier contacted to inquire about the status of the funds. The attacker had already made off with the transferred funds, and the account had been closed.
What can I do to avoid being a victim of a wire transfer scam?
One-time or infrequent payments or financial transfers are the most common types of wire transfer fraud (or one for which automated mechanisms are difficult or not allowed, such as international wire transfers). As a result, no automated computer-to-computer transfers are used in these transactions and payments.
To verify that the transaction is real and the account information is correct, organizations must adopt documented protocols for transferring money that include multiple-party verification stages and approvals.
This documented method is then utilized for each bank or payment card transaction that requires account information to be exchanged. While this slows things down, it significantly lowers the chances of a fraudulent transaction when transmitting money.
If account numbers are exchanged, both parties must be authenticated to each other, ideally by phone or in person. If you’re verifying by phone, be sure the phone number is correct for the targeted person. Having a second party verify these transactions guarantees that the information being sent is accurate and suitable.
In the event that fraud occurs, having this entire system documented and recorded makes legal and insurance efforts easier. Obviously, having a defined method is useless unless all necessary staff is taught in it and its use is audited and evaluated on a regular basis for compliance.
Wire transfer verification processes would most likely be developed independently by each institution. Based on the instances we analyze, the method for sending money through the wire is pretty easy and will help you avoid wire transfer frauds, particularly when social engineering is involved.
Verifying a Genuine Internal Money Wire Request
For example, this method would have halted the attempted scam in its tracks if the C.E.O. had made an urgent request.
The C.E.O. sends an email to the C.F.O. demanding an urgent transfer.
Check to see if the email address belongs to the C.E.O. or is merely a message posing as the C.E.O.
If the message comes from a different email account associated with the C.E.O., ignore it and report the attempted fraud to the company’s internal I.T. or information security staff.
If the message comes from the C.E.O.’s personal email account, the C.F.O. should look into it further.
Call or speak with the C.E.O. to see if the email asking for the urgent wire transfer was sent by him or her.
Ignore the notice and report the attempted wire transfer fraud to the internal I.T. or information security team if he or she did not request the transfer.
Confirm the transfer amount and destination account details if he or she genuinely requested it.
Make a backup contact in case the C.E.O. is unable to confirm the details over the phone or in person. This individual might be a member of the C-Suite or the C.E.O.’s administrative assistant.
Wire Transfer Reroutes: How to Avoid Them
For example, in example 2, the devious reroute, the money-transfer method may be a little more technical:
To ensure that remote traffic is valid, restrict all remote access to only allow access from particular source I.P.s.
To decrease the number of potential exploits, all systems should be updated and patched on a regular basis.
Examine your email accounts for auto-forwarding policies.
If hackers obtain access to email accounts, they can set up auto-forwarding rules to listen in on discussions and interfere if a wire transfer is discussed.
Make a list of trusted contacts and their contact information for every entity to whom your company may send money.
When a wire transfer is requested, confirm the amount and destination account with both the sender and the receiver in person or over the phone, similar to example 1.
As previously stated, these procedures will only be effective if they are recorded, disseminated, and covered in a way that assures everyone’s comprehension of money transfer scams and adherence to policy while making money transfers.
List of wire frauds in the Indian startup ecosystem
1. In August 2021, Manish Lachwani, co-founder of the mobile app testing business HeadSpin, was accused of fraud by both the Securities and Exchange Commission and the U.S. Department of Justice. A permanent injunction, a conduct-based injunction, and a ban on his participation in corporate governance are among the civil penalties the S.E.C. is requesting because it claims he broke anti-fraud laws.
The D.O.J., which earlier detained Lachwani, has charged him with one count of wire fraud and one count of securities fraud, carrying more severe consequences if he is found guilty, such as a possible 20-year prison term and a $250,000 fine for wire fraud. He may get a maximum sentence of 20 years in jail and a fine of $5,000,000 if he is found guilty of securities fraud.
Lachwani, the six-year-old company’s C.E.O. until May of last year, is accused by both the S.E.C. and the D.O.J. of defrauding investors out of $80 million by making false claims about the company’s “achieved strong and consistent growth in acquiring customers and generating revenue” when he was pitching its Series C round to prospective investors.
