On Glassdoor, one former employee described YouPlus as “a circus meets a nuthouse.” But YouPlus was even more than that — according to the Securities and Exchange Commission, it was an outright fraud.
On Monday, the SEC charged the Mountain View, California-based technology start-up and its chief executive officer with defrauding investors by making false and misleading statements about the company’s finances and sources of revenue.
The SEC’s complaint alleges that from 2018 to 2019, Shaukat Shamim, the founder and CEO of YouPlus, a private company that purported to have developed a machine-learning tool to analyze videos on the internet, raised funds from investors while repeatedly misrepresenting the company’s financial condition.
According to the complaint, Shamim falsely told investors that YouPlus earned millions of dollars in annual revenue and had more than 100 customers, including Fortune 500 companies. When one investor pressed Shamim for information substantiating those claims, Shamim allegedly provided the investor with falsified bank statements.
The scheme unraveled in late 2019 when Shamim confessed to certain investors that YouPlus had in fact earned less than $500,000 and obtained only four paying customers from the company’s inception in 2013.
“As we allege in our complaint, Shamim and YouPlus drummed up interest in the company by providing false information about its financial performance and customer base,” said Erin E. Schneider, director of the SEC’s San Francisco regional office. “Private companies engaged in early-stage fundraising must tell the truth when selling securities to investors.”
From November 2013 through October 2019, YouPlus raised approximately $17.5 million in seed funding from approximately 50 investors. Of that $17.5 million, about $11 million was raised in 2018 and 2019 from about 30 investors, a mixture of individuals and small funds or institutions.
In particular, one venture fund invested a total of nearly $2 million in YouPlus in 2018 and 2019, including a $600,000 investment in December 2018. Several members of the investment committee of that venture fund also personally invested hundreds of thousands of dollars in YouPlus, the SEC said.
Venture capital firms listed on Pitchbook as having stakes in the company included Elevate Innovation Partners, DN Capital, and The CXO Fund.
The SEC’s complaint, filed in the U.S. District Court for the Northern District of California, charges YouPlus and Shamim with violating the antifraud provisions of the federal securities laws. It seeks permanent injunctions, civil money penalties, disgorgement with prejudgment interest, and an officer-and-director bar against Shamim.
In a parallel action, the U.S. Attorney’s Office for the Northern District of California announced criminal charges against Shamim.
On LinkedIn, YouPlus is described as “a cutting-edge technology innovation company that has built the world’s first Video Opinion Intelligence Engine (VOISE), an advanced AI and Machine Learning platform to unlock consumer opinions and experience insights from videos.”