Online fraud prevention biz fails to prevent CEO’s alleged offline fraud

The Feds on Thursday charged the head of a cyber-fraud prevention company with fraud in a complaint unsealed in a New York City court.

The legal filing accuses Adam Rogas, 43, co-founder and former CEO, CFO, and member of the board of directors of Las Vegas-based NS8, of securities fraud and wire fraud: it is claimed he altered bank statements and used falsified records to raise funds.

FBI Assistant Director William F. Sweeney Jr. did not miss the incongruity of the situation.

It seems ironic that the co-founder of a company designed to prevent online fraud would engage in fraudulent activity

“It seems ironic that the co-founder of a company designed to prevent online fraud would engage in fraudulent activity himself, but today that’s exactly what we allege Adam Rogas did,” Sweeney said in a statement. “Rogas allegedly raised millions of dollars from investors based on fictitious financial affirmations, and in the end, walked away with nearly $17.5 million worth of that money.”

“Walked away” may be overstating the current state of affairs, given that Rogas was arrested in Nevada yesterday and is scheduled to appear before a judge today.

NS8 was founded in 2016 and counts Edison Partners, Lightspeed, AXA Venture Partners, and several other VC firms among its investors. The security upstart’s online fraud prevention platform is designed for payment gateways, ecommerce platforms, online merchants, and event ticketing, though not internal spreadsheet fiddling.

In the complaint [PDF] against Rogas, FBI Special Agent Nicholas Kroll recounts how the scheme unraveled late last month, after an employee of the business in the finance department called the company’s bank and found the firm’s account balance was only tens of thousands of dollars. Rogas had previously presented financial statements indicating a balance of tens of millions of dollars.

Rogas subsequently agreed to meet with concerned finance department employees at the company’s bank on September 1, 2020, to deal with the discrepancies. But, as Kroll tells it, Rogas failed to show up and then resigned shortly thereafter.

What made the fraud possible, according to the complaint, was that Rogas, until he stepped down, was the only individual at the biz with access to the bank account used for collecting customer revenue and the spreadsheets used to track that financial data. So when he provided data for company financial statements, no one could assail the authenticity of the figures.

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The Feds claim that between January 2019 and February 2020, somewhere between 45 per cent and 95 per cent of NS8’s listed assets appear to have been fictitious. During that period, the firm raised about $123m from investors.

Rogas faces three charges: one count of securities fraud (up to 20 years in prison); one count of fraud in the offer or sale of securities (up to five years in prison); and one count of wire fraud (up to 20 years in prison). The average sentence for securities and investment fraud offenses in the US was 54 months [PDF] in 2018.

In a statement, the NS8 board of directors acknowledged the arrest of Rogas and said no one else at the company has been charged. The situation, however, has led to layoffs.

“The NS8 Board of Directors has learned that much of the company’s revenue and customer information had been fabricated by Mr Rogas,” the company claimed. “These events created significant cash flow issues for the company and required a significant downsizing impacting all of its employees. The remaining NS8 leadership and Board of Directors is working to determine financial options for the company and its stakeholders going forward.” ®

Six people were today charged after allegedly bribing Amazon employees and contractors more than $100,000 to gain an unfair competitive advantage on the Amazon Marketplace. The accused are: Ephraim Rosenberg, 45, of Brooklyn, New York; Joseph Nilsen, 31, and Kristen Leccese, 32, of New York, New York; Hadis Nuhanovic, 30, of Acworth, Georgia; Rohit Kadimisetty, 27, of Northridge, California; and Nishad Kunju, 31, of Hyderabad, India.

It is alleged they conspired to use a communication facility to commit commercial bribery, conspired to access a protected computer without authorization, conspired to commit wire fraud, and committed wire fraud.

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