According to the S.E.C., his lies were created to aid in securing the investment at a supposed unicorn valuation. That apparent strategy also appeared to succeed, as Palo Alto-based HeadSpin received Forbes’s attention in February of last year after receiving $60 million in Series C investment from Dell Technologies Capital, Iconiq Capital, and Tiger Global at a $1.16 billion valuation. When HeadSpin concluded its Series B round in October 2018, Forbes reported that investors had valued the company at twice that much.
His fabrications, according to the S.E.C., were made to assist close the financing at a so-called unicorn valuation. That apparent strategy appeared to be successful as well, as Forbes featured Palo Alto-based HeadSpin in February of last year after it received $60 million in Series C investment from Dell Technologies Capital, Iconiq Capital, and Tiger Global valued at $1.16 billion. The value was double what investors ascribed to HeadSpin when it closed its Series B round in October 2018, according to a story at the time in Forbes.
Lachwani allegedly sold $2.5 million worth of his HeadSpin shares during a fundraising round while making false statements to an existing HeadSpin investor, according to the S.E.C., with the intention of enriching himself. Uncertainty exists.
In more detail, the D.O.J. lawsuit asserts that “Lachwani misrepresented fake revenue and exaggerated key financial parameters of the firm in mailings and presentations to potential investors… He exercised ultimate authority over what revenue was recorded and included in the company’s financial records, and he retained control over the company’s operations, sales, and record-keeping, including invoicing.
According to the department, the F.B.I. learned “multiple examples” of Lachwani “directing employees to include revenue from potential customers that inquired but did not engage HeadSpin, from past customers who no longer did business with HeadSpin, and from existing customers whose business was far less than the reported revenue” during the investigation that resulted in the D.O.J.’s charges.
How inaccurate were these group calculations? Lachlan “gave investors misleading information that inflated HeadSpin’s yearly recurring revenue… by roughly $51 million to $55 million,” according to the lawsuit.
The company’s board of directors undertook an internal inquiry and reduced HeadSpin’s valuation from $1.1 billion to $300 million, the complaint claims, which caused Lachwani’s deception to come to light. In fact, The Information revealed in August of last year that the corporation intended to reduce the value of its Series C shares by around 80%.
Lachlan had already been replaced, according to the outlet’s report at the time. Rajeev Butani, who joined HeadSpin as its chief sales officer at the beginning of the year, is the person in question, according to LinkedIn.
Nikesh Arora, a former SoftBank president and the current C.E.O. and chairman of Palo Alto Networks, helped lead the internal review as a then-director on the board of HeadSpin, said The Information.
According to the S.E.C., its inquiry is ongoing. In a similar vein, the D.O.J. emphasizes in its statement that “defendants are deemed innocent until and unless proven guilty beyond a reasonable doubt, and a complaint only claims that crimes have been committed.”
In any case, Lachwani’s future prospects don’t appear to be very bright at the moment. According to Forbes, Lachwani previously sold a mobile cloud business to Google and ended up co-founding HeadSpin after Jerry Yang, a co-founder of Yahoo, introduced him to Brien Colwell, a former engineer at Palantir and Quora who was working at the time on another startup.
Colwell continues to serve as C.T.O. at HeadSpin. He has not been mentioned in the D.O.J. or S.E.C. charges against HeadSpin.
The company itself, which says it has been cooperating with the government’s investigation, was also not charged.
2. The U.S. charges 3 Indian-origin healthcare startup ex-executives in $1-bn fraud November 27, 2019
Federal officials have accused three former executives of a Chicago-based health tech startup of participating in a fraud conspiracy that entailed fabricating the company’s financial results in order to obtain about $1 billion in loans and private equity.
The U.S. Department of Justice announced on Monday that six persons had been charged with fraud “that targeted the company’s consumers, lenders, and investors,” including Outcome Health co-founders Rishi Shah, 33, and Shradha Aggarwal, 34, and former C.E.O. Ashik Desai, 26.
According to Principal Deputy Assistant Attorney General John P Cronan of the Justice Department’s Criminal Division, “Outcome’s former leaders and staff allegedly misled lenders, investors, and its own auditors by fraudulently inflating revenue for more profit.”
According to Cronan, “the charges brought today underscore that falsehoods and dishonesty cannot be the foundation upon which any firm, particularly startup enterprises, grows revenue fraudulently for more funding and private benefit.”
