AI startup founder charged with defrauding investors
Prosecutors said the founder of an artificial intelligence startup manipulated his financials to get investors to pay him.
Prosecutors alleged that Michael Brackett milked one investor out of $500,000 before absconding and resigning from his AI startup.
He was arrested on two fraud charges two years after his startup failed.
The founder of a data analytics firm, which purportedly used artificial intelligence technologies, was indicted in Manhattan federal court for allegedly trying to defraud his investors by manipulating his bank statements and revenue numbers to give the false impression of success, prosecutors said Tuesday.
In 2019, Michael Brackett raised $2.5 million from angel investors for his company Centricity, which promised to forecast consumer demand in real time. According to The Wall Street Journal, Brackett plans to raise $10 million in 2021.
Centricity collapsed as a result of Brackett’s resignation.
The fraud came to an end after Brackett failed to attract further investors and simply ran out of money, according to prosecutors. According to prosecutors, Centricity claimed to have 13 large U.S. manufacturers and retailers as customers. The company allegedly shopped documents claiming $3.7 million in revenue around to investors and short-term lenders.
Prosecutors claim Centricity only counted two of those 13 firms as clients. According to prosecutors, Centricity’s CEO provided false information to an unnamed victim firm, which wired $500,000 to Centricity.
Brackett’s fraud was detected by the unidentified victim “within days,” according to prosecutors. According to prosecutors, neither their bank nor Centricity was able to return the funds.
It is alleged that Brackett transferred the company’s funds out of the account, resulting in the company’s collapse.
According to a person with direct knowledge of the matter, prosecutors reached out to investors in 2022 to request documents, financials, and other information related to Centricity investments.
Brackett, a U.S. citizen who lived in Switzerland, has been charged with securities fraud and wire fraud. Prosecutors said he was arrested by federal authorities in Maine on Tuesday.
The Centricity story echoes that of Charlie Javice, the troubled founder of the fintech Frank. Similar to Brackett’s allegations, Javice allegedly manipulated her metrics to convince JPMorgan to acquire her startup. Similar to Brackett’s unnamed victim, the bank discovered the fraud after the transaction was complete.
SoftBank’s Vision Fund filed a lawsuit earlier this month accusing a startup of defrauding it of $150 million using the same techniques as Brackett and Javice.