Two former
executives at Near Intelligence face federal fraud charges for allegedly
running a revenue inflation scheme with their company’s biggest customer,
according to a complaint filed this week in the Southern District of New York.
Anil
Mathews, Near’s former CEO, and Rahul Agarwal, the company’s ex-CFO, allegedly
orchestrated what prosecutors describe as a “round-trip” accounting
fraud with advertising technology firm MobileFuse between May 2021 and
September 2023.
The SEC
also charged MobileFuse and its former CEO Kenneth Harlan with helping the two
executives pull off the scheme.
The
complaint alleges
the fraud inflated Near’s revenue by $37.3 million out of total reported
revenue of $138.3 million during the scheme’s operation. Near filed for
bankruptcy in December 2023, shortly after announcing its financial statements
couldn’t be trusted.
How the Round-Trip
Payments Worked
The
mechanics were straightforward but effective, according to the SEC complaint.
MobileFuse would send Near an inflated invoice, Near would wire funds to
MobileFuse, and MobileFuse would transfer money back to Near. Near then booked
the full amount it received from MobileFuse as legitimate revenue.
“The
purpose of the round-trip scheme was to falsely inflate Near’s revenue, or to
‘juice’ the revenue through ‘the turn around payment system’ which ‘allows
[Near’s] revenue to be higher,'” according to internal communications
cited in the complaint.
In one
exchange from May 2021, Harlan told Agarwal the invoice arrangement would
“allow your [Near’s] revenue to be higher.” The complaint includes
multiple emails where MobileFuse employees explicitly referred to
“turnaround” payments and coordinated timing to complete the circular
transactions.
The
invoices sometimes inflated amounts by as much as 98%, regulators said. After
netting out the round-trip payments, the actual amounts MobileFuse owed Near
for data access services were substantially smaller than the amounts Near
recorded as revenue.
Growing Wave of Tech and
Fintech Fraud Cases
The Near
Intelligence charges arrive during a period of increased SEC enforcement
against technology and financial sector fraud.
Last month,
the SEC charged seven
companies with defrauding retail traders through fake cryptocurrency trading
platforms and WhatsApp investment clubs that stole more than $14 million from
investors.
In
December, regulators also charged a
medical resident with running a spoofing scheme that generated nearly $374,000 in profits
through off-hours stock trading, while a separate case involved a Discord-based
fund manager who allegedly fabricated credentials and fund performance to steal $18 million from more
than 40 investors.
SPAC Merger Motivations
Federal
prosecutors believe the scheme started before Near became publicly traded and
was designed to make the company more attractive for a Special Purpose
Acquisition Company merger. In May 2022, SPAC KludeIn announced plans
to acquire Near at a valuation approaching $1 billion.
The merger
closed in March 2023, with the combined company listing on Nasdaq under the
ticker NIR. Near’s inflated financial statements were included in multiple
registration statements filed with the SEC, all signed by Mathews.
Text
messages between Harlan and MobileFuse’s co-owner in February 2022 discussed
Near’s SPAC plans, with Harlan noting Near needed MobileFuse to “juice
their revenue and they know us best.”
The SEC
alleges Mathews and Agarwal had their own financial motivations for keeping the
fraud going. Both received Near stock and restricted stock units when the SPAC
merger completed. Mathews also pocketed a $41,331 performance-based bonus
shortly after Near went public.
Near’s Collapse and
Bankruptcy
To hide the
scheme from Near’s independent auditors, the defendants allegedly fabricated
documents and made false statements.
Near’s
board placed both executives on administrative leave in October 2023 and warned
investors that financial statements for 2020 through 2022, plus the first two
quarters of 2023, shouldn’t be relied upon because revenue may have been
overstated.
The company
terminated Mathews on November 15, 2023 and Agarwal on November 21, 2023,
citing financial mismanagement and fraudulent actions. Near filed for Chapter
11 bankruptcy protection less than three weeks later to liquidate its assets.
The
company’s bankruptcy plan was approved in March 2024, and Near terminated its
SEC registration later that month.
The SEC is
seeking permanent injunctions against all four defendants, officer and director
bars against Mathews and Agarwal, disgorgement of ill-gotten gains from Mathews
with prejudgment interest, and civil penalties against all defendants.
This article was written by Damian Chmiel at www.financemagnates.com.
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