In 2015 and 2016, when the alleged fraud allegedly took place, Shah and Agarwal co-founded and operated the health care advertising business.
The Justice Department claims that from 2011 through 2017, former Outcome executives and staff members sold tens of millions of dollars worth of fictitious advertising inventory.
According to a statement, the former executives falsified exaggerated financial accounts to secure up to $1 billion in loan and equity funding in 2016 and 2017.
The deceit allegedly committed by the defendants, according to Assistant U.S. Attorney Brian Hayes, Chief of the Criminal Division for the Northern District of Illinois, “tricked customers into paying for advertising it failed to deliver and served to artificially inflate the value of Outcome Health.”
According to Deputy Special Agent in Charge Larry L Lapp of the F.B.I.’s Chicago Field Office, “These charges show that the F.B.I. and its partners will hold corporations accountable for their misdeeds.”
According to Inspector General Jay N Lerner of the Office of Inspector General of the Federal Deposit Insurance Corporation, the defendants were accused of artificially inflating the company’s income records in order to acquire loans from banks (FDIC-OIG).
A number of counts of mail fraud, wire fraud, and bank fraud have been brought against Shah, Agarwal, and Purdy. Purdy is also charged with one count of false statements to a financial institution, and Shah is also charged with two counts of transactions in criminal proceeds. Desai is charged with one count of wire fraud, the statement said.
3. YouPlus Founder Accused Of $11 Mn Fraud For Faking Revenues And A.I. Tech.
Shaukat Shamim and Krishna Prasad Nadig, both of India, created the company.
Shamim has been charged with making false and deceptive claims in order to raise $17 million in venture capital funding for his purportedly fake “world’s first video opinion search engine.”
The corporation was paying employees in India to view movies and report their thoughts instead of using A.I. technology.
He has also been charged with fabricating bank statements and utilizing investor funds for personal expenditures, including shopping at duty-free shops and for designer apparel and eyeglasses.
Shaukat Shamim, the founder, and C.E.O. of YouPlus has been charged with defrauding investors out of approximately $17 million by making false and misleading claims regarding the technology and income of the firm. Shamim is accused of securities and wire fraud in the S.E.C. complaint, according to U.S. Attorney David L. Anderson and F.B.I. Special Agent John L. Bennett.
After years of giving existing and future investors misleading information, Shamim allegedly succeeded in raising over $17 Mn for his firm, YouPlus.
In 2013, Krishna Prasad Nadig, an Indian, and Shamim launched YouPlus. The business, a subsidiary of a foreign corporation, was incorporated in India in 2016 and had a Bengaluru office. LinkedIn claims that the firm formerly employed up to 120 people in India, of whom about 60 are still working there now.
The business had received over $17.5 Mn in startup capital from more than 50 investors by the end of October 2019. Out of this $17.5 million, the lawsuit claims that $11 million was raised between 2018 and 2019 from 30 investors.
We discovered YouPlus’s investors when we looked through its Pitchbook and Crunchbase profiles. These investors include 500 Startups, Freestyle Capital, Nimble Ventures, The CXO Fund, DN Capital, and Prashant Gulati’s The Smart Start Fund.
Shamim had previously started four businesses, two of which had been purchased by other firms, including Rhythm NewMedia (bought by Blinkx) and Buysight Inc. (acquired by AOL). He frequently spoke at some of the biggest I.T. conferences in India.
In August 2019, he was said to have shared a fictitious bank statement with investors that claimed $600K in revenue from 35 different clients and businesses, including Coca-Cola, Kraft, and Netflix. However, it was discovered that the business had just one client and had earned $65K in total. According to the lawsuit, the financing funds were also utilized for personal purposes, such as shopping for designer apparel, sunglasses, and duty-free items.
In order to assist businesses in analyzing how their brands were trending online, the company claimed to have created unique artificial intelligence software that could decipher video evaluations left by buyers of specific items.
According to reports, Shamim marketed Youplus’s software as the “world’s first video opinion search engine,” telling investors that “just like Google indexes the textual web by looking inside and indexing keywords, Youplus is using computer vision, audio, and text analysis to look inside videos” to understand market trends.
It was discovered that the corporation had not created any such A.I.; rather, through its corporate headquarters in India, it had been paying staff to view movies and report their opinions.
