Ex-CEO of AI startup Baba Nadimpalli accused of massive fraud by US authorities

Ex-CEO of AI Startup, Baba Nadimpalli, Accused of Massive Fraud by US Authorities

San Francisco, USA – The former CEO of an AI startup, Baba Nadimpalli, has been indicted by the U.S. Department of Justice (DoJ) and the Securities and Exchange Commission (SEC) for allegedly raising $40 million from investors using falsified financial information. Nadimpalli, 41, an Australian native and co-founder of the now-defunct startup Skael, is accused of misleading investors through fabricated financial documents and diverting funds for personal use.

Founded in 2016, Skael was a business process automation company that promised to utilise artificial intelligence to replace human employees for simple tasks, aiming to save businesses significant time and money. The startup claimed that its AI-powered bots could save 2.5 hours a day per employee and reduce costs by $100,000 annually, thereby improving productivity and satisfaction levels for both staff and customers.

According to the indictment, unsealed earlier this week, it is alleged that Nadimpalli misrepresented Skael’s financial health to attract substantial investments. He purportedly reported false annual recurring revenue (ARR) figures and manipulated bank statements, which helped secure an initial $3 million in early 2020. This was followed by additional investments totalling $7.85 million over the subsequent year. A Series A funding round in 2022 allegedly brought in another $30 million, leading to a valuation peak of $230 million for Skael.

The charges further state that Nadimpalli deceived not only potential investors but also Skael’s financial director, hired in June 2021. He reportedly provided falsified bank documents to the new hire and included fictitious claims in investor materials, such as asserting that numerous companies were active, paying clients of Skael.

To underpin the Series A funding efforts, Nadimpalli is accused of creating an “electronic data room” filled with fictitious corporate data, claiming non-existent millions in ARR. By the end of 2021, the data room allegedly stated that Skael’s ARR was approximately $7 million, a figure inflated by exaggerated customer spending and entirely fabricated clients. Additionally, the fraudulent figures reported zero customer churn.

Prosecutors assert that Nadimpalli siphoned a portion of the investor funds for his personal benefit. The indictment specifies that he used corporate funds to settle his mortgage, property taxes for his San Francisco residence, personal credit card bills, and even car payments and home renovations. An estimated $500,000 was allegedly misappropriated in this manner.

By mid-2022, employees and investors started to uncover the inaccuracies. In July of that year, Nadimpalli reportedly confessed that the ARR was not $7 million, prompting the board to initiate a formal investigation. Before the investigation concluded, Nadimpalli and the board decided to wind down the business. He subsequently returned to Australia, and the Skael domain is now up for sale, indicating a bleak future for recovering the lost investments.

Nadimpalli faces three counts of securities fraud and seven counts of wire fraud. If convicted, he could face a prison sentence totalling up to 40 years and fines exceeding $5 million. However, legal experts suggest that the maximum sentence is rarely imposed in cases involving white-collar crime.

As the legal proceedings unfold, stakeholders and observers are closely monitoring the implications of this high-profile case within the entrepreneurial and investment communities.

Source: Noah Wire Services