Dive Brief:

• The Securities and Exchange Commission charged three former executives of ad software startup Kubient — its ex-CEO, ex-CFO and former head of its audit committee — with accounting fraud and lying to auditors in association with a scheme to overstate and misrepresent revenue related to two public stock offerings, according to a Monday press release.
• The company’s former CEO Paul Roberts “fabricated reports that Kubient had successfully tested a software program that detects real-time fraud during digital advertising auctions,” the SEC said. This enabled the business to recognize $1.3 million in revenue, which represented nearly all of Kubient’s revenue leading up to its stock offering. However, the SEC’s complaint against Roberts alleges the tests were never performed, and that the revenue should not have been recognized.  
•  In its complaint filed Monday seeking injunctive and other relief in the matter, the SEC alleges that Kubient’s ex-CFO Joshua Weiss, and the former head of its audit committee Grainne Coen, learned the tests had not been performed prior to the company’s second stock offering. However, “instead of investigating or correcting the misrepresentations, Weiss and Coen perpetuated the scheme by making false statements about the revenue at issue,” the SEC claims.

Dive Insight:

Roberts, Weiss and Coen each “allegedly lied to Kubient’s independent auditor about the revenue or whether they had become aware of any concerns about it” and made false statements about the company’s revenue, the SEC said in its Monday press release.

The business raised about $33 million in the two stock offerings, using materials which contained the misrepresented revenue as well as misrepresentations about the success of the tests, the SEC said.

Roberts, the founder of the company — and who has held various roles for Kubient, including acting as its CEO, chairman of its board, interim CEO, president, and chief strategy officer — caused the company to “fraudulently inflate its revenue” ahead of its August 2020 initial public offering, according to the SEC’s complaint against Weiss and Coen.

The ex-CEO also claimed the revenue “demonstrated that Kubient’s flagship product, Kubient Artificial Intelligence (“KAI”), was successful,” and that the company had received the $1.3 million in association with analyzing customers’ data, when the tool had not performed the analyses, according to the SEC.

“In reality, KAI, a product that purportedly detects real-time fraud during digital advertising auctions, had not generated any meaningful revenue,” the SEC said.

Founded in 2017 by Roberts, Kubient offered cloud-based digital advertising software including fraud detection tools, according to its LinkedIn page. Its August 2020 IPO raised approximately $12.5 million, according to the SEC’s complaint, followed by a December IPO which closed at $20.7 million, according to a press release at the time.

On the same day as its December offering, the company’s ex-CFO Weiss and ex-audit head Coen learned that the tests in question had not been performed.

“Despite learning this, neither investigated the circumstances of Kubient recording the $1.3 million in revenue, and instead both continued the CEO-initiated scheme,” however, the SEC alleges. “They did not correct the public statements to investors about the tests and the associated revenue, and indeed made additional false statements in Kubient’s later public filings.”

The SEC’s civil complaint against the ex-CEO was filed after Roberts, 48, pled guilty Monday to one count of securities fraud before U.S. District Judge Jennifer L. Rochon. The charge carries a maximum sentence of 20 years in prison, according to a press release from federal prosecutors. Roberts is set to be sentenced Dec. 18.

The $1.3 million in fraudulently recognized revenue represented more than 94% of Kubient’s reported revenue at the time of its August 2020 IPO and over 74% of its revenue for the year during its secondary public offering in December, according to the court.

It is not clear if Kubient is still in operation — at the time of reporting, its website appears to be down. The company also voluntary delisted last November.This May, Kubient slashed its workforce by 50%, which equates to two employees, in a bid to cut costs “in connection with the potential wind-down of the Company’s business,” according to a company filing with the SEC.

The SEC declined to comment beyond its press release and accompanying documents. Kubient did not respond to requests for comment.