In other words, rather than being generated by A.I. software, the market analysis Youplus was creating was the outcome of human intelligence, according to the news release.
Shamim may get a maximum term of 20 years in prison, a $250K fine, and appropriate restitution if found guilty of wire fraud under 18 U.S.C. 1343 (wire fraud). Shamim may receive a maximum penalty of 20 years in prison, a $5 million fine, and appropriate restitution if found guilty of securities fraud under 15 U.S.C. 78j(b) and 78ff and 17 C.F.R. 240.10b-5.
Of Changing Projections and Faked Revenues
When Shamim informed investors that YouPlus anticipated sales of $8 million in 2018 and above $40 million in 2019, the whole mess began. He emailed out a spreadsheet later in September 2018 that showed $1.5 Mn as the real income up to June 2018. Once more, a few days later, he sent another email to investors (including the investor who had previously received the spreadsheet), indicating that YouPlus had generated over $1.1 million in revenue through June 2018 and that its estimated revenue for the year was $7.8 million.
Based on such figures, a venture fund (not identified in the lawsuit) spent close to $2 million on YouPlus between 2018 and 2019. Several members of the investment committee for the venture fund had invested personally in the business.
Once more, Shamim purportedly delivered “financial statements” in April 2019 to potential investors, claiming inconsistent revenues of $4.6 million, $3.55 million, and $3.97 million across several financial models and investor updates.
“Defendants knew or were irresponsible in failing to know that YouPlus had earned just a small portion of the millions of dollars in income claimed to investors at the time these claims were made. In fact, according to the S.E.C. complaint, by the end of October 2019, Shamim had admitted to the venture fund investor that YouPlus had not even generated $500,000 in total revenue since its founding in 2013.
Of Vanishing Clients And Investors
In its investor report from June 2019, the firm listed 150 alleged YouPlus users, a “customer pipeline” of approximately $1 Mn in “M.R.R.,” and ten high-paying clients (including three corporations paying around $1 Mn apiece).
Later, it was discovered that none of these businesses were paying customers. Interestingly, according to the lawsuit, YouPlus had only been able to sign up only four paying clients over the course of the business.
He was also shown to have lied about $3 million to $4 million in investor commitments for the company’s Series A investment.
Shamim contacted the same venture investor for emergency cash to cover payroll costs in September 2019, which raised concerns. The venture fund added another $300K to its investment in YouPlus while also requesting YouPlus’ financial records as evidence of revenues.
Later, Shamim revealed financial paperwork for YouPlus that did not correspond to its prior income claims. It was discovered that he had distributed forged paperwork, including fake bank statements. The bank statements were fabricated to reflect deposits made into YouPlus’s bank account by ostensibly paying clients. The deposits were really never made, according to the complaint.
In response to the venture fund’s worries, Shamim was challenged on October 18, 2019, and he acknowledged that YouPlus had “gone ahead of [himself]” by exaggerating its prior sales and client traction.
Shamim further acknowledged that the firm, YouPlus, had only “generated $499,972 in sales and other income since the start (from both the U.S.A. and India)” and that he had collected about $1.3 million from the business himself.
Mukund Mohan, a notorious Indian angel investor and coach, we’re just two days ago detained in the U.S. for faking paperwork to obtain almost $5.5 million from the coronavirus relief money intended for firms to keep employees.
Mohan, a former director of Amazon and Microsoft Ventures, is accused of claiming these advantages by presenting falsified tax returns and amended formation paperwork for six fictitious firms.
Shamim further acknowledged that the firm, YouPlus, had only “generated $499,972 in sales and other income since the start (from both the U.S.A. and India)” and that he had collected about $1.3 million from the business himself.
Mukund Mohan, a notorious Indian angel investor and coach, was just two days ago detained in the U.S. for faking paperwork to obtain almost $5.5 million from the coronavirus relief money intended for firms to keep employees. Mohan, a former director of Amazon and Microsoft Ventures, is accused of claiming these advantages by presenting falsified tax returns and amended formation paperwork for six fictitious firms.
4. The owner and manager of contact centers in India were given a prison term for stealing millions of dollars from U.S. victims.
In the Southern District of Texas, an Indian national was sentenced today to 20 years in prison and three years of supervised release for his part in managing and supporting India-based call centers that scammed U.S. victims of millions of dollars between 2013 and 2016.
U.S. District Judge David Hittner sentenced Hitesh Madhubhai Patel, alias Hitesh Hinglaj, 44, of Ahmedabad, India, to prison for wire fraud conspiracy and general conspiracy to conduct identification fraud, access device fraud, money laundering, and impersonation of a government officer or employee. Patel was also ordered to pay $8 970,396 in reparations to victims of his crimes.
“Acting Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division stated that the defendant “led a conspiracy whose members brazenly impersonated federal government officials and preyed on victims’ fears of adverse government action, defrauding vulnerable U.S. victims of tens of millions of dollars.”. “Today’s sentencing reflects the department’s determination to pursue high-level offenders of such devious schemes,” said the prosecutor. Even fraudsters working from outside the United States are not immune from the court system in the United States.”
“Bringing this scam artist to justice required the long arm of federal law enforcement,” said U.S. Attorney Ryan K. Patrick of the Southern District of Texas. “Investigating and prosecuting international contact center frauds is a difficult assignment, but our agencies are up to it.” Many of these con artists prey on the most vulnerable from the ostensibly safe havens of foreign places, so it’s no surprise that he’ll be sent to prison. His ability to use a phone has been severely limited. U.S. law enforcement is pursuing and destroying these scams all around the world.”
“For years, this criminal preyed on the concerns of his victims to continue a global plan to deceive U.S. institutions and taxpayers,” said Mark B. Dawson, Special Agent in Charge of Homeland Security Investigations (H.S.I.) Houston for U.S. Immigration and Customs Enforcement. “Working with our law enforcement partners around the world, we successfully carried out the first-ever extensive, multi-jurisdictional investigation and prosecution targeting the India call center scam industry in order to hold him accountable for his illegal actions and prevent similar scams in the future.
“Since 2013, American taxpayers have been exposed to unprecedented attempts to acquire money by persons impersonating I.R.S. personnel and scamming American taxpayers via Indian call centers,” stated J. Russell George, the Treasury Inspector General for Tax Administration (T.I.G.T.A.). “We are grateful for the assistance of our law enforcement partners.”
“Today’s sentencing serves as a clear deterrence to those who would seek to benefit themselves by extorting the most vulnerable members of our society via these sorts of schemes,” stated Special Agent in Charge David Green of the Department of Homeland Security’s Office of Inspector General (DHS-OIG).
“These foreign contact center operators and their American affiliates should be aware that their activities have real-world repercussions, both for their victims and for themselves, and that there are devoted agents and prosecutors working relentlessly to identify, locate, and prosecute them.”
According to Patel’s plea deal, he and his co-conspirators ran a complicated operation in which workers from call centers in Ahmedabad, India, impersonated I.R.S. and U.S.C.I.S. officials and engaged in various phone calls frauds to defraud people across the United States. If victims in the United States did not pay purported government debts, they were threatened with arrest, jail, fines, or deportation.
Those who were scammed were given instructions on how to make a payment, which included acquiring GPR cards or sending money. The contact centers would immediately resort to a network of “runners” in the United States to liquidate and launder the unlawfully obtained cash after receiving payment.
Patel confessed in his plea that he operated and funded multiple India-based call centers from which the fraud schemes were carried out, including the H.G.L.O.B.A.L. call center. Patel spoke with his co-defendants via email and WhatsApp, chatting on a regular basis, exchanging credit card details, phone scam scripts, and contact center operating instructions. I.R.S. impersonation, U.S.C.I.S. impersonation, Canada Revenue Agency impersonation, Australian Tax Office impersonation, payday loan fraud, U.S. Government grant fraud, and debt collection fraud were all included in the scripts.
Patel is the proprietor of many contact centers, according to a co-defendant, and is “the top guy in India and the employer for whom most of the other defendants worked.” Patel was detained in India in 2016, according to a co-defendant, but was released after paying a bribe. Patel also confessed that, based on the government’s evidence against him, he was responsible for a reasonably foreseeable loss of more than $25 million but less than $65 million.
Where does one draw the line with the “Fake it till you make it” mentality, even if “hustling” is an essential component of the startup culture?
edited and proofread by nikita sharma